Less Obvious Consequences of the Massachusetts Election [View article]
The bailout strategy is "working", but only if you disregard its future costs and implications.
The patronising tone of many liberal pundits during last nights election results is similar to yours: "... ah, the poor slobs don't understand ... they're just upset about losing their jobs ... they've lost their minds because their neghbor was laid off .. etc"
The public in Massachusetts are smarter than you think, because even without economic degrees, they can see and sense the poison they're being fed about bailouts and can see the wholesale looting of future generations. This does not make them simplistic!
I agree with all the trends you describe, but expect them to happen to a much lesser extent, at a slower pace, and without extreme catastrophic consequences. The global system has too much damping built in for a meltdown in the world's largest and most powerful country.
Everything you wrote makes sense, which is why the wise should be cashing out their gains, slowly but steadily. Slowly, because illogical as it may be, the market stil appears to be mandering higher, and steadily because stocks are quite overpriced for the current and forseeable economic environment.
Millions of retiring baby boomers are upset and may vote for change if their portfolios and retirement plans don't rebound. Thus, propping up the market until the next generation acquires the retiring boomers toxic financial assets may be perceived as sound public policy, and concerns have been voiced that the market is being manipulated, as in "We'll give you billions of taxpayers' money and y'all make sure the market goes up". This argues against shorting, and for taking any profits slowly, as the next big drop may be a long time coming. On the other hand, if and when it comes, it is likely to be like a bursting dam.
These are challenging times for any rational long-term investor.
Thursday's Thrust: Why Are They Partying Like It's 1999? [View article]
Phil, I agree 100%. The fed's irresponsible money printing is debasing the USD, and hence inflating all commodities in USD terms. This is inflating the cost of basic necessities, but US wages cannot rise in tandem due to globalisation and outsourcing.
The fed wants to inflate housing by printing money, but their policy will backfire because as inflation forces people to spend more on necessities they will have less to spend on monthly mortgage payments. The only proper policy was to prevent housing inflation in the first place, but we are now too late, and there is no logical path to maintain artificially high housing prices at the present time. The fact that we have allowed our economy to continue to be managed by the same people who failed to see this coming is discomforting.
We need more production, as consumption cannot exceed production except for brief periods. Within such periods, the deficit between production and consumption can be imported from willing foreigners against IOU's. Eventually, they will wish to redeem these IOU's in kind, meaning that we would need to produce more than we consume and export the surplus. If it becomes obvious to our trading partners that their dollar IOU's are debased, and that we have no intention of paying them back in kind, they will cut off our free lunch.
It is frustratingly evident that our policymakers seem oblivious of such basic facts, and expect that restoring over-consumption offers a viable substitute to increasing the production of products and services that we can export to balance the global economic system.
Greece, Germany and a Second Great Depression [View article]
I have to respectfully disagree with all your "WRONG!" answers regarding the pernicious effect of excessive money printing.
I certainly agree that countries with a "printing press" cannot and will not default, so the UK and US will not default. I also agree that it is likely, though not a given, that both will manage to avoid hyperinflation.
The less obvious, but still highly destructive effect of excessive money printing is the misallocation of society's resources. The money coming off the printing presses is, in effect, distributed by a political process to buy votes and to benefit powerful lobbies. This perverts free market forces and dilutes the capacity of truly productive entities to earn, keep and allocate capital.
Short term, the money printing causes a boost in demand and appears to lift the economy, but long-term, the distortions it causes reduce the total output of goods and services, as capital is shunted away from productive entities towards waste and unmerited consumption. This creates an irreversible self-reinforcing downward spiral because the fact that it has worked in the short-term leads to even more money printing, and the spiral steepens.
In my own view, the Western economies and Japan entered this spiral in the 1990's and it has been steepening over the past fifteen years or so. The increased turbulence and instability we are witnessing is merely a manifestation that this path is unsustainable, and the reality that reversing it, even if it were possible, cannot be popular or painless.
Good comment, but perhaps would be complemented by adding that those who enter in the early stages, then exit in the late stages, of a so-called "sucker's rally" are smart, and the exact opposite of suckers. For them, a better description is a "tradeable rally".
Those who coined the expression "sucker's rally" probably meant it to apply only to those who enter in the late stages of such a rally, then watch their positions drop, then, perhaps, compound their error by panic selling near the subsequent trough.
On Apr 13 08:03 AM BeachRider wrote:
> The markets could certainly fall some more, but both sides of this > argument have valid signposts that their trend will hold. One has > to look at the position of the USA in the global economy and find > it to be one of the most-organized while being the most intellectually > fractured of the leading economies. > > It has to be that the thought-processes of the USA need to be looked > at for the intellectual fractures. We can disagree on what needs > to be done, but we need to get into doing it quickly. > > Economic leadership from the 90s and early 2000s must step back and > measure our next step. We are clearly committed to some kind of deficit > spending, so get over that (as a concept, the degree can still be > discussed). It sounds too much like there are people rallying their > choirs and not motivating the nation.
Wall Street Breakfast: Must-Know News [View article]
"..The White House's latest attempt to stem the foreclosure crisis is a program that allows homeowners to sell their houses for less than what they owe, and gives them some money ..."
Hmmm... I wonder where that money will come from ... perhaps from further taxation of the productive? or perhaps from further debasement of prudent peoples' savings? Not to worry, at least it may buy some votes in November.
I would suggest that if the economy were truly allowed to re-adjust according to the changing market forces, manufacturing would eventually make a come back, and the old manufacturing "rust belt" would have a chance at revival. The bloated financial service centers would be trimmed down to their normal, pre-bubbles size, perhaps becoming a temporary mini rust-belt during the trimming down phase.
The current economic paradigm which led us to this mess is too heavily based on financial services, real estate, and retail. Manufacturing is down to a mere 11% of GDP. I doubt that a modern, developed economy can prosper in the long-term with so little manufacturing.
Wall Street Breakfast: Must-Know News [View article]
..... Thomas Hoenig said the central bank should start to raise the fed funds rate “sometime soon” to about 1% to prevent asset bubbles from emerging. ....
Does anyone really think that there is any difference between 0.25% and 1%, whether to prevent bubbles, encourage savings, or ensure that capital is borrowed for a useful purpose ?
The entire capitalist paradigm has been killed by artificially low interest rates for too long. Instead of successful entrepreneurs creating capital by accumulating their savings (the original notion of capital is saved labor), we get capital that is just printed at the whims of bank clerks. So, instead of having successful entrepreneurs be the stewards of creating and allocating society's capital resources, we have ignorant people creating money at will. The result is that society's resources are misallocated, wasted for unproductive activities, and loaned out to those who dissipate them and never pay them back.
Wall Street Breakfast: Must-Know News [View article]
A few years ago, if someone had told me that the govt will loot productive taxpayers to pay egregious bonuses to wealthy bankers, who are so idiotic that they cannot manage their own business on a sound basis, I would have thought they were joking.
But the bad joke has come true, and keeps getting worse, because now we appear set for an endless subsidy from productive Americans to all irresponsible consumers of houses, autos, vacations, etc, just to maintain an ecologically disastrous level of unmerited, immoral, and destructive over-consumption.
This process is endless and feeds on itself, and will snowball as more people discover that they can simply consume things without paying for them. Unless the madness is halted, and soon, the collapse in public morality and responsibility will become irreversible.
I am glad you have turned optimistic because your opportunity range of 6500-6800 on the dow has arrived. I certainly agree that there are good values in many stocks, but many still are overvalued, and I suspect that the current general levels of the markets (+/-25%) will be with us for some years, as they are closer to normal levels than the irrational exuberance that began in the mid-90's.
I must respectfully take issue with some of your points, as shown below:
One: Economic fundamentals are a lot worse than you hear. Productive activity has been reduced, and replaced by frothy paper shuffling over the past two decades. Americans are still creatures of excessive optimism, not necessarily warranted by facts.
Two: "Geithner will ride to the rescue", but all he can do is create inflation, and further distort the economy by having the productive subsidize the unproductive.
Three: Obama will constrain American ingenuity, with punitive taxes on successful entrepreneurs.
Four: "General Electric is not dead" - Agreed!
Five: "The market will rise, and fast". If it does, it will only be to fall again. The current general levels (+/- 25%) are consistent with pre-bubbles history and with rational metrics and realistic economic expectations. The notion that we shall shoot back to bubble levels soon and fast is doubtful.
Quantitative Easing and the Disappearance of Income [View article]
"......Not just in the US but in many parts of the world, central bankers are now becoming desperate to try to ignite some spark under their property markets....."
True. The amazing fact is that they lit bonfires under the property markets for over a decade, propelling them into the bubblesphere. These supposedly intelligent central bankers created the bubble, totally oblivious of its inexorable consequences that we are now experiencing. Now we expect the same school of economic geniuses to find a painless solution (?)
Ray Dalio: A Long and Painful Depression - Barron's Interview [View article]
I agree that it is unlikely for recovery to happen in 2009, but disagree with the extreme negativism drawing similarities with the great depression. I doubt that it will get anything as bad as the 1930's, but will be an extended recession/weakness longer than any since then.
My view is that we shall bump along for several years, with the market gyrating, perhaps trending slightly down on average, until 2010-2011. Eventually, the economy will readjust to a more sustainable paradigm, in which people spend the value of their labor, not what they can borrow against their assets.
The USA will emerge from this a stronger nation, and I hope we shall all learn that hard work and responsible consumption are necessary for sustainable economic progress and a healthy environment.
Deere & Company: Canary in the Austerity Coal Mine [View article]
Markos, your statement "... Yes, our entitlement programs are out of control, and yes our democratic demigods have reached the limit of sane spending. But no, now is not the time to implement austerity...." is incomplete without telling us when is the time to implement fiscal and monetary sanity and return to a semblance of sound money, budget balance, and bearable deficits? Next year ? 2012 ? 2013? The excuse that "now is not the time" will be always with us.
IMHO, the time was several years ago, and we have procrastinated ever since, and the longer we procrastinate, the deeper we dig ourselves into the hole. This vicious spiral must end, and the sooner the better, because this is how great nations have bankrupted themselves into oblivion throughout history.
The Europeans have shown wisdom and courage to take the bulls by the horn before it is too late, we need to do the same.
Less Obvious Consequences of the Massachusetts Election [View article]
The patronising tone of many liberal pundits during last nights election results is similar to yours: "... ah, the poor slobs don't understand ... they're just upset about losing their jobs ... they've lost their minds because their neghbor was laid off .. etc"
The public in Massachusetts are smarter than you think, because even without economic degrees, they can see and sense the poison they're being fed about bailouts and can see the wholesale looting of future generations. This does not make them simplistic!
This Is Just the Beginning [View article]
Why the Dow Is Headed to 6000 [View article]
Millions of retiring baby boomers are upset and may vote for change if their portfolios and retirement plans don't rebound. Thus, propping up the market until the next generation acquires the retiring boomers toxic financial assets may be perceived as sound public policy, and concerns have been voiced that the market is being manipulated, as in "We'll give you billions of taxpayers' money and y'all make sure the market goes up". This argues against shorting, and for taking any profits slowly, as the next big drop may be a long time coming. On the other hand, if and when it comes, it is likely to be like a bursting dam.
These are challenging times for any rational long-term investor.
Thursday's Thrust: Why Are They Partying Like It's 1999? [View article]
The fed wants to inflate housing by printing money, but their policy will backfire because as inflation forces people to spend more on necessities they will have less to spend on monthly mortgage payments. The only proper policy was to prevent housing inflation in the first place, but we are now too late, and there is no logical path to maintain artificially high housing prices at the present time. The fact that we have allowed our economy to continue to be managed by the same people who failed to see this coming is discomforting.
Economic Fault Lines Emerge [View article]
We need more production, as consumption cannot exceed production except for brief periods. Within such periods, the deficit between production and consumption can be imported from willing foreigners against IOU's. Eventually, they will wish to redeem these IOU's in kind, meaning that we would need to produce more than we consume and export the surplus. If it becomes obvious to our trading partners that their dollar IOU's are debased, and that we have no intention of paying them back in kind, they will cut off our free lunch.
It is frustratingly evident that our policymakers seem oblivious of such basic facts, and expect that restoring over-consumption offers a viable substitute to increasing the production of products and services that we can export to balance the global economic system.
Greece, Germany and a Second Great Depression [View article]
I certainly agree that countries with a "printing press" cannot and will not default, so the UK and US will not default. I also agree that it is likely, though not a given, that both will manage to avoid hyperinflation.
The less obvious, but still highly destructive effect of excessive money printing is the misallocation of society's resources. The money coming off the printing presses is, in effect, distributed by a political process to buy votes and to benefit powerful lobbies. This perverts free market forces and dilutes the capacity of truly productive entities to earn, keep and allocate capital.
Short term, the money printing causes a boost in demand and appears to lift the economy, but long-term, the distortions it causes reduce the total output of goods and services, as capital is shunted away from productive entities towards waste and unmerited consumption. This creates an irreversible self-reinforcing downward spiral because the fact that it has worked in the short-term leads to even more money printing, and the spiral steepens.
In my own view, the Western economies and Japan entered this spiral in the 1990's and it has been steepening over the past fifteen years or so. The increased turbulence and instability we are witnessing is merely a manifestation that this path is unsustainable, and the reality that reversing it, even if it were possible, cannot be popular or painless.
Sucker's Rally Approaching an End [View article]
Those who coined the expression "sucker's rally" probably meant it to apply only to those who enter in the late stages of such a rally, then watch their positions drop, then, perhaps, compound their error by panic selling near the subsequent trough.
On Apr 13 08:03 AM BeachRider wrote:
> The markets could certainly fall some more, but both sides of this
> argument have valid signposts that their trend will hold. One has
> to look at the position of the USA in the global economy and find
> it to be one of the most-organized while being the most intellectually
> fractured of the leading economies.
>
> It has to be that the thought-processes of the USA need to be looked
> at for the intellectual fractures. We can disagree on what needs
> to be done, but we need to get into doing it quickly.
>
> Economic leadership from the 90s and early 2000s must step back and
> measure our next step. We are clearly committed to some kind of deficit
> spending, so get over that (as a concept, the degree can still be
> discussed). It sounds too much like there are people rallying their
> choirs and not motivating the nation.
Wall Street Breakfast: Must-Know News [View article]
Hmmm... I wonder where that money will come from ... perhaps from further taxation of the productive? or perhaps from further debasement of prudent peoples' savings? Not to worry, at least it may buy some votes in November.
How the Crash Will Reshape America [View article]
The current economic paradigm which led us to this mess is too heavily based on financial services, real estate, and retail. Manufacturing is down to a mere 11% of GDP. I doubt that a modern, developed economy can prosper in the long-term with so little manufacturing.
Wall Street Breakfast: Must-Know News [View article]
Does anyone really think that there is any difference between 0.25% and 1%, whether to prevent bubbles, encourage savings, or ensure that capital is borrowed for a useful purpose ?
The entire capitalist paradigm has been killed by artificially low interest rates for too long. Instead of successful entrepreneurs creating capital by accumulating their savings (the original notion of capital is saved labor), we get capital that is just printed at the whims of bank clerks. So, instead of having successful entrepreneurs be the stewards of creating and allocating society's capital resources, we have ignorant people creating money at will. The result is that society's resources are misallocated, wasted for unproductive activities, and loaned out to those who dissipate them and never pay them back.
Wall Street Breakfast: Must-Know News [View article]
But the bad joke has come true, and keeps getting worse, because now we appear set for an endless subsidy from productive Americans to all irresponsible consumers of houses, autos, vacations, etc, just to maintain an ecologically disastrous level of unmerited, immoral, and destructive over-consumption.
This process is endless and feeds on itself, and will snowball as more people discover that they can simply consume things without paying for them. Unless the madness is halted, and soon, the collapse in public morality and responsibility will become irreversible.
Five Predictions for This Market [View article]
I must respectfully take issue with some of your points, as shown below:
One: Economic fundamentals are a lot worse than you hear. Productive activity has been reduced, and replaced by frothy paper shuffling over the past two decades. Americans are still creatures of excessive optimism, not necessarily warranted by facts.
Two: "Geithner will ride to the rescue", but all he can do is create inflation, and further distort the economy by having the productive subsidize the unproductive.
Three: Obama will constrain American ingenuity, with punitive taxes on successful entrepreneurs.
Four: "General Electric is not dead" - Agreed!
Five: "The market will rise, and fast". If it does, it will only be to fall again. The current general levels (+/- 25%) are consistent with pre-bubbles history and with rational metrics and realistic economic expectations. The notion that we shall shoot back to bubble levels soon and fast is doubtful.
Quantitative Easing and the Disappearance of Income [View article]
True. The amazing fact is that they lit bonfires under the property markets for over a decade, propelling them into the bubblesphere. These supposedly intelligent central bankers created the bubble, totally oblivious of its inexorable consequences that we are now experiencing. Now we expect the same school of economic geniuses to find a painless solution (?)
Ray Dalio: A Long and Painful Depression - Barron's Interview [View article]
My view is that we shall bump along for several years, with the market gyrating, perhaps trending slightly down on average, until 2010-2011. Eventually, the economy will readjust to a more sustainable paradigm, in which people spend the value of their labor, not what they can borrow against their assets.
The USA will emerge from this a stronger nation, and I hope we shall all learn that hard work and responsible consumption are necessary for sustainable economic progress and a healthy environment.
Deere & Company: Canary in the Austerity Coal Mine [View article]
IMHO, the time was several years ago, and we have procrastinated ever since, and the longer we procrastinate, the deeper we dig ourselves into the hole. This vicious spiral must end, and the sooner the better, because this is how great nations have bankrupted themselves into oblivion throughout history.
The Europeans have shown wisdom and courage to take the bulls by the horn before it is too late, we need to do the same.