On Tuesday morning this week, Ed Yardeni had an amusing twist on the phrase used by Gwyneth Paltrow to describe her divorce as “conscious uncoupling”.  Mr. Yardeni said the United States and Europe were economically “unconsciously decoupling”.  The reason for this was interesting, particularly for those of us concerned about excessive government regulation, and the way it can stifle growth and innovation.

Can the US continue to grow if the Eurozone’s recovery continues to stall? It is doing a good job of doing just that so far. Debbie and I think it may continue to do so. The question is, why are the two economies decoupling? The short answer is that the social welfare state remains too big in the Eurozone. There are too many government regulations and regulators, and not enough startups and entrepreneurs. Labor markets remain too rigid. Too much credit is provided by bankers, who aren’t lending, while capital markets remain relatively limited sources of capital. The region depends too much on Russian gas, and isn’t doing enough to find domestic sources of energy. It may also be more exposed to terrorism perpetrated by homegrown Islamic jihadists.

 The latest evidence of decoupling between the US and the Eurozone’s economies is Germany’s IFO business confidence index. It dropped to 106.3 during August, down from a recent cyclical peak of 111.2 during April, and the lowest since July 2013. The expectations component, which is highly correlated with Germany’s M-PMI, fell from 107.2 to a 15-month low of 101.7 over this period. Flash estimates show the German M-PMI fell to 52.0 this month, while the US M-PMI rose to 58.0.

 Credit remains amply available in the US capital markets and from US banks. The same cannot be said of the Eurozone’s capital markets and banks. Over the past 12 months through May, nonfinancial bond issuance totaled $750.5 billion. Short-term business credit rose to a record-high $2.0 trillion in mid-August. In the Eurozone, bank credit is down 2.2% over the past 12 months through June.


There is Always a Bigger Fish

by Marilou Long on August 26, 2014 in lifestyle
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Two Strong Numbers Today

by Marilou Long on August 26, 2014 in Economic Indicators

Consumer confidence rose in August to 92.4 from 90.3 the previous month.  The expectation was for a reading of 89.0.  This number makes sense given the continued progress in the job market. Durable goods orders were the strongest since 1992.  The headline reading of 22.6% was driven by strong orders for aircraft.  If you back [...]

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Why Interest Rates may stay Low for a While

by Laura Ehrenberg-Chesler on August 19, 2014 in Credit Crisis

The following is an excerpt from this morning’s research from Ed Yardeni.  It is a quote from a speech by Janet Yellen from June of 2009. “If anything, I’m more concerned that we will be tempted to tighten policy too soon, thereby aborting recovery. That’s just what happened in 1936 when, following two years of robust [...]

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One more time….The Velocity of Money

by Laura Ehrenberg-Chesler on August 7, 2014 in Banks

In looking back at some June research from Charles Schwab and Company, on the exit from Quantitative Easing and inflation, I found an interesting passage on the relationship between the velocity of money and inflation.  We have previously discussed this on our blog, but it is certainly worth revisiting. “Rather than increase lending and thereby multiply the [...]

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Privacy is Not an Option

by Marilou Long on August 6, 2014 in lifestyle

The Wall Street Journal has an interesting article today on privacy settings for Facebook.  It then describes all the other advertising companies that track your interests on the internet in order to serve up targeted ads.  I clicked on the link in the excerpt below, and there are 53 companies that follow me on my browser!  [...]

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The Fed and its Sector “Selection”

by Laura Ehrenberg-Chesler on July 31, 2014 in equity market

This morning in our research from Ed Yardeni, there was a commentary about whether or not the Fed should be opining on the value of, or investment merit of, specific sectors in the equity markets.  I thought it was worth sharing because it was also a great reminder of how investors take risk alongside entrepreneurs to [...]

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Q2 GDP Expands at 4.0%

by Marilou Long on July 30, 2014 in Economic Indicators

Second quarter GDP bounced back nicely from the contraction in the first quarter.  From the linked WSJ article: Gross domestic product, the broadest measure of goods and services produced across the economy, advanced at a seasonally adjusted annual rate of 4.0% in the second quarter, the Commerce Department said Wednesday. Economists surveyed by The Wall Street [...]

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Longer Term Thinking vs. Instant Gratification

by Marilou Long on July 22, 2014 in Investment Strategies

This clever bird can teach us all about foregoing a small treat today for a larger payoff later.

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Income Inequality “Notable Quotable”

by Laura Ehrenberg-Chesler on July 17, 2014 in Employment

Regardless of where you stand on the “income inequality” debate,  this “Notable Quotable” from the “Wall Street Journal” makes an interesting point, and one that is worth contemplating. Economist Donald Boudreaux in the Pittsburgh Tribune-Review, Dec. 25: Suppose that Jones chooses a career as a poet. Jones treasures the time he spends walking in the [...]

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