You are here: Home / Archives for John Butler

Hope Is Not a Strategy

January 30, 2012 By

John ButlerTHE INFLATION TIPPING POINT

By John Butler

Financial markets have ushered in 2012 with a collective sigh of relief. 2011, the year of the never-ending crises, is over. Although the crises continue, equity markets have risen moderately month-to-date. There is clearly hope that things in 2012 will improve. While hope may not be a strategy, past episodes of misplaced hope are instructive. With specific reference to the early 1930s, as the US Great Depresson unfolded, the first quarter was always positive for the stock market. Yet these gains, and more, were given up in the subsequent quarter, and the negative trend continued through the remainder of the year. Thinking specifically about 2012, we can see a number of reasons for caution. However, investors must keep in mind that central banks around the world stand ready to print money in response to deflationary pressures, something missing in the early 1930s. As such, while cash continues to provide liquidity, it fails to provide a reliable store of value. [Read more…]

Filed Under: Soapbox Tagged With: , ,

The Inflation Tipping Point

March 7, 2011 By

Investing StrategiesTHE INFLATION TIPPING POINT

By John Butler

The Fed, already deep into a dilemma largely of its own making, is about to find itself facing an even more unpalatable choice before long: Accommodate the surge in demand for real goods with a continuing easy money policy or, alternatively, slam on the brakes sufficiently to force an end to the incipient behavioral changes behind the growing stagflation, thereby running the risk of causing another acute round in the ongoing financial crisis.

So what is the Fed going to do? Take responsibility? Well that would be rather out of character given that the Fed so far has steadfastly denied any blame whatsoever for the credit (or asset) bubble that it created with a prolonged period of excessively easy monetary conditions in 2003-07. More likely, the Fed will simply hope that somehow inflation will rise moderately to a level which helps to reduce the real debt burden on the economy and then stabilize. But if an inflation tipping point is soon reached and consumer price inflation ratchets sharply higher this year, no doubt the Fed will deny that such inflation is in any way a monetary phenomenon, notwithstanding the analysis above and Milton Friedman’s famous dictum to the contrary. [Read more…]

Filed Under: Soapbox Tagged With: ,

If We Were in Charge

January 30, 2011 By

George Washington

IF WE WERE IN CHARGE

By John Butler

With regard to equity market valuations, other factors equal, as the capital base erodes, so does aggregate corporate profitability. Fewer factories = fewer profits. That said, if there is inflation, then the price level and headline revenues may continue to increase, but real economic profits will nevertheless decline. Even if shrinking capacity results in stable price margins, investors should be wary about buying into an eroding capital stock, which is what we have at present. But if margins are under pressure due to soaring input costs, then the combined impact on corporate profits, over time, could be unusually severe.

[Read more…]

Filed Under: Soapbox Tagged With: ,

A Century of Money Mischief

December 21, 2010 By

John ButlerA CENTURY OF MONEY MISCHIEF

By John Butler

On precisely the same weekend in November as the Republican victory parties in and around Washington, the Fed celebrated its centennial far away from its DC home at Jekyll Island, Georgia. One-hundred years ago, seven US Congressmen and bankers gathered together in secret at this highly remote location to lay the political foundations for what would become, in 1913, the Federal Reserve Act.[2] The ostensible purpose of creating the Federal Reserve was to provide for greater financial stability in the wake of the US banking panic of 1907. So how has the Fed fared in this role?

[Read more…]

Filed Under: Soapbox Tagged With: ,
The Van Riper Company

The Van Riper Company

©2019 The Van Riper Company | Contact