Category Archives: markets

“Stock Market Gained $2T in Wealth Since Trump Elected”

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That’s the headline on a Fox News insider report of Club For Growth founder Stephen Moore’s claim about one outcome of President Donald Trump’s election.  It’s certainly true that the market has run up hard since the election (although it’s had other periods of sharp gains, too, that are unrelated to elections).  Moore also was quoted as saying,

This could be the start of a big bull market rally[.]

There are a couple of things about this, one bigger than the other.  The lesser thing is that the stock market has been in a bull run for most of the year.

The bigger thing, though, is the misconception of “wealth” in the stock market.  The stock market has gained value, not wealth.  Wealth is what someone can spend on necessities and froo-froo, actual goods and services; stock shares aren’t those.  To turn that (gain in) value into actual wealth, all those higher priced shares would have to be sold for real dollars—and if everyone did that roughly simultaneously, most of that value gain would disappear in the selling.

Bigotry from Ignorance

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The Owners of Strata Plan LMS 4025* owns a building in City of Vancouver, British Columbia, that houses among other businesses a restaurant that went out of business.  Mengfa International, which owns a small restaurant chain known as Moby Dick’s, wants to open a Moby Dick’s restaurant in that space, but the strata won’t allow it.

It insisted “that the word ‘Dick’ in Moby Dick was an offensive term[.]”

Mengfa demurred (and is suing the strata):

It says that the Moby Dick name and logo are “not offensive to the public, given its literary significance and fame.”

Which would be obvious to anyone with an actual education.  It’s just as obvious to anyone outside a particular building in the City that Dick is a common nickname for those named Richard.  As it is, the strata’s claim, aside from interfering with legitimate business, is a deep insult to the intelligence of anyone with any sort of education.  Or possessed of actual experience of the world, even just that part of it immediately outside the bubble formed from a shell of brick and mortar.

Illiterati like the members of the building council that runs this strata illustrate the bigotry that flows from the ignorance that too many modern education systems create when they put feel-good esteem froo-froo ahead of actual education and performance accountability for students.

Call me Ishmael, indeed.

*A strata, according to the Courthouse News Service site is a Canadian legal entity that

may be created to divide a building or buildings or land into “separate components that are individually owned and common components owned by all of the owners.”

The building of LMS 4025 is run by a building council.

Trump, Boudreaux, and Trade

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Don Boudreaux, at Cafe Hayek, recently took issue with President-Elect Donald Trump on the question of trade.  While there’s much about which to argue with Trump about his potential trade policies, here I must take issue with Boudreaux.  Boudreaux argued that a Trump remark in a PBS interview about the EU beating [his emphasis] the US in trade demonstrates Trump’s ignorance of trade matters.

I suggest that Boudreaux has demonstrated his lack of understanding of what Trump believes it means to be beaten in trade.  Boudreaux based his argument on a free market environment in which I have bags of peanuts, you have pears, the two of us agree on an exchange, and thus

If I accept, then we trade.  You gain; I gain.  We both gain.  No one “beat” the other.

Of course.  There’s no reason to believe Trump doesn’t understand that; he’s too successful a businessman.

Boudreaux then threw in a complication: Jones, who’s now nearby with his own supply of bags of peanuts.  You are then able to do a better (in some sense) deal with me to get more of my peanuts for the same number of your pears or to get the same number of my peanuts for fewer of your pears.

[B]oth you and I gain.  No one gets “beat.”  Each of us, to use Trumpian language, is “a winner.”

Again, of course.  We’re both still better off than had we not done the deal; competition just changed the degree of “better off.”  Again, there’s no reason to believe Trump doesn’t understand that; he’s too successful a businessman.

But this isn’t the sort of thing Trump is talking about when he decries existing trade deals (not trade, and not multi-party trade).

Here’s another scenario that Boudreaux omitted from his vignettes.  You and I have our supplies of peanuts and pears for trade, and Jones has his peanut supply to trade, just as before.  This time, though, Jones offers his peanuts below his cost of getting them.  Further, he does this, not because he’s offering a temporary loss leader to introduce himself to a new customer or to a new market, but because he has a Sugar Momma who’ll make good his losses for as long as it suits her and for her own reasons.  Now you do your deal with Jones, or you divide your custom between Jones and me, for many fewer pears or for many more peanuts than would be the case without this nonmarket intervention.  Instead, the terms are driven by Jones’ artificially low, subsidized price.

You and I both are beaten in this arrangement.  I lose immediately because I don’t get the price for my peanuts I might have gotten in a fair negotiation; the price I am able to get—if I can trade at all—is governed by Jones’ subsidized price.  You lose later because after you’ve become accustomed to those low prices, something changes in Jones’ environment (perhaps his Sugar Momma no longer can afford her subsidizing Jones), his price suddenly rises, and you must deal with that price shock to your trading.

Given Trump’s repeated (if under-reported) emphasis on fair trade deals, good trade deals, this would seem to be what Trump means by being beaten by the EU, by China, etc.

It’s puzzling that Boudreaux doesn’t understand that. He’s too good an economist.

Government-Mandated Fuel Standards

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This post comes from one of The Wall Street Journal‘s earlier debate/point-counterpoint pieces.

Carol Lee Rawn, who runs the Transportation Program at Ceres, made her argument in favor of this Government intervention into the free market (many of you can guess my position on fuel standards set by Government rather than by market).

First, the standards benefit consumers and the economy. The standards set different mileage goals for different sizes of cars and trucks.

Umm, no.  The cars and trucks start out with differences in their intrinsic mileages; the standards don’t affect those differences in any qualitative way.  What they do, though, is run up the costs of all cars and trucks, reducing the ability of consumers to buy them in the first place.

Second, to remain competitive, the Big Three auto makers of Detroit must offer more fuel-efficient vehicles. During the last global spike in oil prices (when fuel-efficiency standards had essentially stagnated for years), the Detroit Three found themselves overinvested in gas-guzzling vehicles they couldn’t sell.

Couple things on this.  First, to remain competitive, the Big Three—and the others in our auto industry—have to make cars and trucks that folks want to buy and drive, not what Government will permit them to choose from.

The second thing points up the interlocking nature of a modern economy; individual factors cannot be taken in isolation from each other.  Were Government to get out of the way of the energy production industry, its departure would couple with the vasty seas of oil and natural gas right here in North America and the production thereof, and this would vastly reduce the likelihood of another spike, global or otherwise, in oil prices.  Which would render this factor a straw man.

Third, maintaining strong fuel-efficiency standards locks in growth for innovative suppliers to the auto industry.

This is just more of Government determining who will be allowed to succeed and who will be required to fail in our economy.  Furthermore, these suppliers have no more inherent right to exist than did buggy whip suppliers who’d innovated to provide bigger, better, more flexible whips.  Like those whip suppliers, who moved on to provide horns and gas pedals and etc to the automobile manufacturers that overwhelmed the buggy manufacturing industry, these suppliers can, in a free market, prosper just fine by moving on to supply other items to a reviving auto industry.

The bottom line: making great vehicles that go farther on every gallon of fuel is good for the auto industry and good for America.

No, the bottom line is letting Americans decide for themselves what’s good for them.  Vehicles that go farther on every gallon of fuel are part of that.  So are vehicles that last longer.  So are vehicles with better entertainment systems for the passengers.  Most importantly, so are vehicles made to American buyers’ wants and needs, not to Government specs.  Government has no legitimate role in dictating to us what our choices must be.

A Market Prediction

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Because hubris—I has it.

In an article on the future relationship of Central Banks with economies and markets, The Wall Street Journal had this datum tossed in:

…shares in the S&P 500 are currently trading at 17 times the earnings they are expected to generate during the next year, compared with a 10-year average of 14.4[.]

That’s not a very large premium; all this P/E ratio means is that, in the coming year, stock market growth will be slower than in the last couple of years (recall that I’ve written, too, about the disconnect between the stock market and the underlying economy in the last few years).  Prices will slow their rise as earnings catch up; prices won’t fall back toward earnings.

It takes a P/E above 20 for the markets to begin to approach drops in prices longer than day to day or week to week micro-corrections—otherwise recognized as noise.

Disclaimer for the legalists among you: I am not a registered or licensed advisor of any sort, nor do I play one on the radio.