Free Republic

The bottom line is: Stocks are undervalued, bonds are overvalued, and the economy is in good shape. While things never move as smoothly as we would like, the direction of the economy and markets in the next few months seems clear. Stocks and economic activity up, bond prices down. Excerpt. Rest of article.

After almost a year of accounting scandals, plummeting stocks and disgraced corporate executives comes what many hope, and some fear, will be a day of reckoning. By Aug. 14, the chief executive officers and chief financial officers of almost a thousand of America's largest corporations must swear to the accuracy of their company's books to the Securities and Exchange Commission. If all goes as planned, those declarations should reveal the true state of corporate finances and, at the very least, remove some of the uncertainty that has spooked the stock markets. But some analysts fear that the new requirements won't...

<p>CRAWFORD, Texas — President Bush plans to announce at an economic forum Tuesday that he will not release $5.1 billion officially earmarked for combatting terrorism -- some of which Congress designated for purposes unrelated to homeland security.</p> <p>Bush signed a $28.9 billion anti-terror emergency "supplemental" budget measure on Aug. 2, but did not commit to spending the $5.1 billion chunk. He had one month to decide whether to spend all or none of the $5.1 billion.</p>

The idea that action by the Fed is necessary to bail out the economy at this juncture is dangerous. The real federal funds rate is very near zero and the economy grew very well throughout the 1990s with real interest rates much higher than they are today. The real problem for stock markets in recent months has been policy. Trade protectionism, huge growth in government spending, the slow phase-in (and the 10-year phase-out) of the tax cut, and the potential for congressional legislation to over-regulate business, are all culprits. Using the Fed to offset these negatives is a recipe for...

The bill granting the president trade promotion authority came laden with domestic costs, too. It offers tax-funded income support and retraining benefits to workers who, supposedly, lose their jobs because of foreign competition. How the government plans to distinguish companies that fall victim to nefarious foreign competitors from companies with lousy management or unattractive products is anybody's guess. More than likely, the recipients of taxpayer largesse will be determined based on the clout wielded by labor leaders and their friends in Congress. But none of this means that hopes for loosened trade barriers are doomed. While tit-for-tat deals between governments...

The market's underlying problems are related to policy. First, President Bush agreed to protectionist tariffs on steel and lumber, and within two weeks the stock market had peaked. Second, punctuated by the Farm Bill, federal government spending has been rising sharply. Third, corporate fraud legislation began to take form in Congress, worrying investors that normal business failure could become a crime. Finally, Democratic members of the Senate and House started to call for a repeal of the Bush tax cuts. In addition, Federal Reserve policy has become excessively accommodative. This mixture of policies -- easy money and a growing federal...

We do not believe that the economy is turning toward a double dip. Non-farm payrolls have now increased for three consecutive months and for the first time in the recovery, a prior month's data was revised upward (June payrolls were revised to a 66,000 gain from the originally reported 36,000). Moreover, one of the main reasons for real GDP weakness in the second quarter was a huge gain in imports, which subtracted 2.8% from growth. Imports carry a negative sign in the GDP equation, but represent a strengthening final demand. The economy is stronger than the pessimists believe and data...

California authorities recently declared their first power alert in more than a year. And residents are worried that the hot summer might bring back the rolling electricity blackouts that hammered the state in 2000 and early 2001. Meanwhile, the state government's budget remains strained, having gone from a $12 billion surplus to a $23.6 billion deficit in less than a year, due largely to expensive electricity purchases. California officials continue to blame deregulation and to vilify private companies for the state's power problems. But they overlook the role that their bad policies and misguided regulations played in this disaster. Rest...

What happens when the number two player in an industry gobbles up its largest rival? Well, if you are talking about satellite TV provider EchoStar's proposed $26 billion merger with DirecTV, we could see greater competition in telecommunications, more consumer choice and a faster roll-out of new technology. Rest of article.

There is a fine line in the intel business between not having enough data and having too much. Amateurs (i.e. Congress) and the Power Hungry (many of my LE colleagues) always try to get every scrap of information they can. But it just doesn't work. Even with advanced data processing techniques, our ability to analyze data is where the bottleneck is. Rest of article.

Economists are looking for two bottoms: one for the economy and one for stocks. And being the pessimists most are, they are having trouble locating them. The economy, some say, is in the midst of a "jobless" recovery, housing is a bubble waiting to pop, the trade deficit is a cancer eating away at the dollar, and consumer debt levels are excessive. But, these pessimists save their most dour views for the stock market. It is still overvalued, they tell us, and will show years (if not, decades) of sub-par returns. The only hope, it seems, is for the U.S....