[Editor’s Note: We have revisited this edition of the Economic Prism, previously published to align with the Independence Day holiday. The themes explored continue to resonate deeply with each passing year. Enjoy this updated version!]
Merry Mobs
As summer reaches its peak in the Northern Hemisphere, true American patriots take pride in hoisting the stars and stripes, ready to celebrate. On July 4th, those who embody freedom and bravery often accept federal holiday pay to stand tall on their own two feet. For these individuals, rugged individualism and unwavering independence are at the core of their identity.
With enthusiasm, they gather along the shoreline for a jubilant celebration of American Independence. These freedom lovers, descendants of Andrew Jackson, partake in traditional activities like grilling hotdogs, tossing horseshoes, and enjoying drinks sweetened with corn syrup and fermented grains. As the sun dips below the horizon and stars emerge in the night sky, they express their joy with cheers and excitement, marveling at the splendor of fireworks lighting up the sky. Continue reading
There’s a well-known Wall Street saying: “No one rings a bell at the top (or bottom) of the market.”
This bell serves as a metaphorical signal to sell when the market peaks. However, we contest this notion. It’s clear that bells do ring at market tops, though many do not hear them due to distractions associated with the allure of easy profits.
Bull markets often morph into frenzies, where the intrinsic value of assets fades in importance compared to the hope of selling them at inflated prices to the next unsuspecting buyer. This irrational pricing, driven by the search for a greater fool, certainly rings like a bell, even if this phenomenon can persist for years.
Currently, the ratio of total market capitalization to GDP exceeds 200 percent, a clear indicator of a ringing bell. Another such sound comes from MicroStrategy’s recent $500 million offering of junk bonds earmarked solely for purchasing Bitcoin, which boasts an attractive 6.125 percent coupon rate.
How will MicroStrategy manage coupon payments if Bitcoin prices decline? Will they resort to issuing more junk bonds? Who would purchase them then? Continue reading
“What the hell?!” – President Joe Biden, June 16, 2021
Out of Control
American workers grapple with navigating an economy that appears rigged against them. We made this assertion years ago and find it fitting to revisit it in light of recent developments.
This week, following a two-day meeting, the Federal Open Market Committee (FOMC) released a statement with no significant changes. The Federal Reserve will keep the federal funds rate near zero and continue to generate at least $120 billion each month to purchase Treasuries and mortgage-backed securities.
Bond yields surged, and gold prices fell as 13 Fed officials projected plans for two rate hikes in 2023. Fed Chair Jay Powell mentioned that the Fed is “talking about talking about” tapering bond purchases, indicating that these technocrats may realize, even if they won’t admit it, that they have already lost control.
Consumer price inflation is reported to be rising at an annualized rate of 5 percent. However, the ‘unofficial’ consumer price inflation rate, based on methodologies from 1980, suggests a much higher rate of around 13 percent. Continue reading
Contemporary macroeconomics can often feel tedious and dull. Monthly reports on GDP, unemployment, inflation, and other economic indicators tend to be uninspiring. How can any meaningful decisions about improving one’s life be made based on these statistics?
Should one buy more toothpaste simply because consumer prices are rising? Should risky career transitions be considered in a high unemployment climate? Should investments in S&P 500 index funds be made due to supposedly booming GDP growth?
Generally, these economic reports provide little guidance for making informed personal choices. Yet, they offer a steadfast rationale for government central planners to justify their interventions in the economy.
The objective of these planners is to manipulate reports to display favorable numbers—typically aiming for moderate growth, low inflation, and low unemployment. Years ago, Alan Greenspan referred to this enchanting combination as a Goldilocks economy.
However, reality often diverges significantly from the official data. Moreover, government analysts frequently work diligently to massage the numbers to fit the official narrative. Continue reading
The themes explored in this collection of articles urge us to reflect on the ongoing challenges faced by individuals and the dynamics of the economy. From Independence Day celebrations to the intricacies of market behavior and economic data manipulation, they offer thoughtful insights into the state of society today. Understanding these nuances is crucial as we navigate a continually evolving landscape.
