How to Prepare for Another Market Face Pounding

“Markets make opinions,” goes the old Wall Street adage.  Indeed, this sounds like a nifty thing to say.  But what does it really mean?

Perhaps this means that after a long period of rising stocks prices otherwise intelligent people conceive of clever explanations for why the good times will carry on.  Moreover, if the market goes up for long enough, the opinions become so engrained they seek to explain why stock prices will go up forever.

After nine years of near uninterrupted stock market gains, new opinions are being offered to explain why the stock market will be bathed in sunshine indefinitely.  For example, the late-1990s term Goldilocks is again being used to describe why the slow growth, low unemployment, economy is good for stocks.  Apparently, if an economy is not-too-cold, but not-too-hot, stocks can go up lots and lots.

What’s more, these days everything is so perfect that Goldilocks is no longer a good enough descriptor.  This was the conclusion that JPMorgan’s Jan Loeys recently reached, no doubt after peering at a 5-year S&P 500 index chart:

“We nicknamed this world ‘Better than Goldilocks’ two weeks ago. Continue reading

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Yanking the Bank of Japan’s Chain

Based on the simple reflection that arithmetic is more than just an abstraction, we offer a modest observation.  The social safety nets of industrialized economies, including the United States, have frayed at the edges.  Soon the safety net’s fabric will snap.

This recognition is not an opinion.  Rather, it’s a matter of basic arithmetic.  The economy cannot sustain the government obligations that have been piled up upon it over the last 70 years.

In other words, the post-World War II boom is nearly over and the bills are coming due.  What’s more, greater and greater amounts of future growth are already claimed by existing debt obligations.  This, in turn, inhibits that growth from making its way into the larger economy, thus limiting future economic growth.

Perhaps this is why mature economies are finding it near impossible to attain 3 percent GDP growth.  In fact, the last time U.S. GDP grew by 3 percent or more for a calendar year was 2005, about 12 years ago.  Unfortunately, it doesn’t look like U.S. GDP growth will ramp up any time soon. Continue reading

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Views from a Top of the Skyscraper Index

On a warm Friday Los Angeles morning in spring of 2016, we found ourselves standing at the busy corner of Wilshire Boulevard and South Figueroa Street.  We were walking back to our office following a client wire brushing for events beyond our control.  But we had other thoughts on our mind.

Amongst a mob of pedestrians, we gazed up at the skeleton frame of what would become the Wilshire Grand Center.  For the first time in several years the buzz and hum of diligent building activity was eerily silent.  In fact, construction efforts were shut down for the day.

Sadly, less than 24 hours earlier a distraught electrician had taken a swan dive off the 53rd floor.  The man’s death prompted an immediate work stoppage and evacuation of the tower.  “It sounded like a bag of cement fell off the edge of the building,” one observer remarked.

Naturally, the sound of impact was far too grim for us to contemplate.  Instead, we wondered how time must have simultaneously slowed down and sped up for the jumper as they descended toward the ground.  Did they want a redo before it was game over? Continue reading

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Congress’s Radical Plan to End Illegal Money

One of the many downfalls of being the United States Secretary of the Treasury is the requirement to place one’s autograph on the face of the Federal Reserve’s legal tender notes.  There, on public display, is an overt record of a critical defect.  A signature endorsement of a Federal Reserve note by the Treasury Secretary represents their personal ratification of unconstitutional money.

If you recall, Article I, Section 8, of the U.S. Constitution empowers Congress – not the Federal Reserve – to coin money and regulate its value.  What’s more, Article I, Section 10, specifies that money be coined of gold and silver and cannot be bills of credit – such as paper legal tender notes.

As far as we can tell, paper dollars are illegal money on two counts.  First, they’re issued by the Federal Reserve.  Second, they’re bills of credit with no ties to gold or silver.

What gives?  Isn’t the U.S. Constitution supposed to be the supreme law of the land?

Don’t be silly.  Anyone with half their wits about them knows the U.S. Constitution has been reduced to a mere artifact of history.  Does this bother you? Continue reading

Posted in Government Debt, MN Gordon | Tagged , , , , , , | 10 Comments