- I found point #1 in this post to be pretty interesting. There is a comical irony to be observed in Post Keynesian theory. While these folks like to mock the neo-classicals and others for drawing suspect macro conclusions from micro phenomena, the author elucidates how they are apparently doing the exact same thing on one of their foundational issues: money creation.
- I read Singapore’s Success by Henri Ghesquiere (2007) in an effort to bone up on an economy that many tout as, well, a success. In a nutshell, the author praises policy that leads to higher savings rates and lower debt levels, limited social safety net provisions, lower taxes, public enterprises that are guided by market principles, flexible wages, a resistance to dependency culture, honest government, and a longer term vision. It’s not simply some formulaic approach, but there is a lot to be learned. The flip side is a slightly authoritarian government that intervenes frequently, albeit in a thought out and well-executed manner – in this case, there really does appear to be some benevolent dictator at the helm.
- While I haven’t said anything about it, trust me, I know exactly what’s happening in the NBA this season…
Monday, November 26, 2012
Tuesday, November 20, 2012
Yen Update - Part 113
I think the breakout move in the Yen has been confirmed. And I think the cup and handle pattern that has been in process over the past two years is working towards its completion (only incomplete handle shown below).
Friday, November 16, 2012
Quote of the Day
Courtesy of Kyle Bass, in response to a question about why he thinks Germany will eventually leave the Euro:
"So, how many of your relatives would you go joint and severally liable with?"
(h/t Zero Hedge)
"So, how many of your relatives would you go joint and severally liable with?"
(h/t Zero Hedge)
Gold Update - Part 2000
I think the gold chart looks very constructive. In fact, I think the price of gold will break through $2000, convincingly, within the next 60-75 days. The chart appears to be forming a bullish "cup and handle" pattern. Here's the chart, then I'll get into the specifics...
So, the cup portion reflects the U-shaped phenomenon that begins in roughly late February and ends with an equivalent peak in early October. From there, the chart begins to decline, but bottoms on November 2, at a point far higher than the low point of the bowl-shaped cup pattern. Obviously, the price of gold is dinkering around again, so it will be important to watch whether it maintains yet a higher low again relative to 11/2. If it does, and I guess that I think it will, the next move would be back up to the horizontal line that I've drawn which captures the previous two peaks of the cup. From there, we would expect it to break through that level and then we're talking about a measured move that takes us to about 200 on the GLD chart, or somewhere comfortably higher than $2,000 per troy ounce.
Let us hope.
So, the cup portion reflects the U-shaped phenomenon that begins in roughly late February and ends with an equivalent peak in early October. From there, the chart begins to decline, but bottoms on November 2, at a point far higher than the low point of the bowl-shaped cup pattern. Obviously, the price of gold is dinkering around again, so it will be important to watch whether it maintains yet a higher low again relative to 11/2. If it does, and I guess that I think it will, the next move would be back up to the horizontal line that I've drawn which captures the previous two peaks of the cup. From there, we would expect it to break through that level and then we're talking about a measured move that takes us to about 200 on the GLD chart, or somewhere comfortably higher than $2,000 per troy ounce.
Let us hope.
Thursday, November 15, 2012
Yen Update - Part 76
I'm not sure what to make of it yet (since it needs to be confirmed over several days), but the Yen finally broke above the 80/80.5 level today on the chart...
Monday, November 12, 2012
Quick Hits
-First up is a nice post from Mario Rizzo on how overblown the whole "Fiscal Cliff" drama is. To put it in perspective, the spending cuts next year are $136 billion out of a $7 trillion budget -- in other words, not much.
-Next is a "great" quote from Paul Krugman about the possible ramifications of an eventual bond vigilante attack: "Because America has its own currency and a floating exchange rate, a loss of confidence would lead not to a contractionary rise in interest rates but to an expansionary fall in the dollar". No surprise there -- every outcome shall be spun to validate his views.
-Next is a "great" quote from Paul Krugman about the possible ramifications of an eventual bond vigilante attack: "Because America has its own currency and a floating exchange rate, a loss of confidence would lead not to a contractionary rise in interest rates but to an expansionary fall in the dollar". No surprise there -- every outcome shall be spun to validate his views.
Look out below?
Take a look at this chart of the S&P 500...
Here's what I see:
-The 21-day MA has crossed below the 50-day (bearish)
-The 50-day MA appears to be turning down (bearish)
-The 200-day MA is acting as support right now, but has seemingly flattened out (neutral)
-The price action has dropped convincingly below the bollinger bands (bearish)
-The trading channel of the past 4 or 5 months has given way to the downside (bearish)
-The latest round of QE to infinity was sold off pretty quickly (bearish)
I don't necessarily plan to do anything about it, but it's worth taking note of.
Here's what I see:
-The 21-day MA has crossed below the 50-day (bearish)
-The 50-day MA appears to be turning down (bearish)
-The 200-day MA is acting as support right now, but has seemingly flattened out (neutral)
-The price action has dropped convincingly below the bollinger bands (bearish)
-The trading channel of the past 4 or 5 months has given way to the downside (bearish)
-The latest round of QE to infinity was sold off pretty quickly (bearish)
I don't necessarily plan to do anything about it, but it's worth taking note of.
Friday, November 9, 2012
For a Trade
I haven't done it yet, nor am I even going to post the chart, but I am debating a MSFT trade. Basically, I would buy Dec $30 calls for about $0.39, with a view towards seeing the stock closer to $31.50 or $32 at that point (relative to its current level just below $29). In other words, the options could be worth somewhere around $1.75 or $2 by expiration. What I'm seeing in the charts? An inverse head and shoulders over the past month that projects to at least the levels noted above. Haven't pulled the trigger, but I might.
More on 1921
Having seen it mentioned several times in the past year at various blogs that I follow, I finally read a journal article by an econ PhD student (and Keynesian) on the depression of 1921. The author’s goal is to show that the fiscal and monetary measures taken at the time were consistent with Keynesian recommendations, contrary to those who cite the episode as a rebuke of the theory.
First, to set the stage, many sympathizers of Austrian and Libertarian thought (including Jim Grant) mention this depression as an example where the powers that be sat on their hands, the markets cleared, and the economy was off to the races again within short order. Well, the author contests that depiction, noting primarily that the problem was a supply shock, rather than one of demand, so concerted efforts at running deficits and lowering interest rates in response would not have been appropriate.
The depression came on the heels of World War I, when government borrowing had been significant and inflation meaningful. This reality was, in part, a function of war financing activities that continued long after the actual conflict had ceased. Thus, in 1920, New York Fed Governor Benjamin Strong started raising rates to try and stem the tide of inflation. So, at least as to the claim that the government did nothing, the depression was in many ways a conscious choice by the Fed. Such maneuvers were supplemented by Woodrow Wilson who began to cut federal spending in 1919, and followed up by Warren Harding who implemented his own policies towards a balanced budget once in office.
This brings us to the standard characterization of what J.M. Keynes thought about deflation, versus what he actually wrote – as his views on the subject operate at the core of why many use the 1921 downturn as a rejection of his ideas. The author suggests that Keynes was actually indifferent between inflation and deflation – that he was theoretically in favor of deflating the money supply when prices were rising at a higher rate than the supply of cash. As such, given the circumstances at the time, Keynes was supportive of the policies of Strong and Wilson in order to deflate a post-war credit bubble and stabilize prices.
In addition, the author points out that the depression was largely tied to supply shocks (i.e., declines in output following the war) rather than in demand. And for that reason, monetary policy was a more potent tool (as opposed to calling for fiscal intervention, which is how critics try to contrast the response with what is happening now).
But, here is where the author’s argument starts to go off the rails in my opinion. Basically he argues that you could reduce wages in 1921 (and balance budgets) because everyone understood that these actions were a function of decreased public borrowing and therefore would be temporary. By contrast, in the 1930s, people thought wage decreases would beget more wage decreases and there was no sense that the economic downturn would pass in short order, so fiscal intervention was appropriate.
Huh?
That’s a pretty convenient explanation. Look, I’m happy to acknowledge that 1921 was more supply shock than anything else. I can also go along with the idea that Keynes was not an inflationist always and at all times. However, this emphasis on a very subtle and arguably expedient caveat regarding how long wage reductions would last, sorry, but I’m calling bullshit. Everything else lines up with the Austrian story, then, lo and behold, we emphasize a notion of expectations that is hardly verifiable (I would point out that the author is happy to footnote sources that confirm his other contentions in the article – in this case, nothing). And the article’s alternative interpretation largely hinges on this idea of expectations about wage reductions.
Another important point – the author does present Keynes’ views in a way that suggests that deflation can be an appropriate tool. But, what the man thought then is not necessarily how the religion is practiced now. Fiscal intervention in its current forms is never temporary. Reminded of Minsky, the current wizards are always pushing for do-overs and bailouts. They are encouraging instability and defaulting to inflation as the preferred solution. So, maybe Keynes stands up reasonably against the Austrian tale of 1921, but today’s practitioners of his cult don’t do as well.
I think, as with most things in economics, that no one has a monopoly on the right answer. Such is the case with efforts to turn the 1921 depression into a slam dunk for one school of thought over another. The author certainly pokes some holes in other renditions of this tale, but he hasn’t discredited the basic implications that follow from the fact that there was a credit bubble and that fiscal intervention was not needed – his gyrations about expectations are just not convincing.
First, to set the stage, many sympathizers of Austrian and Libertarian thought (including Jim Grant) mention this depression as an example where the powers that be sat on their hands, the markets cleared, and the economy was off to the races again within short order. Well, the author contests that depiction, noting primarily that the problem was a supply shock, rather than one of demand, so concerted efforts at running deficits and lowering interest rates in response would not have been appropriate.
The depression came on the heels of World War I, when government borrowing had been significant and inflation meaningful. This reality was, in part, a function of war financing activities that continued long after the actual conflict had ceased. Thus, in 1920, New York Fed Governor Benjamin Strong started raising rates to try and stem the tide of inflation. So, at least as to the claim that the government did nothing, the depression was in many ways a conscious choice by the Fed. Such maneuvers were supplemented by Woodrow Wilson who began to cut federal spending in 1919, and followed up by Warren Harding who implemented his own policies towards a balanced budget once in office.
This brings us to the standard characterization of what J.M. Keynes thought about deflation, versus what he actually wrote – as his views on the subject operate at the core of why many use the 1921 downturn as a rejection of his ideas. The author suggests that Keynes was actually indifferent between inflation and deflation – that he was theoretically in favor of deflating the money supply when prices were rising at a higher rate than the supply of cash. As such, given the circumstances at the time, Keynes was supportive of the policies of Strong and Wilson in order to deflate a post-war credit bubble and stabilize prices.
In addition, the author points out that the depression was largely tied to supply shocks (i.e., declines in output following the war) rather than in demand. And for that reason, monetary policy was a more potent tool (as opposed to calling for fiscal intervention, which is how critics try to contrast the response with what is happening now).
But, here is where the author’s argument starts to go off the rails in my opinion. Basically he argues that you could reduce wages in 1921 (and balance budgets) because everyone understood that these actions were a function of decreased public borrowing and therefore would be temporary. By contrast, in the 1930s, people thought wage decreases would beget more wage decreases and there was no sense that the economic downturn would pass in short order, so fiscal intervention was appropriate.
Huh?
That’s a pretty convenient explanation. Look, I’m happy to acknowledge that 1921 was more supply shock than anything else. I can also go along with the idea that Keynes was not an inflationist always and at all times. However, this emphasis on a very subtle and arguably expedient caveat regarding how long wage reductions would last, sorry, but I’m calling bullshit. Everything else lines up with the Austrian story, then, lo and behold, we emphasize a notion of expectations that is hardly verifiable (I would point out that the author is happy to footnote sources that confirm his other contentions in the article – in this case, nothing). And the article’s alternative interpretation largely hinges on this idea of expectations about wage reductions.
Another important point – the author does present Keynes’ views in a way that suggests that deflation can be an appropriate tool. But, what the man thought then is not necessarily how the religion is practiced now. Fiscal intervention in its current forms is never temporary. Reminded of Minsky, the current wizards are always pushing for do-overs and bailouts. They are encouraging instability and defaulting to inflation as the preferred solution. So, maybe Keynes stands up reasonably against the Austrian tale of 1921, but today’s practitioners of his cult don’t do as well.
I think, as with most things in economics, that no one has a monopoly on the right answer. Such is the case with efforts to turn the 1921 depression into a slam dunk for one school of thought over another. The author certainly pokes some holes in other renditions of this tale, but he hasn’t discredited the basic implications that follow from the fact that there was a credit bubble and that fiscal intervention was not needed – his gyrations about expectations are just not convincing.
Thursday, November 8, 2012
On Presidential Elections
This situation reminds me of an incident with my Uncle Ken. He was on the street in Mocksville one day when a stranger stopped and asked if he could recommend a restaurant in town. Ken said, “We have C’s Café at one end of town and the Barbecue Pit at the other end. It won’t matter which one you go to, you’ll always wish you had gone to the other one.”
-Gene A. Hoots
(h/t Valueinvestingworld.com)
-Gene A. Hoots
(h/t Valueinvestingworld.com)
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