Over My Shoulder | Mauldin Economics

Over My Shoulder

Ben Hunt: “Optical Illusion / Optical Truth”

May 5, 2016

This is the latest Epsilon Theory newsletter by my friend Ben Hunt. It is a definite must-read. Now, I have to warn you that the first four pages or so are mathematically complex, but just kind of struggle through it and get the gist, which is that, put most simply, correlation is not causation. Ben is in love with mathematical models and their history, so this is an opportunity for some of us less mathematically gifted types to learn.
 
But then he gets to the heart of the matter. He makes the key point out that monetary policy around the world has become a driver of markets – and in some markets more so than market fundamentals.
 
This is reinforcement for my contention that even though monetary policy in the US and the rest of the developed world is demonstrably taking us down the wrong path, it is not clear that even if we could get everybody at Federal Reserve to admit their error – which I don't for one minute think that they can – they might not be able to back out without causing massive disruptions. Which means they have to give us more of the same ineffective medicine, which is going to manipulate and distort markets even more. Oh dear gods.
 
Read this twice. Meditate on it. I normally don't get this emphatic, but Ben is pointing us in the direction of something we need to pay attention to.

Download - salient-epsilon-theory-ben-hunt-optical-illusion-optical-truth-may-4-2016.pdf

Joan McCullough on Productivity

May 5, 2016

Quick note: After my rant about productivity, first-quarter productivity numbers came in, and they sucked.

Joan McCullough wrote:

Q1 Productivity and Costs.  http://www.bls.gov/news.release/prod2.nr0.htm
Expect -1.3%.  Actual:  -1.0%.  I wanna’ kill myself, lookin’ at this one.
Because the quarter starts the year off with lousy Productivity after Q4’s -1.7%.
No consolation either from the Q1 y/y look at Productivity:  +0.6% which ain’t spit.
Here’s what they used to get the Q1 Productivity results:
Output was + 0.4%
Hours worked increased 1.5%
That’s trouble right there. 

(No PDF attached.)

Joseph Stiglitz: What’s Wrong with Negative Rates?

April 20, 2016

I'm not certain if I have ever forwarded anything from Joseph Stiglitz, Nobel economist and professor at Columbia. Generally, he and I don't agree on a lot of things.

So I was more than mildly surprised when I saw this short essay from him at Project Syndicate, talking about the deleterious effects of negative interest rates, something with which I wholeheartedly agree. A relatively short read, but this one packs a lot of punch.

And Wolfgang Schäuble, Germany's Minister of finance, would generally agree with him; and he has been very critical of late about the ECB and negative rates. He basically attributed the recent spanking that his political party took in Bavarian regional elections to ECB policies, saying (quoting from Dennis Gartman):

[We] Can attribute 50 per cent of the results of a party that seems to be new and successful in Germany to the design of this policy.... There is a growing understanding that excessive liquidity has become more a cause than a solution to the problem.

Schäuble is of course talking about the rise of the AfD ... the Alternative for Deutschland ... in recent local and state elections in Germany. And Mr. Schäuble is not alone in expressing his political and economic concerns. The Transport Minister, Mr. Alexander Dobrint, who is a leader of the CSU... the CDU's “sister” party in Bavaria... said in an interview with Die Welt that

The ECB is following a very risky course. The disappearance of interest rates creates a gaping hole in citizen's old age preparations.

The ECB’s leadership has returned fire to the Germans, although the not yet from Mr. Draghi. The Bank's Chief Economist, Mr. Peter Praet, said that the criticism from the Germans … is “hard to swallow.”

Download - What%E2%80%99s_Wrong_With_Negative_Rates.pdf

Joseph Stiglitz: What’s Wrong with Negative Rates?

April 20, 2016

I'm not certain if I have ever forwarded anything from Joseph Stiglitz, Nobel economist and professor at Columbia. Generally, he and I don't agree on a lot of things.

So I was more than mildly surprised when I saw this short essay from him at Project Syndicate, talking about the deleterious effects of negative interest rates, something with which I wholeheartedly agree. A relatively short read, but this one packs a lot of punch.

And Wolfgang Schäuble, Germany's Minister of finance, would generally agree with him; and he has been very critical of late about the ECB and negative rates. He basically attributed the recent spanking that his political party took in Bavarian regional elections to ECB policies, saying (quoting from Dennis Gartman):

[We] Can attribute 50 per cent of the results of a party that seems to be new and successful in Germany to the design of this policy.... There is a growing understanding that excessive liquidity has become more a cause than a solution to the problem.

Schäuble is of course talking about the rise of the AfD ... the Alternative for Deutschland ... in recent local and state elections in Germany. And Mr. Schäuble is not alone in expressing his political and economic concerns. The Transport Minister, Mr. Alexander Dobrint, who is a leader of the CSU... the CDU's “sister” party in Bavaria... said in an interview with Die Welt that

The ECB is following a very risky course. The disappearance of interest rates creates a gaping hole in citizen's old age preparations.

The ECB’s leadership has returned fire to the Germans, although the not yet from Mr. Draghi. The Bank's Chief Economist, Mr. Peter Praet, said that the criticism from the Germans … is “hard to swallow.”

Download - What%E2%80%99s_Wrong_With_Negative_Rates.pdf

Richard “Doc” Ahrens: Background on Complexity Theory

April 19, 2016

This is a bit unusual for an Over My Shoulder posting. It is a short briefing paper that “Doc” Ahrens wrote on the intersection between complexity theory and technical analysis. I will confess to being fascinated by complexity theory and its intersection with economics, but complexity and chaos math formulas just go straight over my head. So I try to get the gist and direction of it rather than diving into the math. But Doc has done a good job of giving us a bigger picture. About three pages with lots of footnotes – I found this to be useful.

Download - 160419_Ahrens.pdf