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Finally, Three Reasons to Buy

These trading dates are verifiable. The numbers are still the same as when I calculated them.

The Bank Credit Analyst & William Bretz (deceased) of Juncture Recognition both used the series.

The series was maintained by Ed Fry (retired)

Finally, Three Reasons to Buy

Guild of Scholars: Dr. Leland James Pritchard, M.S. Statistics - Syracuse, Ph.D. Economics - Chicago 1933 Milton Friedman was his classmate (while Friedman was getting his masters).

Theoretical Position:


The transactions concept of money velocity (Vt) has its roots in Irving Fischer’s equation of exchange (PT = MV), where (1) M equals the volume of means-of-payment money; (2) V, the rate of turnover of this money; (3) T, the volume of transactions units. The “econometric” people don’t like the equation because it is impossible to calculate P and T. Presumably therefore the equation lacks validity. Actually the equation is a truism – to sell 100 bushels of wheat (T) at $4 a bushel (P) requires the exchange of $400 (M) once (V), or $200 twice, etc.

The real impact of monetary demand on the prices of goods and serves requires the analysis of “monetary flows”, and the only valid velocity figure in calculating monetary flows is Vt. Income velocity (Vi) is a contrived figure (Vi = Nominal GDP/M). The product of MVI is obviously nominal GDP. So where does that leave us? In an economic sea without a rudder or an anchor. A rise in nominal GDP can be the result of (1) an increased rate of monetary flows (MVt) (which by definition the Keynesians have excluded from their analysis), (2) an increase in real GDP, (3) an increasing number of housewives selling their labor in the marketplace, etc. The income velocity approach obviously provides no tool by which we can dissect and explain the inflation process. I(contrary to Friedman).

To the Keynesians, aggregate demand is nominal GDP, the demand for serves (human) and final goods. This concept excludes the common sense conclusion that the inflation process begins at the beginning (with raw material prices and processing costs at all stages of production) and continues through to the end.

But we do know that to ignore the aggregate effect of money flows on prices is to ignore the inflation process. And to dismiss the concept of Vt by saying it is meaningless (that people can only spend their income once) is to ignore the fact that Vt is a function of three factors: (1) the number of transactions; (2) the prices of goods and services; (3) the volume of M. Inflation analysis cannot be limited to the volume of wages and salaries spent.

To do so is to overlook the principal "engine" of inflation - which is of course, the volume of credit (new money) created by the Reserve and the commercial banks, plus the expenditure rate (velocity) of these funds. Also overlooked is the effect of the expenditure of the savings of the non-bank public on prices. The (MVt) figure encompasses the total effect of all these money flows.

Finally, Three Reasons to Buy

First, there is no ambiguity in forecasts. In contradistinction to Bernanke (and using his terminology), forecasts are mathematically "precise” (1) nominal GDP is measured by monetary flows (MVt); (2) Income velocity is a contrived figure (fabricated); it’s the transactions velocity (bank debits, demand deposit turnover) that matters; (3) “money” is the measure of liquidity; & (4) the rates-of-change (roc’s) used by the Fed are specious (always at an annualized rate; which never coincides with an economic lag). The Fed’s technical staff, et al., has learned their catechisms;

Friedman became famous using only half the equation (the means-of-payment money supply), leaving his believers with the labor of Sisyphus.

The lags for monetary flows (MVt), i.e. proxies for (1) real GDP and the (2) deflator are exact, unvarying - respectively. Roc’s in (MVt) are always measured with the same length of time as the specific economic lag (as its influence approaches its maximum impact; as demonstrated by a scatter plot diagram).

Not surprisingly, adjusted member commercial bank "free/gratis" legal reserves (their roc’s) corroborate/mirror, both lags for monetary flows (MVt) –-- their lengths, or frequency, are identical -- (as the weighted arithmetic average of reserve ratios remains constant).

The lags for both monetary flows (MVt) & "free/gratis" legal reserves are indistinguishable or synchronous.. Consequently it has been mathematically impossible to miss an economic forecast (bubble, etc.).

There are no inaccuracies, just some non-conforming & unavailable data (e.g., revisions have been overlaid & lost, flawed deposit classification, data discontinued, etc.). This is the “Holy Grail” & it is inviolate & sacrosanct.

The BEA uses quarterly accounting periods for real GDP and deflator. The accounting periods for GDP should correspond to the economic lag, not quarterly.

Monetary policy objectives should not be in terms of any particular rate or range of growth of any monetary aggregate. Rather, policy should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real-GDP. Note: roc’s in nominal GDP can serve as a proxy figure for roc’s in all transactions. Roc’s in real GDP have to be used, of course, as a policy standard.

Because of monopoly elements and other structural defects which raise costs and prices unnecessarily and inhibit downward price flexibility in our markets, it is probably advisable to follow a monetary policy which will permit the roc in monetary flows to exceed the roc in real GDP by c. 2 percentage points. In other words, some inflation is inevitable given our present market structure and the commitment of the federal government to hold unemployment rates at tolerable levels.

Some people prefer the devil theory of inflation: “It’s all Peak Oil's fault.” This approach ignores the fact that the evidence of inflation is represented by "actual" prices in the marketplace. The "administered" prices of the world's oil producing countries would not be the "asked" prices were they not “validated” by (MVt), i.e., validated by the world's Central Banks ( i.e., as Friedman maintained "inflation is always and everywhere a monetary phenomenon")

Finally, Three Reasons to Buy

That is a terrible record. How could Buffett be in the top tier of investment forecasts?

I called stock market bottoms in Oct 74, Oct 82, & Jun 84. I called the bottom in bonds Sept 81. I called the market fall in 87. Robert Prechter had 200+ trades when he won a trading contest. It took one option trade to beat him..

I used bank debits. The cycles for real-gnp & inflation have never varied (they’re always exactly the same).

Both rates-of-change in real-gnp & inflation are synchronous.
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It's impossible to miss significant changes in GDP, i.e., bubbles.

Buffett Foresees Dollar's Long-Term Decline, Seeks Acquisitions Overseas

We can expect a vicious level of stagflation that will become an enduring feature of our economic landscape. And the United States will be forced into a high degree of economic isolation, operate under a command economy and perhaps into an increasingly totalitarian mold. Buffett is wrong. Eventually there will be a flight from the dollar precipitating hyperinflation.

Monoline Insurance: There's a New Sheriff in Town...

Unfortunately many monoline insurance managements, responding to apparent economic necessity, or because of greed and/or incompetence, engaged in reckless financial practices.

In retrospect, our financial institutions should have been subject to more intense, not less, regulation. In re-organizing our financial institutions the first requirement is to recognize that the competitive freedoms of the mercantile marketplace cannot be applied to the institutions that create our money, or protect our savings.

Our money and savings require a special fiduciary relationship on the part of commercial banks, and all other involved institutions. It cannot be fostered by deregulation. The scope of the operations of these institutions must be severely circumscribed and subject to rigorous and informed supervision.