Breaking News: I have a Special Announcement at the end of this Skousen CAFÉ.
“The stock market and the economy are two different things.” –- Milton Friedman (“Maxims of Wall Street,” p. 155)
Last week, the Labor Department reported that fewer jobs were created than expected — the bad news caused Wall Street to rally to an all-time high!
Yesterday, the Commerce Department announced that price inflation — as measured by the Consumer Price Index (CPI) — declined to an annualized rate of 3.4%. Wall Street celebrated, hoping that the Fed won’t have to raise interest rates.
But oddly enough, the inflation hedges — hard assets like gold, silver and bitcoin — also advanced on the news!
The Perversity of Wall Street
Veterans call this phenomenon “The Perversity of Wall Street.” I teach a popular class at Chapman University on the “Puzzles and Paradoxes in Economics and Finance,” and the crazy world of high finance is often a real puzzler.
Why is it that the stock market goes up when employment growth slows (bad news)? Why is it that gold and other hard assets, known as inflation hedges, go up when the threat of inflation goes down?
The answer to both puzzlers can be tied to interest rates. A weaker economy caused bonds to rally, which in turn, improved the prospects that the bull market will continue into 2024.
Wall Street Hates Inflation
Wall Street hates inflation, because rising prices means higher interest rates, hurting the bond market — and the stock market too. Charles R. Nelson, former economics professor at the University of Washington, noted, “When inflation is on the rise, stay out of stocks; when it is on the decline, buy stocks.”
Lower Interest Rates Can Also Boost Gold, Silver and Bitcoin
Lower interest rates can also explain how less inflation can boost hard assets (even oil and real estate), at least in the short run. Since gold, silver and bitcoin don’t pay interest, if interest rates decline, these hard asset investments can compete better with stocks and bonds, and thereby move up in price.
Hard assets are more likely to rise if interest rates stay low but the government (the Fed, or the central bank) continues to print more money, and Washington continues to spend billions more and run deficits. In the long run, more inflation and “easy money” drives inflation hedges higher.
How to Profit in the Short Term…
In Forecasts & Strategies, we’re beating the market with a well-diversified portfolio of growth and income stocks, mutual funds and inflation hedges such as gold and bitcoin.
But Beware of a Possible Recession Coming Soon
The soft jobs report and gradual declining inflation may suggest weakness in the economy, and could disrupt the bull market.
My #1 Economic Indicator: A 65-Year Record of Accuracy
Two of my favorite indicators suggest trouble down the road: First, the Conference Board’s Top 10 Economic Indicators (see below).
These indicators are all on the business/supply side of the economy, among them are the interest rate yield curve, manufacturing goods, unemployment claims, housing starts, the stock market and the consumer outlook for business.
The Conference Board’s Leading Economic Indicators is a great forecasting tool. It hasn’t been wrong in 65 years in predicting the turning points in the business cycle — from boom to bust.
And right now, it’s pointing to an economic contraction and bear market on Wall Street.
My #2 Indicator Is The Business (B2B) Spending Index
My Business (B2B) Spending Index is derived from gross output (GO), which measures spending at all stages of production.
The latest data shows a sharp slowdown in business spending, which is a leading indicator. The fourth quarter was slightly negative. It suggests a decline in real GDP in the near future.
Neither one of my top two indicators can be found in the economics textbooks of today. But they are in mine, called “Economic Logic,” now in its 6th ed., and available at a discount at www.skousenbooks.com. See chapters 15 and 17.
The Presidential Debate YOU’VE Always Wanted Is Coming to FreedomFest!
I am thrilled to announce that “Free and Equal Elections” will be hosting the first Presidential Debate of the year that includes ALL major candidates at FreedomFest on Thursday, July 11 at the new Caesars Forum Convention Center, 7-11 in Vegas!
At the same time, CNN announced that it will host a Presidential Debate between Democrat Joe Biden and Republican Donald Trump on June 27. But no public will be allowed in the audience and third-party candidates will not be allowed on stage.
At FreedomFest, ours will be truly democracy in action. All major parties are invited -– Democratic, Republican, Libertarian, Green and independent candidates who are on the ballot in most of the states. That includes RFK Jr., who appeared at last year’s FreedomFest in Memphis.
And the public is invited to be there in person on Thursday, 7-11 (July 11) in Vegas at the Caesars Forum Convention Center.
We expect major media coverage. The Washington Post just confirmed that they will be there. Here is your opportunity to make HISTORY at FreedomFest this July 10-13 in Las Vegas.
New Celebrity Speaker Announced!
Speaking of debate and hearing everyone’s voice, I’m also pleased to announce another celebrity speaker at FreedomFest. None other than actor/comedian Rob Schneider!
Rob was a cast member of Saturday Night Live and has appeared in over 50 films, including Home Alone 2, The Longest Yard, and The Waterboy with Adam Sandler.
Rob will speak on the main stage in Opening Ceremonies and then be a part of our evening Comedy Show on Wednesday, July 10. Not to be missed.
This Will Be an HISTORIC FreedomFest
We are delighted to announce the following speakers joining our lineup:
- Argentina’s newly elected President Javier Milei, the world’s most sought-after speaker, on how libertarian policies could bring back the glory days of prosperity in Latin America and the world…
- Justin Amash, the former congressman who is running for Senate in Michigan and could become the swing vote in the next Congress…
- Barbara Kolm, former vice president of the Austrian Central Bank and one of the world’s great Austrian economists, on the dangers of inflation and how some countries are flourishing…
We are also excited to have the following speakers appearing in-person on our stage:
- Harvard Professor Steven Pinker, America’s top psychologist on the dangers of international conflict and the need for “Enlightenment Now”…
- Lord Matt Ridley, the UK’s #1 top science writer and public intellectual, on why we can be optimistic about the new world of Artificial Intelligence (AI)…
- And of course, Kennedy, the ever popular libertarian host on Fox News, as our emcee extraordinaire…
Other keynote and featured speakers include Ice-T, Emily Compagno, Steve Forbes, John Mackey, Alex Green, Michael Shermer, Shawn Nelson, Grover Norquist, Steve Moore, John Fund, Robert Kiyosaki, Van Simmons and many more.
Plus our Eagle editors Jim Woods, Bryan Perry, George Gilder and Dave Phillips. To see the full list of our growing number of speakers, panels and breakout sessions — including the Global Financial Summit and Anthem Film Festival — and to find out how to attend, visit our website.
To register, go to www.freedomfest.com, or call Hayley at 1-855-850-3733, ext. 202. Be sure to use code EAGLE50 to get $50 off the registration fee.
Good investing, AEIOU,
Mark Skousen
You Nailed it!
Chapman Students Surprise Me – a First!
By Mark Skousen
“Never give up on America!”– Warren Buffett
On the last week of the spring semester at Chapman University, something happened that I had never witnessed before, after teaching there for 10 years.
Student after student came up to me and asked if they could buy a copy of my book “The Maxims of Wall Street”– a book that was NOT required reading in the class.
A third of my students paid $20 for an autographed copy. It renewed my faith in America’s future.
To celebrate the occasion, I asked them for a group photo. Here it is:
Later, one student told me he reads a couple of lines every morning before going to school.
It was an unusual class for sure. Two of my students won the Doti-Spogli Free Enterprize Student Essay Contest on “How to Solve the Homeless Problem in California,” noting in their econometric model that raising the minimum wage was a major cause of increased homelessness!
And another student was named “best student in economics.”
We all gathered together at the annual student awards ceremony:
Dean Henrik Cronqvist, Eden Gal, Mark Skousen, Faryal Ahsan, and Austin Hamilton at Chapman’s Student Awards Ceremony
On the final, I asked what they learned or changed their mind on. Many expressed enthusiasm for my gross output (GO) statistic, and Say’s law. Here are a few of their comments:
“In our economics classes we are only taught about GDP, and I have never seen GO in an economics textbook or course syllabus. While GDP is a useful measure of final output in the economy, it fails to account for the supply chain and the resource, production and distribution stages needed to create final use goods. This top line perspective can provide a completely different view of an economy than the traditional approach. For example, a country like the United States may appear to have a healthy economy when looking at GDP, but the country’s GO may show that business spending has declined and the economy could struggle in the future. A deeper understanding of business spending is also more important when combined with Say’s Law, the idea that supply is the primary force driving the economy.”
“Before hearing Says law, I always thought that demand created supply (Keynes’ law). However, after hearing Say’s law, everything made sense to me. I never knew that I wanted an iPhone until it was created. I never knew I needed this laptop until it was created. This really changed my mind and was a ‘Eureka’ moment for me!”
I discuss GO versus GDP, Say’s law versus Keynes’ law and the wisdom of Wall Street in my various books. To learn more, go to https://mskousen.com/category/skousen-books/
To order “The Maxims of Wall Street” and other books at a substantial discount, go to www.skousenbooks.com.
