On Economy

 

A Decline in Excess of 50%

DELRAY BEACH, Florida – It’s hot in Florida. Steamy hot. Hair curls and bodies go limp. The “relief rally” continued on Thursday. All over the world, stocks gained. So did oil and commodities. The Dow was up 369 points – a 2.3% move. Chinese stocks were up by about 5%. Why?

U.S. GDP numbers for the second quarter came out higher than expected. The economy grew by an annual rate of 3.7%. And influential New York Fed chief William Dudley said the argument for a rate increase in September was “less compelling.”

 

William_C_DudleyNY Fed president William Dudley, indicating the height of the Federal Funds rate between thumb and forefinger, now and forever.

Photo via sincomillas.com

 

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Differences and Similarities

No one should attempt to treat Ayn Rand and Murray N. Rothbard as uncomplicated and rather similar defenders of the free society although they have more in common than many believe.  As just one example, neither was a hawk when it comes to deploying military power abroad.*  There is evidence, too, that both considered it imprudent for the US government to be entangled in international affairs, such as fighting dictators who were no threat to America.  Even their lack of enthusiasm for entering WW II could be seen as quite similar.

 

Ayn Rand, famed writer and founder of the Objectivist movement

Photo credit: Cornell Capa / Magnum

 

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Stripped Gears

DELRAY BEACH, Florida – “The Donald” breathed a sigh of relief yesterday. He and other rich people got a break from the beating they’ve been taking: Stocks bounced, with the Dow ending yesterday’s session up more than 600 points.

 

rusty gearsThe gears have been stripped, and they look rusty…

Photo credit: Jonathon Cianfrani

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The Things that Produce Real Wealth vs. Phantom Wealth

Our friend Michael Pollaro, the keeper of long-term data on the true money supply and author at Forbes as well as occasionally a guest author on this site, recently sent us the following chart of a relationship he keeps a close eye on. It depicts the annual change rate in new orders for non-defense capital goods and compares this series to the Wilshire total market index.

 

piggyPhoto via thedailysheeple.com

 

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This Is the Start of the Sell-off, Not the End

BALTIMORE, Maryland – Is Donald Trump broke yet? We don’t know. But at the end of the first quarter, investors held about $24 trillion in stocks. Stock prices are down about 10% since then… leaving the rich $2.4 trillion less rich.

 

Do I look broke to you? I have a helicopter landing pad with me at all times!

 Photo credit: Charles Sykes / AP

 

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Planners Meet to Discuss the Impossible

The Jackson Hole pow-wow takes place this weekend. A more revolting get-together of actual and armchair central planners (i.e., the advisors to the planners, many of whom see themselves as planners-in-waiting) could hardly be imagined. One has to wonder how much more damage they will be allowed to inflict before someone finally says “enough!”. The parlous state of the global economy and the series of booms and busts we have experienced over the past 20 to 30 years are almost exclusively their doing (some of the responsibility has to be shared by politicians and other bureaucrats, who have hopelessly over-regulated and overtaxed economies, especially in the developed world).

 

fischer1Fed vice chairman Stanley Fischer, one of the keynote speakers at the Jackson Hole conference – more on him further below

Photo credit: Simon Dawson/Bloomberg

 

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A Rookie Market

TIVOLI, New York – The Dow plunged 588 points on Monday – a nearly 4% drop… and the second straight day of losses of more than 500 points. The rich made money on the way up. Now, they’re giving it back. About $250 billion has been erased from the value of the U.S. stock market in the last two trading days.

 

jason_20140827_2In the end, she will come through – they always do.

 

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Redistribution of Wealth

Everyone has been told that life isn’t fair and generally it is deemed unwise to insist that we all get the same breaks — good health, good looks, a pleasant region in which to live, parents who are responsible and loving, as well as well off, and the rest of what is generally hoped for by most. It is, however, also argued by some that what most of us really want isn’t happiness at all but comparable advantage, the condition to be as well off as the next person, at least. (1)

 

Family CookoutHappy family life, 1950s version

Image credit: Jordan Steer

 

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Shubik’s Dollar Auction

I have been writing about consumption of capital, using the example of a farmer who sells off his farm to buy groceries. It’s a striking story, because people don’t normally act like this. Of course, there are self-destructive people in every society, but, not many. Most people know not to spend themselves into poverty.

To make people hurt themselves, we need to add the essential element: a perverse incentive. Consider a parlor game called Shubik’s Dollar Auction. You auction off a dollar bill, but there’s one extra rule. The second highest bidder has to pay his bid, getting nothing in return.

This game works best with a large crowd, so that several people bid before they think too much about it. Then the participants become ensnared. There is always an incentive to raise the bid by a penny. Would you rather pay $1.01 to buy a dollar, or lose $1.00 and get nothing? The same incentive works at $2.01, $3.01, and so on. There is no limit to how high the bidding will go, until someone gives up in disgust (and anger at whoever ran the game).

 

SHUBIKimpShubik auction probabilities tree (two players) – you can read more about this game theory topic here – click to enlarge.

 

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Advisory Board Discussion of July 13

In a way it is a pity we can only forward this transcript of the Incrementum Fund’s Advisory Board conference call of July 13 to our readers now, because as you will see, much of what has been discussed on that call turned out to be quite prescient. The reason why we weren’t able to get it out earlier was that several people went on summer vacation shortly after the call and with personnel stretched a bit thin, the transcript had to wait.

 

Inlfation signalIncrementum inflation signal with implied allocation to inflation-sensitive assets/market sectors – click to enlarge.

 

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