You’re All Wrong, There’s No V-Shaped Recovery Coming
by ilene - September 20th, 2009 3:19 pm
Joe, like me, is having a hard time embracing the V-shaped recovery belief. He makes a good point about economics not being either physics or history, and if we’ve seen anything over the last few years, it’s perhaps how wildly the operative economic principles of the day have failed. – Ilene
You’re All Wrong, There’s No V-Shaped Recovery Coming
Courtesy of Joe Weisenthal at Clusterstock
But economics isn’t physics. And don’t worry about not knowing your history, because economics isn’t history either.
Here’s why we’re not in for a v-shaped recovery.
First, the pax economica that preceded the current slump was artificial. Large swaths of the economy had stopped doing anything productive, while the rest of the economy was buoyed by rising home values that allowed for spending on a level that was disconnected from what people were actually bringing in via income. Of course, you know this part of the story, but the key is that this is meaningfully different than the situation heading into previous economic slumps.
The other reason why we’re not in for a "V" is that the economy, even without the credit-collapse, is still in the midst of violent changes in the economy. New technology and new business models are uprooting old businesses (whether it’s media, manufacturing, or commercial real estate), throwing labor and capital into disarray. Ultimately the transition will be good, but in the meantime, displaced workers will face an unusual amount of lag in finding new work, if only because the industries that were they yesterday have gone and disappeared, requiring extensive levels of retraining.
There are other aspects too, such as the size of government and demographics that look increasingly unfavorable.
Curiously, Jim Grant’s admonition to remember history only mentions past slumps in the US. We don’t see the word "Japan" mentioned once in the whole article? But unless the laws of economics are different there than they are here, then we can certainly point to examples of bad busts that weren’t followed by a quick snap back.…
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by Zero Hedge - September 20th, 2009 1:09 pm
Courtesy of Tyler Durden
- California’s financial depression: unemployment and underemployment rate at Great Depression levels. 23 percent unemployment for biggest state in the nation. California will not see housing peak until 2030 (Dr Housing Bubble)
- Jim Grant: Ringing the bell at the top (Financial Armageddon)
- Peter Schiff: Lehman Brothers revisited (TheStreet)
- FHA faces money squeeze after insisting it needs no new money (AP)
- 2 Nobel economists confirm that credit is not credted out of excess reserves (Washington’s Blog)
- The bailout bill comes due, vexing agencies (NYT)
- New deal orgy no model for current binge (IBD)
- The real banker boondoggle (New Republic)
- Treasury response to Domestic Climate Policy FOIA (Openmarket, h/t Stephen)
- Wells Fargo’s commercial portfolio is a ticking time bomb (Bank Implode)
- The future of global finance (NYT)
- Is Well Fargo making AIG’s suicidal mistake? (Business Insider)
- Wynn seeks $1.6 billion for Macau IPO (WSJ)
- Hitting talk shows, Obama defends health care agenda (NYT)
- $22.6 million sought from ex-Kmart chief (Boston Globe, h/t Paul)
Henry Blodget vs. Ken Fisher “We Need More Debt”
by ilene - September 20th, 2009 12:53 pm
Is Ken Fisher talking his book, or as Henry Blodget believes, simply nuts? – Ilene
Henry Blodget vs. Ken Fisher "We Need More Debt"
Courtesy of Mish
Numerous people sent me a link to a preposterous statement by fund manager Ken Fisher regarding debt. Please consider Too Much Debt? Please. We Need MORE Debt, Says Ken Fisher.
The conventional wisdom is that Americans are struggling to crawl out from under a mountain of debt that will restrain growth and weigh down the economy for decades.
As [the following] chart shows, the US debt-to-GDP ratio recently soared to an all time high of 370%, meaning that for every $1 of output we produce, we have borrowed $3.70. This compares to a long-term debt-to-GDP average of about 150%.
click on chart for sharper image
Last time we went on a massive debt binge, in the 1920s, our debt-to-GDP ratio hit a relatively mild 250%, and we spent the better part of two decades (and the Great Depression) working it off. Many economists think the same thing will happen this time around.
But they’re wrong, says Ken Fisher, CEO of Fisher Investments ($35 billion under management), in a wildly contrarian view.
The U.S. has too little debt, not too much, Fisher says. The U.S.’s return on assets is high and interest rates are low, so our borrowing capacity is much higher than our current debt levels.
Also, Fisher says, you have to look at the U.S. in the context of the world, because the U.S. is only 25% of world GDP. The world is way under-leveraged, so one country’s particular debt-to-GDP ratio doesn’t matter.
Inquiring minds will want to play the accompanying video
The idea that we need more debt is ludicrous. Consumers cannot service the levels of debt they have right now. This has increased defaults, foreclosures, bankruptcies, credit card writeoffs, and horrendous commercial real estate problems.
In the Business Insider Money Game Henry Blodget came to the conclusion, Ken Fisher is nuts.
We had Ken Fisher on TechTicker yesterday. Ken has managed money for nearly 40 years, and now has $35 billion of assets under management.
You make the big money on Wall Street when you hold a view that is so contrarian that most people think you are nuts. So Ken’s argument certainly merits consideration.
…
The Future of Global Finance
by Phil - September 20th, 2009 7:59 am
Excerpts of the original NY Times article by LIAQUAT AHAMEDIt has long been recognized that the global financial structure — built as it is around the dollar as the world’s reserve currency — has a fundamental design flaw that makes it inherently unstable. The problem was first identified back in the early 1960s by the Belgian-American economist Robert Triffin, in “Gold and the Dollar Crisis.” Writing about Europe’s accumulation of dollars, he argued that the system carried the seeds of its own destruction. Foreigners could acquire dollars only if the United States ran current account deficits — that is, spent more than it earned. But lending money to someone who lives beyond his means has obvious dangers, and the same is true of countries.
Thus, the American deficits necessary to supply dollars to the world for international transactions simultaneously undermined confidence in the currency. It was only a matter of time, Triffin predicted, before the system would be hit by a crisis — which it duly was in the early 1970s.
In the wake of the 1997 financial crisis there, countries in East Asia set out to build up war chests of dollars as insurance against domestic banking runs or downturns in the global economy. At about the same time, China embarked on a program of export-led growth, engineered by keeping its currency artificially low.
Interpretations of what happened next differ. Some argue that to absorb these goods from abroad while avoiding unemployment at home, the United States very consciously stimulated consumer demand. The country, in effect, was forced to live beyond its means. Others believe that the Fed misread the fall in prices as a symptom of inadequate demand rather than for what it was — an astounding, once-in-a-generation expansion in the supply of low-cost goods — and kept interest rates low for an unusually long time, which provoked the real estate bubble.
In either case, the result was an enormous accumulation of dollars in the hands of Asian central banks. Those dollars, when invested in the American bond market, drove long-term interest rates even further down and made credit in the United States even more artificially…
Jim Grant: Ringing the Bell at the Top?
by ilene - September 20th, 2009 1:29 am
Jim Grant: Ringing the Bell at the Top?
Courtesy of Michael Panzner at Financial Armageddon
In the following Wall Street Journal commentary, "From Bear to Bull," a long-time critic of the excesses and wayward policies that brought this country to its knees suggests the outlook for the economy is brighter than many people, especially the pessimists, believe:
James Grant argues the latest gloomy forecasts ignore an important lesson of history: The deeper the slump, the zippier the recovery.
As if they really knew, leading economists predict that recovery from our Great Recession will be plodding, gray and jobless. But they don’t know, and can’t. The future is unfathomable.
Not famously a glass half-full kind of fellow, I am about to propose that the recovery will be a bit of a barn burner. Not that I can really know, either, the future being what it is. However, though I can’t predict, I can guess. No, not "guess." Let us say infer.
The very best investors don’t even try to forecast the future. Rather, they seize such opportunities as the present affords them. Henry Singleton, chief executive officer of Teledyne Inc. from the 1960s through the 1980s, was one of these enlightened opportunists. The best plan, he believed, was no plan. Better to approach an uncertain world with an open mind. "I know a lot of people have very strong and definite plans that they’ve worked out on all kinds of things," Singleton once remarked at a Teledyne annual meeting, "but we’re subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible." Then how many influences, outside and inside, must bear on the U.S. economy?
Though we can’t see into the future, we can observe how people are preparing to meet it. Depleted inventories, bloated jobless rolls and rock-bottom interest rates suggest that people are preparing for to meet it from the inside of a bomb shelter.
The Great Recession destroyed confidence as much as it did jobs and wealth. Here was a slump out of central casting. From the peak, inflation-adjusted gross domestic product has fallen by 3.9%. The meek and mild downturns of 1990-91 and 2001 (each, coincidentally, just eight months long, hardly worth the bother), brought losses to the real GDP of just 1.4% and 0.3%, respectively. The
…
Bulls vs. bears
by ilene - September 20th, 2009 12:54 am
Bulls vs. bears
Courtesy of Christopher Fountain of For What It’s Worth
Ya gotta love a horse race. Here’s an article from the New York Times that interviews five different analysts and gets six different opinions on where the market’s headed. I think this guy, for instance, is nuts – reminds me of a lot of real estate agents I know. But hey, he could be right, and so could they. I’m not betting on it.
Despite this grim backdrop, Laszlo Birinyi, president of Birinyi Associates, a stock market research firm in Westport, Conn., believes that we are in the early stages of a classic bull market that has plenty of room to run.
“At any juncture during a bull market over the last 50 years you could point to economic problems,” he said. “The obvious problems aren’t the ones that I worry about.” In his view, the economic weakness has been documented so well that the market has already taken it into account. “The negatives are right in front of your nose,” he said. “The market is looking past it.”
The Dollar Carry Trade
by ilene - September 20th, 2009 12:31 am
The Dollar Carry Trade
Courtesy of Jesse’s Café Américain
A video from Warren Pollock regarding carry trades
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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