God is a Capitalist

Monday, November 28, 2016

Goldman Sachs rains on Trump honeymoon

Traditionally, a new president enjoys a “honeymoon” period during his first few months in office but it seems that Goldman Sachs doesn’t like tradition. The investment bank tried to puncture the euphoria in the stock market over Donald Trump’s victory by issuing a sober forecast of what the US can expect from his regime next year. Their conclusion:
The prediction comes as part of the team’s annual not about the top ten market themes for 2017. Theme No. 1: Utter disappointment.
Actually, the theme was closer to “more of the same.” GS thinks stocks are pricey already and the economy won’t improve enough for profits to relieve some of the altitude in valuations. They are probably right and things might actually get worse if we get the long overdue recession.

Saturday, November 19, 2016

Trump proposes welfare for Mexican immigrants

Last week the Dow index hit records highs largely on the assumption that a Trump presidency will mean massive new spending on infrastructure to shock the economy back to life like a paramedic putting the paddles on a patient whose heart has quit. That’s sad because it reveals how Keynesian and medieval the economic thinking of too many investors has become.

Bush allocated $800 billion to jolt the economy after the Great Recession. Can anyone tell me what we got for it? Of course, the medieval economists counter with “The economy would have been worse without it.” But they don’t know that. They have no data on what might have been, and for a field that is supposed to be data driven they make a lot of decisions based solely on their imagination.

Yes, they have the new-Keynesian models that “prove” the spending helped, but what do you expect from math models constructed with the assumption that state spending drives the economy?

Friday, November 11, 2016

Economics Trumps polling

One of the big news stories today is how the national polls got the results of the presidential election so wrong.

Part of their problem was the demonization of Trump by the media. When media bias turns a policy or person into the instantiation of evil as they did with Trump, those who favor that policy or candidate will not want to side with that “evil” when answering poll questions. So they tell pollsters what they think people want to hear.

One older lady told me she planned to vote for Trump but asked me not to tell anyone. I read about a rabid Clinton supporter who wrote that his mother had promised him she wouldn’t vote in this election because she didn’t like either candidate. But when he wasn’t looking she slipped out and voted for Trump. The media shot themselves in the foot on this one.

Back in July I wrote a post on economic models that were Trumpeting a win for the Republican candidate or modestly admitting the outcome was too close to call. The accuracy of those models showed that people consider the economy their most important issue.

Sunday, November 6, 2016

Investors are becoming aggressively passive

Last week the Wall Street Journal ran several articles on the tectonic shift in investing from actively managed funds to passive index funds. In “The Dying Business of Actively Picking Stocks,” the Journal reported that “Over the three years ended Aug. 31, investors added nearly $ 1.3 trillion to passive mutual funds and their brethren— passive exchange- traded funds— while draining more than a quarter trillion from active funds, according to Morningstar Inc.”

Even Warren Buffet jabbed a knife between the ribs of active fund managers by stashing his wife’s inheritance in an index fund. One active manager proclaimed passive investing to be worse than Marxism for the future of capitalism.

The standard charges against actively managed funds are that only a few outperform indexes like the S&P 500 and they charge higher fees, says the Wall Street Journal.