Over at US News & World Report, the debate rages on. We are now up to part 4. Its shaping up as a battle between logic and rhetoric. Part 5 is up tonight.
Round 4: A Disingenuous Look at the Hard Facts vs Job Growth Is Weak, Savings Are Nil, and Debt Is Soaring
Round 3: Bears Can’t Explain Why Housing Hasn’t Tanked the Economy vs The Numbers Are Clear, and the Economy Has Slowed
Round 2: Don’t Worry–Be Happy vs Worry a Lot–Housing Will Hurt the Economy>
Round 1: The Bullish versus Bearish Economic View
Luskin writes: “The fact remains there is no data source comparable to the Bureau of Labor Statistics, the Bureau of Economic Analysis, or the Federal Reserve…”
And I concur: it’s very hard to be bigger liars than the 21st Century American government!! They really are in a class by themselves, on so many levels.
“There’s just no connection between MEW and consumption. Face it.”
How anyone who believes this has any credibility is hard to believe.
Well, Luskin certainly convinced me. You and your silly “authoritative sources”, Barry. Don’t you know
WE DON’T NEED NO STEEEEENKING FACTS!
Luskin has been referred to as the “stupidest man alive” by Brad DeLong, I believe.
Just sayin’ …
Up to yesterday’s “debate” this was interesting and fruitful insofar as it illustrated where a large portion of the punditry (or borrowing from Fleck – ‘dead fish’) were coming form. The ad hominem attack on your MEW analysis was not well done – and while CR is indeed a blogger his track record is superb and the number of demands he’s getting for informed comment testify to his insights.
As for Luskin’s one key point – MEW isn’t related to consumption – YES, EXACTLY. Before this very different cycle it wasn’t but it seems to have been the only thing holding up Consumption. There doesn’t appear to be any other explanation why it didn’t fall as far as GDP. Don’t they call that ‘cognitive dissonance” ?
The trend of the ‘debate’ is very sad because a more rigorous approach would have helped bring out some issues and explain why 3/4 or better of the public discussion doesn’t appear to reconcile with the available facts on the ground.
Luskin doesn’t even appear to bother dealing with the jobs issues you raise.
Here’s a fun one – corporate profits are at record and phenomenal levels. Has anyone consider that that is because CapEx and hiring are both lagging historically low ?
And that everyone actually gets it if you take SP500 PE Ratios as a proxy for expectations for future growth. Up until las summer they were in a five-year deccline, rose thru the fall and are now falling again.
If things were indeed rosy PE’s would be much higher if people were putting their money – all of that huge pool of liquidities – where their pundits were.
Luskin considers the chart showing little correlation between personal spending and MEW as important. It would be interesting to see the correlation between personal spending and the sum of various possible funding sources – MEW, wage increases, estimated stock market gain withdrawals before 2000. I think this would show that MEW simply took over from other funding sources, and that there is no obvious replacement for MEW in 2007 and 2008.
to add to the above comments… how can people or “journalists” rationalize that the market has already discounted the coming earnings (which at several sites has been the headline) when we are sitting at ,close to , alltime highs in the DOW. It;s an overly simplistic way to look at it however I can’t get around that basic statement. If we have discounted for the,expected,lower earnings then why are valuations still so high?
Comparing the 70’s with now: Then, stagflation with positive real MEDIAN wages leading the way. Remember GM workers salaries? Now, stagflation with real MEDIAN wages negative. Good for stocks, but how long can this last?
The real issue, which Barry ignores entirely, is that even accepting his theoretical models as authoritative data sources, I showed a chart demonstrating that–in reality, as opposed to theory–growth of consumption over the past 15 years has utterly no visible correlation with MEW.
Saying that MEW hasn’t been always and forever a predictor of consumption isn’t the same as saying that it currently has no bearing on consumption.
You could call it ‘income sector rotation’, shifting over time from salaries to equities to MEW.
If I heat my house with oil and change to heating with natural gas, I could post a chart showing that the temperature of my house fails to correlate completely with either oil or gas.
Based on Mr. Luskin’s analysis, one might be tempted to forego paying the monthly gas bill, while Barry would counsel against such a move.
I’m with Barry on this one.
Why are you bothering debating this guy, Barry? He’s pretty much proven that he is a propagandist and not an honest financial thinker.
Anyone who brings up the current low unemployment rate is shouting the world they don’t care about reality, but only care about right-wing propaganda. Usually, the unemployement rate gives good guidence as to the state of employment in this country. In the particular case of 2007, it doesn’t, so we need to find other measurements that accurately portray what is happening. That Luskin even mentions this number shows his true concerns.
Note that in Luskins world, the massive growth in MEW from the very chart that he presents is ignored. It’s not visually correlated to the other variable shown – therefore the mountain is unimportant.
“Stupidest Man Alive”? Keep going Don, you’ll get there. We all need goals.
Just more ignorable evidence that MEW doesn’t matter :-) http://www.boating-industry.com/output.cfm?id=1229185
eightnine – As I understand your and others’ comments here, the fact that MEW has never historically been correlated with consumer spending doesn’t matter, because “it is different this time.”
Which as we all know are the five most dangerous words in the market….
BR MEW may not have been associated with consumer spending PRIOR to rates being cut to 46 year lows, and loan standards significantly loosened — Back then, it was ~1% of disposable income. From 2000- 2005, it shpot up to 10% of disposable income.
Do you really want to stick with the position that some significant percentage of $3 trillion in equity extracted as cash over the past 5 years wasn’t spent by consumers?
That is patently absurd, and belied by both academic and Fed studies and real world experience. What color is the sky in your world?
The sky in my neck of the woods is typically blue, Barry. Occasionally it turns dark and it rains. Afterwards the sun comes back out and the sky goes back to blue.
But it’s certainly not all grey, all the time.
Keep in mind, Barry, that you’re debating a deeply innumerate, deeply self-confident guy who dropped out of college after his freshman year.
Because he never received formal grounding in math and science, he doesn’t know what it is that he doesn’t know. But he’s sure he knows better than you.
But hey, he’s tall, with good hair, and he has a vibrant voice and a pleasant smile.
Which as we all know are the five most dangerous words in the market….
Or the most profitable; depends what side of the trade you’re on. :-)