The Mess That Greenspan Made

The Weekend Update is Now Available

The latest issue of the Iacono Research Weekend Update has been posted to the website and is now available for subscribers here.

There will be no changes to the model portfolio or the buy ratings this week, but this year’s covered call sales are reviewed in the following discussion topic:

The executive summary is as follows:

Major equity markets reached record highs with the S&P500 breaching the psychologically important 2,000 level, while bonds and commodities also moved higher in yet another week when nearly every asset class rose. U.S. economic data was mixed, but news from Europe indicated ongoing difficulties and the possibility of outright deflation, all of which boosted the trade-weighted dollar.

Geopolitical concerns over both Ukraine and Iraq increased, providing support for oil and gold prices that rose together for the first time in 10 weeks. Natural resource stocks moved higher, as did REITs and emerging market stocks, and the model portfolio gained 0.6 percent, now up 9.2 percent for the year.

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Generation “X” = Generation “Debt”

You’ve got to study the methodology a bit and pay careful attention to the legend in the chart below from this study by the St. Louis Federal Reserve on household debt, but, after you do, you quickly realize that Generation “X” (those born between 1965 and 1980) is having an increasingly hard slog now that the best part of the U.S. credit expansion is decades behind us and about all the U.S. economy has left now is the hope for more asset bubbles that they might somehow get on the right side of.

It looks like the Baby Boomers (I’m very late in that generation) aren’t doing much better than the Gen Xers and there’s surprisingly high debt for previous generations as indicated by the open circle, open square, and open triangle symbols above. All in all, not good.

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Friday Morning Links

Japan’s economic revival is in jeopardy – CNN/Money
Italy’s CPI has first yearly fall since 1959 – MarketWatch
Inflation falls to 0.3 percent in countries that use euro – AP
How Draghi Seeking QE Trade-Off May Find Austerity Trap – Bloomberg
Labor Day: Raising the Minimum Wage Stiffs the Poor – Time
Ukraine Leader Accuses Moscow as ‘15,000 Russian Soldiers Join Separatists’ – Newsweek
Despite Aggressive Deleveraging, Generation X Remains “Generation Debt” – St. Louis Fed
Special Report: The billion-dollar fall of the house of Espirito Santo – Reuters
Understanding Your Real, Real Returns – Pragmatic Capitalism
The Bubble is in Cash, Not Stocks… – Capitalist Exploits
California’s Underground Water War – Atlantic
The Killing Fields – aucontrarian

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Stock markets subdued after weak economic data – AP
Bulls Pour Funds Into Russian ETF – Barron’s
Swedroe: Why Care What Hussman Forecasts? –
Edwards: The Buyback Party Is Over…Market Now Running On Fumes – Zero Hedge
Morgan Stanley plans natural gas export plant in new commodities foray – Reuters
Treasury Market Rally Is Stronger Than Every Economist Predicted – Bloomberg
Gold edges lower as European stocks recover lost ground – Reuters
CFR: “Central Banks Should Give Money Directly To The People” – GoldCore
Gold-Price Indicator Fading as ETPs Tumble by $71 Billion – Bloomberg
Precious Metals Markets: China vs US – BullionStar
The Myth of the Unchanging Value of Gold – Mises

Modern Economic Theory Is Rotten To the Core – Real Clear Markets
GDP Revisions Actually Show A Much Smaller Economy – Alhambra Partners
The countries with the biggest labor forces – MarketWatch
Japan economy stalls as incomes, spending languish – AP
Schaeuble Sees Draghi’s Instruments for Growth Exhausted – Bloomberg
Economists React: Japan’s Economy Stagnates in July – WSJ
Canada’s Economy Grows at Fastest Pace in Almost 3 Years – Bloomberg
Manhattan Condo Resale Prices Reach Record High – Bloomberg
Let’s hope Yellen can avoid the Great Inflation of the 2010s – MarketWatch
Yellen Wealth Grows as Rising Financial Markets Lift Assets – Bloomberg
Fed Job Index a Year Away From Normalcy – WSJ
The Fed’s “Mutant, Broken Market” – Zero Hedge


Second Quarter GDP Growth Revised Higher

The Commerce Department reported that the U.S. economy expanded at an annualized rate of 4.2 percent in the second quarter, slightly higher than the 4.0 percent estimate provided a month ago. This follows a first quarter weather-related decline of 2.1 percent.

In this second of three estimates for the April-to-June period, the increase in nonresidential fixed investment was larger than previously reported, while the increase in private inventory investment was smaller than previously estimated.

Interestingly, the Congressional Budget Office just released a downwardly revised estimate of 1.5 percent for 2014 economic growth (previously, it was 3.1 percent), meaning that they’re not very optimistic about the second half of the year. With an average growth rate of 1.05 percent for the first six months, this puts second half growth at just over a 2 percent rate meaning that, once again, a strong “second half rebound” is not likely to materialize.

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