Tuesday, March 12, 2013

"Captain! The sea level is rising!" -Titanic deckhand

The talking heads' twittering excitement over the Dow is hilarious. "Can the economy be this strong while unemployment is still high?" they ask.

When gas is up, it's inflation. When bread and milk is up, it's inflation. When gold is up, it's inflation. When the average price of anything goes up, it's a sign of inflation...

Except stocks. When the average price of stocks goes up, it's because the economy is strong.



Anonymous said...

I had the same facepalm when I saw this, Time Magazine's 'cartoon of the week'


Boat Guy said...

What? We're in a "recovery" aren't we? Paul Krugman just said if we spend more money and get "full employment" we'll be able to afford our debt and then we can spend more.
Doesn't it work like that?

Bram said...

The market is up for 3 reasons:

1. Inflation - you got it.

2. Interest rates are almost zero - where else are you going to invest your money?

3. Companies have pretty well given up on growth - so they are squeezing out every last once of productivity - and paying huge dividends instead of re-investing.

Stuart the Viking said...

I have had this argument with a few of my more progressive friends. Because the official line is "there is no inflation", they believe it.

How can there be no inflation when the fed is pumping money into the money supply, and there is 0 interest? Then they complain that everything is getting more expensive...

Simple economics M-F-ers... do you speak it?


KM said...

Simple economics M-F-ers... do you speak it?

The Fed Res no habla.
Back in the "glory" years of BJ that libtards speak so fondly of, they didn't like the inflation numbers.
So they changed the yardstick used to measure it.
(and he isn't the only one to do it)

If the dollar is only worth 1/4th of what it should be but you have twice as many dollars, that's good right?

DEPRESSION - It's not just a low pressure system off the coast of Africa turning into a hurricane that hits the US.

rickn8or said...

Okay, I'll admit it; it was me holding the stock market down for the last four years. In September, for a variety of reasons, I had to cash out my 401(k). Word spread I was out of the market and could not possibly benefit.

Like a balloon that's lost its' last sandbag, the market took off and has been rising since.

Anonymous said...

I thought it was QE III; the Fed borrowing/printing money and buying stocks and bonds with it.
Have I been mislead?


JD Rush said...

QE III? Damn, even the inflation is inflated.

Anonymous said...

+1 Bram,

IF you have money you will make more in the stock market than any where else.

It is also easier for companies to raise money by selling stocks.

Does this keep you a head of inflation? I don't know.

My only data point is my former employeer paid a fair dividend every quarter. This was only possible by cutting overhead because they could not increase sales or productivity. I sold my shares because this can not last for very long.

In fact all of us management thugs were told the most important thing was to keep share prices high, not customers happy.


Anonymous said...

Theoreticaly, rising stock markets are a good sign. As your local gun shop will remind you, rising demand causes rising prices. If a company looks profitable, people will want to buy its stock--whether because of growth or because of higher dividends.

The real problem is that the stock market began to lose contact with reality a couple of decades ago--no later than the 1980s. Now it's a game in which a company's profits are only secondary; the real action is in trying to guess what stocks other people will want, buy that stock, and then sell it to other people who are also guessing the stock price will go up. It's a giant game of three card monty in which everyone is a dealer trying to lure in suckers to his table while willingly being the suckers for other people at the same time, and it's the investor who buys stock for good old fashioned reasons who will end up holding the empty bag.

Wall Street is the world's biggest casino. Personally, I prefer blackjack when I want to throw away money.

Brad K. said...

I was shocked to learn that deflation isn't the opposite of inflation.

Inflation is prices increasing, meaning that the value of a dollar (peso,euro, whatever) is less than it was earlier. I note that with all the invention of money Obama has indulged in, he doesn't compare the buying power of today's dollar to what a dollar bought in 1977.

Deflation refers to *debt*. To virtual money. To unsecured loans like credit cards, bundled mortgages, the national debt -- to stock and bond funds. Deflation is when the virtual money collapses; Japan hasn't been in the economic growth cycle, business headlines in twenty years as they watch their inflated debts and virtual values erode toward the value of physical assets.

Deflation is the value of a home falling while the mortgage continues to state the original value.

So. In Europe, they understand about what happens when the government ruins the economy. Note that Obama cites Europe as what he wants America to do -- disarm, tax the rich, social programs to buy votes, invent money by inventing debt.

TransitionCulture.org is a tree-hugging, peak oil devotee site that champions local food, local currency -- building a local infrastructure less exposed to shortfalls or collapses of the global economy. Robb writes today about Manchester, UK, and how the area isn't growing. Or sustaining fancy shopping centers and global brands. Robb quotes "The Perfect Storm: energy, finance, and the end of growth" by Tim Morgan: "“Fundamentally, what had happened here [UK/Europe] was that skilled, well-paid jobs had been exported, consumption had increased, and ever-greater quantities of debt had been used to fill the gap. This was, by any definition, unsustainable. Talk of Western economies modernising themselves by moving from production into services contained far more waffle than logic – Western consumers sold each other ever greater numbers of hair-cuts, ever greater quantities of fast food and ever more zero-sum financial services whilst depending more and more on imported goods and, critically, on the debts used to buy them. Corporate executives prospered, as did the gateholders of the debt economy, whilst the vast majority saw their real wages decline and their indebtedness spiral”."

As for fracking and other "innovative" energy technologies, the issue is *not* what energy might be available -- it is about what cost in energy, finances, and toxic residues will reduce the value of that energy (Energy Returned on Energy Invested, EROEI). "“… the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel”."

The Dow is up because *debt* is up -- virtual, financial inventions. The deflation is already here -- the zero and near-zero rates on interest and Fed Treasury Bills, etc. The runaway federal, corporate, financial, and personal debts just makes the unfolding transition to reality more painful and probably makes it sooner as well.

It takes debt -- letters of credit, loans -- for American farmers to plant their crops, for international shippers to contract for goods. As deflation ensues, access to those loans and credits will be increasingly spotty.

Not to mention that every dollar of Federal "revenue" devalues the dollars earned by producing food, and shoes, and clothes. High levels of taxation, and tax revenues and spending, only make sense when the economy is growing every year -- and that hasn't been happening.


billf said...

I started to organize my thoughts to write a comment about the Fed and inflation,but I got so angry it turned into a rant.
Let me just say that I think the real danger is unemployment ,which around here (in NC)is over 10%. That means that one out of ten families,is living on about 20 Grand a year-unemployment,SS,welfare,etc.You can't grow an economy on that,you can't pay down the debt,you will borrow more from China (et al)and the next generations will be progressively worse off.The government can print all the money it wants (to give away)but it won't be worth anything.

Aesop said...

"Americans can always be counted on to do the right thing...after they have exhausted all other possibilities." - Winston Churchill

Sigivald said...

Reminds me of the people on Facebook sharing Heartrending Stories of how Poor People are Still Suffering, despite The Dow Being Up, Benefitting Only Those Fat Cat Financiers.

As if increases in stock prices don't benefit things like pension funds, too? Or Joe Middle Class's 401(k)?

(And, sweet Jesus, the way they're shocked that in a slow recovery, profits are up but hiring isn't?

You think?

A contraction makes businesses cut fat and maximize efficiency.

Thus when it starts to unwind, profits go up ... and they don't instantly start hiring people on the belief that growth will continue forever and plainly that hiring couldn't ever be a mistake...

It's not nobody else pays any attention to economics.

I guess I'll go back to reading Man, Economy, and State.)

Divemedic said...

The DJIA is the sum of 30 stocks on the NYSE, divided by the Dow Divisor. As I write this, the DJIA stands at 14,438.

The Dow divisor is currently 0.130216081
If we used the same divisor as they did in May of 2001, which was 0.153694, the DJIA would be 14375.

So adjusting for changes in the Dow divisor, the DJIA is actually unchanged from where it was 12 years ago. These numbers are so manipulated, it is ridiculous.

Anonymous said...

...my broker accepts my EBT card.

Aesop said...

Yes, I was noting the robust economy just the other day, as I filled my gas tank after purchasing my groceries.

Bubblehead Les. said...

And yet, one of the few areas in our Republic that is actually showing Growth due to Consumer Demand is being threatened by the same Government that is saying how great the Economy is.

Publicly Traded Firearms Companies.

Jim said...

On the evening of November 6th, when the election results turned sour, I went online and bought a case of 5,000 rounds of .22 LR.

I wish I could plant them and harvest a bumper crop this summer.

Makes as much sense as Ozero's economics, doesn't it?

Sunk New Dawn
Galveston, TX

Robert said...

A Potemkin village like no other. Reminds me of the fake town at the end of Blazing Saddles. I have a feeling that it's going to meet the same fate.

Living in Babylon said...

The only difference between an economist and a witch doctor is that you pay one of them with magic paper and one of them with chickens.

Basil said...

Sorry, Tam, but a rising stock market and rising gas or bread prices are not necessarily alike. The "price" of stock is a bit of a misnomer. It is a unit of measure of financial capital which has its own "price." Right now the price of financial capital is falling as the Fed keeps pumping the economy. Think about interest rates as a parallel with bonds. Right now real interest rates are lower than they've ever been, with some short term rates effectively negative. So while the cost of a lot of things has been going up, the cost of capital has been going down, thanks to the artificial stimulation of the Fed.

What are you going to say when inflation really takes off, and the market comes crashing down?

Tam said...


So, the pumping of jillions of dollars of Monopoly money into the economy artificially inflates the price of everything out there from truck tires to turnips, but AAPL is as solid as a Troy Ounce, then, and unaffected by the sea of funny money swamping the rest of the economy? Is that what you're saying?

If so, I'm obviously lost at high finance...

Old NFO said...

So what are they going to say when the market tanks... And THAT is coming too!

Jeffrey Deutsch said...

Kishnevi, excellent points about the stock market.

Markets' contact points with reality are knowledge transmission points. In other words, some people knowing more than others about what's going on (maybe about a company's imminent self-destruction, a new trend that will set the world on fire, a sudden drop in supply from competitors, etc) is what ultimately makes markets work in the first place.

So when we banned insider trading, we in effect cut off the fundamentals (including weighted expected fundamentals...that is, predictions of changes based on both how likely they are and how important they are). What remains? Trying to beat the crowd at said crowd's own game. Of course it's going to get crazier from there!

In any case, pleasant dreams!

Jeff Deutsch

Basil said...


Monopoly money may be driving the price of stocks up, but that is not why the price of bread and gas are rising. The latter are rising because of supply constraints (both worsened by silly government policies). Prices can rise because of too much demand, or too little supply (as I'm sure you know). Given the weakness of the economy, high bread or gas prices cannot be accounted for on the basis of demand. But it is precisely demand, fueled by funny money, that is driving the stock market. That is how they are different.

Windy Wilson said...

It was explained to me long ago that the stock market was a leading indicator for the economy, that is it went up and down in advance of the main economy, and employment was a lagging indicator, it went up or down AFTER the economy started to go up or down.
The Economic Ignoramuses out there who always gripe about how the economy is improving as a jobless recovery (but especially if the President has an (r) after his name) should consider that they would not plant flowers in their yard on the first >40 degree day of the year, so they shouldn't expect employers to do the business equivalent.

Brad K. said...

But -- how are the men's underwear selling? That is supposed to be one of the *prime* economic indicators. It seems men are willing to postpone replacing underwear in tough times -- so tracking UW sales has turned out to be fairly dependable.

OTH, there is this. Skid marks ain't sexy (http://youtu.be/bhmL_wSkBZQ).