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Ben Bernanke: Contrary Indicator
Ben Bernanke: Contrary Indicator
On May 17, 2007 Ben Bernanke, then chairman of the U.S. Federal Reserve System, spoke at a conference sponsored by the bank’s Chicago branch and told his audience the following:
[W]e believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.
Just 18 months later the world economy was on its knees due to the implosion of the subprime housing market, an implosion that ended up spilling over into practically every other part of the world financial system.
Bernanke’s confident speech preceded the highs in the Dow Jones Industrial Average by only a few months and a few hundred points before the index plunged by more than 50 percent. Investment types would style Bernanke’s speech as a contrary indicator—an event, utterance or market statistic that suggests excessive optimism or pessimism in a manner that indicates an imminent and major reversal in the prevailing market trend.
After it was clear that the world financial system had avoided the abyss and the world economy had started to pick up again, Bernanke was hailed as “the man who saved the economy” by Newsweek and was chosen as Time magazine’s “Person of the Year” for 2009.
It was a little like applauding a pilot (read: central banker) who had recently crashed a plane (the economy by creating excessive credit), outfitting him with a new aircraft (costing trillions of dollars in central bank interventions and government bailouts of banks and major industries), and then congratulating him for getting the new plane (revived economy) off the ground.
Recently, Bernanke, whose hero-status seems not to have faded, appeared on CNBC to prognosticate again:
“[The current downturn is] really much closer to a major snowstorm or a natural disaster than it is to a classic 1930s-style depression.” Bernanke said he does expect a “very sharp” U.S. recession, but also a “fairly quick” recovery.
…click on the above link to read the rest of the article…
Economist on Gold – A Dissection
Economist on Gold – A Dissection
A Proven Contrary Indicator
In early May, the Economist has published an editorial on gold, ominously entitled “Buried”. We wanted to comment on it earlier already, but never seemed to get around to it. It is still worth doing so for a number of reasons.
The Economist is a quintessential establishment publication. It occasionally gives lip service to supporting the free market, but anyone who has ever read it with his eyes open must have noticed that 70% of the content is all about how governments should best centrally plan the economy, while most of the rest is concerned with dispensing advice as to how to expand and preserve Anglo-American imperialism. We are exaggerating a bit for effect here, but in essence we think this describes the magazine well. In other words, its economic stance is essentially indistinguishable from that of the Financial Times or most of the rest of the mainstream financial press.
Image credit: Bloomberg
Keynesian shibboleths about “market failure” and the need to prevent it, as well as the alleged need for governments to provide “public goods” and to steer the economy in directions desired by the ruling elite with a variety of taxation and spending schemes as well as monetary interventionism, are dripping from its pages in generous dollops. It never strays beyond the “acceptable” degree of support for free markets, which is essentially book-ended by Milton Friedman (a supporter of central banking, fiat money and positivism in economic science, who comes from an economic school of thought that was regarded as part of the “leftist fringe” in the 1940s as Hans-Hermann Hoppe has pointed out). Needless to say, the default expectation should therefore be that the magazine will be dissing gold – and indeed, it didn’t disappoint.
…click on the above link to read the rest of the article…
