4 replies to this topic

[DonBart]

Nice write up from the highly respected institutional research outfit GaveKal... "Second Guessing the Fed In 1933, Mellon famously advised Roosevelt to "liquidate labour, liquidate capital, liquidate the financial markets. It will lead to a much more moral society." This, better than any other statement, encompasses the "perma-bear" philosophy: sinners have to pay for their sins; and when the central banks step in to give sinners a helping hand, this can only ensure eternal damnation for the rest of us (either in the fires of an inflationary bust, or those of a deflationary bust, depending on the perma-bear to whom you speak). Needless to say, with the Fed having just cut 50bp, the prophets of inflationary doom are having a field day. Everywhere we care to turn, we are told to sell the US$ and buy gold. Once again, paper currencies are going to be shown to be worthless. But is the Fed's track record really that horrendous? As Milton Friedman himself wrote in the WSJ on August 19th, 2003: "Fifteen years ago... I wrote 'no major institution in the US has so poor a record of performance over so long a period as the Federal Reserve, yet so high a public recognition'. As I believe I demonstrated at the time, that judgement is amply justified for the first seven decades or so of the Fed's existence. I am glad to report that it is not valid for the period since". Indeed, for all of the perma-bears' laments that the Fed keeps on pushing inflation in the system, we are not sure that this assertion is backed up by the data. Indeed, let us ask a very simple question: were recent interest rate cuts by the (according to Milton Friedman) competent Fed followed by a rise in the CPI shortly afterwards? Let us have a look: Since 1970, most cuts by the Fed (1970, 1974, 1985, 1989, 2001) were followed for at least two years by massive declines in the inflation rate. There were, however, exceptions: 1980 (which was quickly taken back by Mr Volcker) and 1998 (which was also quickly taken back). Which leaves us with the following question: Will the recent Fed cut prove to be right? Or will it be, like 1980 and 1998, a mistake quickly taken back? We tend to believe that the Fed was right to cut and that, given the massive collapse in velocity, commercial banks will need a steep yield curve in order to recapitalize their fragile balance sheets and avoid a Japanese-style deflationary bust. However one puts it, we can't escape the conclusion that Milton Friedman was (once again) right: In recent years, the Fed has been more broadly right than wrong (five out of seven). Better yet, when it has been wrong, it was quick to change its course and adjust to the underlying realities. Can the perma-bears claim the same batting ratio and the same intellectual flexibility? " ...Very well put, but GaveKal must be morons becuase they are not using "independent thought" like the PB herd.

[greenie]

Aren't the same guys saying last year that dollar is cheap and not fall any further, because 'perma-bears' are heavily short dollar? I clearly remember something of that tune in one of forwarded letters by Mauldin. We all know, how that one went.

[NAV]

Nice write up from the highly respected institutional research outfit GaveKal...

"Second Guessing the Fed
In 1933, Mellon famously advised Roosevelt to "liquidate labour, liquidate capital, liquidate the financial markets. It will lead to a much more moral society." This, better than any other statement, encompasses the "perma-bear" philosophy: sinners have to pay for their sins; and when the central banks step in to give sinners a helping hand, this can only ensure eternal damnation for the rest of us (either in the fires of an inflationary bust, or those of a deflationary bust, depending on the perma-bear to whom you speak).

Needless to say, with the Fed having just cut 50bp, the prophets of inflationary doom are having a field day. Everywhere we care to turn, we are told to sell the US$ and buy gold. Once again, paper currencies are going to be shown to be worthless.

But is the Fed's track record really that horrendous? As Milton Friedman himself wrote in the WSJ on August 19th, 2003: "Fifteen years ago... I wrote 'no major institution in the US has so poor a record of performance over so long a period as the Federal Reserve, yet so high a public recognition'. As I believe I demonstrated at the time, that judgement is amply justified for the first seven decades or so of the Fed's existence. I am glad to report that it is not valid for the period since".

Indeed, for all of the perma-bears' laments that the Fed keeps on pushing inflation in the system, we are not sure that this assertion is backed up by the data. Indeed, let us ask a very simple question: were recent interest rate cuts by the (according to Milton Friedman) competent Fed followed by a rise in the CPI shortly afterwards? Let us have a look:


Since 1970, most cuts by the Fed (1970, 1974, 1985, 1989, 2001) were followed for at least two years by massive declines in the inflation rate. There were, however, exceptions: 1980 (which was quickly taken back by Mr Volcker) and 1998 (which was also quickly taken back).

Which leaves us with the following question: Will the recent Fed cut prove to be right? Or will it be, like 1980 and 1998, a mistake quickly taken back? We tend to believe that the Fed was right to cut and that, given the massive collapse in velocity, commercial banks will need a steep yield curve in order to recapitalize their fragile balance sheets and avoid a Japanese-style deflationary bust.

However one puts it, we can't escape the conclusion that Milton Friedman was (once again) right: In recent years, the Fed has been more broadly right than wrong (five out of seven). Better yet, when it has been wrong, it was quick to change its course and adjust to the underlying realities. Can the perma-bears claim the same batting ratio and the same intellectual flexibility? "

...Very well put, but GaveKal must be morons becuase they are not using "independent thought" like the PB herd.

Again, scavenging the web for ideas and articles that suits one's bias is what average permabears do for a living. Now you are doing the same, while mocking the PB crowd. Another illustration of "Independent thinking is dead".

[linrom1]

Nice write up from the highly respected institutional research outfit GaveKal...

"Second Guessing the Fed
In 1933, Mellon famously advised Roosevelt to "liquidate labour, liquidate capital, liquidate the financial markets. It will lead to a much more moral society." This, better than any other statement, encompasses the "perma-bear" philosophy: sinners have to pay for their sins; and when the central banks step in to give sinners a helping hand, this can only ensure eternal damnation for the rest of us (either in the fires of an inflationary bust, or those of a deflationary bust, depending on the perma-bear to whom you speak).

Needless to say, with the Fed having just cut 50bp, the prophets of inflationary doom are having a field day. Everywhere we care to turn, we are told to sell the US$ and buy gold. Once again, paper currencies are going to be shown to be worthless.

But is the Fed's track record really that horrendous? As Milton Friedman himself wrote in the WSJ on August 19th, 2003: "Fifteen years ago... I wrote 'no major institution in the US has so poor a record of performance over so long a period as the Federal Reserve, yet so high a public recognition'. As I believe I demonstrated at the time, that judgement is amply justified for the first seven decades or so of the Fed's existence. I am glad to report that it is not valid for the period since".

Indeed, for all of the perma-bears' laments that the Fed keeps on pushing inflation in the system, we are not sure that this assertion is backed up by the data. Indeed, let us ask a very simple question: were recent interest rate cuts by the (according to Milton Friedman) competent Fed followed by a rise in the CPI shortly afterwards? Let us have a look:


Since 1970, most cuts by the Fed (1970, 1974, 1985, 1989, 2001) were followed for at least two years by massive declines in the inflation rate. There were, however, exceptions: 1980 (which was quickly taken back by Mr Volcker) and 1998 (which was also quickly taken back).

Which leaves us with the following question: Will the recent Fed cut prove to be right? Or will it be, like 1980 and 1998, a mistake quickly taken back? We tend to believe that the Fed was right to cut and that, given the massive collapse in velocity, commercial banks will need a steep yield curve in order to recapitalize their fragile balance sheets and avoid a Japanese-style deflationary bust.

However one puts it, we can't escape the conclusion that Milton Friedman was (once again) right: In recent years, the Fed has been more broadly right than wrong (five out of seven). Better yet, when it has been wrong, it was quick to change its course and adjust to the underlying realities. Can the perma-bears claim the same batting ratio and the same intellectual flexibility? "

...Very well put, but GaveKal must be morons becuase they are not using "independent thought" like the PB herd.

This is probably some of he finest economic piece of writing that I have come across. And it is a rebuttal of GaveKal.

Rebuttal of GaveKal’s Bully “Wealth & Platform Theory”
Tuesday, December 26th, 2006 at 8:37 AM

The latest in misconceived bullish theories to come down the pike was espoused in this week’s Barrons, by GaveKal. A centerpiece of their theory is the “net worth” of American “households”, derived from the Federal Reserve Z1 report. In 3Q, 2006 the Fed reported that US households held $67.1 trillion in assets against liabilities of $13.0 trillion, for a net worth of $54.1 trillion. GaveKal goes on to assure us that based on this supposed solid balance sheet, the US will have little difficulty with borrowing from these foreigners, and servicing trillion dollar plus annual twin deficits.

GaveKal also recommends a concept called “platform companies”, which is code for outfits that best outsource American jobs to “safe” production locales like China and Thailand, who then pollute the global environment and fail to account for the negative externalities (true costs) of their production. Connecting the dots, the reader is left with the peculiar slash and burn notion that the US can just eat its young by outsourcing jobs to foreign polluters, while failing to invest in capex and just merrily borrowing from foreigners against its Bubble induced “wealth.”

Scientists now say 30% or more of the mercury settling into U.S. ground soil and waterways comes from other countries – in particular, China.

What GaveKal doesn’t get into at all is who holds all this fictitious American wealth? Readers of this blog already know the answer to that. It’s in the hands of plutocrats and the elite. Therefore for purposes of my counterpoint to the “bountiful wealth” theory, I am just going to acknowledge from the get go that about 10% of American households are doing fabulously indeed, at least for the moment. The next 10% may be doing well, sort of, but increasingly that’s subject to debate. It’s the bottom 80% that I worry about and will focus on here. Further I advance the following question: can the US economy stay solvent and strong by depending on transitory Bubble “wealth” and the income of the top 10%, especially as “platform companies” jettison the jobs of the other 90%?

Russ Winter Full article

[ogm]

Lee Adler, Rus Winter, Wallstreet examiner .... its all garbage. Don't waste your time there. It won't make you money.

Edited by ogm, 25 September 2007 - 05:27 AM.