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July 1, 2019 Max Monday: The Secret to Understanding the Market By Tim Melvin
Dear Reader,
Happy Monday!
As we approach our nation's birthday, there is never a better time to stop and consider the American journey. Where we've been, and where we're going. It's something that can get lost as we coordinate beach trips, barbecues, and figure out the best place to watch fireworks.
For this week I have some selections that will fit that bill. The first is a piece from my favorite author of historical fiction on the American Revolution for the Fourth. Then I have a few quick dives on economics that show us we may not have as good of a handle on some problems as we think we do, which is important because you have to know when we can trust the numbers, and when you can't.
This Week's Worthwhile Books
Rise to Rebellion: A Novel of the American Revolution - by Jeff Shaara
This week brings us to the 4th of July, and this is part one of a two-part book series by Shaara on the founding of our nation. He is hands down the best historical fiction author on the planet today, and I love this series about our founding fathers and their fight for freedom. The research is thorough, and the writing brings these heroes to life. I highly recommend this book to everyone, and if you have any of those wisecracking, know-it-all millennials hanging around your house, make them read it as well to understand how and why this nation was born. You can pick up a copy here.
Backlash: A Thriller (The Scot Harvath Series, Book 19) - by Brad Thor
I love this series of spy/adventure stories featuring an off-the-books intelligence agency that does the jobs the bureaucrats won't to battle terrorism, and dictators who wish the nation harm. I was riveted by the latest in the series and read it in the airport and on the plane back from Baltimore this week. Harvath has to fight his way out of the Russian Wilderness while the CIA and his teammates try to find and assist him. This a fantastic pool-beach-couch read that will thrill and entertain. If you are not familiar with the series, you might consider going all the way back to book 1 but it will destroy your TV habit for a few months. You can find a copy here.
This Week's Quick Read Articles
Why Big Business Gets a Bad Rap
This is a fascinating discussion with Robert Atkinson, president of the Information Technology and Innovation Foundation. He debunks the claim that small business is the driver of job growth and innovation in the US economy. His research shows the small business actually accounts for 27% of jobs but 35% of new jobs and 34% of job losses. He also points out that big business spends billions more of research than small business in the modern world. He also discusses how to improve the US economy, so we are better prepared to compete in an increasingly global business world. Read more here.
The State of Housing 2019
This study out of Harvard Business School looks at what's going on in the housing markets right now. Housing is a big driver of economic activity, and a huge percentage of most Americans net worth, so it's an important subject that touches pretty much everyone. It's improving as vacancy rates for both owners and rentals dropped again in 2018 but new home construction remains quite sluggish. Builders and bakers alike remember what happened in 2008-2009 so they're reluctant to begin, or finance speculative building activity that would increase the supply. The cost of labor, land, and materials make it unprofitable to build for the middle market along with stiff regulations, and NIMBY opposition is making it particularly difficult to build for the first time and move up markets right now. This is a very thorough in-depth look at housing and its impact on the US economy and society. It's worth the time to review, and you can read about it here.
The Private Equity Wall of Money
According to industry research, private equity firms around the world are sitting on $2.5 trillion of dry powder to invest right now. This is creating competition for assets that is driving prices up. It's becoming a bit of a Catch-22 for the private equity funds. Earning high returns requires buying assets at premium valuation, but the sheer size of the money tsunami chasing every deal is keeping valuations somewhat elevated. Like equity investors in US markets, they need the market to roll over with a big move lower to create the type of returns that attracted all that cash in the first place. Click here to continue reading.
The Overuse of Mathematics in Economics
Modern Day academics have tried to make economics into a pure science like chemistry, or physics. They attempt to use complex mathematical formulas to explain what's happening in the global economy. The problem with this approach is that it doesn't consider the fact the economy is made up of people making transactions for their own reasons. This devotion to math leads one to believe that central planning can work, and that governments can control the economy. They can't. At best they can use math to influence and try to guide the economy, much in the same way I try to use rational thinking to influence and guide my 18-month-old granddaughter. It will work some, maybe even most of the time, but at some point, she's going to stick a penny up her nose. You can read the article by clicking here.
To the Max,

Tim Melvin
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