REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Low Interest Rates and Leading Indicators

Not having looked at the innards of the Conference Board’s Index of Leading Economic Indicators in quite some time, it came as something of a surprise to see just how big a role the Federal Reserve’s freakishly low short-term interest rates are now playing in putting a positive spin on what the future holds for the U.S. economy.

The overall readings that resulted from the data above (from EconomPicData) would be decidedly worse than reported without those dark blue bars projected above the y-axis, blue bars that are likely to persist in that area of the chart for many months, if not many years.

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It’s not clear whether overeating and obesity are the perfect allegory for a consumption based economy that has finally run aground (e.g., where are the rising and falling asset prices?), but Michael Pento nonetheless transforms many of today’s economic problems into something that anybody can understand in this commentary at Real Clear Markets.

A morbidly obese gentleman labored into Dr. Hayek’s office suffering from severe chest pain. The patient also complained that he was unable to consume his usual 10,000 calorie-per-day diet; in fact, he was feeling so sick that he could barely scarf down 9,000 calories. He noted that his love for food remained as strong as ever, but his body just wasn’t keeping up with his demands.

After having a thorough look at the patient, the good doctor could not find anything wrong outside of the patient’s extreme portliness. After a moment of reflection, he delivered to his patient a troubling diagnosis. He explained that the chest pain stemmed from the strain the patient’s 500lb body was putting on his heart, and that the lack of appetite was his body’s attempt to protect itself from this imbalance. Dr. Hayek’s prescription was simple: the patient had to dramatically reduce his consumption while undertaking a moderate exercise program, with the goal of losing 250lbs as quickly and safely as possible. Dr. Hayek was aware that it would be a physically painful and emotionally difficult process for the man, but it was the only way to avert a life of suffering – or even a heart attack.

Of course, it should come as no surprise that Dr. Keynes across the street has a completely different prescription for  this gentleman’s “temporary lack of hunger”. This is well worth reading in its entirety and its simplicity goes a long way in explaining why the American public now seems to favor the treatment of Dr. Hayek over Dr. Keynes.

Sales Tax Rates Across the U.S.

The graphic below from this CNN/Money story should make clear one of the many reasons why, in recent years, we have moved from California to Oregon and then on to Montana.

State income taxes in Oregon are quite high (in the top two or three as I recall) and, while it costs practically nothing to register your car, property taxes are expensive in some counties. Here in Montana, motor vehicle taxes are surprisingly high but, from what I’ve seen, property taxes are very reasonable. I’ll let you know about state income tax next year.

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Reuters reports on the recent rise in hardship loans at Fidelity Investments as an increasing number of workers take money out of their retirement savings instead of putting money in during their peak earning years in a weak (and getting weaker) economy.

A record number of U.S. workers are tapping into their retirement accounts to make it through the economic downturn, Fidelity Investments found in a survey released on Friday.

Among the 11 million workers whose 401(k) plans are run by Fidelity, 11 percent took out a loan from their plan during the 12 months ended June 30, the company said, up from 9 percent at the same point a year earlier.

By the end of the second quarter, plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier.

Loans and withdrawals were highest among workers between 35 to 55 years old, Fidelity found, peak earnings years.

Fidelity, the Boston mutual fund giant, is also the country’s largest administrator of retirement savings plans like 401(k)s, making its quarterly survey a closely watched barometer of saver behavior.

As more companies end traditional “defined benefit” plans like pensions, workers are relying more on “defined contribution” plans like 401(k)s to carry them through retirement.

How well these “defined contribution” plans carry workers through retirement remains to be seen. So far, based on the relatively low number of six figure 401k balances, expectations shouldn’t be too high. The fact that 401k holders have to manage their own money – investment choices, withdrawal rates, etc. – makes the chances of success even slimmer.

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Mortgage Rates Hit New Record Lows

Ho hum… Home loan rates reached more new record lows according to Freddie Mac’s weekly survey of lenders – 30-year fixed-rate mortgages fell to 4.42 percent and 15-year rates are now at 3.9 percent, aiding yet another refinancing boom but enticing few new homebuyers.

Boy, she sure talks fast when she’s not reading from the teleprompter.

Friday Morning Links

MUST READS
U.S. stock futures drop as jitters remain – MarketWatch
What’s missing for back-to-school? 135,000 teachers – CNN/Money
Fidelity: retirement fund withdrawals rise in downturn – Reuters
Housing Double Dip Is Not Just Tax Credit Hangover – Olick, CNBC
RE/MAX: After tax credit, July home sales fall 27% from last year – REO Insider
CBO: Budget Deficit Forecast Raised to $1.066 Trillion for 2011 – Bloomberg
Grab a beer and avoid the bond-bubble bang – MarketWatch
No Consensus on Future of Housing Finance – NewsWeek
Foreclosure rate soars in suburbs – Portland Tribune
How Short Sales Work – Bay Area Real Estate Trends

MARKETS/INVESTING
Oil drops below $75 amid economic concerns – AP
Gold holds near $1,230 on haven buying – Reuters
Yen worries sink Nikkei 2% in broadly lower Asia – MarketWatch
Platts: China Oil Demand Pulls Back From Record High – PR Newswire
FMC halts Indian banks’ gold ETF foray – Commodity Online
Are stocks still a good investment? – CNN/Money

ECONOMY/WORLD/HOUSING/BANKING
Economic Weakness Accelerating – Comstok Partners
Response To Article On Austrian Theory – Zero Hedge
Greek crisis refuses to go away – Telegraph
Weber backs extending ECB bank lending to 2011 – Reuters
Mortgage rates hit new lows. Will you benefit? – CSM
Housing Can Find a Home Without Fannie, Freddie – Bloomberg
A good idea for fixing housing – Nutting, MarketWatch
Bullard says Fed may need to buy more Treasuries – Reuters
Geithner Struggles to Escape a Past He Never Had – NY Times

 
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