This week, John Hussman in his weekly market comment dissected the pillar theory—the Phillips Curve, that the Fed uses in devising its easy money policies.
According to Hussman, the Phillips Curve, as it widely but wrongly understood, states there is a “tradeoff” between inflation and unemployment. In an high employment environment, policy maker can pursue measures targeted at higher employment without worrying about increasing inflation.
Using data that goes back to 1947, Hussman shows as a matter of fact, there is no correlation between unemployment rate and CPI inflation. The real Phillips Curve, does not even deal with the unemployment and CPI inflation. The real curve, published by A.W.Philips, studied the relationship between unemployment and wage inflation in Britain using a century of historical data through the 1950’s.
On the market climate, Hussman maintained the following assessment:
Read the full text of Hussman’s discussion here.
According to Hussman, the Phillips Curve, as it widely but wrongly understood, states there is a “tradeoff” between inflation and unemployment. In an high employment environment, policy maker can pursue measures targeted at higher employment without worrying about increasing inflation.
Using data that goes back to 1947, Hussman shows as a matter of fact, there is no correlation between unemployment rate and CPI inflation. The real Phillips Curve, does not even deal with the unemployment and CPI inflation. The real curve, published by A.W.Philips, studied the relationship between unemployment and wage inflation in Britain using a century of historical data through the 1950’s.
On the market climate, Hussman maintained the following assessment:
s of last week, the Market Climate for stocks remained characterized by a syndrome of overvalued, overbought, overbullish, rising-yields conditions that has historically been associated with a negative return/risk profile, on average. That is not a statement about where the market is headed over the next week, or even the next month or two, but on average, this syndrome has been resolved by abrupt declines that leave no net gains for the period during which it has been in effect. So even if the market advances further (which is more difficult when it is pressing against daily, weekly and monthly trading bands as it is at present), the likelihood of durablegains is fairly weak.
Read the full text of Hussman’s discussion here.
