Two hot new investment ideas for 2012. 

Happy new year blog followers!  I know I don't post frequently anymore.  Happily, I've been very busy working, as well as with life, so I don't have the free time I used to to put together detailed long blog posts on the issue of the day.  But there are a few killer investment ideas that I just have to share.  Want to make 50% or more on your money in the next 12-18 months?  Read on.  Needless to say, these ideas are, for the most part, very very risky.  Not for the faint of heart.  And nothing herein constitutes investment advice, of any kind, whatsoever.  I mean it!  If you are interested, you need to do your own research, and a lot of it.

I know this post is long, but I think it is well worth reading through, as it could make you a lot of money.  By all means comment or email with any questions.

My investment ideas are based on my predictions that interest rates are highly likely to rise significantly in the coming year or two (and perhaps beyond) and that certain investment vehicles which buy Indian stocks on the Bombay Stock Exchange are reasonably likely to soar in the short run and VERY likely to rise in the long run.  I have put my money where my mouth is on both of these ideas, and expect to do very well and hope to make a killing.  If you have money which you can afford to invest in HIGHLY risky investments, you should join me..

I note that I have been consistently WRONG about my predictions about the US economy, consistently being way too optimistic.  I do think we're about to break out somewhat, and grow about 3-3.5% in 2012, but it would be entirely sensible for you not to pay too too much attention to my prediction.  Hey, what can I say, predicting the future is hard, especially when it hasn't happened yet.  I also note that I am nowhere near expert in what I am discussing here.  But the big picture I think I do understand, and I think that is enough to make a lot of money.  With those caveats in mind, here are my 2 hot investment ideas for 2012.

1) Interest rates on long term US treasuries are highly likely to rise.  Hoped for return 1year from today?  50-75%.  120% wouldn't surprise me much.

As many or most of you know, interest rates on long term US bonds tend to rise when investors are optimistic about the economy (for several reasons, especially including expected increases in inflation down the road) and tend to fall when investors are pessimistic (for the inverse reasons).

First, some brief background, experienced investors can skip.  Long term interest have been very low for a few years now because of severe economic weakness as a result of the Great Recession, as well as a flight to quality and safety in turbulent times.  When investors think the sky is falling, or might fall shortly, they often are eager to buy US Treasuries because these provide a safe haven.  Accordingly, they bid up the prices of the Treasuries, and the yields move in the opposite direction of prices (google as to why if you like).  The reverse happens when investors are more optimistic about the economy and less fearful about the world in general.  The low yield of a US Treasury seems paltry compared to much more exciting and potentially lucrative investment ideas.  At this time, investors are relatively eager to SELL US treasuries, driving the price down and the yield up.  I note parenthetically that mortgage rates on houses are tied directly to the 10-year Treasury Bond-- they move in virtual lockstep with 10-year Treasury Bond rates.  My predictions mean that if you are thinking of refinancing, hurry.  Rates are VERY unlikely to go down significantly, and could well go up significantly.  Quickly.

A year ago, in January 2011 the economy was in many ways quite similar to where it is now.  Unemployment was a little higher, but there was optimism that stronger growth was right around the corner.  Accordingly, the interest rate on the benchmark 10-year Treasury Bond rose from 2.54% on October 1, 2010 to 3.36% on January 3, 2011, a year ago.  In contrast, the interest rate on this bond closed 2011 at 1.89%!  Thus interest rates on the 10-year bond plummeted by 1.4 points last year, a very significant move.  (I note that rates are already up to 1.95 in early trading today)

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2011

There is nothing especially surprising about the interest rates from October 2010 and January 2011.  However, the current interest rate, 1.89%, is very surprising indeed, and makes no sense based solely on the fundamentals of the economy.  Why did interest rates drop so much in 2011, from a low level of 3.36% to a VERY low level of 1.89%?  In a word, Europe.  As the fundamentals in Europe deteriorated, and investors became more and more fearful of events in Europe, they fled the risks there (what market commentators call a flight to quality.  (In fact, investors by and large fled risks everywhere, at least for a time).  On July 1, 2011, before the worst of the Europe news began to hit the front page and dominate the business section (and before the huge market volatility of last Summer), the 10-year bond was at 3.22%, very close to the 3.36% where it started the year.  On August 1, it was 2.77%, and by August 15th it was 2.29%!  People became convinced the sky was falling, avoided almost anything risky like the plague, and ran to the safety and security of US treasuries.  This trend continued right through to the end of the year.

I expect the 10-year bond interest rate to reverse course and head back towards about the 3.36% it was at at the start of 2011.  I expect this for four  reasons, the first three of which are by far more important than the 4th: 

A) First, as noted, I predict that the economy will improve.  Not an Obama Boom, perhaps, but an improvement.  That should move interest rates up some.  I note that I would make this investment even if I were certain the economy would be as in 2011 (but I would, admittedly, be less enthusiastic).

B) Second, I expect Europe to successfully muddle through, avoiding the worst (for example, an Italian default, which would be absolutely calamitous for Europe and very painful for the entire world).  This is the key reason for my being so excited about this investment.  If I knew for certain that Europe would (i) get significantly worse; and (ii) not improve noticeably by the end of the year, I would NOT make this investment at this time.

Why am I (somewhat) optimistic about Europe?  Merkel in Germany is sensible.  She's walking an incredibly difficult political tightrope, as if she is seen in Germany to be spending German money to bail out profligate countries on the Med, like Greece and Italy, she will end up voted out of office, if not on the business end of a pitchfork.  In any event, she knows that whatever the consequences for her, she can't let the Euro area go to hell.  And she won't.  In addition, I really like what I've seen out of the new head of the European Central Bank, Mario Draghi.  He has cut interest rates, and significantly increased liquidity for the European banks, which badly needed it.  In other words, he's acting more and more like Time's 2009 Person of the Year, Ben Bernanke.  Thank heavens!  Sarkozy in France is also entirely sensible, and the new Italian government has already taken significant steps, as has the previous Spanish government.  The European Central Bank is really the key, and Draghi is WAY better than his mediocre predecessor, Jean Claude Trichet (search my posts for my true feelings on that fellow).

Accordingly, I think it is highly likely Europe will avoid disaster.  If you disagree with this prediction, you should almost certainly not make the investment I suggest. 

Why is Europe so vital to American interest rates?  Europe avoiding disaster will have a clear impact on the US 10-year Treasury, because as investors become more and more convinced that the sky is NOT in fact falling, they will want to take on more risk.  A 1.89% return on paper issued by a profligate and politically dysfunctional US will look more and more ridiculous.  So investors will want to sell, and drive the price up.  This is exactly what I expect.  I don't have any clue when in 2012 this should occur.  Interest rates could well 

C) Reversion to the mean: Interest rates have come down so far that I expect that in the absence of even more really bad news (for example, REALLY scary news out of Europe, a double-dip recession in the US, a localized shooting war between Iran and the US that temporarily drives oil to $180/barrel) interest rates should rise a decent bit from here even if I am wrong about the US recovery.  If you told me that on 12/31/12 Europe will have muddled through without real disaster, and the US economy performed like it did in 2011, with unemployment about where it is now (8.6%) and no other especially bad news, I would GUESS that the long term rate would move up to about 2.5-2.8%, making me a tidy (but not unbelievable) return on my investment. 

D) The US budget picture is gloomy in the medium and long run (as well as the short run) and our politics are dysfunctional enough that we may not fix it.  That should, all else being equal, put upward pressure on long term interest rates, as investors expect that the temptation for the US to "inflate its way" out of the huge debt burden will become all but irresistible.  

As stated above, reason D is far less important to me.  Although potentially powerful in itself, the risks of the US becoming overly debt burdened is more of a long term play, and need not play out over the next few years (not to say it couldn't).

 

A key reason I LOVE this investment idea is my conviction that even if I'm wrong and Europe DOES blow up, I still think I will either lose a little or make a little.  I just can't see the US going the way of Japan, with 1% interest rates for an extended period.  We're too dynamic an economy for that.  And we're not aging anything remotely like as fast as Japan.  So I see this investment as heads I tie (or lose a little) and tails I win a LOT.  That's a fantastically good deal, when you can find it.

How am I going about making this wager on interest rates falling?  I am using an Exchange Traded Fund ("ETF") to make this market wager.  

What the heck is an ETF?  http://en.wikipedia.org/wiki/Exchange-traded_fund

The ETF I chose is ticker symbol TBT.  It is an ETF designed to produce daily investment returns "before fees and expenses and interest income earned on cash and financial instruments, which correspond to twice (200%) the inverse (opposite) of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index."  *Sigh*  I barely know that that means, but there is a strong, strong correlation between this index and the interest rate on the 10-year bond (which I am using as a proxy).  So this ETF is NOT a pure bet on the movement of interest rates on the 10-year Treasury Bond, not by a longshot!

Indeed, the biggest risk to this investment, other than Europe or something else going calamitously wrong, is the ETF itself, and its a close second.  There is no guarantee (to say the least!) that it will in fact perform as it is intended to.  If rates go up significantly, it is VERY likely to go up as well, but not certain, and the amount is far from certain.  I feel so strongly about interest rates going higher in the next 12-18 months that I am willing to take on this additional layer of risk.

For reference (and as you always hear, past performance is no guarantee of future performance (!), on January 3, 2011, exactly a year ago, this ETF closed at $37.51.  I bought this on December 21, 2011 at 18.59.  So if rates on the 10-year were to move back to where they were a year ago, and this ETF performed exactly the same on the way up as it did on the way down (HIGHLY unlikely) I would do a tiny bit better than doubling my money.  In a year.  In the real world, if interest rates do go back to 3.36% I estimate that I could expect a return of anything between 70 and 110%.  That's a crude estimate, and could prove wrong.

As a cheaper (but even riskier) alternative, you could buy out of the money call options on TBT, and REALLY clean up if I'm right.  Of course, you lose a lot, perhaps even 100%, if you're wrong.

2) India.  Mutual Funds and Exchange Traded Funds which invest in India got absolutely clobbered last year.  The ETF I have recently purchased (IFN) collapsed by 42.81% last year!!!!!  That counts the payouts that were made (equivalent to dividends on a stock).  A 42% loss!!!  Why?  Two main reasons: (i) India had its own serious problems (huge corruption scandals, a plummeting currency, the Rupee, and an economic slowdown); and (ii) Europe.  As of July 2011, (when Europe began to completely dominate business and investment news) it was down "only" 13% or so for the year.  The second half of 2012, however, was a complete wipeout.

To back up a bit, I think two of the very biggest macro trends of the next few decades are HIGHLY likely to be strong economic growth in India and China.  China you all know about.  India has also experienced rapid GDP growth in recent years, a far cry from its chronic economic under performance from its independence in 1947 through the reforms of then Finance Minister Singh in the early 1990s.  This lousy economic performance was often called the License Raj, and the low growth rate (when India was dirt poor, and thus should have been growing far more rapidly) was derided as the Hindu rate of growth.  No longer.  In recent years, its economy has grown around 7.5%, and a tad higher in 2010.  Not quite Chinese rates of growth, but still very strong.  Enough to create tens upon tens of millions of new consumers, who are buying things like tvs, cell phones, refrigerators, etc.  And cars.  And a lot of other things.  

Although investments in funds that invest in India are very risky, and highly likely to experience wild swings, a reasonably well run fund should do VERY well in the medium and long run, as India's economy continued to grow strongly.  For all of its massive problems, India is a huge growth story.  Invest a piece of your portfolio in it, for the long run.  You'll thank me profusely 10, 20, 30 years from now.

In the short run, as stated above, India investments got absolutely clobbered by internal problems there and by Europe.  I know zilch about India's progress towards solving its internal problems.  I err on the side of pessimism knowing a little about the Indian government.  However, investments in India were hammered by global fear arising out of Europe.  Anything and everything risky scared people.  There was and is great fear of risk,as discussed above.  As this fades, there is no reason in the world for funds invested in India to do VERY well.

The investment vehicle that I have chosen is a Closed End Fund called "India Fund."  Ticker symbol IFN.  A closed-end fund is like the mutual funds you know about (commonly called open-ended funds) with the key exceptions that they trade like shares of stock, and do not generally issue more shares after an IPO.  The simple version is that the managers raise money on the open market and invest in whatever it is they are going to invest in, in this case shares listed in India.  The shares thus issues trade as any stock does, with supply and demand setting the price investors pay for shares in the fund.

The managers of the fund choose what shares (or other investment vehicles) the fund is to own.  These change as the managers see fit.  The market value of all of the shares (and other securities) owned by the fund, is called the Net Asset Value ("NAV") of the fund.  It is the amount that the fund would presumably raise if it sold all of the securities it owned and liquidate and close up shop.  The price you pay on the open market is NOT the NAV.  It is a share price, just like the price of a share of GE or Exxon.

Accordingly, there are two key indices you have to pay attention to, the share price of the closed-end fund, and its NAV.  It is possible for a closed-end fund to trade at a significant discount (or sometimes premium) to its NAV.  That is, the total market value of the shares of the fund that you can buy or sell can be significantly less than the value of the shares it owns.  Now and then this creates what I and many others believe is a monster buying opportunity.  Such a monster buying opportunity currently exists for IFN, my closed end India Fund.

IFN had a closing share price of $35.33 on January 3, 2011, a year ago.  I bought it at the very end of December at 18.82.  In addition, I bought it at a large discount to its NAV, 12.8%. According to Morningstar, its 6 month avg. discount to NAV was 7.97% and its 3 year average discount was 3.46%, so it is currently trading at a significantly larger discount to NAV than it typically does!  I don't know why this is the case.  If I had to guess, and its only a guess, investing in India is VERY risky.  As investors sought to avoid risk, this fund, and others like it, were shunned.  In addition, India was a VERY unattractive place to invest last year.  

The unusually large discount to NAV represents real value for me.  Even if the value of the shares in the fund (the NAV) stays the same, if the fund merely reverts to its 6 month average discount to NAV of 8% (for simplicity), it would increase in price to $19.86, a tidy 5.5% return without any increase in the value of the shares it contains.  Additionally, because the share price is beaten down so badly, it currently has a very attractive dividend yield of 6.3%.  (Monies returned by a closed-end fund are not exactly like dividends of shares, but they are close enough for my purposes).  

So there are 4 amazingly powerful reasons to buy IFN now:

1) The share price plummeted last year.  If Europe doesn't self-destruct, the price should rebound, probably sharply.

2) It has a tidy yield of 6.3%, at its current share price.  http://cef.morningstar.com/distribution?t=IFN&region=USA&culture=en-us  Needless to say, there is absolutely no guarantee this will continue.  On the upside, it could grow and grow significantly.

3) It is trading at a 12% discount to its NAV, as against a 6 month average of 8.06% and a 3 year average of 3.48%

4) India is a slam dunk long term growth opportunity.

For all of these reasons, as of the moment I think IFN is a MONSTER buying opportunity.  I wouldn't be at all surprised if my $18.82/share investment is worth $50 or $60 in several years, and a huge dividend yield thrown in at no extra charge.

Or it could all go to heck and I could lose 20-50% on my investment.  Balanced against the above rosy scenario is that the problems in India which caused a good chunk of last years 42% decline are very real; are not going away anytime soon, and could easily get much, much worse before they get better.  And of course Europe could go kaboom.  Finally, a sharp rise in oil prices would hit India.  It imports about 3 million barrels of oil/day, or over a billion a year.  If oil jumps $20/barrel, a very normal increase, that's $20 billion out of India's economy.  That's slightly more than 1% of India's GDP.  And the effect would be worse than that, just as it is here when gas prices increase.  If oil jumped $80/barrel, India's economy would go to hell in a hand basket.  As would ours.  As would my portfolio.

Here are investment ideas that didn't quite make the cut.

I think gold is overpriced.  Look at a chart of the price of gold, its a classic bubble.  I bought GLL, an ETF designed to move twice the inverse of the price of gold.  I've done well thus far, up about 10.7% in 6 months.  GLL is at 19.81 now.  I'll probably sell some or all of it at around 22.

For a few more sedate, safer investment ideas, try GE and oil companies.  I really like the idea of a good dividend.  GE is currently yielding 3.8%.  Assuming they slowly increase their dividend, that # goes up (slowly) even if the share price remains constant.  You're wildly unlikely to quickly triple your money, and pretty unlikely to rapidly double it, but I see GE, counting dividends, beating the market for years to come.

In closing, remember Warren Buffet's famous investment credo: Be fearful when others are greedy, be greedy when others are fearful.  Right now, investors are quite fearful in much of the world.  So be greedy!

Romney will be the nominee.

I've been meaning to put up a post about how certain I am that Romney will be the nominee for a while, but life has interfered.  I'll keep it short.  Its done, over.  Has been for a few months.  Sure he's only polling around 30%, but he'll be the last man standing, just like McCain was in 2008.  And as in 2008, the base will rally around him, this time out of blind hatred for Obama who, to many base Republicans, is pretty much a Kenyan Muslim socialist radical.  One searches in vain to find any of these influences in his policies as president, but never mind.

Anyway, Romney is a done deal.  The huge favorite for his VP choice is Marco Rubio, first term Senator from Florida.  He's Cuban, so there's some hope (mostly vain imo) that he can help secure Hispanic votes.  But he won't hurt with them either.  He will sew up Florida, which leans away from Obama anyway, and that's not a minor detail.  He's young, VERY attractive physically, gives a very good speech and will boost the ticket despite a few drawbacks.

I'll try and post in the coming few weeks about how I see the 2012 general election going.  Cliff notes: Obama a clear but not overwhelming favorite.   An economic lift (oft predicted by yours truly, still AWOL) would be a huge boost, obviously.  As of now I see Obama winning the popular vote by about 3 or 4.  That prediction could change based on economic data, and assumes an economy gathering strength into 2012.  If we go into recession again before election day, however "minor" the recession (which I consider quite unlikely), Romney will win.  But if we are adding 200k-250k jobs/month next year Obama will beat my 3-4 point prediction.

Obama's big speech

Here's what's going to happen tomorrow, when Obama is going to give his jobs speech.

According to tentative leaks today, Obama will call for about $300 billion in "stimulus" spending, much or all of it to be paid for by cuts outlined soon.  Many of these measures, particularly FAST (Fix America's Schools Today) make sense.  And the dollar amount, if all of his proposals were enacted in full (snowball's chance in hell of that!) are enough to matter.

So I'm happy, right?  Not at all.  America has HUGE problems, and HUGE unmet infrastructure needs, as Paul Krugman and others have been saying for years.  America has a HUGE problem with a lack of consumer demand.  These two HUGE problems (coupled with other big problems I don't have time to post about right now) call for huge solutions.  Big stimulus now, reduction of health care spending, and some trims in other spending years from now.  But the current massive budget deficit we are running is not a problem.  In fact, its a godsend.  If the GOP had its way, we'd slide closer to a Great Depression.

Anyway, here's what I expect will happen after the speech.  The markets will not react much because much of his program will not pass, and because any effect is priced in.  The mainstream media will be very impressed with his "bold" plan.  The GOP will deem some of it dead on arrival, but promise a careful consideration of the rest.  And the Paul Krugman wing of the democratic party (the left, which is yearning for far bolder action) will be mostly disappointed.  Krugman himself will probably spin it as a glass half full speech, but I expect much of the rest of the liberal blogosphere will be disappointed.  Again.  If anyone cares.

I'll post my reactions in the days after the speech.

I know I haven't posted in ages, but this story is such a screaming outrage I had to post.

http://www.cnn.com/2011/US/08/20/tennessee.immigrant.woman/index.html?hpt=hp_t2

This really happened in the United States of America.  The country I love.  Her crimes were being here illegally and driving without a license.  Perhaps they should be prosecuted.  But the cruelty inflicted upon her is a screaming outrage.  As is the dog's breakfast known as our insane immigration laws.

SMH.

Mubarak will go.

Egyptian president Hosni Mubarak will go.  Quite soon.  I expect he won't last next week.  I don't know what precisely will make him decide to give it up, but the most likely cause will be the army telling him his time is up.  He'll get asylum somewhere, perhaps even the US, temporarily.  Obama won't want to put him up permanently, but Reagan rescued baby doc from Haiti, and we would help Mubarak in his hour of need if it came to that.

Follow Gsquare86 on twitter.  She's a (very pretty) blogger in Egypt.  She's living it now.  She can see how this movie ends.

The Egyptian people have HAD IT.  And who can blame them?  30 years of autocratic rule, little economic growth, millions of unemployed, etc.  The people have erupted.  The army is a highly respected institution in Egypt, and they will certainly not go Tienanmen on the people.  And that is what it would take.  This protest is a revolution, it is real, it is not going away, and it will succeed, probably quite soon.

I am predicting a bit more of a GOP blowout than some of the professionals, but my thoughts aren't out of the mainstream.

First, I note that if you want the best site for these sorts of election predictions, go on over to

http://fivethirtyeight.blogs.nytimes.com/

Nate Silver is, imo, the very best of the political talking heads, bringing cool rational analysis to the discussion.

But you're reading my blog, so here are my predictions:

I expect the GOP to pick up 60-65 house seats (!!!!!) and 8 Senate seats.

Here are the Senate seats the GOP will pick up:

Three are essentially certain: Indiana (was Evan Bayh), North Dakota (was Byron Dorgan) (Arkansas) (is Blanche Lincoln, she's toast).

Three are much more likely than not to go GOP

Wisconsin (currently Russ Feingold, well down in the polls), Pennsylvania (currently turncoat Arlen Spector, who lost his democratic primary-- Sestack is slightly down), Colorado (appointed Michael Bennett is down a little)

Two more states are VERY close, but I expect the GOP to take them both, making for an 8-seat pickup: Nevada (Harry Reid), Illinois: (Obama's old seat!).  I note that in Nevada, Sharon Angle is such a weak candidate that None of the Above, which is really on the ballot in Nevada, may well pick up 3-5% of the vote and allow Reid to squeak back in.
California (Barabara Boxer v. Carly Fiorina), Connecticut (Richard I served in Vietnam Bloomenthal), Washington and West Virginia (where Obama is at about 30%!) I expect to stay Blue.  In a truly historic GOP night, at least two of these would flip, but I don't see that.  I note that the Washington state polls are basically tied, but I expect Patti Murray, the democrat, to win by at least 3 or 4 points.  For a variety of wholly unimportant reasons, Washington State is very difficult to poll and the polls are typically skewed a few points in favor of the Republicans.

Finally, the GOP, as political followers know, gave up a nearly certain pickup in Delaware (which went for Obama by > 20 when it nominated Christine, I am not a witch, I'm you, O'Donnell rather than the eminently electable Mike Castle.  Thanks guys!

I know its been a while in posting.  I've been very busy with other things in life.  Yeah, ok, I've also been licking my wounds about having been WRONG about the Obama Boom.  I still think we're about to enter a nice recovery, but (a) its very tardy; and (b) it likely will not be as vigorous as I expected.  More on that in a post coming sometime soon.  In the meantime, I'm back.

Today's GDP Report shows clearly that the Obama Boom is underway.

This morning, the US Government announced its estimate that the economy (GDP) grew at a 3.2 annual rate in the first quarter of this year.  http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.  This marks the third consecutive quarter of growth and the second consecutive quarter of strong growth.  There is no longer any doubt at all that the Great Recession of 2007-2009 is well and truly over.

Let's walk through what this report means.  At first glance, this is actually a weak report.  Following the Great Recession, in which GDP declined by 2.4% in 2009, the most in any year since the 1940s, and in which unemployment skyrocketed by more than at any time since the Great Depression, one would expect a strong recovery.  That's what happened in 1983-1984, following a sluggish start to that recovery.  This is the economic boom which Reagan claimed was "morning in America" and led him to a 49 state reelection landslide in 1984. 

3.2% growth in the first quarter of this year is not a strong recovery, by any stretch of the imagination.  3.2% would be fine if the unemployment rate were say 6%, but at 9.7% it is weak.  However, when you look closely at the GDP report, it is clear that the Obama Boom has in fact begun.

First, and foremost, consumer spending, which makes up around 2/3 of the economy, and which has been hit very hard by the soaring unemployment rate, grew at a 3.6% annual rate in the first quarter, as compared with a 1.6% rate in the 4th quarter of 2009.  This was true because consumers have a lot of pent up demand, for cars, certain electronics, and many other things for which purchases were put off in the last few years.  It is most unlikely that the 3.6% growth rate in consumer spending will increase much until unemployment comes down substantially, which will take time, but I also think that it is unlikely that this growth will slow very much.

The housing sector was VERY weak in the first quarter, shrinking at a 10% annual rate!  Paradoxically, the housing sector is the main reason that this report was in fact a strong report.  Surprisingly, housing construction is only about 5% of GDP.  http://www.nahb.org/generic.aspx?sectionID=784&genericContentID=66226

However, even at such a small share of GDP, a 10% decline in 5% of the economy means that housing dragged down economic growth by .5%.  This is not the full story.

I agree with the general consensus that it is all but impossible for the economy to recover strongly while housing is in the tank.  This is because when people buy a house they buy furniture, televisions, and all sorts of other things.  The National Association of Home builders States that, "housing services have averaged between 12 and 13 [% of GDP.]"  Thus housing overall is a very significant portion of the US economy.

So if housing is important, and it shrank so sharply in the first quarter of this year, why is that cause for optimism?  Because what goes down must come up.  Permits for new houses grew solidly in the first quarter.  As one might expect, permits strongly correlate with future growth in housing construction.  So I expect housing to very quickly move from a sector of the economy detracting from economic growth to a sector contributing, and perhaps by late this year contributing strongly.

In short, the seemingly weak 3.2% growth in the first quarter likely presages stronger growth going forward.  Growth strong enough to produce the large number of new jobs that I have previously predicted.  In fact, when the employment report comes out a week from today, it is likely to show that the economy created well more than 200,000 jobs in April.  The Obama Boom has indeed begun!

One final note.  State & local governments are tightening their budgets significantly, causing a drag on economic growth.  This will continue for another year or thereabouts, as tax receipts will recover, but not quickly enough to close the huge budget holes in New York, California, New Jersey, Illinois, and other states.  So this area of the economy will remain a drag for some time.  However, later in this expansion, in 2011 or 2012, when other areas of growth may well slow, this area will again add to economic growth.  That different sectors are in very different places cautions against a super strong recovery, like the one in 1983-84, but augurs well for a long expansion.

Larry Kudlow agrees with me
http://www.realclearpolitics.com/articles/2010/04/10/a_v-shaped_boom_is_coming_105131.html

This means I have to carefully consider if I'm just wrong.  Kudlow is a nearly mindless, knee jerk "conservative" who does hold some consistent and interesting views, but generally ignores any inconvenient history.  This is, I think, one of his better pieces, but then I would say that, since he agrees with me!

Still, read this carefully. It isn't his usual garbage, for a wide variety of reasons. In particular, his focus on corporate profits is one I STRONGLY agree with. The main reason for my hyper optimism beginning late last Summer was my expectation of a BOOM in business investment. That Boom has probably begun. The consumer is even coming back to life, as was shown in this morning's GDP report showing 3.2% annualized growth in consumer spending in the first quarter of 2010.

By the way, Kudlow references that the 4th Quarter of 1992 was better than 1993 and blames the tax hikes of 1993 (which were widely expected from about September of 1992 on. Well ok (this has some truth).  However, Kudlow conveniently leaves out the years of 1994-2000, when, after the Clinton tax hikes of 1993, the economy BOOMED!!  Hey Larry, do tax hikes only hurt in year one and then help in the out years?  To the extent one looked at the data from 1992-2000 and turned their brain off, that is what one would conclude.  In reality, the Clinton tax hikes of 1993 HELPED the economy because they convinced the bond market that we were getting our arms around the budget deficit, and thus interest rates dropped for much of the Clinton presidency, helping spur a great economic boom. 

In any event, someone not kindly disposed to Obama, at all, strongly agrees with my hyper economic optimism.  Take that for what its worth.

The Great American Job Machine stirs


The Bureau of Labor Statistics just announced that 162,000 jobs were created in March. For the first time since December 2007, the American economy created jobs (that is, more jobs were created than were destroyed). Its about time!

As my loyal readers are aware, I have been predicting, for months, a strong economic recovery, that would generate jobs, with the number rapidly increasing. In short, I have been predicting a much stronger recovery than nearly every economic prognosticator. I stand by that prediction. I am most certainly not claiming any sort of victory after one good report. Instead, we'll see in the coming months if the labor market really has recovered. After strong economic growth the last quarter of last year and the first quarter of this year, medium sized and large businesses are still very nervous about adding headcount. This can't last-- if demand for their products & services increase, new jobs will as well-- the laws of economics and common sense demand it. But businesses are bound and determined to wait as long as they possibly can, to ensure they can get the credit they need (in the case of small businesses) and to ensure that the pickup in demand is lasting (businesses of all sizes, but especially large businesses). Since I predict that investment by business is about to take off hugely, and that consumer spending, depressed since 2008 by job loss and fear of economic armageddon, is about to improve, demand for the goods/services of businesses in America should improve, and steady increases in jobs should follow.

Let's look more closely at today's reports. The report was expected to be skewed by a huge number of workers hired for the 2010 census. Even though those workers count as employed, and bring in a paycheck, their jobs are very temporary, and its appropriate to strip them out if you are trying to figure out the economy's underlying strength. There were 48,000 new census workers, far lower than expected. So there really were over 100,000 new jobs created, mostly temporary workers and in the health care industry. So the labor market is still quite weak, of course. Just a little bit less weak.

In addition, the government each month releases a second report which is used to report the unemployment rate that you hear in the news, currently 9.7%. That report also attempts to count how many jobs are created/lost in a given month, but the number of jobs in that report is considered less reliable than the number of jobs reported in the other survey, which is what the media is referring to when it reported that 162,000 jobs were created in March. Still, the second, less reliable report, concluded that 264,000 jobs were created in March. That marks the third month in a row the second survey has reported job gains, for a total of 1.1 million new jobs in 2010! That would be a strikingly good total if it were in fact true. Unfortunately, even I'm not that optimistic. As I said, the second report is considered less reliable. However, that second report is considered more reliable than the first, report, and in the fullness of time it may be that the labor market turns out to have been less awful in the last several months than we thought.

Anyway, returning to the jobs gained in March. The 162,000 number is a fantastic number compared to the small job losses which have occurred for the last 6 months and the monster job losses that occurred in the year before that. But in the context of 15 million unemployed, and many millions more unemployed, it is, of course, a pittance. America will need years of stronger job growth than we had last month in order to bring the economy anywhere near to the 4.5% or so unemployment rate that is as low as we can realistically get. That's how deep a hole we dug for ourselves in the years leading up to the collapse of Lehman Brothers and the Great Recession of 2008-2010.

But for now, we can all celebrate that the economy has begun creating jobs. It should create many, many, many more in the coming months.

The market yawns at health care reform

Memo to my conservative/Republican friends that are bitterly opposed to the health care reform legislation that just passed.

The fate of health care reform was in serious doubt when the market closed Friday.  As of 11:15 a.m. today, the first trading day after reform passed, the markets yawned.  The Dow is up a tiny fraction, as is the NASDAQ.  Virtually no movement at all on the dollar.  If this really were a dramatic, government takeover of 1/6 of the nation's economy, with dire consequences for the budget and the economy, wouldn't the markets have reacted negatively?  And if you want to say that the reaction is priced in already, well, then it must have been viewed POSITIVELY, because the Dow is up over the last several weeks, in the time that health care reform revived, and is WAY up since early in Obama's presidency.

Far more likely is that the market thinks that health care reform will not dramatically effect the economy in the short or long run.  Which is probably correct, though I think there will be a LONG term positive effect.  What we can be reasonably sure of is that the market does not see short or medium term sharply negative effects, or we'd see the Dow down 2 or 3 percent, at least. 

HEALTH CARE REFORM PASSED!

The epochal, hugely historic health care reform measure just passed the House!  Today will, in time, be seen as one of the great legislative days in the history of the United States!  I haven't been this thrilled with anything political in the United States, ever.  Nothing in my lifetime (1970) is even close.

Teddy Roosevelt first proposed universal health care for all.  FDR seriously considered including it in what became Social Security in 1935.  Truman proposed it in the 1940s.  Nixon proposed it in the 1970s.  Nixon was a Republican, as was Teddy Roosevelt.  Clinton, as we all know, proposed it and worked hard on it for a year.  And while what emerges as law in the next week doesn't come especially close to truly universal coverage, it is a huge step forward.  It is also a vital step towards a sane and rational health care system that doesn't cost twice as much per person as France or Germany.

Following a weekend of incredibly high drama, with every vote fought over tooth and nail, and with the outcome in doubt until early this afternoon, just moments ago, the House passed the Senate version of health care reform.  This horribly flawed bill now goes to Obama, who will of course sign it, probably tomorrow.  Passage of the health care reform legislation represents a huge victory for him, as he was, as I said in my post yesterday, all in on Health Care reform.  The amount of effort, time, thought, arm twisting and sheer energy put into this bill by Obama, Nancy, Harry, and so many other very important people will surely be chronicled in best selling books to come, and maybe even a $100 million grossing documentary.  There is a lengthy New York Times article on this point today, which I haven't yet read. 

http://www.nytimes.com/2010/03/21/health/policy/21reconstruct.html

The Senate must now vote on the House fixes to the Senate bill, and will do so via use of reconciliation, which means that it cannot be filibustered, and is guaranteed an up or down vote.  Harry Reid (Senate Majority Leader) and Dick Durbin (the # 2, and the guy responsible for counting the votes) have very confidently and quite credibly said they have the 50 votes to pass this series of fixes.  If the Senate passes the same set of fixes as the House did earlier today, those fixes will go to Obama for his signature, which again should happen pretty quickly.  The entire health care reform effort of the last year should (finally) be over in less than 5 days.  A year and change of intense effort, following on talks over decades, stretching back to Teddy Roosevelt, albeit with long periods of inaction, has now, for the moment, ended.  A great, great deal of work remains in the coming years, to be sure, but I suspect Congress is going to take a fairly long break from serious health care reform.

We have made huge strides down the long, arduous road towards universal health coverage (and a rational health care system).  This is just a monster win for America, a truly great day for us all, even though a great many Americans can't see that yet.

There is no easy way to measure it, but this bill probably consumed more presidential effort than any since the great Civil Rights Act of 1964.  And it passed.  *whew*.  Now, after the Senate presumably votes to approve the house-approved changes to the original Senate bill (I'm probably going to blogger hell after writing that last sentence) health care reform can get off the front pages and people can see that it doesn't do any of the terrible things that the the GOP says it does.  And so will begin the democrats' and Obama's political rebound.  More on that in a coming post.

Health care will pass tonight

By all press accounts, the suspense is gone.  Nancy has the votes, with several to spare.  The vote on the rules by which debate will proceed, which is an excellent indicator of how the final vote will go, has just been concluded, and it has passed by 224-206, thus with 8 votes to spare.  No republican votes. 

This may well be the exact number that votes for the health care bill in two hours.  I don't know for sure.  In any event, the deed is done, and health care reform will certainly pass in just a few short hours.  WOW.

Dems appear to have the votes

The latest breaking news is that a deal has been reached with Bart Stupak and other pro-life lawmakers for them to vote for the bill.  If true, that would almost certainly cinch the vote for Pelosi.  It now appears upwards of 95% that the House will approve HC reform today!  WOO HOOO!!!

Glued to C-Span

I'm at work, earphones plugged into the computer, with C-Span on in the background.  Maybe that's an indication that I need help.  But I am SO into the upcoming health care vote.  I'm pretty confident that if it passes, both the Senate bill and the fixes, that it will get somewhat more popular with the public in the coming months and years.  There's just not much in it that hurts an ordinary voter.  There just isn't.  And when that sinks in, and when pre-existing conditions go the way of the dodo bird, it will likely become popular.  IF it passes.  And I'll be glued to C-Span.  I'm almost sorry I agreed to go out tonight; I likely won't be able to watch live as the final vote is cast.

Health care reform does not poll well-- so what?

I read a great article about why legislators should be very wary of taking actions based on public polls, particularly regarding complex issues.  I wish I'd written some of this myself.  I didn't-- and I don't think my commentary can improve upon it.

http://www.politicsdaily.com/2010/03/20/george-gallup-health-care-and-the-peril-of-legislating-by-polls/

Obama's all in

First, in news that just broke moments ago, according to several key democratic members, the House will vote on the Senate bill tomorrow, and not use "Deem and pass." This is a good thing, in my view.

To use a fairly well known poker metaphor, as Andrew has, Obama has moved all of his chips into the middle of the table. He is going all the way with his hand, and he'll either win big or lose big, and very likely we'll know which of these tomorrow. Its better than 80-20 now that he'll win big. It is to his great and everlasting credit, win or lose, that he finally moved all in. It did take him long enough.

A bit of big-picture review. My friend Andrew, who is nearly always right about policy matters, has been bitterly critical of Obama on health care, and not without quite a bit of justification. For example, he was saying about June 2009 that Obama could not, under any circumstances, leave the writing of the Bill to Congress. He said, and I'm paraphrasing, that Harry Reid and Nancy Pelosi could not be trusted to organize a trip to McDonalds, let alone a hugely complex piece of vital legislation. Reid in particular has seemed weak, the various congress people each had their own agenda, etc. Instead, he was calling on Obama to get in the trenches, write the bill in essence, then allow cosmetic tweaking and try and jam it down Harry and Nancy's throats. I'm the PRESIDENT, Andrew basically wanted Obama to say. I disagreed at the time, saying that giving Congress a few more months of headroom was good politics and made good sense. I think in the fullness of time he was right and I was wrong. Obama WRITING the bill was never in the cards, but he needed to be MUCH more aggressive earlier on. To use poker terminology, Obama was playing a good game of LIMIT poker. In limit poker, your bet sizes are rigidly limited. You either bet the amount you are allowed, or you don't bet at all. You can't move your big stack of chips in the middle and force your opponent to either call or fold. In no limit poker, by contrast, you can (and occasionally do) move all of your chips into the middle.

Obama was making small demands, small shows of strength. In short, he was playing limit poker. Sure he wanted health care reform, of course, but he wasn't exactly setting any presidential effort records to get it. There were set piece speeches and events, but not a consistent, sustained effort.

Then in January, Scott Brown in Massachusetts became the 41st Republican vote in the Senate-- the Democrats could no longer defeat a Republican filibuster with only democratic votes. And no GOP members wanted to play along. Which was very disappointing, but it was clear by about March 2009 that the GOP was going to oppose Obama in lockstep on big things. When John McCain isn't with you on immigration reform, you know the party's gone nuts.

Anyway, after some brief talk of moving onto the economy and not focusing on health care, Harry, Nancy and Obama have been focusing non-stop on it, like a laser beam, for weeks. This in the face of an economy still deeply troubled and with polls showing the health care reform effort deeply unpopular. This is a truly astounding act of political courage by the democrats. Courage and democrats has not often been used in the same sentence in recent years (at least not without the modifier "lacking," or its equivalent) and for good reason. The democrats have by and large taken the easy way out, taking small shots at the GOP, but not frontally attacking their idiocy. In short, the democrats, like Obama, have been playing limit poker.

Well that all changed a few weeks back, beginning publically with the televised summit. In having the summit at all, Obama basically announced that he was moving all in. Enough of this limit crap, he in essence said, I'm playing no limit, and I'm playing for keeps. All in boys and girls. That drastic change in presidential attitude, on behalf of a pretty crappy bill, and in the face of stiff public opposition, tells me that Obama really believes that health care is MONSTER important, and is willing to take gigantic political risks in order to further the great moral and economic cause of serious health care reform. And he deserves great praise, in my view, for moving all in.

Tomorrow, in all likelihood, the final cards will be dealt and we'll see Obama achieve a huge, historic, glorious, hard-earned victory. But it will have been earned only because Obama finally moved all in.

Health Care Reform will likely pass

If I had to guess, the dems will pass it with 3 or 4 votes to spare. 

The fantastic CBO report, indicating that the health care reform bill will cut $138 billion off of the federal deficit in the next 10 years, and much more thereafter, probably sealed the fate of the bill in favor of passage.  This projection by the CBO gives much needed political cover to moderate democrats in districts that voted for McCain (or barely for Obama) that they can run as "smaller government" types while voting for this health care reform effort.

From what the dem leaders are saying this morning, and from yesterday's hugely positive developments, (the CBO projection) it now appears 80-20, at least, that the dems will pass the huge, comprehensive (and rather awful) health care reform package, probably on Sunday.  As my readers know, despite the bill's huge flaws, I consider this a monumental step forward in American history.  Once this bill is fixed up in the coming years (and it may take quite a few years), this achievement will be fully on par with the creation of social security and Medicare in its impact on America. 

There has been a TON of talk about the procedure involved in this latest leg of the health care reform battle.  What is likely going to happen is that the House will pass the Senate bill, unaltered.  This bill has some substantive problems, in addition to the smelly "bribes" needed to get votes 57-60 in order to pass a Republican filibuster.  These include the infamous Nebraska giveaway, the Louisiana Purchase, a special deal for Florida, and more.  Google these phrases for more info.  After the House passes the Senate bill it goes to Obama, who signs it.  It is then law.  Next, the House and Senate will pass identical fixes to the bill, which will proceed through "reconciliation" a procedure in the Senate which precludes the use of a filibuster.  The Democrats thus only need 50 votes (with Biden to break a tie, if needed) and not 60.  This is not a challenge-- it was always getting ALL 60 members of the Senate to vote for a health reform bill that was the problem.  50 is easy.  If that second bill, passed through reconciliation, gets a majority in both chambers IT goes to Obama for signature.  Thus this round of health care reform would (mercifully) end, probably next week.

For Larry, what do I think of deem and pass?  There has been talk, not yet silenced, that rather than the House simply vote on Health Care reform, they would vote on a rule for debate on the reconciliation package which would "deem" the Senate Health Care bill passed if the second reconciliation package passed.  This way the members could "avoid" voting directly for the Senate bill.  Its a sneaky act of political cowardice (the Senate bill itself is very unpopular in the House, and easy to vilify in campaign commercials.), and I don't much like it.  Typical democrat way of doing things-- terrified of their pathetic, idea-less GOP opposition, who ran the country damn near into the ground when they were in power.  A Trillion dollars blown in Iraq, Great Recession, torture, etc.  And Nancy and Harry are afraid of these IDIOTS! 

But do I, in the end, support Deem and Pass?  Yes.  If I was a yes vote in the House, and Nancy told me about this crazy procedure, I'd object.  Strongly.  But if she said, "look there are 5 wavering moderates that don't want to directly cast a vote for HC reform, but would rather use this crazy procedure," I'd be ok with it.  Health care reform is much too important to worry about process.  I will add that using this crazy procedure would almost certainly be a significant political NEGATIVE to those who go along with it.  Think many tens of millions won't be spent on ads saying, "Congresswoman X voted for Obama's health care reform bill and then lied about it?"  Of course they will.  And the ads will be more than a little truthful.

The democrats contend that deem and pass has been used before, and it has, but never for the purpose of avoiding a clear recorded vote on an issue of signficance, let alone an issue of monumental, epochal, country changing significance.   So I don't really like it at all.  But its constitutional, and if they do it, it will stick.

In any event, in the end, who cares?  Health care reform is BY FAR the biggest issue facing America.  I mean BY FAR!!  I actually don't think that can be seriously debated.  Given that, and given that this (seriously flawed) effort represents a very significant first step towards getting rid of the health insurance companies and towards a rational health care system, all other concerns must yield. 

DEAR US HOUSE:

PASS THE SENATE BILL, HOWEVER YOU WANT TO.  NOW. 

Flyingpinkunicorns

Israel and settlements

For those that haven't heard, Israel was in the news last week for its insane, idiotic, and counterproductive settlement policies.

Here's the background.  In Israel, Obama is seen as not really pro-Israel.  He dared to make a big speech in Cairo, and for other reasons.  Anyway, Hillary is really liked in Israel on her own merits and because Clinton was and is popular there.  Joe Biden is popular in Israel to those in the know.  Anyway, Biden was there last week, and met with Prime Minister Netanyahu.  He told him that we weren't happy about proposed settlement expansion plans.  While Biden was in Israel, Netanyahu's Interior Minister, a right-winger from the religious Shas party named Eli Yishai.  What's a bit ironic is that Shas has never been focused on the settlements at all, unlike Likud, but more on that some other day.

The fact that this announcement took place while the US Vice President was in the country caused a stir.  Israel apologized for the timing of the announcement, but not the substance of it.  Admirable honesty.  The only thing admirable about the whole Israeli settlement situation.

Here's my take on settlements.  I HATE them.  I think they are hugely counter to Israel's national security interests (and America's!), as well as being counter to Israel's economic interests.  I think, to quote Thomas Friedman, that the settlement policy is "insane," and has been for many years.

The US has long allowed Israel to go its idiotic way on the settlement issue. Oh, we bleat about and complain, and pound our chest and tut tut, but except briefly under Bush 41, when we threatened to suspend loan guarantees to Israel, we just talk and do nothing about it. Which is what Obama is highly likely to do. Which is why Israel feels free to keep building settlements.  AIPAC (the American Israel Public Affairs Committee), which is by far the largest and most organized Jewish pressure group, is mindlessly pro whatever an Israeli government does, especially a right-wing Israeli government. To AIPAC, its Israel right, wrong, or pro or contra US interests. AIPAC doesn't speak for mainstream American jews on settlements, which many American jews dislike or hate, but there it is.


In the US, there is no gain politically in OPPOSING Israeli settlements.  This was true even before 9-11.  Let's be honest: Who in America loves a Palestinian? An Arab? And AFTER 9-11? Oops.

So we give Israel around $3 billion a year in mostly military hardware, give it all sorts of diplomatic cover and get bitch slapped in return on the settlements. Year after year.  If I were president, they'd be told that if they built so much as one more living room in occupied territories they'd be persona non gratta. We'd pull our ambassador, for good, cut as much aid as congress would let me, stop giving them cover in the UN, and I'd seriously consider selling high tech arms to Egypt and Saudi Arabia (not Iran, obviously).  I'd show them that if you bitch slap the heavyweight champion, you just might get hurt badly. And hey, if I lost reelection? I'm sure I'd do fine on the lecture circuit, the boardroom circuit, etc. That's what a president with chutzpah would do. We're allies, these settlements are insane, and we bitterly oppose them. Build them at your peril.

In return for this admittedly very tough stance, I'd be willing to consider modifying my views somewhat on the final status settlement negotiations. I have, strongly supported Israeli military actions to defend itself, in particular the war against Hezbullah in 2006.  I supported peace talks with the Palestinians when they made sense and opposed them when they did not.  I am HARDLY mindlessly anti-Israel!!!! But on settlements, I am mindlessly anti-settlement, and thus in the minds of some, anti-Israel. The settlements are, by all accounts hugely economically costly, soldiers in huge numbers don't want to be sent to defend them, they cause great diplomatic grief to the US, impede a final settlement, and generally PISS ME OFF.

In a way, I admire what the Israelis do on settlements. They manage to do something hugely: (i) not in their ECONOMIC interests (protecting those settlements is hugely expensive, not to mention building them), (ii) pretty damn clearly not in their SECURITY interests; and (iii) which America, Israel's only real ally in the world, opposes (but does nothing about).  After managing this trifecta, Israel then says, well, we did it, and we still love America.  Israel's got cojones on the settlement issue. Short on brains, painfully short on long term planning, but long on cojones. And that, at least, is worth admiring.

As for Bibi (Israeli Prime Minister Benjamin Netanyahu), he's reasonably happy that the current Palestinian government has clamped down on the worst of the madness and sees Hamas as its blood enemy. And he'll probably be happy to dribble a few crumbs their way if they continue to "behave."  But after the second intifada and the huge rift with Hamas, there's just no appetite in Israel for renewed grand talks. Even I oppose them, for heaven's sake!

I called in the late 90s on Arafat to unilaterally declare a Palestinian state. I think the idea still holds merit.  Let Israel fight the existence of a newly declared state, born under fire, occupied by an enemy. The irony won't be lost on anyone in the region. It would put the US in a very bad spot, get the Arabs to verbally support it, and very possibly result in some positive (for the Ps) changes on the ground.  I don't really see the downside.  At worst, false hopes are raised and nothing changes, which is probably the most likely outcome.  But a Palestinian state will happen someday, barring some catastrophic disaster, the question is when and what the terms will be.  So starting sooner rather than later is no bad thing in my view, especially with a seemingly responsible coterie of P's in leadership positions in the West Bank.

So much of this could have been written 2 years ago, 5 years ago, or (with a few tense modifications and other tweaks) 15 years ago. We're frozen in time, because both sides are basically frozen in their positions.  Israel proves daily what some deny-- that they are obsessed with settlements for their own sake-- greed-- simple greed (albeit badly misplaced), and faux security concerns (also misplaced).  If the settlements weren't significant to the Israelis, they wouldn't keep building them!  They tend to force moderate P leaders into the arms of the Islamic extremeists, exactly as Begin and others planned, so long ago.  Sad, really.

The March Jobs Report in early April will show at least 150,000 jobs gained

After a series of posts predicting job growth, and having apparently been slightly wrong on timing, I am making a specific, testable prediction for job growth for the current month. I'm predicting that there will be at least 150,000 jobs gained when the government releases the next report on the jobs market in early April. And I wouldn't be overly surprised if the number was over 250,000, a good number in general, and an absolute show stopping blockbuster compared to what has been going on.

I'm finally making a specific prediction because I finally think I know what's going on in the job market. Job growth has already resumed, but slowly. In fact, the other survey that the government conducts, usually considered less reliable, but still useful, shows 850,000 jobs GAINED in the last two months. This is an absolutely astounding number, given that the other survey shows slight job LOSS. I think the truth is somewhere in the middle, and closer to the weaker payroll survey. There's virtually no chance we have gained 425,000 jobs per month over the last two months (which would be a rocking strong total). The number of people filing first time claims for unemployment is MUCH too high for a job market boom. But still, these surveys, unless there are just huge problems with them, are telling us something, namely that there is some job growth out there. Which makes sense based on a few other things we think are going on.

February's numbers, depressed by the snow, showed some strength in wages, which implies a somewhat less weak labor market. Several sectors, including federal employment, temporary workers, and manufacturing, showed some strength. Construction was godawful, but that's probably weather related. In any event, construction layoffs have to slow radically in the coming months, or there wouldn't be any construction workers left!

As for March, the weather is currently quite good nationwide, there will be some census workers added (more in April), and there is one more month for banks to begin lending, which from what I have read hasn't started for small businesses yet (large businesses have had no problems getting money for a bunch of months). In short, this is the month where we finally get the positive job growth I've been predicting for months. You'll know as soon as you see the report whether I'm right.

There's little I like more than being right. But if I'm wrong, I'll post and let all of you know why, and what the report really said.

One other thing before I go. If my economic predictions are reasonably right, bonds are going to do VERY poorly over the next year, and stocks VERY well. If you own bonds, sell. Quickly. The Dow Jones index should get up over 12,000 fairly quickly, certainly by the middle of the Summer. 14k will soon follow. And I wouldn't be surprised if 16k or 17k followed soon thereafter. I think the market is pricing in a lasting recovery, but a weak one, that proceeds in fits and starts. In contrast, I am predicting a medium-strong and VERY consistent recovery. Predicting a consistent anything with the US economy is a surefire way to be dead wrong, but I think the amount of stimulus, both fiscal and monetary, is so historically unprecedented, that we will avoid a real slowdown for at least 2 years, and maybe 3. So the rest of 2010 will have somewhere between good and great growth, with good growth in both 2011 and 2012. The fed should begin raising interest rates in about September, very slowly and cautiously at first, and then beginning about March 2011 quite quickly, as the vigor of the recovery becomes clear. The best of the stock market growth should come between now and about June or July 2011. The next 15 months are going to be a historic bull market. For heaven's sake, BUY STOCKS! NOW.