This morning I was reminded on some comments I made on my Youtube channel (remember to follow) I did back in 2018 on the so-called quants and on the problems with so-called factor investment.
Have a look here.
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I read Milton Friedman’s book “Free to Choose” at an age of 16 years old and ever since then I have been more or less obsessed with monetary theory and particularly the equation of exchange:
M•V=P•V
My view of the world obviously has developed over the 32 years since I read “Free to Choose”, but I am still fully convinced that monetary policy failure historically has been the main cause of macroeconomic problems – whether it is inflation or recessions and depressions. In fact I am more so than ever.
When I started studying economics at the University of Copenhagen in the early 1990s my obsession with monetary matters continued. That more or less coincided with the publication of a paper, which had quite an impact on my general thinking of how to empirically think about monetary

It has been some time since I posted anything on The Market Monetarist – primarily because I have been doing other thing – among other things been running my consultancy Markets & Money Advisory (which I still do) and for a year have been the editor-in-chief of the Danish financial website Euroinvestor (which I no longer do).
However, I missed blogging and I have particularly missed having an outlet for my (casual?) thinking on monetary matters.
Consequently, I have reluctantly decided that I want to start blogging a bit again on The Market Monetarist.
How much I will be blogging the in the future is unclear as I also have to make a living doing other things – continuing my consultancy working (on international economics, markets and money), academic work as well as doing a lot of

Markets & Money Advisory’s website is now up and running. You find it here.
If you normally receive mails from The Market Monetarist you in the future instead will receive mails from Markets & Money Advisory instead.
As a general rule we will try to avoid spamming our followers, readers and clients so we will try to only send out the newsletter once a week – unless there is “breaking news” such as key monetary policy announcement or major market moves.
I – Lars Christensen – will continue to blog, but in the future the blogs will be published on Markets & Money Advisory’s website rather than here.
You can sign up for the Markets & Money Advisory newsletter here to receive blog posts, webcasts etc. If you are already signed up for the Market Monetarist mailing list then you can update the information here.
For now, however, we will will keep this website “alive” to give the loyal followers an opportunity to get used to following the blog on Markets & Money Advisory instead.
On the Markets & Money Advisory website you also find information about:
Advisory
Speaking
Research
And don’t forget to subscribe to our new monthly flagship publication Global Monetary Conditions Monitor – here.

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Today we launch a major expansion of Markets & Money Advisory.
On our new website (see here), you will find a lot more information about what we do – including our speaking, advisory, and research services.

If you’re a loyal reader of The Markets Monetarist blog, don’t despair! It stays as an integral part of our operation – which will continue to focus on monetary policy and global financial markets. The Market Monetarist blog will in the future redirect to the Markets & Money Advisory website.
Make sure to subscribe to our newsletter with the latest blog posts and information about M&M Advisory.
We are today also launching our new monthly flagship publication Global Monetary Conditions Monitor for investors and policy makers alike.
Sincerely,
Lars Christensen

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Spring has come to Denmark, but a bit of jitters overnight in the global stock markets. Is it inflation fears? See my comments here.
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Have a look at my comments on yesterday’s Fed hike.
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And see our “country page” on the Fed, which will also feature in our soon-to-be-published Global Monetary Conditions Monitor. (In PDF here)

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The Federal Reserve is widely expected to hike the Fed funds target rate by 25bp today. The real question is how much more the Fed will deliver going forward.
To get an idea about we are happy to give you a sneak preview on the “country page” for the US monetary policy from our soon to be launched Global Monetary Conditions Monitor (GMCM).
See here (in PDF here):

Just to explain what we are doing in GMCM we do not try to forecast what central bankers will do, but rather we assess or measure monetary conditions. This is a lot less straight forward than people often think. For example the actually level of the key policy rate – in the case of the Fed the Fed funds target rate – on its own says very little about the monetary stance.
Overall, the price level and nominal demand in the economy is determined by the interaction between the money supply and money demand.
It is the task of the central bank to use whatever instrument(s) it uses to to ensure that this interaction between money supply and money demand causes the target – for example inflation – to be hit.
Therefore our starting point in GMCM is to assess monetary conditions relative to the given central bank’s target. In the case of the Fed a 2% inflation target.

So here we go again – another Mountain bike ride and another MTB cast. This time we got three in one.
First on Icelandic currency controls.
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Second, this week’s FOMC meeting.
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Third, are European central bankers overly worried about political risks?
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I have been out on a mountain biking this morning, but I could not help noticing the Czech inflation numbers for February.
So have a look at my first MTB cast where I comment on the Czech inflation numbers.
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If you like this I will continue doing this in the future and please remember to sign up for the Markets & Money Advisory Youtube channel.
See our updated inflation forecast in the graph below. It is based on the latest inflation data and trends as well as our composite indicator for Czech monetary conditions.
If you want to know more on our monetary conditions indicator please contact us by mail: [email protected] or [email protected]

Update: The day started with Mountain biking and Czech inflation and ended with an interview with Icelandic TV (RUV TV) about the booming Icelandic economy. See here (in Danish and Icelandic).
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Yesterday, we wrote a short post on Israeli monetary policy and linked to one page on Israeli monetary conditions to give an example of how the “country pages” in our – Markets & Money Advisory – new monthly flagship publication Global Monetary Conditions Monitor (GMCM) will look like. We expect to publish the first edition in March – coinciding with the launch of our new website.
So what is the GMCM? Overall one can say it is our attempt to create a measure of monetary conditions for investors and policy makers alike so they can track global monetary developments.
It will not be a forecasting publication as such, but obviously investors can use the publication to make informed decisions on investments as there certainly is no doubt that changes in monetary conditions have a significant impact on changes asset prices.
The overall structure in GMCM will be the following.
First of all, the firsts page (5-6 pages) will discuss global monetary developments with a particular focus on what we call the Global Monetary Superpowers – the Federal Reserve, PBoC, ECB, BoJ, BoE and SNB. The discussion will be based both on our new composite indicator of monetary conditions (see more below) in each of the “Superpowers” and on what the financial markets are telling us about monetary conditions and expectations for monetary policy.

It is hard to be very critical about the conduct of monetary policy in Israel. I have earlier praised the Bank of Israel (BoI) for essentially being an NGDP targetter and when Stanley Fischer was BoI governor nominal GDP basically was kept on a straight line (see here).
And even though Fischer’s successor Karnit Flug initially back in 2014 kept monetary conditions slightly too tight (see here) it now seems like the BoI under Flug’s leadership is back on track.
At least that is what our – Markets & Money Advisory’s – composite indicator for Israeli monetary conditions is showing.
Introducing Global Monetary Conditions Monitor
The indicator will be part of the first edition of our new flagship publication Global Monetary Conditions Monitor (GMCM), which will be published in March and given the Bank of Israel today (3pm CET) has its monetary policy announce we thought it would be a good idea to share a page from the upcoming GMCM on israel.
You will see the country page on Israeli monetary conditions here.
When we put out GMCM there will be 25 such pages on different countries plus of course addition commentary on global monetary matters. A 12 month subscription will be priced at EUR 2,000.
If you are interested in more information on the Global Monetary Conditions Monitor please let us know. Mail to [email protected] or [email protected]

Did you book your speaker for this year’s seminar or conference? You might as well book me!
See a sample of my speeches here.
To book me internationally see here.

In Denmark see here.
Or contact me directly: [email protected]
Recent speaking topics include:
Populism and the global economy and markets
1930s style politics: Monetary policy failure and the emergence of Trump, Le Pen and Brexit
Will the euro survive the German, Dutch and French elections in 2017?
The African growth miracle
China will never be the largest economy in the world
Russia: Between oil prices, lack of reforms and geopolitical uncertainty
The Maghreb economies: A coming miracle or permanent stagnation?
Oil prices, monetary policy and the crisis in the Gulf States economies
Prediction markets – why governments and central banks should leave forecasts to the market
Global economic and financial outlook 2017/2018
Currency wars – good or bad?
The end of the ‘dollar bloc’
Global Monetary developments: The end of deflation?

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Yesterday I was interviewed for TRT World about the Greek economy and possible Grexit. Have a look here.

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Greece is once again back on the agenda in the European financial markets and we are once again talking about Greek default and even about Grexit. There seems to be no end to the suffering of the Greek economy and the Greek population.
I must say that I have a lot of sympathy with the Greeks – they have terrible policy makers and no matter how many austerity measures are implemented there is no signs of any visible improvement either in public finances or in the overall economic performance.
Hence, the Greek economy has essentially been in decline for nearly nine years and there seems to be no signs of it changing.
To me there is no doubt what the main reason it – it is the monetary strangulation of the Greek economy due to the countries membership of the euro area.
I don’t like to see the euro area fall apart and I believe it can be avoided, but on the other hand I have a very hard time seeing Greece getting out of this crisis without either receiving a more or less complete debt write-off or leaving the euro area (or both).
ECB can’t do much more
Since 2008 there has been two dimensions to the monetary strangulation of the Greek economy.

We will soon be launching our new monthly publication Global Monetary Conditions Monitor (GMCM), which will be available from our new ‘research shop’ when we soon launch Markets & Money Advisory’s new website.
GMCM will be covering 25-30 countries and overall we will differentiate between what we term the Global Monetary Superpowers (Fed, PBoC, ECB, Bank of Japan, Bank of England and SNB) and other central banks.
At the core of the publication will be a composite indicator for monetary conditions in each of the countries in the Monitor.
The indicator is constructed as an weighted average of four sub-indicators – broad money supply growth, nominal GDP growth, exchange rate developments and the key policy rate. Each of these four indicators are compared to what we call a policy-consistent growth rate or level for each indicator.
Russian money supply growth nearly on track
If we for example look at broad money supply (M2) growth for Russia (which has a monetary policy decision today) we find the policy consistent growth rate for M2 based on the equation of exchange.
We can write the equation of exchange in growth terms like this:
(1) m + v = p + y
Where m is broad money supply growth, v is the growth rate of money-velocity, p is inflation (GDP deflator) and y is real GDP growth.

This is from the Financial Times today:
“Germany is using a “grossly undervalued” euro to exploit the US and its EU partners, Donald Trump’s top trade adviser has said in comments that are likely to trigger alarm in Europe’s largest economy. 
 Peter Navarro, the head of Mr Trump’s new National Trade Council, told the Financial Times the euro was like an “implicit Deutsche Mark” whose low valuation gave Germany an advantage over its main partners. His views suggest the new administration is focusing on currency as part of its hard-charging approach on trade ties.
In a departure from past US policy, Mr Navarro also called Germany one of the main hurdles to a US trade deal with the EU and declared talks with the bloc over a Transatlantic Trade and Investment Partnership dead.”
I must say that I find Navarro’s comments completely ludicrous and uninformed and I have little respect for this mercantilist “analysis”.
Adam Smith taught us back in 1776 that we should not judge the Wealth of Nations on the size of its trade surplus. Apparently Navarro never read the The Wealth of Nations or understood the insights of David Ricardo about comparative advantages.
Trade is not a zero sum game. Trade is a positive sum game, where both sides of the trade gains – otherwise the trade would never happen. Free trade makes us all more prosperous.

While the Federal Reserve – rightly or wrongly – has initiated a rate hiking cycle it is not given the the central bank in neighboring Canada should follow suit. In fact, according to our our composited indicator for Canada monetary conditions monetary policy is too tight for the the Bank of Canada to hit its 2% inflation over the medium-term.
The Bank of Canada will announce its rate decision on Wednesday and we should stress that our indicator does not say what the BoC will do, but rather what it ought to do to ensure it will hit its 2% inflation over the medium-term (2-3 years).
Four key monetary indicators
In February we – Markets & Money Advisory – will start to publish our Global Monetary Conditions Indicator covering monetary conditions in around 30 countries around the globe. Canada is one of that those countries.
In the Monitor we will publish a composite indicator for monetary conditions in each of these 30 countries and indicator will be based on four sub-indicators – broad money supply growth (typically M2 or M3), nominal GDP growth, exchange rate developments and the level of the key policy rate.

We – Markets & Money Advisory – will soon be launching a new website. As part of that the blog format will also be “updated” so that not only will it be possible to read blog posts, but we will also put out movies etc.
This will all be available on the website, but we will also be launching a Youtube channel from, which to stream these videos etc.
You can already now go in and check out this Youtube channel. See here and please subscribe.
On the Youtube channel you will already now find old interviews me and presentations I have done. These kind of things will also be added in the future. Furthermore, it is the plan to do a lot more “real-time commentary”, which will be small videos with me commenting on particularly monetary policy events and major market action. We might also in the future produce small tutorials and “learners”.
If there is something particularly you would like to see on our Youtube channel please comment in the comment section below or on the Youtube channel.

2016 was a busy year for me. It was the second year as my “own man”. I am very happy about how things have developed.
I set out to do three things when I started Markets & Money Advisory back in the summer of 2015.
First, of all I wanted to do a lot of public speaking. I have continued to do that in 2016 and will certainly continue to do that in 2017. So if you want to book me for a speaking engagement anywhere in the world drop me a mail ([email protected]) or my speaking agent Daniel Rix at Specialist Speakers ([email protected]). In 2016 I spoke a lot about Trump and Brexit – and of course monetary policy and global markets. In 2017 I guess focus will turn to European political uncertainties with elections in France and Germany and surely I will also talk about my favour topics – monetary policy, global financial markets and I certainly hope to be back in Africa speaking on the prospects for this continent.
Second, I wanted to do more commentary and I have certainly done a lot of that. I writing regularly for four European newspapers – Børsen in Denmark, Frettabladid in Iceland, Gazeta Prawna in Poland and finally Il Foglio in Italy. Furthermore, I have also regularly contributing Geopolitical Intelligence Services.

I generally don’t think I can beat the market, however, right now there is something, which worries me and that is that the “Trump rally” in the US stock market could be about to end.
It seems to me that what US stock market investors are really focusing on is the potential for deregulation and tax cuts (and infrastructure investments). And we might of course get that and deregulation and tax cuts and certainly should be welcomed news both for the US economy and the US stock markets.
But if you get supply side reforms then it will be because of the Republican majority in the House and the Senate (might) want this – not because of Trump. Trump continues to pay lip service to these ideas, but he has certainly not be consistent. There is nothing in Trump’s past that tell us that he is a “free market guy”.

Where he has been consistent – even very consistent – is on his protectionist message and his China bashing. Presently the markets are ignoring this and that might not be the wrong thing to do, but I must say Trump’s 35% tariff talk scares scares me a lot and so does his persistent attempt to “pick a fight” with China.
Another factor, which could spell the end of the “Trump rally” is that not only will the Federal Reserve hike interest rates next week, but the FOMC could also send a more hawkish signal than presently being priced by the market.

On Monday Donald Trump met with John Allison the former CEO of the BB&T and former CEO of the libertarian think tank The Cato Institute.
It has been suggested that Allison might be in the running to become new US Treasury Secretary.
Allison is widely known to be an staunch advocate of deregulation of the banking sector and in favour of a rule-based monetary policy. Many had taken his support for a rule-based monetary policy to mean that he favours a gold standard.
However, Allison ultimately would like to see a Free Banking system in the US, but also acknowledges that that is not realistic anytime soon. Instead watch what he says on this interview on Fox & Friends.
“We need discipline, we need somekind of rule, I like the Taylor rule, I like some kind of GDP indexing rule…”

There you go – John Allison who might become next US Treasury Secretary just endorsed Nominal GDP targeting.

Further than that Allison obviously strongly supports scaling back Dodd-Frank. Something I also strongly believe in.

So concluding, if John Allison supports NGDP targeting and significant deregulation of the financial sector I would  – for what it is worth -endorse him as US Treasury Secretary anytime and it certainly helps that I know that he would be strongly against any protectionist measures presently being discussed by the Trump camp.

HT George Selgin.

At Markets & Money Advisory we have tried to think a bit about different themes and scenarios for the global economy and markets in 2017. What is more likely? We don’t know and this is not investment advice, but it might help investors and policy makers to think about risks and opportunities.
I you want to know more about Markets & Money Advisory’s research agenda and research products please contact me Lars Christensen ([email protected]).

This is president-elect Donald Trump’s Senior Counsel Stephen Bannon:
I’m not a white nationalist, I’m a nationalist. I’m an economic nationalist…
…Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement….It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.
Something is seriously wrong with a guy saying “as exciting as the 1930s”, but it is yet another confirmation that the Trump administration is likely to pursue rather vulgar Keynesian policies. It can’t be long before Paul Krugman is offered a job in the new Trump administration.

It is hard to find any good economic arguments for protectionism. Economists have known this at least since Adam Smith wrote the Wealth of Nations in 1776. That, however, has not stopped president-elect Donald Trump putting forward his protectionist agenda.
At the core of Trump’s protectionist thinking is the idea that trade is essentially a zero sum game. Contrary to conventional economic thinking, which sees trade as mutual beneficial Trump talks about trade in terms of winners and losers. This means that Trump essentially has a Mercantilist ideology, where the wealth of a nation can be measured on how much the country exports relative to its imports.
Therefore, we should expect the Trump administration to pay particularly attention to the US trade deficit and if the trade deficit grows Trump is likely to blame countries like Mexico and China for that.
The Yellen-Trump policy mix will cause the trade deficit to balloon
The paradox is that Trump’s own policies – particularly the announced major tax cuts and large government infrastructure investments – combined with the Federal Reserve’s likely response to the fiscal expansion (higher interest rates) in itself is likely to cause the US trade deficit to balloon.
Hence, a fiscal expansion will cause domestic demand to pick up, which in turn will increase imports.

10 years ago today – I was at a Christmas party with my then employer Danske Bank when we got the sad news. Milton Friedman my big hero had died.

I remember my parents telling me the next day that they had heard the news on TV. My dad had asked my mom whether they should call me about the sad news. Mom told my Dad “No, he is out for a Christmas party lets not ruin his night”. That is good parents – they were thinking of their then 35 year old son’s well-being, but it probably is also telling just how much Friedman meant and still means to me.

Milton Friedman is dearly missed. He would have spoken out against the nonsense central bankers continue to come up with and he would be in the forefront speaking out against Trump’s protectionist nonsense.
Update: My good friend Sam Bowman has a very good post on the Milton Friedman Agenda. See also Madsen Pirie video on Friedman here. It is easy to be proud of being part of the Adam Smith Institute family today.

This is from the The New York Times on February 17 1982:
President Reagan and the chairman of the Federal Reserve Board, Paul A. Volcker, met Monday to discuss monetary and budget policy, Administration officals confirmed today…
… The official said that the meeting covered a broad range of economic issues, including monetary policy and budget deficits. But, the official said, the main reason for the session was to reinforce the ”personal relationship” between the two men. The two last met in December.
The meeting comes after recent tension between the Fed and the Administration, highlighted by the Administration’s contention that the Fed’s erratic management of the money supply was pushing up interest rates and Mr. Volcker’s response that it is the threat of large budget deficits that is affecting interest rates.
…Many economists outside the Government say that the Fed and the Administration are on a collision course on economic policy because the tight monetary policy promised by the Fed will not allow for the relatively strong economic growth the President has forecast will begin by the second half of this year.
Mr. Volcker in an interview Sunday said that he did not think the economy would come ”roaring” back, as Treasury Secretary Donald T. Regan predicted recently.

Some have suggested that when Janet Yellen’s term as Federal Reserve chair expires in 2018 then Donald Trump will try to replace her with a more “hawkish” chairman. Some even has suggested that he could try to re-introduce the gold standard and appoint the king of monetary policy rules John Taylor as new Fed chairman.
I, however, believe that is completely wrong. Donald Trump doesn’t care about the Gold Standard (luckily) and certainly he does not care about a rule-based monetary policy.
The fact is that Trump’s entire policy agenda is inflationary. On the supply side his anti-immigration stance will push up US labour cost and this protectionist agenda will push up import prices.
On the demand side his call for underfunded tax cuts and massive government infrastructure investments also increase inflationary pressures.
So if unchecked (should write un-offset by the Fed?) Trump’s economic policy agenda will push inflation up. However, Trump does not – yet – control monetary policy and if the Federal Reserve is serious about it’s 2% inflation target it sooner or later will have to offset the Trumpflationary policies by hiking interest rates potentially aggressively and allow the dollar to strengthen significantly.

In yesterday’s blog post I wrote about why I believe it is the combination of Donald Trump’s fiscal stimulus plans (infrastructure investments and tax cuts) combined with the Federal Reserve’s willingness not to (fully) offset this, which has pushed inflation expectations in the bond markets up very significantly since Tuesday.
If the Fed’s inflation target was fully credible fiscal stimulus would be fully offset by the expectations of a tightening of monetary policy to “neutralize” the impact on aggregate demand from fiscal stimulus. This of course is known as the so-called Sumner Critique.
I would normally think that the Sumner Critique would hold and announced fiscal stimulus or fiscal contraction would not impact inflation expectations. This is for example what I argued in 2012 and 2013 in relationship to the so-called fiscal cliff (see here, here and here).
That argument of course turned out to be completely right – the fiscal contraction did not cause inflation expectations to drop and the US economy did not fall into recession contrary to what was argued buy arch-Keynesians such as Paul Krugman.
However, as I have often argued the causality in the economy as well as the impact of fiscal shocks depend critically on what kind of monetary policy rule the central bank has (see fore example here, here, here and here).

Today I was asked to do an interview with a Danish radio station about Donald Trump and about whether one could say anything positive about him or rather about his economic agenda. I declined to do the interview. I frankly speaking has nothing positive to say about Trump.
To me Donald Trump is an absolutely vile person and and his views on immigration and trade are completely the opposite of mine. However, I have also in the run up to the election in presentations and comments stressed that the presidential election from an overall financial market perspective would not be a big deal and judging from the market reaction today this indeed seems to be the case.
Reading the markets
But what exactly are the markets telling us today about the economic consequences of a Trump presidency combined with the fact that GOP now has the majority in both the House and the Senate?
First, of all we should concluded that the markets are fairly relaxed about the outcome of the election. This to me is an indication that Trump really will never be able (or seriously want to) implement many of the bizarre “promises” on trade and immigration he made during the election campaign.
Second the markets certainly do not expect the outcome of the election to cause a US recession or a global economic crisis. After all US stock markets are in fact trading in positive territory today.