Friday, October 28, 2011

Dow Industrials Up for 5th Week in Row

The Dow Industrial average is up approximately 12 percent for October. The gain this week was the fifth consecutive weekly gain for the Dow.

The countdown for a Paul Krugman explanation as to why he missed the current positive (Bernanke manipulated) turn in the economy is now on.

I give him two weeks.



    "Here he is, on December 23, 2010, telling Rachel Maddow that the country needs more [Keynesian] stimulus. Of course, he does not explain where this money is going to come from. And, it also indicates he isn't aware, yet, that Bernanke's money printing is in the early stages of causing a manipulated boom in the economy and ultimately climbing inflation. I think this is going to be an interesting clip to watch again in July 2011. "

    Unemployment rate January 2011: 9%
    Unemployment rate September 2011: 9.1%

    Do you really want to be gloating again so soon?

  2. Agh, @Desolation Jones, good to see you back at the computer after your colonoscopy.

    As Wenzel has pointed out many times, the unemployment rate is a lagging indicator. It will come around in time.

    I think you need a second colonscopy, it looks to me like you still have a stick up there.

  3. "Not only is he going to be wrong about consumer price inflation, but he is going to be wrong in his forecast of terrible unemployment and in his forecast of an overall anemic economy."

    It's quite clear Wenzel did not think unemployment would be 9.1% in September.

    And how long are these lags supposed to be? A whole year? It's impossible to falsify the long and variable lags that Wenzel seems to believe in. If unemployment continued to fall in January instead of stagnating, Wenzel would also be claiming victory. How can Wenzel ever be wrong?

    Monetary easing hasn't done much good exactly because Wenzel thinks people will be "surprised" of a boom sometime in the vague future. For monetary policy work well, people should not be surprised. They should know immediately that an inflationary boom is coming. M2 growth is irrelevant if expectations aren't shaped properly. It's also why we did not have in "inflationary boom" in 2009 when m2 was also growing in double digit rates.

    Funnily enough, I recall Wenzel arguing that high M1 growth was a sign of fear and high money demand. And that the economy would not recover until m1 growth was smaller than m2 growth, but m1 is currently growing at a rate close to twice of m2. I actually kind of agree with this. The recent growth in the money supply should be seen a sign of high money demand, not of double digit inflation coming soon.

  4. Bob Murphy has a good post on what bothers me about Wenzel's obsession with M2.

  5. @Desolation Jones

    Ludwig von Mises has a good book about why money matters.

  6. I agree that money matters. My favorite writings why money matters actually comes from Leland Yeager, Mises' translator and student. Maybe it sounded like I didn't think so because I said "m2 is irrelevant". But I mean it's irrelevant in a sense that it's a bad indicator of monetary tightness and looseness.

  7. @Desolation Jones

    Oh, I get it. Money supply is a bad indicator of money supply tightness and looseness.


  8. There's more to monetary policy than simply m2 numbers. Expectation created by the Fed are far more important than the actual money printing.

    See Nick Rowe

  9. @Wenzel

    I read Murphy's post.
    He's talking about stock prices as a reflection of inflation expectations.
    That would be forward looking.

    It doesn't seem like that is exactly what you are talking about.

    Let me give an example from trading.

    There's a rumor flying around that company X is going to be opening a new very lucrative line. Stock price soars in anticipation (forward looking), from $10 to $20.
    Then the line doesn't open at the expected time so the price falls to $12.
    The company announces some other negative upcoming news and the price falls even further to $9. Negative expectations are strong now.
    But actually, the company's performance, behind the misleading bad news, has improved. And in due course the new line of products opens, although the announcement doesn't have the same impact on the stock price because of the baked in negative expectations. Then, without any further public statements, the price starts to climb as insiders and serious investors who know what's going on, start buying.
    Eventually, within three months of the last, negative news, the price has exceeded the original spike of $20.

    So then you'd have two different dynamics. Expectations of where the price is going (driven by mood, public statements). And you'd have another movement of price based on insider buying and a change in fundamentals.

    Both would be rational, but the second would be driven more by fundamentals and be available only to value investors.

    The first would be driven by the news cycle and by technical charts and would be available to anyone in the markets.

    Isn't that a rough parallel to your money supply debate above?

    Pls clarify this when you have time.