Barry Ritholtz rips into the Chicago School:
From the efficient-market theories, to the concept of man as rational profit maximizers, much of the edifice that is was the Chicago school of economics is based on a foundation that is false, disproven or otherwise questionable.
…and is aided in the comments section:
“The ONLY thing wrong with the Chicago School of economic thought, and Friedman’s belief that free markets allocate resources better than any alternative, is that they do not allow for the influence of corruption, fraud and greed.”
In other words, they do not allow for reality. Curious that Ayn Rand also embraced lack of reality, creating a fictional world upon which to foist her ficticious philosophy. Strauss, too, was guilty of this type intellectualized magical thinking.
The need for fictionalization is explained by the realization that only by ignoring human behavior and controlling outcomes can the extremist’s view be proven valid.
The Fed has adjusted their target for the federal funds rate to a range from 0% to 0.25%. (For all practical purposes, the rates have already been at zero.) We are now at ZIRP, and aimed squarely down the path of global depression.
My approximate targets for the S&P 500 are now 1200 and 400, in that order.
update, 2008-12-23: consider 1200 a stretch goal, and highly optional.
What is especially precious about the Madoff case is that apparently many of his investors realized something fishy was going on. Knowing the returns were too good to be true and the numbers didn’t add up, they concluded that Madoff was using his market maker business to conduct illegal insider trading. Well, they got it partially correct.
(This post is not intended to malign the naive ones, just the greedy ones.)
China’s statistical bureau reported that industrial production for November grew 5.4% year-over-year according to Bloomberg. The more interesting quote from the article is this:
Electricity output fell by 9.6 percent from a year earlier. Pig-iron production fell 16.2 percent. Raw steel declined 12.4 percent. Steel products tumbled 11 percent.
To echo the concerns of another CR reader, what is the break-even number for China due to the increase in urban population? More critically, the drop in electrical output does not jive with the production numbers. I would be very concerned.
The China number means nobody is buying here. Who finances our government? I just had this mental picture of the US economy flying through the air. It’s a 4 engine jet and we lost number 1 and 2 engines awhile back. Now number 3 just flamed out.
– nova, 2008-12-14
On a side note, it appears that North Korea has closed down both the northern and southern borders. 150,000 Chinese troops are now massed along the northern border, most likely as a prophylaxis against the collapse of the Kim regime. Given North Korea’s precarious position and nuclear status, it is safe to assume that most players in the region are very interested in stabilizing the country and securing any loose buckets of instant sunshine.
Excerpts from Jim Rogers, famed investor and co-founder with George Soros of the Quantum Fund, speaking at the Reuters Investment Outlook 2009 Summit:
“Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt.”
“What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent,” he said. “What’s happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics.”
“Governments are making mistakes. They’re saying to all the banks, you don’t have to tell us your situation. You can continue to use your balance sheet that is phony…. All these guys are bankrupt, they’re still worrying about their bonuses, they’re still trying to pay their dividends, and the whole system is weakened.”