Economics textbooks teach us that there is a sort of natural sine wave to the economy: A little growth->higher consumer confidence->more spending->lower inventories>production expansion->higher labor demand->higher wages->higher confidence and spending – and so we go round and round until inflation happens, and the Fed steps in to slow it all down because that’s what they [...]
Economics textbooks teach us that there is a sort of natural sine wave to the economy: A little growth->higher consumer confidence->more spending->lower inventories>production expansion->higher labor demand->higher wages->higher confidence and spending – and so we go round and round until inflation happens, and the Fed steps in to slow it all down because that’s what they do. The links between each step are normally quite solid and also hold up in reverse. A war or terrorist attack can reduce confidence which then reduces spending so we get layoffs and lower wages then we reduce spending even more… until eventually the Fed steps in to reduce interest rates.
Capacity utilization can’t even be measured anymore.
What happens if all our plants are in China so any increases in production take place over there? If the new iphone 6 is a hit it will lead to lots of new hiring at Foxconn in Shenzhen. Demand for US labor will not rise – in fact it might fall, especially if Americans redirect their spending away from US made goods or services. This is exactly what’s been happening for years. No matter how low the Fed sets interest rates and even if GDP growth exceeds that magical 3% target, wage growth simply never happens. The result is a non-cycle where growth in one quarter is not necessarily connected to the previous one. Weather and fluctuations in inventories now dominate our analyses and can tip the scales like never before. The animal spirits that beget inflation have been surgically removed. The inflation fighting Fed looks more like an anachronism. It’s purpose has been flipped upside down. This is a great story for the stock market: lots of liquidity (0% interest rates ad infinitum) plus a quiescent labor force that accepts/demands no wage increases - ever.
Two rules to invest by:
1) Own stocks until you actually see the (typical) barely employed US worker walk right past the Apple store loaded with all its new Chinese made goodies.
- 2) Buy Bonds
Beware of pundits waxing on about where we stand in the cycle.
All the Chicken Littles of the world love to emotionally proclaim that the Fed will ruin us all. Inflation is about to explode due to inappropriately low interest rates. Our currency will collapse when everyone figures out how irresponsible they have been with their balance sheet. Bond yields will soar; stocks will plummet. Needless to say [...]Continue reading →
I have argued that we need two leaders – a President who attends to foreign policy and ceremonial duties and a Prime Minister who works on domestic legislation to fix the (primarily economic) problems of the day. Then only one of the two can be distracted by foreign issues that don’t affect Americans such as Crimean [...]Continue reading →
The latest trend in reducing one’s corporate tax rate is to buy a foreign company so you can move a revenue stream to a foreign/lower tax location. Frankly it’s no more egregious than all the other clever tactics employed over the last 20 years (A few examples). All these efforts have succeeded so [...]Continue reading →
I’ve written about how the west has traditionally had a problem selling anything to the Chinese. Either they are too broke to afford western goods or their tastes just aren’t the same as ours. That’s why when the British discovered their taste for Opium they went to war to insure that the “market” stayed open. [...]Continue reading →
What does the US have in common with Jordan?:
We have no border wall that keeps out refugees and illegal immigrants. We have no intention of deporting all the illegal immigrants who are already here (or who recently arrived). Any life inside our borders is better than the life offered in their home country.
Refugee [...]Continue reading →
OK, first I have to establish the premise: Is the Fed obsessed with the stock market? It seems to be a fairly well accepted position by Fed followers that the thing the Fed most fears is another stock market meltdown. Like any fallible human it is most afraid of the thing that just happened – a meaningful [...]Continue reading →
If you get involved in a foreign “civil war” by taking a side you invariably run into two problems:
Your good guys aren’t really so good or at least they may start that way but after they get some American cash they start to behave no differently than the bad guys. The bad guys can’t survive [...]Continue reading →
Let’s say we all agree that President Nouri al-Maliki of Iraq is an evil partisan bastard who could care less about the Sunni minority. In a normal functioning democracy that might enrage the Sunnis (and Kurds) to demonstrate and call for new elections. They might even challenge some decisions in court to appeal to the fairer [...]Continue reading →
After the secular Soviet Union crashed, every component of the empire was left to sort itself out without the macro totalitarian overlay. Old tribal divisions came back to life like Dracula rising from a grave (Yugolslav civil wars). When a revolution or an invasion removes a dictator, the country inevitably becomes fertile ground for tribal [...]Continue reading →
The Rabid Independent
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