What We Think
Welcome to the repository of the blogs published by Butler, Lanz & Wagler. Check back frequently for updates.
2018-09-14 Lehman, Hurricane Florence, & Cryptocurrency
On today's show, Chris Butler and KCMO Talk Radio Show host, Pete Mundo discussed Lehman Brothers, Hurricane Florence, and many more!
2018-09-14 Finance Friday at the Chris Stigall Show
On this Finance Friday, Chris Butler and Christ Stigall talks about why the Fed is so scared of falling prices and Sears' decreased sales.
2018-08-31 Pete Mundo
On today's segment with Pete Mundo, Chris Butler talks a little bit of everything.
2018-08-31 Finance Friday
Chris Butler joins Chris Stigall on Talk Radio 1210 WPHT Philadelphia and discussed the National Football League to Trump administration’s NAFTA rewrite.
2018-08-24 Finance Friday with Chris Stigall
President Trump made a comment on Fox and Friends that has Chris Butler and Chris Stigall wondering if there's any truth behind it. Continue listening to hear the predictions Chris Butler has on the overall economy and what to expect.
2018-08-17 The Accountable Capitalism Act, Walmart and More with Chris Stigall!
It's Finance Friday at the Chris Stigall Show and today Chris Butler joins to discussed Sen. Elizabeth Warren introduction of the "Accountable Capitalism Act".
2018-08-14 Lee Jeans leaving Kansas
KSHB TV interviewed Chris Butler on Tuesday of the newest change in Merriam, Kansas. Lee Jeans will now relocate to North Carolina.
2018-08-10 Space Force, Uber, and more with Pete Mundo!
Chris Butler and Pete Mundo discuss the Space Force, Yellow cabs in NYC and more on KCMO Talk Radio.
2018-08-10 Space Force and Tariffs with Chris Stigall
Chris Butler and WPHT Philadelphia 1210 host Chris Stigall talk about the Trump administration creating a new branch of the military, called the Space Force.
2018-08-03 Apple Making History
It's Finance Friday at the Chris Stigall Show. Chris Butler joins the Stigall Show to discuss Apple shares and their news of becoming the first U.S. company to reach $1 trillion in market value.
2018-07-20 Chris Stigall's Finance Friday
Chris Butler and WPHT Philadelphia 1210 host Chris Stigall discussed how many people had more than one job and President Trump's remarks on The Fed.
2018-07-13 News, Politics & Money
On this week's morning show with Pete Mundo, Chris Butler discussed NATO and our News, Politics & Money Event featuring guest speaker Austin Peterson.
2018-07-13 NATO, Tariffs and more with Chris Stigall!
On this week's Finance Friday, Chris Butler and Chris Stigall talks about NATO and tariffs.
2018-07-06 A New Trade War with China
Chris Butler was feature in Chris Stigall's Finance Friday show and discussed the new trade war with China.
2018-07-03 Higher Tariffs and Oil Prices with Pete Mundo
Chris Butler and Pete Mundo discuss how the increase of tariff could affect the KCMO area, oil prices increasing this summer and so much more.
2018-06-29 Harley Davidson, President Trump & More!
Chris Butler talks with Pete Mundo of KCMO Talk Radio 710 about Harley Davidson, President Trump and Germany.
2018-06-22 Chris Stigall & Internet Sales Tax
Chris Butler and WPHT Philadelphia 1210 host Chris Stigall talk about the SCOTUS decision to allow states to have online retailers collect sales tax on out-of-state purchasers.
2018-06-22 OPEC Oil with Pete Mundo
Chris Butler and KCMO Talk Radio 710 host Pete Mundo talk trade and OPEC oil production decisions.
2018-06-01 Tariffs
Chris Butler was interviewed by KSHB TV on Friday regarding the most recent tariffs on aluminum and steel.
2018-05-25 Gas Prices and More with Pete Mundo
Chris Butler and KCMO Talk Radio 710 Pete Mundo talk about gas prices, Dobb-Frank, and the trade war with China.
2018-05-19 How the Fed Gutted Our Economy and What It Means For Stocks
"Inflation" used to mean growth in the money supply. It now refers to an increase in a broad array of goods and services. In essence, today's definition of inflation is the effect of the old definition. When you print money, you get an increase in prices, somewhere. Austrian economist Ludwig von Mises took exception to the pernicious change of meaning:
Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term 'inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation.1
When money is created, it can go in any number of directions. Where it goes is wholly dependent on who gets the money first. Commercial banks create money by extending loans. When they lend $10,000 to a local business, they do not take $10,000 from other depositors and give it to the borrower. Instead, they simply credit the checking account of the borrower with $10,000. That money came from nowhere. It was simply willed into existence, by use of a computer and a spreadsheet.
That $10,000 that the local business borrowed could literally be spent anywhere. Maybe it goes to buy bricks. Maybe it goes to buy groceries for the owner. Maybe it goes to buy stocks. Whatever the case, what we can say is that this borrower will drive up the price of bricks, groceries or stocks, respectively, based on his or her purchase decision. The buyers of bricks, groceries or stocks that go after this business will pay higher prices than would have been the case had the borrowing business not received $10,000 printed out of thin air.
Economist Ludwig von Mises was probably the single loudest voice in articulating the message that price inflation is not even. It starts at the point where it is created and will affect some prices more than others. This is an important distinction for two reasons. First, just following an aggregate price index like the Consumer Price Index (CPI) will not tell us much about how much money is being created or where it's mainly going. Second, inflation is not fair. It benefits the borrower who gets to spend freshly-printed money before anyone else.
Let's get back to the choice the borrower of the $10,000 had when they first received the loan proceeds. They could have used the money to invest in property, plant, equipment or employees, all of which would have helped the business grow. These are investments in capital – things used to make more things. If the decision to invest in capital is made by every business, every time a loan is made to a business, every day of the week, the economy experiences explosive growth.
But, the fact that a bunch of money is also created when a bunch of loans are made means that price inflation is also being created. This is normally what the Fed hopes happens when it loosens its monetary policy and allows banks to lend more.
But what if the business that received the $10,000 loan proceeds turned around and immediately invested the loan proceeds into the stock market? Or more to the point, what if this same decision is made by every business getting a loan, every day of the week? We know of two effects for sure. First, the stock market will see its price rise just like if all businesses invested the loan proceeds in bread or bricks. We call this "asset price inflation," a concept totally lost on most pundits, who will assume the rise is based on renewed "animal spirits" or an improved outlook for the future by investors.
The second effect is that businesses are not using their loan proceeds to grow their businesses because they've invested the money in stocks. So, the stock market "inflates" at the expense of economic growth.
That's bad news, of course. We want the economy to grow. The question, then, is why would businesses forego their own growth and success for a relatively risky investment in stocks? The risk of investing in their own businesses are at least partially controllable.
We'll give you the answer key, the rub, and the skinny, and we'll do it all free of charge. But first we need to make an important distinction between an investment in capital and an investment in the S&P 500. Capital is illiquid – it cannot be sold quickly without the risk of taking a loss. Stocks are very liquid. They can be sold seconds after they're purchased without much of a chance for significant loss. The liquidity of any asset usually involves a penalty for its liquid nature. Assets that have little or no liquidity usually compensate investors for this lack of liquidity with a premium. In other words, all else held constant, less liquid assets should yield more profit than more liquid assets. After all, there's no free lunch.
When the Federal Reserve engages in a policy of extremely loose monetary policy where they encourage lending and the printing of money that comes with it, like they did with many years of quantitative easing, they place a premium on holding financial assets as opposed to "real" assets like capital. As the Fed drives real interest rates (annual interest rates minus the rate of inflation) toward 0%, the value of stocks rise, seemingly with no risk. The liquidity of stocks no longer requires a penalty, they now offer a premium!
But here's the problem. Such an environment is not a free lunch, but it's a lunch in which you pay the tab, but the Federal Reserve reimburses you all or most of the cost. And as you might imagine, word of that fantastic deal will get out quickly. Money once intended to go into investment in capital – the things that make the economy grow – are now going into the quasi-free lunch offered by the Fed.
If you're wondering why the post-2009 recovery from the Great Recession was so anemic, you can point to many things, like the fact that governments at all levels were being run by politicians who did not place a very high value on economic growth. Many of the policies implemented in the 3 years after the recession were not exactly pulled from the recipe of "Dr. Wonderful's Magical Recession Cure." But the biggest reason was that the policies of the Federal Reserve all but dared businesses not to invest in capital.
So what, you ask? Well, this kind of stuff is admittedly more suited for insomniacs than water-cooler talk, but we've all got a stake in those policies today. Many of the politicians who passed harmful laws are no longer in office. The Chairman of the Federal Reserve who orchestrated the gutting of the ability of the economy of its productive capital is also gone. But here we are watching to see how the great reversal will play out. The great reversal will be about how money flows back into capital and possibly out of stocks. But it could be the case that money flows into capital while money also continues to flow into stocks, just not as much. Either way, the loss of a perverse liquidity premium for stocks and a gain for illiquid capital will have a reversing effect.
Capital has been on a three-year tear, actually. Businesses are once again investing in the things that make the economy grow. But that means the money we've so ignorantly created over the past decade is still sloshing around and starting to go into the real economy, and that's creating price inflation. Interest rates are rising as a response. Before the capital investment renaissance can truly get going, the Fed must reverse its course and shift to a tighter policy. Capital now looks like it pays a premium once again. But what about that penalty for the liquidity of stocks? Unfortunately, going from premium to penalty could be a painful readjustment process for the stock market.
1. Mises, Ludwig von. 2007. Economic Freedom and Interventionism. Ludwig von Mises Institute. Auburn, AL. p. 115.
2018-04-30 Sprint/T-Mobile Merger
Chris Butler was interviewed by KSHB TV on Sunday regarding the prosposed merger between T-Mobile and Sprint. Initial implications for employment in KC is probably not real good, but nothing has been decided. In the interview, Chris does mention that this is not a done deal and that it must pass regulatory muster, but the thought was that the environment for the proposal to pass was much better than several years ago. Today, April 30, it seems a little less likely as broad sentiment seems to be quite negative. We think the case can be made that there are two competitive firms today - AT&T and Verizon. If the proposed merger passes, there will be three. The fact is that neither Sprint no T-Mobile offer much competition on their own. But when combined, T-Mobile/Sprint the two would almost certainly give the "big boys" reason for concern.