Effective Demand Research

Quick update of My Effective Demand Model

I just want to give an update on my work.

 

Update.... The model is doing very well.

 

The model is simply that labor share sets a limit on the utilization of labor and capital. If the utilization of labor and capital goes above an effective labor share, capital starts consuming its own aggregate income.

effective labor share > capacity utilization * (1 - unemployment rate)

Here is latest data to show that economy once again followed this equation.

The cobra equation too has performed perfectly in predicting the movements of capacity utilization and unemployment.

 

 

Dow coming back to Attractor State

Like I have said since late 2014, the Dow will orbit around the 17,300 point as an attractor state at the end of the business cycle. The Dow is at 17,230 today after falling below 16,000 in January and February.

The business cycle is still holding out. The cascading effects of recession have not started yet. They have not been sufficiently coordinated so to speak. But I stand by my view of the Dow. It can rise above 17,300, but not rise much above before another move downward would eventually happen.

I foresee the Dow peaking between 17,300 and 17,600 as the time to go defensive.

As for Monetary Policy...

The business cycle has not changed its dynamics much. There is no large bubble with expanding dynamics. Monetary policy is holding value steady as some firms hurt and other firms get strong. The idea of the Fed is to find a balance so that the economy gets healthy through a prolonged steady state dynamic.