Thursday, December 29, 2016

A Bad Year for Austrian-Lite Forecasters

The year 2016 was a bad year for Austrian-lite forecasters who expected the Federal Reserve to reverse the December 2015 Fed interest hike and possibly take rates negative.

The Fed did no such thing, in fact, they raised rates once more at the end of 2016.

Austrian-lites, who hold the odd view that the "Fed can run out of power" and that the business cycle is not a cycle but a permanent downtrend, also expected a new recession to hit, the stock market to crash and the Fed to launch a new round of quantitative easing.

None of these things occurred. There is no recession. The stock market is hitting record highs and quite possibly the next major step by the Fed in 2017 will be draining reserves rather than adding via a QE operation.

A Wall Street Journal headline today highlights the wrong direction thinking in 2016 that Austrian-lites were in the thick of:

Note well: I am not saying that there will never be recessions or that the Fed knows what it is doing, My point is that the economy is complex, that it is wrong to turn a hate the Fed mentality into thinking there can't be periods of upside activity in the stock market.

Fed money manipulations are a nightmare, partly because they cause erratic activity in the economy and stock market. But that erratic activity can include long periods of upside action in the stock market and generally tracked economic indicators.

I expect more erratic activity in 2017 with a combination of erratic Fed manipulations and erratic economic policies from the incoming Trump Administration.

There is no way to know long in advance how this will all play out, It depends too much on specific actions by the Fed and by the Trump Administration that will occur over the year.

Once such steps are made, it will be easier to determine trends, but it is a mistake to think that the business cycle is just a downtrend. The cycle has ups and downs.


1 comment:

  1. Congratulations for a very nice year with EPJ Daily Allert.