On Economy

     

 

 

Another Early Warning Siren Goes Off

Our friend Jonathan Tepper of research house Variant Perception (check out their blog to see some of their excellent work) recently pointed out to us that the volume of mergers and acquisitions has increased rather noticeably lately. Some color on this was provided in an article published by Reuters in late May, “Global M&A hits record $2 trillion in the year to date”, which inter alia contained the following chart illustrating the situation. This snapshot was taken shortly after a particularly busy “Merger Monday” in May, which saw $28 billion in takeover announcements:

 

Getting frisky: captains of industry and private equity funds evidently feel supremely confident again and have embarked on a major shopping spree. This mainly goes to show that no-one ever learns a thing in financial markets (presumably this goes for “learning from history” generally, but the remarkable thing in this case are the small time intervals between the markets teaching lessons and the subsequent collective forgetting exercise). The people responsible for all this breathless activity get paid more than at any other time in history, both in nominal and real terms – and one of their major characteristics is apparently that they have the attention span of gnats.

 

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Futility with Purpose

Plebeians generally ignore the tact of their economic central planners.  They care more that their meatloaf is hot and their suds are cold, than about any plans being hatched in the capital city.  Nonetheless, the central planners know an angry mob, with torches and pitchforks, are only a few empty bellies away.  Hence, they must always stay on point.

 

Watch for those pitchfork bearers – they can get real nasty and then heads often roll quite literally. [PT]

 

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Rare Commodity

Modern economists are prone to shouting fire in a crowded theater.  The world is full of seeming incongruences. Economists puzzle over things like population growth and arable acres of farmland. They project out a linear scenario of increasing divergence, and see a catastrophe in the making.

 

Professional scaremonger Thomas Robert Malthus, one in a long line of scarcity prophets who failed to recognize the capacity of human ingenuity and free markets to solve the perceived problem of “finite resources”. The effects of demographics are the exact opposite of what the scarcity scaremongers claim: there is no overpopulation problem based on the allegedly “limited carrying capacity” of the planet (as an aside, note that most of the land area of the planet remains completely devoid of people). On the contrary, the more human beings there are, the more tacit and outright knowledge exists and the more ideas and innovation can be tapped for the benefit of all – provided a free market remains operative. Unfortunately, the free market and its “anarchy of production” as Marxists used to derisively refer to it, is precisely what the scarcity prophets ultimately attack – since their demands can only be fulfilled by applying the most vicious statist coercion. [PT]

 

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“Literally On Fire”

This week brought forward more evidence that we are living in a fabricated world. The popular story-line presents a world of pure awesomeness. The common experience, however,  falls grossly short.

 

There are many degrees of awesomeness, up to total awesomeness – which is where we are these days, in the age of total awesomeness, just a short skip away from the Nirvana era. What is Nirvana, you may wonder? We only know for sure that Nirvana is what the stock market has priced in – other than that, we will have to wait and see. [PT]

 

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A Movie We Have Seen Before – Repatriation Effect?

There was a sizable increase in the year-on-year growth rate of the true US money supply TMS-2 between February and March. Note that you would not notice this when looking at the official broad monetary aggregate M2, because the component of TMS-2 responsible for the jump is not included in M2. Let us begin by looking at a chart of the TMS-2 growth rate and its 12-month moving average.

 

The y/y growth rate of TMS-2 increased from 2.68% in February to 4.85% in March. The 12-month moving average nevertheless continued to decline and stands now at 4.1%.

 

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A Useful Public Service

There are nooks and corners in every city where talk is cheap and scandal is honorable.  The Alley, in Downtown Los Angeles, is a magical place where shrewd entrepreneurs, shameless salesmen, and downright hucksters coexist in symbiotic disharmony.  Fakes, fugazis, and knock-offs galore, pack the roll-up storefronts with sparkle and shimmer.

 


The Alley in LA – in places such as this, consumers are as a rule well served by applying a little bit of common sense when pondering purchases. In fact, common sense is a multi-purpose weapon that reportedly comes in handy in many situations and is widely considered a valuable addition to one’s personal armory.  [PT]

Photo credit: Navymailman

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Effects of Monetary Pumping on the Real World

As long time readers know, we are looking at the economy through the lens of Austrian capital and monetary theory (see here for a backgrounder on capital theory and the production structure). In a nutshell: Monetary pumping falsifies interest rate signals by pushing gross market rates below the rate that reflects society-wide time preferences; this distorts relative prices in the economy and sets a boom into motion – which is characterized by widespread malinvestment of scarce capital and over-consumption; eventually, the distorted capital structure proves unsustainable – interest rates begin to rise, and boom turns to bust. Many businessmen belatedly realize that the accounting profits of the boom were an illusion – in reality, capital was consumed. Many as yet unfinished investment projects have to be abandoned, as they either turn out to be unprofitable at higher rates and/or the resources needed to complete them are lacking.

 

When capital runs short: several of countless housing developments in Spain which had to be abandoned when the bust of 2007-2009 started. The image on the right hand side shows a Spanish construction machinery graveyard in 2010. Money supply growth in the US and the euro area exploded after the turn of the millennium, as central banks pumped heavily to combat the demise of the tech boom. In the process they egged on an even more dangerous bubble in real estate. In their great wisdom they have now replaced the expired real estate boom with an even larger, more comprehensive bubble in everything.

 

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Relative Performance of Gold Stocks

The quarterly meeting of the Incrementum Fund’s Advisory Board took place earlier this month (April 12), and as usual, a special guest was invited to participate. This time we were joined by well-known fund manager John Hathaway (Toqueville Gold Fund). It was a very wide-ranging discussion of the financial markets and the economy, and we hope you will agree with us that it was quite interesting (as always, a PDF containing the transcript is available for download below).

 

Fund manager John Hathaway, special guest at the Incrementum Advisory Board Meeting this quarter.

 

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Paradise in LA LA Land

More is revealed with each passing day.  You can count on it.  But what exactly the ‘more is of’ requires careful discrimination.  Is the ‘more’ merely more noise?  Or is it something of actual substance?  Today we endeavor to pass judgment, on your behalf.

 

Normally, judgment would be passed on a Thursday, but we are making an exception. [PT]

 

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Turn on, Tune in, Drop out

Back in the drug-soaked, if not halcyon, days known at the sexual and drug revolution—the 1960’s—many people were on a quest for the “perfect trip”, and the “perfect hit of acid” (the drug lysergic acid diethylamide, LSD).

 

Dr. Albert Hoffman and his famous bicycle ride through Basel after he ingested a few drops of LSD-25 by mistake. The photograph in the middle was taken at the Woodstock festival and inter alia serves as a reminder that monetary inflation has a considerable effect on the purchasing power of the US dollar over time. [PT]

 

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Interesting Times Arrive

“Things sure are getting exciting again, ain’t they?”  The remark was made by a colleague on Tuesday morning, as we stepped off the elevator to grab a cup of coffee.

 

Ancient Chinese curse alert… [PT]

 

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One and the Same

 

“God gave me my money.”

– John D. Rockefeller

 

Today we step away from the economy and markets and endeavor down the path less traveled.  For fun and for free, we wade out into a smelly peat bog.  There we scratch away the surface muck in search of what lies below.

 

One should actually be careful about quotes like the one attributed to Rockefeller above, even if it of course sounds good and is very suitable for the topic at hand. In reality he probably said something like it, but it is almost certain he didn’t say it verbatim (contrary to Mr. Blankfein, who is indeed on record for stating that Goldman Sachs was “doing God’s work”). We mention this because we have long noticed that the best-known quotes attributed to all sorts of long dead famous people – the ones one immediately finds on the first page that pops up when googling their names – are more often than not either garbled beyond recognition, or misattributed, or at times even completely made up. A genuine quote is a rare find indeed; at a minimum the most famous quotes have almost always gone through the Chinese horse-whisperer treatment (known as “telephone” in the US). What Mr. Dunne said about Rockefeller is rather more certain, since he put it in writing in the Chicago Evening Post in 1895 – albeit in his “Mr Dooley” voice, imitating an Irish accent. Dooley was a figure Dunne had invented for his satirical columns, the fictional owner of a fictional Irish pub located on the South Side of Chicago (so the quote actually read: “He’s kind iv a society f’r the previntion of croolty to money…”, etc.).  [PT]

 

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