In most fields and arts the environment often provides inspiration. In economics (here I quote Gary Shilling) there is a tendency that when economic phenomenon last long enough economists tend to develop theories that show that it will last forever.

In the post-World War II period a consistent population boom led many to speculate on the frightening consequences of uncontrolled population growth. Now we all know the effects of shrinking birth rates in most developed countries. In the 70s and 80s prolonged high inflation led to theories about how high price changes will remain forever. The emergence of computers and automation led to the death of these theories. Following the market collapse of the early 2000s the ‘Great Moderation’ that followed the aggressive monetary stimulus led many to believe that the business cycle was something from the past; that central banks had the tools and knowledge to smooth the business cycle once and for all.

Nowadays we are reading about the ‘new normal’, prolonged low interest rates, prolonged slow growth and so on. Historically economic booms typically follow the advent of a new technology. In the past these have included railways, oil discovery, the automobile and obviously the computer and the internet and most recently mobile technology has changed the way we interact and do business. Unless innovation and discovery has reached its limit economies will be subject to booms and consequently busts.

I believe that human expectations of being able to master the economic cycle is like a sailor being overconfident with his knowledge of the sea. Economies and markets work more like an elastic band and the further they are held against their natural direction the more violent they will snap back, and sometimes letting the boat float along with the current will take you home a little faster.

Markets today


The US equity market advanced following earnings reports from Intel Corp. and take-over news from Time Warner Inc. sending the Dow Jones Industrial Average to an all-time high.

Intel reported its earnings shortly after the close on July 15, and the results were impressive. Revenue came out at the mid-range of guidance at $13.8 billion and gross margins slightly beat guidance at 64.5%. However, the key market mover was guidance that the company is aiming for a gross margin of 66% in the coming quarter. Intel also took the opportunity to announce a massive $20 billion buyback program.

Twenty-First Century Fox Inc. is willing to pay more than $75 billion for Time Warner Inc. Fox’s is thus willing to pay over $85 per share; Time Warner is currently trading at $83 following a 17% gain on the news. The deal is intended to bring together TV and Film companies together in order to gain negotiating power with cable operators.


Asian stocks were little changed albeit briefly reaching a six year high early this morning. Mining companies climbed as iron-ore prices held neat their highest levels in recent weeks while TSM, the world’s largest contract maker of chips fell 4.6% after saying that it expects stiffer competition next year.

Sentiment has turned more upbeat about the prospects for Japan’s economy. In a poll thirty-seven percent said it was improving, up from 28 percent in April, when growth in the world’s third largest economy was hurt by a sales-tax increase.


European stock indices fell this morning as further sanctions were imposed on Russia over Ukraine. The US and European Union imposed the most aggressive sanctions to date on Russian businesses as Russia re-started mobilizing troops around the Ukrainian border.

Before the market opened SAP SE reported strong results even if operating profit trailed analysts’ estimates. SAP opened up 4.5%. Novartis also posted second-quarter profits that missed analyst expectations.