Destruction By Definition

Posted on March 6, 2020 by MN Gordon

Major U.S. stock market indexes yo-yoed about all week.  On Monday, panic selling from last week turned to panic buying.  Decades of Fed intervention have conditioned stock market investors to step in front of semi-trucks to scoop up nickels.

The Dow Jones Industrial Average (DJIA) jumped 1,290 points.  This marked its biggest-ever single day gain in terms of points.  Can the economic destruction wrought by coronavirus containment really be overcome with what former New York Fed President, Benjamin Strong, once called stock market “coup de whiskey?”  We doubt it.

But we are fairly confident Fed stimulus will have the offensive consequence of widening the gap between sky high asset prices and weak economic fundamentals.  Fed Chairman Powell certainly understands this.  Nonetheless, on Tuesday, he went forward with the dirty deed.

After an early morning teleconference with various G7 poohbahs, Powell cut the federal funds rate by 50 basis points.  This took the Fed’s target range to between 1 and 1.25 percent.  As far as we can tell, Powell’s dirty deed achieved the exact opposite of its intent. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 12 Comments

Where Did Your Money Go?

Posted on February 28, 2020 by MN Gordon

It all seems so systematic, arranged, and orderly.  Almost a direct proof of deism.  Sixty seconds make a minute, 60 minutes make an hour, 24 hours make a day, and one day equals one complete rotation of the planet earth.

Roughly every 30 days the moon orbits the earth – which is one month.  Then every 12 months the earth orbits the sun – which is one year.

So far so good, right?

But here’s where the nice and neat order of it all breaks down.  Because if you try to measure one of earth’s orbits of the sun in days it’s not so divinely tidy.  For it takes 365 days plus an inconvenient 6 hours to fully complete the cycle.

But we don’t let these inconvenient 6 hours hamper our perfection.  We’re humans, after all.  We innovate, invent, and make the world in our image.  So when the numbers don’t jive, we do what must be done.  We fudge them.

We create an off balance account.  We concoct modern monetary theory.  We contrive negative interest rate policy.  And we invent leap year. Continue reading →

Posted in Inflation, MN Gordon | Tagged , , , , | 12 Comments

China’s Debts are Coming Due at the Worst Possible Time

Posted on February 21, 2020 by MN Gordon

The economic consequences of coronavirus are quickly piling up like garbage along the streets of Los Angeles.  Breaking supply chains, closed Chinese factories, iPhone disruptions, and massive shortages of Chinese made products.  These developments will most definitely get worse before they get better.

The economic impacts will be devastating.  As China flatlines, and first quarter GDP growth approaches zero, the global economy, including the U.S., will also be greatly disrupted.  Perhaps many low-cost, Made in China products will go on indefinite hiatus.  What then?

Quite frankly, the global economy’s overdue for a synchronized downturn.  Coronavirus may mark the turning point.  But it would have arrived sooner or later, with or without the threat of a burgeoning pandemic.

Still, the prospect of a great plague makes people all the more excitable.  A run-of-the-mill recession and bear market is one thing.  But add the rapid spread of a hyper contagious virus to the mix, and the human animal is inclined to go mad in unison. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 17 Comments

The Secret to Fun and Easy Stock Market Riches

Posted on February 14, 2020 by MN Gordon

On Tuesday, at the precise moment Federal Reserve Chairman Jay Powell commenced delivering his semiannual monetary policy report to the House Financial Services Committee, something unpleasant happened.  The Dow Jones Industrial Average (DJIA) didn’t go up.  Rather, it went down.

Were the DJIA operating within the framework of a free capital market it would be normal for the index to go both up and down.  But remember, the U.S. stock market is hardly a free market.  Not when it’s under the influence of extreme Fed intervention.

When the Fed speaks, the DJIA should go up.  At least, that’s the opinion of President Trump.  And as Powell spoke, the Real Donald Trump took to Twitter, and delivered his play-by-play assessment:

“When Jerome Powell started his testimony today, the Dow was up 125, & heading higher.  As he spoke it drifted steadily downward, as usual, and is now at -15 […]”

President Trump, no doubt, was falling for the post hoc fallacy by linking correlation with causation.  Was this intentional?  Was this ignorance?  You can decide. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , | 14 Comments