Saturday Market Prediction Show For Week of November 13 2017

Put on your macroeconomics hat and hold on for a wild, brain-stimulating ride as Lance dives into the GDP formula and explains the President’s monumental speech at the Asia Economic Summit in Vietnam last week.

This week’s show features commentary on President Trump’s monumental speech at the Asia Economic Summit in Vietnam last week.

Folks, this speech from the President was bigger than all other stories combined.

I see clearly what the Trump Administration is doing because my economics teacher, Dr. Peter Navarro, was selected by President Trump to be director of the White House National Trade Council.
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Trump Administration and Tariffs Versus Quotas

Protectionist policies in the form of tariffs and quotas are coming from a Trump Administration. It seems appropriate then that we examine tariffs and quotas from a macroeconomics perspective.

The two most common ways of restricting trade are with tariffs and quotas. From a political point of view and to prevent a trade war, a Trump Administration should consider the use of quotas over tariffs in some cases.
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Pharmaceutical Drug Pricing

Pharmaceutical drug pricing is all over the mainstream financial media right now. Let’s examine the macroeconomics of what is happening.

The demand for pharmaceutical drugs is inelastic. People that need a pharmaceutical drug prescribed by their doctor will demand that drug regardless of price. As the price of the drug goes up, demand mostly stays the same.
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Frictional Unemployment and The Employment Situation Report

As traders, we track the monthly Employment Situation report closely. The market often does a short-term move on the first Friday of every month when the Employment Situation report for the previous month is released. Do you understand what the Employment report is showing? I bet many traders do not. As traders, we have to know a bit of macroeconomics, so we don’t make the wrong decisions with our money. Let’s briefly look at what the Employment Situation report shows.

There are different types of unemployment. When we talk about unemployment, most traders default to what is called cyclical or demand deficient unemployment.

Cyclical unemployment exists when individuals lose their jobs as a result of a downturn in aggregate demand (AD). If the decline in aggregate demand is persistent, and the unemployment long-term, it is called either demand deficient, general, or Keynesian unemployment. Demand deficient unemployment is caused by a lack of aggregate demand, with insufficient demand to generate full employment. Demand deficient unemployment shifts the AD curve left (inward) from AD to AD1.

GDP contracts from Y to Y1 and wages fall from P to P1. If wages “stick” at P rather than fall to the new equilibrium wage of P1 following a shift of demand, the result will be a much greater unemployment equal to Y – Y2.

Frictional unemployment is not caused by a reduction in aggregate demand. Frictional unemployment is due to people being in the process of moving from one job to another. The time, energy and monetary cost of searching for a new job is called friction. Friction is an unavoidable aspect of the job search process. Friction is a natural part of seeking new employment, but friction is typically short-term.

When most traders get the monthly Employment Situation report data of something like 150K jobs created in October, they don’t realize that those are net changes. What actually happened is that there are around 5 million new hires during the month, and 4.85 million new separations (quits or layoffs). The number you hear about each month is the net number or the difference between new hires and new separations. The net number is misleading. The net number hides the vast amount of job change which is happening.

Every month millions of people quit their jobs to get a new job. Some go back to school for more training and some retire. Other people start new jobs after graduating or finding new opportunities. This all leads to frictional unemployment and it’s a healthy part of a dynamic economy.

Macroeconomics of Rising Interest Rates

The prospect of a Federal Reserve rate hike is driving up the US dollar. The rising US dollar has a significant impact on the US economy and thus stock market. It’s important that traders understand the implications of a rising US dollar from a macroeconomic perspective.
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Guess Who Is On Trump’s Economic Team, SWEET!

Do you remember when the WSJ, CNN, CNBC, NBC, ABC, CBS, Bloomberg, Forbes, and Reuters ran stories at the start of the year about how no one even knows who was advising Trump on economic matters? They even went as far to say that Trump had no support of any economists.
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Macroeconomics Of Rent Control

California, New Jersey, and New York have the most cities with rent control. Sanctuary cities in California like San Francisco and Los Angeles have some of the toughest rent controls. Rent controls hurt the local economy and make rental unit availability worse. Aggregate deadweight loss from rent controls across the country negatively impacts the US economy and hence stock market. Let’s examine what happens with rent control from a macroeconomics perspective.

In a free, non-rent controlled market, the price of rent is established by the market where the supply and demand curves cross.
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Microeconomics and Taxation

Most government revenue comes from the taxation of transactions and labor. Taxes impact both the supply and demand curves. Taxes cause a buyer to pay more for something and suppliers to receive less. The loss of value for both buyers and sellers is called the deadweight loss of taxation. Taxation has an enormous impact on the economy and thus stock market. Traders and investors need to understand the effects that taxation has on the economy and thus stock market. We will examine deadweight loss from a microeconomics perspective, ending with a macroeconomics viewpoint.

In a market without taxation, we will say that a package of socks will sell at a fair market price of $14. This $14 equilibrium price is set where the supply and demand curves cross.
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A Macroeconomic Analysis of ObamaCare

ObamaCare has created massive shortages within the healthcare sector. In cities, it is common to wait many hours before being seen as hospitals have a shortage of beds. Doctors have stopped taking new patients as they are overwhelmed by the numbers of people coming to see them. Let’s examine what happened from a macroeconomics perspective.

ObamaCare caused more than 35 million people to demand health services. The idea was that when demand for medical services increased, it would shift the demand curve to the right (D1). As more people demanded healthcare services, supply would increase to meet that demand.
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Illegal Immigration and Job Wage Stagnation In the US

Illegal immigration negatively impacts the hourly wage of US citizens. Illegal immigrants are pouring across the Mexico border, and we have no way of counting them but what we can do is track legal immigration from Mexico then double the number for a fuzzy-math estimate.
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