Friday, May 17, 2013

Give the Market the Benefit of the Doubt- Ritholtz

The truth probably lies somewhere in between both views Barry presents in this video, i.e. stocks to infinity versus hyperinflation. I should note that I actually side with Ritholtz in the short-term here as it concerns equity prices, as my Price/Volume Diffusion Index has turned up after a test of the 50 demarcation.


That said, if you invest in equities here, I would try to stay nimble. And in what may seem counter-factual, I am actually using strength to pull back on my equity holdings. It is my thought that the equities markets will be susceptible to a significant pullback.

Schiff at the 2013 Money Show

The Currency War is Gold Bullish- Schiff

Well, eventually.

5/16 Trading Day Edition of Volume Off the High

Just one lonely name here...

5/16 Trading Day Edition of High Volume High

A significant number of stocks and funds making new high volume highs.

The Great Gold Rout Infographic

Thursday, May 16, 2013

View From the World Trade Center Spire

Wow, what a view

Best Critique OF Krugman You Will See Today

I make it no mystery that I lean towards Austrian school of economics. Maybe you will have also realized that I have many issues in the Keynesian school of thought. So it should be no surprise that I find much of what Paul Krugman says as just pure lunacy, as he is one of the most outspoken champions of the Keynesians. I think this is why I liked this critique of the Krugman and Keynesians I read at the Mises blog...

Line of the day, from Michael Kinsley: “Krugman sometimes writes as if, right or wrong, his view is the courageous one, held by folks willing to stand up to the plutocrats and their lackies. But his message to all classes is: party on.”
I also like the way Luigi Zingales put it in 2009:
Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behavior. Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington.
See also my comments here.

5/15 Trading Day Edition of Volume Off the High

Just a few names coming off recent highs

5/15/ Trading Day Edition Of High Volume High

A bunch of names making new highs with volume support...

A Lower Deficit Propelled by One-Off Items and Not the Economy- Biderman

Or expect the deficit to rise significantly and new bull case for the economy to be made once the one-offs sunset. 

Wednesday, May 15, 2013

Lumber Flashing a Warning?

I have been watching lumber prices, as the price of random lengths composite price for lumber has declined from just over $400 to $326 recently. The following chart shows the price of lumber (black line) versus the price of Lennar (ticker LEN, green line)

Is this signalling a slow down in housing, the economy? I am unsure. A number of analyses by people more in the know than myself on this market were expecting a pullback in lumber on an increase in supply. Either way, the above relationship is interesting. And if you asking, yes, lumber prices (black) and the S&P 500 (green) also have exhibited a tight relationship over the last five years.

What Are the Chances....

The rise in the gigantic lottery jackpots seems to come around every few months now. I remember when it was a yearly or an every few year event. Is this another side effect of money printing? Sorry I digress.

I have many friends and family who discuss getting a ticket or two, three, four or more all in an impossible attempt to win the jackpot, but more importantly attempt to better their lives. In that vain, I thought this little inforgraphic aligning the chances of winning the lottery with other improbable events highlights the futility of municipal lotteries. More so, the chances of improving your life via that $1 ticker purchase are even worse than what is stated, as research has shown that the lives of 50% of 'winners' are far worse after jackpot wins, roughly 1 in 270 million.

Money Making Everywhere- Amazon Sort Of Gets Into the Game

If you have been paying attention, there has been a growing, albeit still relatively low profile, excluding the Bitcoin craze, move of companies and municipalities exploring or getting into the semi-alternative currency game. Now Amazon is jumping into the pool. As reported by The Dailymail

Amazon has launched its own currency called Amazon Coins. It's currently only available in the States for Kindle Fire owners, but the Coins can be used to pay for games, apps and in-app purchases from the Amazon Appstore. One Amazon Coin is worth one US penny, and Kindle Fire owners are getting 500 Coins ($5) for free as part of the launch.  

Amazon has launched its own virtual currency called Coins in the US.

Amazon has launched its own virtual currency called Coins in the US. It is only available for Kindle Fire users, for the time being, but can be used to buy games, apps and in-app purchases from the Kindle Appstore, as well as buy items from Amazon's retail store

Amazon follows other such private coinage moves by the likes as Facebook, Microsoft, Disney, various local municipalities, and others offering 'money'. Money may be a loose way of defining Amazon's and others proprietary coinage though, as most if not all are pegged to the value of a major currency, primarily the U.S. dollar. Although it is a minor interest of mine to watch moves like Amazon's, I also think the real significant move (if it ever comes to pass) will occur when the private coinage begins to unlink itself from primary currencies and begins to exchange hands on its own accord, more so in a competitive currency environment. Until then, the linkage to major fiat currencies, who themselves are backed by nothing, make these private coins nothing more than semi-interesting trinkets.

5/14 Trading Edition of Volume Off the High

No too many names here for the 5/14 trading day

5/14 Trading Day Edition of High Volume High

Some names that that would expect on this list considering yesterday's news.

Big Mac Index Exposes Flawed Inflation Data- Schiff

Not that I could not find it myself, but I wish there was a link or some presentation showing the Big Max Index to CPI inflation.

Many come down on one side or the other in the inflation/deflation argument, and both sides are presented in the above chart. My opinion lies with the Austrian camp and that regardless of what CPI states, inflation is an increase in the supply of money. Through the latest week, M2 money stock is increasing at about a 7% rate year-over-year.

FRED Graph

Tuesday, May 14, 2013

Stable Prices, Unstable Markets

by Frank Shostak and originally published at

According to European Central Bank Governing Council member Ewald Nowotny, Federal Reserve Chairman Ben Bernanke sees no risk of inflation in the United States. According to Nowotny, Bernanke had given a “very optimistic” portrayal of the US outlook.

“They see absolutely no danger of an expansion in inflation,” Nowotny said. Bernanke had said US inflation should be 1.3 percent this year.

Fed forecasts put inflation by the end of this year in a range of 1.3 to 1.7 percent. The yearly rate of growth of the consumer price index (CPI) stood at 1.5 percent in March against 2 percent in February and 2.7 percent in March last year.

Also the growth momentum of the core CPI (the CPI less food and energy) has eased in March from the month before. Year-on-year the rate of growth has softened to 1.9 percent from 2 percent in February and 2.3 percent in March last year.
For Bernanke and most experts, the key factor that sets the foundation for healthy economic fundamentals is a stable price level as depicted by the consumer price index.

According to this way of thinking, a stable price level doesn’t obscure the visibility of the relative changes in the prices of goods and services, but enables businesses to see clearly market signals that are conveyed by the relative changes in the prices of goods and services. Consequently, it is held, this leads to the efficient use of the economy’s scarce resources and hence results in better economic fundamentals.
For instance, let us say that a relative strengthening in people’s demand for potatoes versus tomatoes took place. This relative strengthening, it is held, is going to be depicted by the relative increase in the prices of potatoes versus tomatoes.

Now in a free market, businesses pay attention to consumer wishes as manifested by changes in the relative prices of goods and services. Failing to abide by consumer wishes will lead to the wrong production mix of goods and services and will lead to losses.

Hence in our case businesses, by paying attention to relative changes in prices, are likely to increase the production of potatoes versus tomatoes.

According to this way of thinking, if the price level is not stable, then the visibility of the relative price changes becomes blurred and consequently, businesses cannot ascertain the relative changes in the demand for goods and services and make correct production decisions.

This leads to a misallocation of resources and to the weakening of economic fundamentals. In short, unstable changes in the price level obscure changes in the relative prices of goods and services. Consequently, businesses will find it difficult to recognize a change in relative prices when the price level is unstable.
Based on this way of thinking it is not surprising that the mandate of the central bank is to pursue policies that will bring price stability, i.e., a stable price level.

By means of various quantitative methods, the Fed’s economists have established that at present, policy makers must aim at keeping price inflation at 2 percent. Any significant deviation from this figure constitutes deviation from the growth path of price stability (or at least stability in the rate of price-level increase).
Observe that Fed policy makers are telling us that they have to stabilize the price level in order to allow the efficient functioning of the market economy. Obviously this is a contradiction in terms, since any attempt to manipulate the so-called price level implies interference with markets, and hence leads to false signals as conveyed by changes in relative prices.

By means of setting targets to interest rates and by means of monetary pumping it is not possible to strengthen economic fundamentals, but on the contrary it only makes things much worse. Here is why.

Policy of price stability leads to more instability

Let us say that the so-called price level is starting to exhibit a visible decline in growth momentum. To prevent this decline, the Fed starts to aggressively push money into the banking system.

As a result of this policy, after a time lag the price level has stabilized. Should we regard this as a successful monetary policy action? The answer is categorically no.

Given that monetary pumping sets in motion the diversion of wealth from wealth generating activities to non-wealth generating activities, obviously this leads to the weakening of the wealth generation process and to economic impoverishment.

Note that the economic impoverishment has taken place despite price level stability. Also, note that in order to achieve price stability, the Fed had to allow an increase in the growth momentum of its balance sheet and consequently in the growth momentum of the money supply.

It is the fluctuations in the balance sheet and the subsequent fluctuations in the growth momentum of the money supply that matter here. It is this that sets in motion the menace of the boom-bust cycle, regardless of whether the price level is stable or not.

While increases in the money supply are likely to be revealed in general price increases, this need not always be the case. Prices are determined by both real and monetary factors.
Consequently, it can occur that if the real factors are pulling things in an opposite direction to monetary factors, no visible change in prices might take place.

In other words, while money growth is buoyant, prices might display low increases.
Clearly, if we were to pay attention to the so-called price level, and disregard increases in the money supply, we would reach misleading conclusions regarding the state of the economy.
On this, Rothbard wrote,

“The fact that general prices were more or less stable during the 1920s told most economists that there was no inflationary threat, and therefore the events of the great depression caught them completely unaware” (America’s Great Depression, Mises Institute, 2001 [1963], p. 153).

From 1926 to 1929, the alleged stability of the price level caused most economic experts, including the famous American economist Irving Fisher, to conclude that US economic fundamentals were doing fine and that there was no threat of an economic bust.

The yearly rate of growth of the CPI displayed stability during 1926 to 1929 (see chart). Most experts have ignored the fact that the yearly rate of growth of the US central bank balance sheet jumped to 42 percent by June 1928 from minus 14 percent in February 1927.

The sharp fall in the growth momentum of the Fed’s balance sheet after June 1928 (see chart) set in motion an economic bust and the Great Depression.
At present, the Fed continues to push money aggressively into the banking system with its balance sheet standing at $3.3 trillion at the end of April against $0.9 trillion in January 2008. We suggest however that a fall in the growth momentum of AMS since October 2011 raises the likelihood of a bust in the months ahead.
If one adds to all this the possibility that the process of real wealth generation has been badly damaged by the Fed’s loose policies, it shouldn’t surprise us that we could enter a severe slump in the months ahead.

Summary and conclusion

For most economists, the key to healthy economic fundamentals is price stability. A stable price level, it is held, leads to the efficient use of the economy’s scarce resources and hence results in better economic fundamentals. It is not surprising that the mandate of the Federal Reserve is to pursue policies that will generate price stability. We suggest that by means of monetary policies that aim at stabilizing the price level the Fed actually undermines economic fundamentals.