Friday, April 29, 2016
At the time Irving wrote this essay, in the 1820’s, there were no good business cycle theories. The most common ideas blamed a shortage of money (gold or silver) or a general overproduction. Say, the French economist, distilled his famous law as part of an effort to debunk the overproduction theory. The Manchester school in England didn’t attempt its explanation until the middle of the nineteenth century and of course Mises didn’t put it all together until early in the twentieth century. Somehow, Washington Irving figured out the essence of the Austrian business cycle theory long before.
Thursday, April 21, 2016
Bob Bryan at Business Insider had an interesting column on why economic growth in the US is dying. For the cause, he defers to Mike Thompson of S&P Global Market Intelligence:
Instead of continuing to invest in the business and focus on growing over time, according to Thompson, managements are trying to undercut possible disruptions by showing constant earnings growth and streamlined companies.
This activist-style, short-term attitude is exactly what Blackrock CEO Larry Fink decried in a letter to all S&P 500 CEOs at the start of 2016. Thompson said that these larger firms are most susceptible due to their size.
Revenue growth is predicated on economic growth and innovation,” he said. “We don’t have that sort of economic growth, and, let’s be honest, big companies simply aren’t that innovative. So instead these big companies shift their focus.Thompson claims that large corporations are doing three things: 1) cutting costs; 2) creating shell companies or doing inversions to reduce taxes; and 3) buying back shares in order to boost earnings per share.
Tuesday, April 12, 2016
Last week, the WSJ reported that “orders for new big rigs plunged and inventories of unsold trucks soared to their highest levels since just before the financial crisis, as uncertainty about future demand and a weak market for freight transportation weighed on truck manufacturers.”
Thursday, April 7, 2016
Nicholas Vardy wrote, “George Soros’ investment track record made him the equivalent of a .400 hitter in baseball.” But then his luck changed:
Soros quietly left the hedge fund scene in 2011, turning his fund into a family office. But his last few years in the game were hardly like his first. Indeed, 2010 was Soros’ worst year since 2002, with his flagship fund up a mere 2.63%. The following year was even worse, with his famed Quantum fund reportedly down 15%.
Friday, April 1, 2016
The first clue comes from the fact that economists trained in the German historical school , known as socialists of the chair, created the American Economic Association to promote German style socialism in the US. Bismarck, the prime minister in Germany in the late 1800s, had implemented almost all of the socialist agenda by the 1890s in what became known as the “welfare state.” Convinced that Germany was inventing the cutting edge of history, the American economists determined to bring such “progress” home.
Friday, March 25, 2016
So what can we make of the January plunge and recent recovery of the bull market? I am betting that the bull’s real intention is to plunge into a bear and that the latest rise in stocks is a head fake to trick the cowboys to overcompensate in anticipation of a continued ascent. Instead, the bull will reverse direction and slingshot the cowboy (investor).
Some of us are mystified by the recent rise in stock prices, but as the great Austrian economist Ludwig Lachmann wrote, moving the deeply anchored expectations of investors out of their comfort range for prices on the market requires extraordinary events. Some of us have seen indicators as early as two years ago, such as the hedge fund manager Mark Spritznagel, author of The Dao of Capital: Austrian Investing in a Distorted World.
Thursday, March 17, 2016
Congress passed the act in spite of the fact that no mainstream economist I know of has blamed Wall Street or banks for the crisis. In the minds of mainstream economists, recessions are random events. The economy naturally spins in equilibrium like a top until an unforeseen “shock” slams into it, makes it wobble and sling thousands of people out of work. I like to call it the “crap happens” theory of business cycles.
A much better explanation of recessions come from the Austrian school of economics in which credit expansion causes misallocations of capital that accumulate during an expansion. The weight of those misallocations eventually crushes the expansion and a recession follows. The most robust explanation of the mechanism is Hayek’s Ricardo Effect [link] in which nominal profits guide the allocation of capital.