Tuesday, February 8, 2011

Strong Q4 Revenues Will Confuse Keynesians

Barry Ritholz quotes S&P:
More U.S. companies are exceeding sales forecasts than any time in four years, helping extend the biggest stock-market rally since 1936.
In Q4 2010, 71% of Standard & Poor’s 500 companies are reporting more revenue than analysts estimated. This is the largest proportion since 2006. Sales beat projections by an average 2.2% — the most in two years.

Ritholz continues:
Still, the actual sales is a data point that the cyclical analysts have been forecasting. The cycles seem to be still painting the broad overview more accurately than anything else . . .
I'm not sure who Ritholz is referring to here when he mentions "cyclical analysts", but it is the use of Austrian business cycle theory that put me to understand that the economic (Fed-manipulated) recovery would occur much sooner and be stronger than the gloomy forecasts of Keynesian's such as Krugman and Roubini.

Both Krugman and Roubini are good data watchers, so they have to know the economy will soon be registering even stronger numbers, and it will be interesting to watch them shift to a more bullish stance. Though, they will remain clueless about the severe price inflation that is coming.


  1. Mish also utilizes ABCT in his prognosticating and concludes, with SOME reason, that the US will go in and out of deflation over many years. Vox Day, not known as an economist, but who has better predictive power than practically all economists, and has written a book on the current economic malaise (The Return of the Great Depression), concludes that regardless of how much money/credit creation the Fed and Congress attempt, the tsunami of bad debt is so massive that a massive deflationary event is going to happen. He also happens to use ABCT in his analysis.

    Can you tell me why you conclude differently?

  2. Simple, if the Fed prints $50 trillion to pay off every concievable government debt, how is that not going to cause price inflation?

  3. Agreed, but that's a pretty big if. I've read pretty much everything Mish and Vox have said about this matter, and both assert that the Fed simply won't, or even can't, do it. I'm not saying I agree with them. They both say that the Fed serves the banks and won't destroy the dollar to save the government. Maybe. But if they stop the current debasement, the banks fail and the government defaults. So, I do tend to side with those who say the Fed is between a rock and hard place and will just continue to inflate away until the entire economy explodes.

  4. Are you assuming inflation will be linear to money supply? Won't everyone lose confidence in the dollar at the same time? Americans won;t be able to buy imported goods because everything will be too expensive in dollars (and the seller won't want dollars). Americans will have to consume about a quarter of what they do now, so if food and energy is 20% of the typical budget, it will become 80%. Imagine spending 80% of your paycheck on food and energy.

    How does the stagflation of the late seventies fit in with Austrian theory. They were printing money (10% inflation in 1979) yet the year started with 5.9% unemployment and ended with 6.0% unemployment. We had the inflation without the boom. Why do you expect a boom and then inflation?

    We've pulled forward so much demand with borrowing and created excess capacity in response to excess consumption that we have to continue enlarging the size of the debt each year. If we stop pulling forward tomorrow's expenditures by borrowing factories will be even more idle. So even paying off the debt with printed money does not solve the problem, we have to borrow (in real terms) at least more than we borrowed last year unless we want to GDP to shrink. GDP will have to be as small as it would be without borrowing minus what is required to pay off last years borrowing from today. If you pay off by inflation you are just using the capital of savers - savers capital looses just as much value as the value of debt extinguished.