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Forbes
9 minutes ago
- Forbes
What Most People Don't Know About Our 250-Year History, Part I
The Fed allowed one-third of U.S. banks to fail during the Depression. FPG/Hulton Archive. As we approach our country's 250th birthday, there is no better time to reflect on where we have been and how we got here. Yet Americans are surprisingly ignorant about our past. One reason: So much bad history has entered the popular culturecourtesy of bad historians, a few bad economists, and some talented writers like Charles Dickens and Upton Sinclair, who didn't understand history or economics at all. To remedy this problem, I highly recommend The Triumph of Economic Freedom: Debunking the Seven Myths of American Capitalism by Phil Gramm and Donald J. Boudreaux. Gramm is a former U.S. senator and Boudreaux is a professor of economics at George Mason University. Together they have combed through the scholarly literature and savagely dismantled myths about our economic history – myths that are routinely taught in high schools and colleges across the country. In this essay, I will address two severe economic downturns: the Great Depression and the more recent Great Recession. The Great Depression There are five myths here, beginning with the assertion that the depression was caused by capitalism and greed. Put differently, it's the idea that the worst economic downturn in our country's history occurred because of too much individual freedom and too little government. In contrast, the authors write, The worst failure was that of the Federal Reserve System, created to be a lender of last resort, providing liquidity to banks in times of a credit crisis. In fact, the Fed stood by, allowing one-third of the nation's banks to go out of business. A second myth is the idea that in the early stages of the depression, Herbert Hoover stood by and did nothing. In fact, Hoover was a very activist president. In response to the economic downturn, he raised taxes, increased spending, signed the Davis-Bacon Act (ensuring higher wages on federal construction projects) and the Smoot-Hawley Tariff Act. Like many of Franklin Roosevelt's policies, most of what Hoover did made things worse, not better. A third myth is that Roosevelt's policies saved us from the depression. In fact, they almost certainly caused the depression to extend for 12 years— longer than it did in any other industrialized country except for France. The authors write: A fourth myth is that Roosevelt united the public in times of crisis. In fact, Roosevelt was a divider, not a uniter. He vilified successful industrialists who opposed his policies as 'economic royalists' who made up an 'economic autocracy.' In fact, it is probably no exaggeration to say that Roosevelt vilified the rich in the United States the way Hitler, at the same time, was vilifying the Jews in Germany. University of Texas historian Henry W. Brands says that 'Roosevelt came disturbingly close to the demagoguery not only of Father Coughlin and the late Huey Long, but also of the fascists of Europe.' The final myth is the idea that it took the enormous increase in government spending during World War II to pull us out of the depression. Were that really true, when the war ended and government spending precipitously retracted, we should have been right back into the depression again. In the four years following the end of World War II, government spending fell by 75 percent. The federal deficit fell by more than 50 percent and then eased into a small surplus. Yet income, output and economic wellbeing continued to rise. The Great Recession Following the Great Depression, the Great Recession—from 2007 to 2009—was our nation's most severe economic downturn. It encompassed a sharp fall in housing prices, accompanied by a spike in mortgage defaults, especially on subprime loans. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)—two government-sponsored enterprises established to support home ownership—went into receivership. There are four myths here, beginning with the assertion that the recession was caused by too much private sector greed and risk-taking and too little government supervision. If anything, the reverse is true. Subprime lending actually became a goal of the federal government—beginning under the Clinton administration, primarily through the expansion of the Community Reinvestment Act (CRA). The authors explain: Using newly expanded CRA requirements, bank regulators began to pressure banks to make subprime loans. Guidelines turned into mandates as each bank was assigned a letter grade on its making of CRA loans. Banks could not even open ATMs or branches, much less acquire another bank without a passing grade—and getting a passing grade was no longer about meeting local credit needs. Increasingly, passing grades were gotten by making subprime home loans. By 2008, roughly half of all outstanding mortgage loans in America—28 million in all—were high-risk loans. The second myth is that the crisis was caused by lack of regulatory authority. In fact, there were a slew of federal and state banking laws, which gave rise to an army of regulators with the power to investigate, mandate corrective action, and fine and even imprison violators. The problem was that the traditional interest in meeting community credit needs with sound banking practices was overridden by a new federal policy designed to make 'affordable housing' available to more and more people. A third myth is that the recession was caused by banking deregulation—in particular by the Gramm-Leach-Bliley Act (GLB). In fact, GLB removed barriers to competition in banking—making the financial sector more efficient. But regulatory authority did not decrease. It increased. The Congressional Budget Office actually scored GLB as increasing regulatory costs. Regarding GLB, President Clinton said, 'There's not a single solitary example that it had anything to do with the financial crash.' The final myth is the idea that the length of the recession was somehow caused by banking practices. In fact, an unusually weak recovery was more likely caused by increased penalties for working and increased subsidies for not working. During the Obama years, the authors say, the 'American economy was hit with a tidal wave of new rules and regulations across health care, financial services, energy and manufacturing.' At the same time there was an explosion in the enrollment numbers for disability benefits, food stamps and cash welfare. So why are these facts so important to know? George Santayana is reputed to have said, "Those who do not learn from history are doomed to repeat it." The experiences of the Great Depression and the Great Recession are events that no sane person should want to experience again.
CNBC
11 minutes ago
- CNBC
Why a great company's beat and raise was sold, and what I plan to do with the stock
When is a beat and raise not a beat and raise? That's a question that has frustrated us this earnings season. Case in point: How about Honeywell 's beat and raise last week? Here's a conglomerate splitting into three different companies, which also has a quantum computing business that's probably more advanced than any of the publicly traded quantum entities. Honeywell has an amazing aerospace business that handles the cockpit for most commercial airlines and a host of other accoutrements, including propulsion. It will very much participate in the aerospace boom and is only being held back by how many planes Boeing is allowed to make each month. That number will be going up soon. The automation business is about, among other things, industrial cybersecurity, smart grid, and regulated energy. There are underperforming divisions that if they are not fixed will be sold. The chemicals and materials businesses, including sustainable refrigerants, chemicals needed to make semiconductors and materials for carbon capture. Boring stuff but stuff that tends to be No. 1 in its category. The advanced materials business seems to be the legacy of Allied Chemical, which became Allied Signal, before merging with Honeywell. On last week's earnings call , management updated the timing on the breakup, saying the spinoff of advanced materials will happen in the fourth quarter. The other two are slated for the second half of 2026. At no point will these divisions be static. When there is something that can be done to make each better, it will be done, like the acquisition of Carrier 's global security business for $4.9 billion last year, a great price because Carrier needed to get to investment grade and did so by selling the division to Honeywell. Vimal Kapur, who became Honeywell's CEO in June 2023, takes after Dave Cote, the CEO before Darius Adamczyk. Cote is a legendary figure when it comes to creating value. I give you that history because Honeywell's stock, as of Friday's close, was down 0.7% year to date versus the S & P 500 's gain of 8.6% in 2025. Shares of Honeywell are trading nowhere near where they will trade as the split comes to fruition. Oddly, if it weren't breaking up, I think, at this point, it would trade higher than it does right now after that astonishing collapse last week based on, well, nothing. There was a margin issue in one division that will be fixed. There were two underperforming segments that will most likely go. There will be three companies that will either stand on their own or be bought by private equity, although the scarcity in aerospace company coupled with a pro-merger Federal Trade Commission will probably make that company a takeover target almost immediately. HON 1M mountain Honeywell 1-month performance While I have no idea why Honeywell's stock really collapsed, I can take the conspiratorial view, that some of the hedge funds who were short Kohl's decided to blow me up using a complex method of call buying and shorting. I know it seems phantasmagorical. But, when I started my Charitable Trust, whose holdings make up the CNBC Investing Club portfolio, I played open-handed and took fire quite often — even dealing with some who hinted that's exactly what they were doing. That's a dangerous game. I know what I am doing. I make mistakes, but a company like Honeywell — and Dover and DuPont , for that matter — are not among them. The Club owns all three. Another possible reason: Honeywell's structure could be too hard to understand. There are a huge number of divisions within divisions. You could ChatGPT these all day long and not figure out how they come together. But that's OK. That's what is being rectified by the planned split. But all of them are part of the reshoring and the reindustrialization of America. When you hear President Donald Trump getting $550 billion from the Japanese, Honeywell will get its share, whether it is from plane orders, or industrial buildings, or the myriad chemicals it takes to make things safely. Honeywell's split could be too far off. We call it spin purgatory , a period where nothing happens other than the back off separation of the divisions. Like with Honeywell, we're seeing that happen in DuPont, too, which trades like death. So, did Kenvue , when Johnson & Johnson spun it off. There's all of this red tape about new boards and new procedures that aren't everyday occurrences. No one can explain the length of time it takes. But it takes time and people aren't patient. They really want to wait until they see the whites of their separation eyes. It could also be the lack of real data center exposure. The only industrials that are working are the ones with data center exposure. While building automation within Honeywell has some, it is obviously not enough. What's my conviction based on then? How can I believe in Honeywell's stock, which does a beat and raise and it gets clobbered anyway; or that it has had a previous ones that were also poorly received, too? I give you a few reasons. First, discouragement is not a good quality to base an investment decision on. That's what I did with Emerson . It had two shortfalls, and I decided that its reorganization based around electrification wasn't going to work. I bolted after the second one. My total bad. They got it together even after a hostile bid that they won, and this very difficult to understand ugly duckling became a swan. I felt the same way with Oracle . The company had made a somewhat dispiriting acquisition of medical records company Cerner, and I had no idea what the hell that was about. Then it decided to get into data centers. Not once, but twice, they disappointed in their data center goal. I was livid. So, I kicked it out. It then ran higher. I had isolated two fantastic stock ideas. And, just when they got hammered a second time, I fled, right before they were recognized as great situations by everyone. I can't let that happen again. Curiously, the pain was the greatest after that second miss, when people were truly fed up. This one is the worst and, yet, I would argue it wasn't as bad a miss, if it were a miss at all. Second, people don't believe that Kapur can actually improve each of the three companies that are developing. They fear lost focus. They fear economic cycles. They fear that he is in the "wrong" industries even as private equity firms are routinely in the wrong industries, yet they are fine. Kapur knows how to multitask. Three, there is tremendous fright here in the way Honeywell stock trades, The moves are particularly vicious. They are from peak to trough, tremendously ugly, devoid of any support whatsoever. I wish I had an answer to this one. All I can say is that the decline has to be bought because the overreaction is ridiculous. I know when a stock is down nearly 14 points on a given day, as it was after Thursday's earnings print, it is typically not done going down. The selling from the previous day tends not to be finished. Too many sellers. And, that's what happened. Friday's opening hours were hideous as the sellers from Thursday finished. The stock market typically gives you clues about what a stock will do. When I find a stock breaking down as much as Honeywell, I know the queue to get out is a deep one and the process, if heavy institutional selling, means that a broker usually buys stock to work it by finding clients. If they can't be found you get what you got Thursday and Friday, the brokers just throw out what's left. Hence the Day 2 ugliness. Barring some craziness from the president, Honeywell is recharged and ready to go because, you see, it was a beat and raise. It was real — as will the next move. Bottom line So, what am I doing? Standing pat initially, waiting for my restrictions to run out. Remember, when I mention a stock on television, the Club must wait three days to trade it. Then, I am going to buy some because I am being given a chance to do so, like I did with Oracle and Emerson, and I didn't take them. Were they unique? Who knows? I do know this. I had done the work. I had conviction. Out of pique and frustration, I gave up. I am doing the opposite this time. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Bloomberg
11 minutes ago
- Bloomberg
US Futures Climb After Trump Agrees EU Tariff Deal: Markets Wrap
US equity futures climbed after the US and European Union struck a deal that will see the bloc face 15% tariffs on most exports, averting a potentially damaging trade war. S&P 500 contracts rose 0.4% after the index notched its fifth-straight all-time high on Friday. Asian equity futures were muted as investors braced for a busy week of data including a Federal Reserve meeting and the Aug. 1 deadline for American trade pacts. The euro was slightly higher against the dollar.
