ECRI Weekly Leading Index rises slightly and continues to show a hint of light at the end of the tunnel

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose slightly by +0.07% vs. +-0.24% last week, and its annualized growth rate rose sharply from -19.7 to -18.6, moderately above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, and although it remains well below the flat line, the distinct upturn does strongly suggest that recovery is on the way.

According to ECRI, "With WLI growth rising to a 27-week high, U.S. economic growth, which is now at a record low, will soon begin to improve."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be underway within the next few months.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that employment is not a leading indicator, so we could continue to see employment losses even as recovery is underway.

-- Jack Krupansky

What's next for Microsoft stock?

Is the worst over and Microsoft stock finally poised to bounce back?

Was the 10% bounce in Microsoft merely freakish short-covering, a "short-squeeze", with the stock likely to "give it all back" in the coming days and weeks?

Is Microsoft stock just trading in a range ($16 to $21?) and now likely to head back down in that range now that it is bumping into the top end of the range?

Are happy days here again?

Are we simply in the calm eye of a larger storm and more pain is just ahead?

Exactly what role are hedge funds and proprietary in-house trading at the major financial firms playing in the volatility of Microsoft stock?

Alas, I do not have any solid answers to any of these questions.

I still hold a significant position in Microsoft stock and have no intention of "selling into the rally" or engaging in short-term trading (or buying any more other than reinvesting dividends), but I simply do not have access to the kind of investment flow data that would answer any of my questions.

So, I am unable to offer any advice as to whether Microsoft is a "buy" or "sell" or even a "hold" in this very dynamic market. Sure, I am a "hold", but I am a long-term investor and not a short-term trader or speculator.

If you do have any answers, real answers and not just opinions and overheard chatter and half-baked "analysis" and "recommendations" from any of the quacks (especially CFA) on and off Wall Street, I'd surely love to hear them, but for now the only thing (for me) to do is sit back and watch events unfold. And... continue to collect the dividend checks. The dividend yield is down to 2.49%, but that is still better than most savings, money market, CD, and money fund yields.

-- Jack Krupansky

Monthly GDP for February rose by +0.6% (+7.0% annualized), Q1 tracking for a -5.1% annualized decline

Monthly real GDP, one of the five primary economic indicators that the NBER Business Cycle Dating Committee (NBER BCDC) uses to judge recession start and end dates, rose moderately in February by +0.6% or +7.0% annualized, after falling modestly by -0.3% in January (revised down from +0.2%), and real Q1 GDP is forecast to decline by -5.1% annualized, according to Macroeconomic Advisers (MA). The government does not publish GDP data at a monthly level, but the NBER Business Cycle Dating Committee says that they refer to sources such as Macroeconomic Advisers (MA) and their MGDP data series. As Macroeconomic Advisers summarized GDP for Febuary:

Monthly GDP rose 0.6% in February following a 0.3% decline in January that was revised down five-tenths from a previously estimated 0.2% increase.  The jump in monthly GDP in February was more than accounted for by a sharp rise in net exports.  Partially offsetting this were negative contributions from PCE, capital goods, construction, and nonfarm inventory investment.  Averaged over January and February, monthly GDP was 3.9% below the fourth-quarter average at an annual rate.  Our latest tracking estimate of a 5.1% decline in GDP in the first quarter includes a 1.2% decline in monthly GDP in March, reflecting a partial reversal in net exports and weakness in PCE and inventory investment.

This report does not necessarily herald the return of happy days, but at least it is not indicating a worsening of the trend.

If the NBER BCDC is the definitive expert on marking of recessions, MA is the definitive expert on measuring real GDP at the monthly level with their MGDP data series.

-- Jack Krupansky

ECRI Weekly Leading Index falls modestly but still shows a hint of light at the end of the tunnel

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell modestly by -0.18% vs. +0.99% last week, but its annualized growth rate rose sharply from -20.9 to -19.7, moderately above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, and although it remains well below the flat line, the distinct upturn does strongly suggest that recovery is on the way.

According to ECRI, "With the upturn in Weekly Leading Index growth continuing for over five months now, growth in U.S. economic activity will begin to improve in short order."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be underway within the next few months.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that employment is not a leading indicator, so we could continue to see employment losses even as recovery is underway.

-- Jack Krupansky

Put my 2008 retirement contributions into Fidelity Freedom Fund 2025

One of my primary goals in all endeavors is simplicity. So, I bit the bullet and put 100% of my 2008 retirement contributions (Roth IRA and SEP-IRA) into the Fidelity Freedom Fund 2025 (FFTWX) "life-cycle" fund that implies I would retire when I am 70 years old, in about 15 years.

Although this fund has lost about 32% over the past year and has already bounced back about 25% from its recent low, I decided to invest now rather than try to "guess" when to time the market. Yes, it sucks that I was not positioned to make this investment a month ago, but that's life.

I am not completely convinced that this is the "best" investment for my retirement, but for now it fits the bill and is reasonably optimum for my current needs.

It also solves part of one problem: I no longer have to worry about having as much cash that is earning very little interest.

-- Jack Krupansky

Will GM really file for bankruptcy before summer?

Some of the media coverage and chatter this morning seemed to suggest that a GM bankruptcy was likely before summer. But, if you read the coverage carefully, such as the article in The New York Times by Micheline Maynard and Michael de la Merced entitled "'Surgical' Bankruptcy Possible for G.M." it is clear that bankruptcy is still only an "option", not a near slam-dunk certainty as the chatter suggests. It seems clear that the "leak" of preparation for a bankruptcy filing is intended to convince bondholders and the unions that they really do need to cave in on the demands of GM management as the government is requesting. In other word, the content and timing of the "leak" is a negotiating tactic.

I do not doubt that the government is in fact making plans for a possible bankruptcy filing by GM. If the bondholders and unions do not cave, bankruptcy will then be the only reasonable option left to the government.

Either way, at least we will have the certainty that by summer GM will be headed for a "light" future without most of its current baggage.

I continue to lean towards voluntary restructuring without a formal bankruptcy. The bondholders will have to decide whether they want to chance the uncertainty of bankruptcy or cut a deal while they can. My hunch is that the end result will probably be about the same either way.

I am tempted to buy a hundred shares of GM as a "lottery ticket" for restructuring. An alternative is to buy some GM debt at a firesale price that will get converted to stock whether in bankruptcy or voluntary restructuring. The bonds would probably be a safer bet, but even now may be priced too richly.

The open question is how much money the government will have to supply to fund healthcare and retirement "bailouts" for GM, regardless of how things turn out in June. That may make the government the de facto "owner" of GM, for now. Hmmm... GM = "Government Motors". Sigh.

In short, my belief is that GM will restructure without bankruptcy.

It also appears that GM will pick up and own the "remains" of its bankrupt Delphi spinoff. That would be an appropriate resolution.

-- Jack Krupansky

Time to fund my retirement plans for 2008

I am finally in the process of finalizing my tax return, so I finally have numbers for the retirement plan contributions I can make for 2008. I can max out the $6,000 Roth IRA contribution since I am over 50 and under the phase-out income threshold. Since I was self-employed for most of my income in 2008 I set up a new SEP-IRA retirement account and will be contributing the maximum contribution of 25% of my taxable income for 2008.

I do in fact have enough cash sitting idle to fully fund my contributions, but this does reduce my cash "cushion" for an extended period of lack of work income. The flip side is that this reduces the likelihood that I might find that cushion too comfortable and use it for too long instead of finding new work sooner. On the other hand, I will be getting more cash from my mother's estate within a few months, so I am "covered" well enough.

I had already made a 15% contribution to my Roth 401K for January and February 2008 when I was a full-time employee of Microsoft.

The other "problem" is that by moving the cash from a higher interest bank account to a Fidelity money market fund I will see a big drop in interest income. But, since the money is now clearly targeted at "retirement" rather than short-term "rainy day" contingencies, I can now afford to "invest" the money for the long term.

My default investment is a so-called "life cycle" fund whose asset allocation is automatically adjusted to reduce the stock allocation as my retirement "target date" (age 70, which for me would be close to 2025) gets closer. A year ago I did put some money into the Fidelity Freedom Fund 2025 (FFTWX.) Alas, it has declined by 30% since then, but a lot of other investments have done worse. By comparison, my Microsoft (MSFT) stock declined by -33% over that same one-year period. Actually, that comparison is a little off because it excludes Microsoft dividends (about 2% to 2.5%) but includes the Freedom Fund income. But, that's close enough.

I am not convinced that FFTWX is my "best" retirement investment, but it is certainly optimal for me right now. It aims to do what I need to do for retirement and does enforce the appropriate discipline. Left to my own devices, I would probably chose the most ultra-aggressive equity fund. For now it is a great "fire and forget" investment.

-- Jack Krupansky

Free Skype from eBay!

I never was able to comprehend the "wisdom" of eBay buying Skype, other than for the founders and investors to cash out of Skype, so now I am excited to hear that there is an effort underway to separate Skype from eBay. That should re-energize Skype to innovate much more rapidly. An article in The New York Times by Brad Stone entitled "European Duo Seeks to Buy Skype Back From EBay" summarizes current efforts to "free" Skype from eBay.

Who knows, Skype might even be a much more organic partner for Twitter than even Google.

-- Jack Krupansky

Monthly GDP for January rose by +0.2% (+2.2% annualized), Q1 tracking for a -5.1% annualized decline

[My apologies for the delay, this data came out on March 17, 2009, but my attention was elsewhere. Monthly GDP for February should be released within about 10 days.]

Monthly real GDP, one of the five primary economic indicators that the NBER Business Cycle Dating Committee (NBER BCDC) uses to judge recession start and end dates, rose modestly in January by +0.2% or +2.2% annualized, after falling sharply by -1.8% in December (revised down from -1.3%), and real Q1 GDP is forecast to decline by -5.1% annualized, according to Macroeconomic Advisers (MA). The government does not publish GDP data at a monthly level, but the NBER Business Cycle Dating Committee says that they refer to sources such as Macroeconomic Advisers (MA) and their MGDP data series. As Macroeconomic Advisers summarized GDP for January:

Monthly GDP rose 0.2% in January.  This followed a 1.8% decline in December that was revised from a 1.3% decline previously.  The small increase in January reflected positive contributions from personal consumption expenditures and inventory investment and negative contributions from capital goods, construction, and net exports.  The January level of monthly GDP was 3.4% below the fourth-quarter average at an annual rate.  Average monthly declines of 0.4% in February and March would be consistent with our latest tracking forecast of a 5.1% decline of GDP in the first quarter.

Real GDP for January 2009 was back down at the level of February 2007 -- two years ago.

Note: Since this report, MA has revised their Q1 tracking forecast to be a decline of -4.5% annualized.

If the NBER BCDC is the definitive expert on marking of recessions, MA is the definitive expert on measuring real GDP at the monthly level with their MGDP data series.

-- Jack Krupansky

ECRI Weekly Leading Index rises sharply and shows a bit more hint of light at the end of the tunnel

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose sharply by +1.22% vs. +0.37% last week, and its annualized growth rate rose sharply from -22.2 to -20.6, moderately above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, which remains well below the flat line, but the distinct upturn does strongly suggest that recovery is on the way.

According to ECRI, "With Weekly Leading Index growth recovering to a 24-week high, we are fast approaching an upturn in U.S. economic growth when the pace of recession will begin to slow. At the same time, growth in the Weekly Coincident Index fell to a record low...in the week ending April 3. This follows the earlier plunge in WLI growth and confirms that we are in the worst recession since World War II."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be underway within the next few months.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that employment is not a leading indicator, so we could continue to see employment losses even as recovery is underway.

-- Jack Krupansky

The Shadow Open Market Committee is back in action

After a three-year hiatus, the Shadow Open Market Committee (SOMC) is resuming operation. "The Shadow" is a small group of economists who meet periodically to present papers on and discuss various aspects of the economy and monetary policy that are relevant to the Federal Reserve in general and the Federal Open Market Committee in particular. They last met in May 2006 at the Cato Institute in Washington, D.C. They are now scheduled to meet for the first time since then on Friday, April 24, 2009. The format is changed and there are several new members. The group has not met since co-chair Charles Plosser was "demoted" to be the President of the Federal Reserve Bank of Philadelphia back in August 2006.

The old format involved a separate working session on Sunday afternoon, with a one-hour presentation and press conference late Monday morning followed by a luncheon. The meetings were open to the public.

The new format will consist of a three-hour symposium (well, two and three-quarters hours) in the morning with plenty of opportunity for audience participation, followed by a luncheon. The symposium is open to the public but requires advance reservation (I think.)

The goal of the SOMC, as stated on their old web site, was that:

The Committee's deliberations are intended to improve policy discussions among policy makers, journalists and the general public with the hope that wiser policy decisions will result.

The web site has not been updated since May 2006, so the SOMC "charter" may have changed, but I suspect not.

As the old web site says, "The SOMC is an independent organization whose members are drawn from academic institutions and private organizations." The SOMC is mostly academic, and certainly nobody currently in the government, although members of the SOMC have gone on to join the Federal Reserve and former Federal Reserve officials and employees have joined the SOMC after leaving government employment.

Previous members continuing on the "new" SOMC are Professor Gregory Hess of Claremont McKenna College, Mickey Levy of Bank of America, Professor Bennett McCallum of Carnegie Mellon University, and Anna Schwartz of NBER.

The new SOMC members are Professor Michael Bordo of Rutgers University, Professor Charles Calomiris of Columbia University, and Professor Marvin Goodfriend of Carnegie Mellon University.

The old SOMC met twice a year. It is not yet clear whether the new SOMC will meet on the same schedule.

I have been attending the SOMC as an observer since... longer than I can remember, since 2000.

The first SOMC meeting was back in September 1973. The SOMC was founded by Prof. Karl Brunner of the University of Rochester and Prof. Allan Meltzer of Carnegie-Mellon University.

The papers to be presented and discussed at the April 2009 "Shadow" symposium are:

• Michael Bordo: "The Great Contraction 1929–1933: Are There Parallels to the Current Crisis?"
• Charles Calomiris: "The Dos and Don'ts of Financial Regulatory Reform" and "TALF and PPIP: Will they Work to Unclog the Financial Plumbing?"
• Marvin Goodfriend: "We Need an Accord for Fed Credit Policy"
• Mickey Levy: "What's in Worse Shape, the Economy or Fiscal Policy?"
• Bennett McCallum: "China, the U.S. Dollar, and SDRs"
• Anna Schwartz: "Boundaries Between the Fed and the Treasury"

Gregory Hess will be moderating.

For those of us into economics, finance, monetary policy, and fiscal policy, it will be an exciting morning.

It is always interesting to listen to the form of questions asked by "the media."

See the Cato web site for details on attending.

-- Jack Krupansky

SmartyPig interest rate falls from 3.25% to 3.05% APY

I recently opened a savings account at SmartyPig.com, currently as an experiment. It was initially paying 3.25% APY interest. I logged in today and got the following notification about the interest rate dropping to 3.05% APY:

Effective April 1, 2009, the APY (annual percentage yield) on SmartyPig accounts will be 3.05%. This is an APR (annual percentage rate) of 3.02%. While interest rates have been trending lower, we believe this is still an extremely competitive yield for an account insured by the FDIC. Thank you for being a SmartyPig customer. We appreciate your business!

I am disappointed in the decline, but I do agree that SmartyPig still has one of the best rates around for a non-CD account.

I only have $100 in the account as a test, but after another month of experimentation and research I may start putting in a larger chunk of my cash savings.

One of the small "gotchas" I noticed is that interest is only credited quarterly. That is not a really big deal, I think, but it may matter for some people. I made my initial deposit four days before the end of the March quarter, so I ended up getting interest ($0.04 on my $100 deposit) credited four days later.

My next task is to see if SmartyPig is appropriate for parking cash amounts on the order of $10,000 to $100,000. Mostly, SmartyPig seems oriented as a tool for saving smaller amounts of money.

FYI, BankRate.com reports that Redneck Bank of Snyder, OK is paying 3.10% APY. GMAC Bank is paying 2.25% APY. DollarSavingsDirect.com is paying 2.05% APY.

-- Jack Krupansky

Made my Kiva micro-loan for the month of April

I made a new micro-loan through Kiva for the month of April. My intention is to make a new micro-loan every month, in large part from repayments for past micro-loans.

This one was for a man and his wife who has been selling toys and children's clothes in Mongolia for eight years now, to expand their business. It is a 26-month micro-loan for a total of $1,150, of which I lent $25. Its first repayment is scheduled for June 2009. The micro-loan was already disbursed to them on March 30, 2009 by the local partner. Kiva is raising funds to essentially buy that loan from the local partner.

Here is my Kiva public lender page: http://www.kiva.org/lender/JackKrupansky

Note: This is all real and good, but these micro-loans do not net any interest to us micro-lenders. Kiva's fine print:

Lending to the working poor through Kiva involves risk of principal loss.
Kiva does not guarantee repayment nor do we offer a financial return on your loan.

Still, at least we know our money is really helping somebody better their lives in a visible way rather than put the money in a bank account or money market fund where who knows what it helps to pay for or what good it does and for only a few pennies of profit in our pockets.

-- Jack Krupansky

ECRI Weekly Leading Index rises moderately and shows a hint of light at the end of the tunnel

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose moderately by +0.42% vs. +0.41% last week, and its annualized growth rate rose sharply from -23.2 to -22.2 moderately above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, which remains well below the flat line, but the distinct upturn does strongly suggest that recovery is on the way.

According to ECRI, "With WLI growth rising to a 23-week high, an upturn in the U.S. growth rate cycle is now in clear sight."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be underway within the next few months.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that employment is not a leading indicator, so we could continue to see employment losses even as recovery is underway.

-- Jack Krupansky