A James Alexander, Benjamin Cole, Justin Irving, Marcus Nunes post
After a six-year run, during which Historinhas helped spread the Market Monetarist approach, this blog will undergo a metamorphosis, becoming NGDP-Advisers. The blog will continue but be augmented by new products that will be available via subscription.”.
In watching the U.S. and global economy since 2008 (and before) it has become obvious there is a dearth of financial advice that is informed by Market Monetarism, or even close attention to nominal gross domestic product (NGDP).
A recent Economist magazine study of the International Monetary Fund’s national economic forecasts from 1999 to 2014 found, “Over the period, there were 220 instances in which an economy grew in one year before shrinking in the next. In its April forecasts the IMF never once foresaw the contraction looming in the next year.” Not once! Something is wrong in economic forecasting.
NGDP-watching is not a forecasting cure-all. However, Historinhas and the Market Monetarists have time and again been proven right on macroeconomic matters when the establishment was wrong. When old-school monetarists feared hyperinflation from unconventional easing measures, Market Monetarists correctly saw the real risk was still tight money. When Keynesians predicted recession from cuts in government spending during the 2013 US fiscal cliff episode, Market Monetarists anticipated the monetary offset and were proven right. When central banks in Europe raised interest rates in 2011, Market Monetarists called this for the debacle that it became.
It is time to bring these insights from the world of blogging, into the realm of macro forecasting, time to unseat the hopeless “experts”.
The bedrock of our approach is a healthy fear of market efficiency, though our approach still has important advice for investors. Many have missed historic bond rallies since 2008, so certain were established advisers that an inflationary surge, or even hyperinflation, was pending. Equity investing is equally tricky.
Central bank monetary policy sometimes feels like a game of blackjack, random. Time and again in its history, the Fed has tried to tighten (in recent years), or loosen (in earlier eras), yet been beaten back when markets question their view of economic reality. It is hard to forecast how stubborn a central bank will be in such situations and when it will inevitably buckle, but our approach frames the issues correctly, allowing all investors to understand where their risk lies.
At NGDP Advisers, we hope not only to continue our examination of the global economy, but also to recognize realities and advise accordingly. We’ll yell from the cliff tops ‘what should be’, but we’ll also help you get ready for what ‘will be’.