Do You Hear the Bells Ringing?

Posted on June 25, 2021 by MN Gordon

There’s an old Wall Street adage, you’ve likely heard it, “No one rings a bell at the top (or bottom) of the market.”

The bell, of course, is the signal to sell at the market top.  Here we pause to take exception with this adage.  As far as we can tell, bells do ring at market tops.  Yet few hear them.  Most people’s ears are plugged with the prospects of easy riches.

Bull markets often give way to manias…where an asset’s intrinsic value becomes less important than the hope that an overpriced asset can be later offloaded at a higher price to a greater fool.  Certainly, irrational pricing based on greater fool dynamics is the sound of a ringing bell.  Though this can go on for years.

The current ratio of total market capitalization to GDP (now over 200 percent) is most definitely the sound of a ringing bell.  Another ringing bell is the $500 million batch in junk bonds recently sold by MicroStrategy for the sole purpose of buying bitcoin.  These bitcoin junk bonds pay a generous 6.125 percent coupon rate.

How will MicroStrategy pay the coupon if bitcoin goes down?  Will they sell more junk bonds?  Will anyone buy them? Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , | 24 Comments

How to Buffer the Fallout from America’s Third World Death Spiral

Posted on June 18, 2021 by MN Gordon

“What the hell?!” – President Joe Biden, June 16, 2021

Out of Control

American workers are trying to make their way in an economy that’s rigged against them.  We made this claim many years ago.  Today, for fun and for free, we revisit this assertion…starting with the latest from those doing the rigging.

This week, after a two day meeting, the Federal Open Market Committee (FOMC) released their statement.  Nothing material changed.  The Fed will continue to hold the federal funds rate near zero.  The Fed will also continue to create at least $120 billion per month from thin air to buy Treasuries and mortgage-backed securities.

Bond yields spiked and the price of gold dropped because 13 Fed officials now plot dots that project two hikes to the federal funds rate in 2023.  Fed Chair Jay Powell also mentioned the Fed is “talking about talking about” bond tapering.  These technocrats likely know – though they won’t admit – they’ve already lost control.

Consumer price inflation is ‘officially’ rising at a 5 percent annualized rate.  However, the ‘unofficial’ rate of consumer price inflation, as calculated using methodologies in place in 1980, is about 13 percent. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , , | 35 Comments

Will Larry Summers Save the World Again?

Posted on June 11, 2021 by MN Gordon

Modern macroeconomics is a boring and dreary trade.  The monthly report outs on GDP, unemployment, inflation, and other data aggregates, are a dull waste of time.  What decisions could you possibly make to improve your lot in life from these data reports?

Should you buy more toothpaste because the CPI is rising at a 5 percent annual rate?  Should you risk a career change when the unemployment rate is over 10 percent?  Should you buy an S&P 500 index fund because GDP growth is booming?

Economic reports are mostly useless for making intelligent decisions.  Yet these reports provide government central planners a steadfast reason to exist.  That is, to intervene in the economy to improve the data.

The goal for the planners is to get the reports to show numbers to their liking.  This generally includes moderate growth, low inflation, and low unemployment.  Years ago Alan Greenspan called this delightful combination a Goldilocks economy.

Reality, however, is often far different than what the official numbers say.  What’s more, government bean counters work over time to fabricate the data to support the official story. Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , , | 3 Comments

Why Consumer Price Inflation Is Here To Stay

Posted on June 4, 2021 by MN Gordon

Jerome Powell might be done as a useful Federal Reserve Chairman.  Not that Fed Chairs provide a use that’s of any real value.  They mainly excel at destroying the wealth of wage earners and savers for the benefit of member banks.

But as Powell loses a grip on price inflation the business of supplying credit at a fixed rate of return becomes less fruitful.  Consumer price inflation, as measured by the consumer price index (CPI), is rising at an annual rate of 4.2 percent.  That’s well above interest rate of a 30 year fixed mortgage, which is currently 3.1 percent.

It doesn’t take much imagination to foresee a CPI over 6 percent.  At that rate of price inflation, what good to the bank is a home loan that’s only paying 3 percent?  This, among other reasons, is why Jay Powell is toast.

Powell, no doubt, has been going along to get along since long before he took over the reins of the Federal Reserve.  He’s always done what everyone asked.  He’s rapidly expanded the Fed’s balance sheet to fund massive government deficits and backstop the mortgage market. Continue reading →

Posted in Inflation, MN Gordon | Tagged , , , , | 24 Comments