The Discrepancy between Stocks and the Economy

Adapted, with some changes and edits, from my recent Letter to Investment Clients.  In the last week, several economically important things have happened and they can be summarized together as a discrepancy between the stock market and “the economy.”  First, and of primary importance, on Monday we got the 2016 first quarter GDP forecast number,…

Economy on the Deathbed, Good Riddance

Writes Barrons: Standard & Poor’s reported Thursday that the average corporate credit rating is double-B, two notches below investment grade. That’s near a 15-year low. More ominous — S&P sees this as a sign that defaults could spike and the corporate credit cycle has peaked. Given  easier lending conditions since the financial crisis, companies with weaker…

Investing and “the Economy” as Such

“The economy is doing well” or “the economy has reached a stand-still” or many other myriad ways to refer to “the economy” should always be taken as a metaphor. And yet, quite obviously, this is not actually the way that the mainstream economic thinking works. For them, the economy is treated as an entity independent…

The Needed Pain Wrought by Saving

The endgame of monetary side manipulations is upon us. Since 2008, central banks have done what they thought was needed to bring the markets back from the pain they experienced during the crash. The problem, of course, is that these Keynesians and Monetarists placed the high level of stock markets as the goal of “policy”…

The Big Short

For most people, the events of 2008 and 2009 are shrouded in mystery. Millions lost their homes and jobs, banks went out of business or were absorbed by other financial institutions, and there was constant political tension about what the proper response by the government should be. The Big Short is the film adaption of…

Bernie Sanders’ Fed Plan

Bernie Sanders’ advice on the fixing the Fed demonstrates the fact that being “anti-Fed policy” is not enough. One must not just be a critic, one must also know what the Fed is doing that is bad, and what the better solution would be. Unfortunately, those of us who think that the Fed has been an engine…

The Swiss 100% Reserve Plan

The Telegraph reported last week that “Switzerland will hold a referendum to decide whether to ban commercial banks from creating money.” The article continued to say: The campaign… is designed to limit financial speculation by requiring private banks to hold 100pc reserves against their deposits. “Banks won’t be able to create money for themselves any…

Fear the Boom, not the Bust

According to most financial commentators, the economy has a cyclical nature about it such that there are times where everything is booming and business is expanding and there are times when everything turns upside down and the economy “contracts.” As such, it is the times of boom when we ought to be enjoying ourselves and,…

The Meaning of the Interest Rate Announcement

In our current environment, and against the warning of eminent free market economists in the Austrian tradition, the interest rates in the global economy are highly manipulated as a goal of monetary policy. Specifically, the interest rates are forced downward in an attempt to “stimulate the economy” and increase demand. Since late 2008, the Federal…

A Confidence in the Poison

The Wall Street Journal subheading indicates that Fed Chair Janet Yellen “says gains in labor market bolster her confidence that inflation will return to 2%.” As I have indicated in previous blogs and articles, we must remember that the modern definition of inflation, an increase in the general price level (as measured by the CPI),…

The Problem with the Fed’s Economic Stimulus

The United States’ central bank, The Federal Reserve (or “Fed” for short), has, for the past 8 years, attempted to reinvigorate the US economy by undertaking various efforts to suppress interest rates below their natural and market levels.  Interest rates literally represent the cost of borrowing money and, like all other prices such as those for…

ECB’s Disappointment in Inflation Rates

Bloomberg: European Central Bank President Mario Draghi and his colleagues have been worrying aloud about the weakness in underlying inflation in the euro area. It’s picking up, but not nearly fast enough to reach the central bank’s target anytime soon. While BI Economics estimates that the core measure will accelerate to 1.4% in January, it’s…