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Wednesday, April 28, 2010


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Mamma Boom Boom

Equity rally to extend for several days...

Diamond Jim

A most interesting episode of the Nova science program on PBS in the US aired last night. Its subject was economics and analyzed the great financial collapse we just lived through as well as the Great Depression. One of the people interviewed was Eugene Fama, a professor at the U of Chicago and one of the fathers of the efficient market hypothesis. I don't know whether it was due to selective editing, but he came across as an idiot. A lot of our leading economists today came out of the econ dept at U of Chicago so some of the misdirection by the Fed, Frannie and Treasury may be due to an overly dogmatic, mathematical approach to an all-too human science like economics.


I believe that one of my text books back during my Business School days in the early 80's was written by Eugene Fama, along with a Capital Asset Pricing Model book by William F. Sharpe which highlighted diversification and risk-adjusted investment performance analysis, not too mention the infamous Sharpe ratio. Both of these theories and formulas came from the 10960's if I'm not mistaken. Sharpe was out of Stanford.


Michael, when I was doing LBO advisory work in the '80s (talk about fun!) I cut my teeth on CAP/M models and all the rest. What attracted me to the Prechterian World after that was the complete lack of thinking about how mass psychology works. These models are all mechanistic, and work reasonably well for mature industries but poorly for dynamic industries.

Wave Rust

Never fade Ben 'Bonefish' Bernanke and his Fabulous Fab Fed. Boys :)

At your best, you can only cast
where you saw him last.

He's too quick, and you're too slow.

You risk the most
when you fade the Gray Ghost.

Never fade Bonefish Ben.

wave rust


The Fed was created by banksters and allowed to create money (instead of the Treasury), the same year they instituted income tax so the American suckers could pay interest on the money that was created by the Fed when the Treasury could have created it for free. Isn't that right Yelnick?


Dsqaure, yep. In a midnight passage (shades of the recent healthcare bill being pushed thru technically) the income tax and the reinstatement of the Fed happened in 1913. Andrew Jackson warned us of the perils of a central bank (Jesse's Cafe Americain has the speech posted), so for 75 years we held off. From 1813 to 1913 a nickel cigar cost a nickel, and the Dollar had no overall depreciation or appreciation (altho it did swing +/- 50% in between). From 1913 to (estimated) 2013 it looks like the Dollar will fall 40x, so a nickel then is worth twice a Dollar today. A really terrible record.

One could go back and say that a Dollar was stable for 250 years until 1913. In the 1600s the first northern European Republic was formed, the United Provinces, which became the Netherlands. Their Guilder was backed by gold and stable. The second northern Republic, the United Kingdom, was formed out of the Glorious Revolution of 1688, and it too backed its Pound with gold and held it stable until 1914. The third is of course the United States, and its Dollar was stable from around 1791 to 1913. Not a bad record for gold backed currencies, and done during a 250 year period where their collective economies grew faster than they have since 1913.

We had a truly awful inflation not even five years after the Fed was formed, as bad as we had seen since back after the War of 1812, when we went on and off and on a central bank. We had an even worse inflation in the 1970s after we first cheated on then abandoned the gold standard.

Not a very compelling record for fiat currencies and the Fed.

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