Independent Ideas on the Economy, Financial Markets, and Investing

How to Blow $12.2 Billion in No Time Flat

Posted on March 9, 2018 by MN Gordon

One month ago we asked: What kind of stock market purge is this? Over the last 30 days the stock market’s offered plenty of fake responses. Yet we’re still waiting for a clear answer.

The stock market, like the President, knows the art of ballyhoo. Day after day, stocks behave in shocking and unpredictable ways. They bluster and then recoil with the inconsistent elegance of a President Trump twitter tirade.

Wild multi-hundred-point swings on the Dow Jones Industrial Average (DJIA) have become the norm. Up 300 points one day. Down 300 points the next. Do you hear anything?

All we hear from the stock market is a giant racket. There’s much noise being made. But there’s nothing of substance behind it.

Certainly, after a nine year bull market there’s risk of a massive sell off. That much is abundantly clear. Perhaps it could be another 50 percent bloodbath like what happened in 2008-09. But when will the next great panic hit? Continue reading →

Posted in MN Gordon, Stock Market | Tagged bill miller, business cycle, DOW, legg mason value trust fund, muhammad ali | 38 Comments

Haunted by Ghosts of the Old Eastern Bloc

Posted on February 23, 2018 by MN Gordon

Jerome Powell, the new Chairman of the Federal Reserve, just completed his third week on the job. He’s hardly had enough time to learn how to operate the office coffee maker, let alone the all-in-one printer. He still doesn’t know what roach coach menu items induce a heinous gut bomb.

Yet across the planet, folks high and low are already telling him exactly how he should do his job. What’s more, they’re passing advanced judgement on things that may or may not happen. For example, the South China Morning Post recently offered the following opinion:

“President Donald Trump may have done Janet Yellen a favour by not giving her a second term as Chairwoman of the Federal Reserve. Her successor, Jerome Powell, may have inherited a poisoned chalice. The Fed will have to up the pace of U.S. rate hikes or risk accusations of being behind the curve as markets react to signs of rising inflation.”

When Powell showed up to work on February 5, for his first day on the job, the general consensus was that the Fed would raise the federal funds rate three times this year, at 25 basis points – or 0.25 percent – per increase. Continue reading →

Posted in MN Gordon, Politics | Tagged central planning, eastern bloc, jerome powell, misallocation of capital, price controls | Leave a comment

When Budget Deficits Will Really Go Vertical

Posted on February 16, 2018 by MN Gordon

United States Secretary of Treasury Steven Mnuchin has a sweet gig. He writes rubber checks to pay the nation’s bills. Yet, somehow, the rubber checks don’t bounce. Instead, like magic, they clear.

How this all works, considering the nation’s technically insolvent, we don’t quite understand. But Mnuchin gets it. He knows exactly how full faith and credit works – and he knows plenty more.

In fact, Mnuchin’s wife, Louise Linton, says she admires him because “he understands the economy.” And Mnuchin, no doubt, admires Linton, a Scottish actress 18 years younger, because “she loves SoulCycle Snapchat filters that make people look like puppies and piglets.” Naturally, Mnuchin gets the importance of puppy and piglet filters and how this bizarre fad fits into the big picture of the economy.

Unlike Mnuchin, we find the economy, and its infinite and dynamic relationships, to be beyond comprehension. But that doesn’t deter us from attempting to make some sense of it each week. When it comes to Snapchat filters we know nothing – and we could care less. Still, who are we to question Snap Inc.’s $24 billion market capitalization? Continue reading →