The Great Depression Online

Great Depression Online Archive Issue:

Straight from the Horse Whisperer's Mouth

Great Depression Online
Long Beach, CA
August 24, 2010

Inside This Issue You Will Discover…

*** Earnings vs. Jobs
*** The Opposite of Goldilocks
*** Straight from the Horse Whisperer’s Mouth
*** And More

Earnings vs. Jobs

How investors reconcile two diverging trends will be the burden of this week’s stock market.  On the one hand there have been strong corporate earnings.  Yet on the other hand, those strong corporate earnings haven’t results in new jobs.

Currently, 75 percent of the 484 companies in the S&P 500 that have reported earnings have beaten Wall Street expectations, compared with a quarterly average of 62 percent, according to Thomson Reuters.  But last Thursday, if you remember, new weekly jobless claims rose to 500,000.  What gives?  If corporations are earning all this money why aren’t they hiring?

What’s also notable is the strong corporate earnings have done little to give the stock market a boost.  Nonetheless, they have suspended – if temporarily – the stock market from rolling over and falling down.

~~~~~~Why Iran Wants the Bomb~~~~~~

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“The S&P 500 Index has shed about 0.1 percent since earnings season kicked off July 12.  Over the past week, the S&P 500 fell 0.7 percent to close at 1,072; the Dow shed 0.9 percent to close at 10,214; and the Nasdaq Composite Index rose 0.3 percent to close at 2,180,” reported MarketWatch.

This week revisions to second-quarter gross domestic product will be announced.  And it is likely these revisions will be downward.  Will it be too much for the stock market to ignore?

We’re confident we’ll have an answer by weeks end.  We suspect those propping up the markets won’t like it…

The Opposite of Goldilocks

For the purpose of remaking the world in their image, the men in charge of the money supply met last weekend in Jackson Hole, Wyoming, to contemplate things better left alone.  Federal Reserve Chairman Ben Bernanke was there and so was European Central Bank President Jean-Claude Trichet.  The theme for the annual retreat was “Macroeconomic Challenges: The Decade Ahead.”

Central bankers seem to think that with just the right tinkering and just the right knob twisting they can set the economy ‘just right’.  Just right is what Alan Greenspan called the ‘Goldilocks’ economy…where moderate growth and low inflation make an ideal world for all.  

All a central banker can really do, however, is expand or contract the money supply…they cannot control where the money goes.  When the economy stutters they expand the money supply.  When the economy heats up they contract.  When the economy stagnates, they reason, more money will stimulate more demand.  And more demand will stimulate more jobs.  It all seems so logical, linear, and simple.

But the experience over the last twenty years is that more money creates bubbles.  The money rushes into stocks or houses and distorts the whole economy.  Or the increased demand stimulates jobs, but the new jobs pop up overseas.  After awhile all their meddling with the money supply results in the exact opposite of Goldilocks; rather it produces no growth and high inflation.

Straight from the Horse Whisperer’s Mouth

The economy, you see, is much less a scientific phenomenon than economists would have you believe.  Listening to Ben Bernanke or Paul Krugman speak you get the idea an economy is something that can be fine tuned and adjusted like the mechanics of a chemical processing plant.  If you turn the knobs just right and calibrate the filter presses for maximum slurry separation, you can enhance the operation for optimal output.

The economy, on the other hand, is a social phenomenon that is open-ended, constantly changing, and hardly predictable.  Correlations are nonlinear and outcomes are almost always misunderstood.

A central banker can tinker and toy with things but they rarely get the results they expect.  They can entice people to go further into debt with super low interest rates, yet they can’t control where the money goes.  They can create money from thin air and buy government debt, but they can’t control when or how much of these shenanigans will finally destroy the currency.

Still, we shouldn’t dwell on it too much.  It is summer after all…and even in Jackson Hole, Wyoming, you never know where you’ll hear the next, hot stock tip.  The meeting attendees “schedule feature[ed] stargazing with a local astronomy club and a visit to a ranch with a ‘horse whisperer,’” reported Bloomberg.

We’re not quite sure what exactly horse whispering is, but our guess, if it had any wit, when the time came, the horse leaned over to Bernanke and whispered… “Sell.”

And if it didn’t, it should have.


M.N. Gordon
Great Depression Online

P.S.  “This is something that is of concern to us and concern to Iran’s neighbors.  On the one hand, every country is sovereign and has the right to provide for its own self-defense, but obviously, we take into account systems that can potentially threaten particular countries or peace and stability in the region more broadly,” state department spokesman PJ Crowley said yesterday.  He was referring to Iran’s recent additions to its military arsenal, including the aerial drone and assault boats.

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