• 9 hours Hawkish Fed Sends Gold Prices Crashing
  • 1 day Bezos Is Heading To Space This Sunday
  • 5 days El Salvador’s Surprise Bitcoin Move
  • 8 days Markets Unfazed As Inflation Hits 13-Year High
  • 8 days How the Token Economy is Disrupting Financial Markets
  • 11 days FBI Investigating 100 Types Of Ransomware Attacks
  • 12 days Fed Ends Corporate Credit Emergency Lending Program
  • 14 days AMC Becomes the Latest Winning Meme Stock After GameStop
  • 16 days The Real Reason Your 401k Has Been Lagging
  • 17 days China Lifts Cap On Births, Allows Three Children Per Couple
  • 18 days The Market Is Ripe For Another GameStop Saga
  • 21 days Senate Grills Big Banks Over Pandemic Opportunism
  • 23 days Cannabis Has A Major Cash Problem
  • 23 days Ransomware Netted Criminals $350M In 2020 Alone
  • 25 days Russia Is Taking On Google
  • 25 days Chinese Regulators Deal Another Big Blow To Bitcoin
  • 27 days Ohio Residents Brave Vaccine for Chance To Win $1M
  • 28 days Inflation Is Coming. Are You Prepared?
  • 29 days Travel Might Get Another Supersonic Disruption
  • 30 days The World Is Running Out Of 6 Key Resources
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

Investing Based on The Austrian School of Economics

John Butler

FRA Co-Founder Gordon T. Long discusses the Austrian School of Economics with John Butler and how its methodologies can be applied to the current global economy. John Butler has 18 years' experience in the global financial industry, having worked for European and US investment banks in London, New York and Germany.

Prior to launching the Amphora Commodities Alpha Fund he was Managing Director and Head of the Index Strategies Group at Deutsche Bank in London, where he was responsible for the development and marketing of proprietary, systematic quantitative strategies for global interest rate markets. Prior to joining DB in 2007, John was Managing Director and Head of European Interest Rate Strategy at Lehman Brothers in London, where he and his team were voted #1 in the Institutional Investor research survey. In addition to other research, he publishes the Amphora Report newsletter which appears on several major financial websites


The Austrian School of Economics

"It is the no free lunch school of economics."

The Austrian school believes that economics systems are ultimately information systems. Some of those systems use information more efficiently and effectively than others, and in particular systems of which authorities of various kinds meddle with the market. Authorities may do this by extracting capital from the market via tax rates or even by manipulating the money of that market through some sort of artificial interest rate policy.

"From the Austrian schools point of view, anything that impedes the free price information flow of an economic system will result in a sub optimal economic outcome."

Without the rule of law, without the ability to strongly enforce property rights, without the ability to prosecute fraud, and various other legal frameworks; the Austrian economic model cannot work.

"Our goal is to make sure economic information flows as efficiently as possible within a solid legal structure."


How The Austrian School Can Be Applied In Investing

Austrianism teaches us that the future is unpredictable. The economy is made up of the billions of people in the world, with each person making transactions almost every day. Each decision is an individual's choice, and each decision, even the decision not to spend your money has some effect on the economy.

"Austrian school provides you a way to identify distortions, a powerful way that is caused by a fiscal and monetary policy set such as interest rate or fiscal policy manipulation. Austrians are able to look at these policies and be able to see how they are impacting the investment environment. This gives you a sense of where the distortions are. In theory you get an idea of where you should be overweight and underweight from an investor's point of view."


Current Events Amphora is Focused On

"Currently we are seeing a general overvaluation of risky assets that has been caused by truly an unprecedented set of highly expansionary monetary and fiscal policies throughout most of the world."

Income growth has not kept up; assets are expensive relative to incomes. So the correct strategy is not simply to short assets, which is dangerous; but if indeed they do look for ways to stimulate aggregate demand more directly rather than through the banking system.

The correct strategies to have today are those that will perform if incomes begin to catch up to asset prices, it could be asset prices declining towards incomes or vice versa. It is impossible to know which one is going to happen, but it is highly likely looking forward that a conversion of the two will happen.


Possibility of Negative Nominal Interest Rates

"Policy makers have become almost pathological; they have a relentless attitude to make their policies work."

The Financial Repression Authority

"Problem with this is, once you get to this point, you can no longer question your original set of assumption. Austrian school of economics knows that the original sets of Keynesian assumptions that have gone into forming this unconventional and aggressive policy mix are themselves flawed. We are on this course where if it were left to run itself, policy makers will operation in these counter-productive directions because they will not question whether their assumptions are wrong."

"Banning cash will prevent people from making even the simplest transaction in their own neighborhoods; it will lead to complete riot and chaos."

"Putting a ban on cash is a terrible idea. It is terrible for them and for the economy as a whole. Sadly, with the way things are going, policy makers are going to teach everyone a very hard lesson about blindly accept anything the bureaucracy tells you to do."


Central Banks Role if Asset Correction Occurred

"If you do get a major correction in asset markets that causes collateral problems in financial markets, the policy makers are out of options. The only thing they could do is begin capital controls."

Prevent investors being able to freely liquidate or withdraw funds from their existing investments. This of course is very anti-capitalist, very inti-market. It goes directly against everything that a free enterprise economy should stand for; but when you follow these policies you will eventually get to a dead end.

Abstract written by Karan Singh karan1.singh@ryerson.ca

 

Back to homepage

Leave a comment

Leave a comment