That looks like it’ll work just fine.
>
The silliest thing about all these reality deniers is that a recession
— a normal, cyclical event — is actually healthy for the economy over
the long run.
Consider how many of our current problems are due to ill-considered poorly thought attempts to avoid a cyclical recession. Not only is our mess man-made, but it was totally unnecessary.
Has anyone ever asked “B-52” Ben why hes trying to repeal the business cycle? What does it say when the ECB and Australia are either leaving rates along or raising them right now?
Could it be that they don’t have the budget and trade deficits we do? Our economy is entirely based on debt creation, not production.
“Consider how many of our current problems are due to ill-considered poorly thought attempts to avoid a cyclical recession.”
That’s what a debt-laden nation/society does.
How would the market look today if the Fed wouldn’t of cut by 75 on the freak out Tuesday?
I would be 75% in equities and going to sleep for 3 years.
You’re thinking is archaic. There is no business cycle. Don’t you know that the price of housing and stocks only go up?
Recession bad. Perception of strong economy good. Savers bad. Spenders good.
There is no true, pure economy. How on Earth did you get the idea that there is a pure state of being for a world or national economy? An economy is a flow. It reacts to cause and effect. There is no such thing as an appropriate recession, just as there is no such thing as a perfect inflation.
All economies are artificial constructs, based on fiscal policies, monetary policy, interest rates, and consumer behavior. Entropy would kill the process if no actions were taken to enhance or deaden various effects.
So, this is why you are so pessimistic about so many things. You are looking for a purity that can never exist.
This is an amazing personal revelation. Quite naive.
It’s “wouldn’t have” not “wouldn’t of”, Steve. Illiteracy can ruin an otherwise intelligent-sounding statement.
cinefoz says, “You are looking for a purity that can never exist.”
Not Barry…it’s the politicians that are seeking the “purity.”
Your statement kind of validates Barry’s point!
Someone in here reeks of fear.
I did not see Tiki Barber at the parade today..
Why are the metals tanking? Steve Barry, blog commenter, called this a few days ago, saying gold would collapse. Looks like it may have started. I don’t get why…….
Gold is a late-stage cyclical, not a religion. Look at that euro-dollar triple-top. I would be a seller of gold here, certainly not a buyer.
Think of an economy as a balloon that has a bump disfiguring it. If you squeeze the balloon, the bump appears in one or more new places. If you squeeze those, the bumps just go somewhere else and take more energy to flatten.
Meanwhile, the balloon is always growing bigger and the original bump moves on it’s own in relation to the growing size of the balloon. If you try to stop the balloon from growing, then it fails in it’s purpose and is not large enough to accomplish its task. However, if it grows out of control, it can damage the space in which it exists or grow in a way that causes it to fail in purpose.
Try to create the perfect balloon and you will fail because it will always have aspects you can never control.. The best you can do is manage it so that is causes no harm and still fulfills its purpose.
This is why the stock market will always go up, unless entropy takes over or unless well meaning meddlers try to create a static perfection.
It’s completely political, supply siders need to justify the tax cuts, so anything that suggests that the economy slumped like a Dali watch on their time is verboten. All of these deniers will turn on a dime if a democrat is in office.
Whammer: I think there are a few reasons…if this actually is the beginning of a big fall
1) Despite what gold bugs say, at this point gold is still primarily a currency play and the $ is up big today. I think that the Euro is going to fall a lot and over time the correlation between gold and currencies will decrease but right now it’s like 70% (to pull a number out of my ass).
2) It’s unclear that gold will do well in deflation unless there is severe deflation…and it looks like deflation is coming on faster than inflation.
3) Most of the speculators in gold are highly “sophisticated” (i.e. leveraged) and will have to sell just to cover their other positions. Even a huge gold bug like Mish Shedlock says that he expects gold to have a huge correction at the beginning of the cycle before it skyrockets to massive records.
marcus-
A little more color on Gold perhaps
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/05/cnspain105.xml
The money quote:
“Pedre Perez, head of the Spanish G-14 property trade group, said the reports of a state bail-out were untrue. “We do not reveal who we talk to but we are not asking the government for a rescue. No such thought would cross our minds. Commercial property is still doing magnificently. This can be resolved by market forces.”
Reason why gold went lower……Spanish banks are dumping gold ala Big Ben.
helicopter Jose’!!
Ciao
MS
So… the million dollar question…. do we close at the lows today?
Posted by: cinefoz | Feb 5, 2008 1:48:34 PM
________
Until the balloon bursts from all of the hot air.
product off pubic education
“Has anyone ever asked “B-52″ Ben why hes trying to repeal the business cycle? ”
Actually that’s been part of the problem, Ben has NOT been B-52 contrary to expectations… the Fed has been draining off liquidity.
http://wallstreetexaminer.com/
Fed Flea Flicker Play – WSE Pro
by Lee Adler, Tuesday, February 5, 2008, in Money and The Fed, Professional Edition | Permalink |Comments (0)
The Fed pulled a net of $11.25 billion out of the market on Tuesday, a near double reverse of Monday’s add.
I Think the positive today is oil is deflating. This is going to help going forward. Hopefully 60ish. Pie in the sky I know.
I still feel we would weather the credit problem better if energy would deflate.
CineFoz….WTF….Your head is like a balloon full of hot air! People around here keep trying to squash it and you keep popping up?
I don’t mind your point of view, just back it up with facts, technical or fundamental would be just fine. Your always insulting everybody too? Again, WTF?
I don’t ever want to turn the economy over to well meaning meddlers who think a good recession is needed just to take us back to a fantasy purity.
Economies grow by nature. To shrink them and impose artificial limits on all, just to fulfill a fantasy image of a state of economic perfection is a benign form of a command economy. Wage and price control are next, just to deal with unpleasant aspects of supply and demand?
Life is messy and so are free economies from time to time. But growth is built into the system. Attempts to remove it are unnatural.
The best you can do is keep growth from going out of control. And the second best thing you can do is fix the damage promptly when growth does go out of control, without stopping growth completely. Stopping growth completely is an unnatural act.
The economy as a balloon analogy fails. The economy is like lungs – overinflation is lethal.
Pop!
The other reason gold is going down is that it’s a bad currency play, and an even worse inflation hedge (see investmenttools.com for neat charts on gold prices v. various other real assets). Last I checked, ain’t no gov’ment willing to redeem my dollars, euros or pounds for gold. And it would serve as a poor currency substitute anyways. How could you keep from losing 1/900 of an oz if you wanted to carry around gold dollars for which to pay your bills? Or even 1/45 of an oz, for a twenty dollar gold bill? Will banks allow me to write checks off my gold deposits?
That said, whether the coming days yield inflation or deflation is truly the $64,000 question. By any metric, the years 2003-2005/6 were inflationary for the dollar. But after a few more rate cuts, emergency and otherwise this year, the fed will be literally flooding the world again w/ dollars. Will the reduced money market activity due to the bullshit alphabet soup of the financial alchemists decrease money market activity enough to prevent all those dollars from just depreciating, i.e., inflating the prices of real goods? Or will the fed call it just right, keeping enough currency out there such that currency grows or declines about as much as real output. Who knows? But I know which way the fed will tend to err–on the side of too much money, i.e., inflation, instead of too little.
Which is why cinefoz’s optimism is not unfounded. Inflation, even if only creating the illusion of demand and growth, is a powerful psychotic, and markets are basically manic-depressives these days (or perhaps have always been so?). The only problem is that the dosage has to keep going up to get the same results, and at some point (e.g., Japan) you run out of medicine.
Growth vs. inflation. The Fed is mandated to maintain full employment and low inflation. From 1981 to 2000, inflation was not a problem no matter what the fed did. That has changed, and now they have become opposing forces (which is actually the more natural state). The Fed can’t equally satisfy both mandates at the same time. So they must alternate, to prevent a major dislocation.
Growth vs. inflation. The Fed is mandated to maintain full employment and low inflation. From 1981 to 2000, inflation was not a problem no matter what the fed did. That has changed, and now they have become opposing forces (which is actually the more natural state). The Fed can’t equally satisfy both mandates at the same time. So they must alternate, to prevent a major dislocation.
“Turn the economy over to well-meaning medllers”
What does this mean, It’s pretty easy to prove that all the meddling to keep a recession from happening has caused this problem.
Stop what growth, Growth in debt people obiviously can’t pay back because their wages are too low?
What growth replaces housing?
to continue the natural metaphor with cinefonz here: look at California’s wildfire problem. Letting the brush build up is like letting bad companies survive and roll their credit. when the big fire comes there is a ton of dry fuel available that nature would have weaned away if man had not carefully prevented it with small fires and small recessions. The Fed, intentionally or not, backstops and bails out bad businesses that have taken dumb risks for greedy reasons. The results will be bad.
I remember how politicians would rev up the economy every four years, but then take their medicine in the off years.
At what point did things become so precarious that a recession or even a slowdown is considered to be a thing to avoid at all costs?
cinefoz
I hear what you are saying and share much of your sentiment. Determining what is “healthy” is relative. “Purist ideals” that espouse Darwinian “survival of the fittest” dynamics as always healthy deny owning up to our full capacity as human beings. Yes we are animals, wriggling around in the same natural systems like other life forms, however we have the capacity to be conscious of our interconnectedness of all things. That wealth of knowledge shows that there is no “us” and “them,” we’re all in it together. It’s the red pill of our economic Matrix. Blue pills come in many forms and are as popular as ever, humans have the capacity and thus the mandate to take care of eachother as best we can. Know less, feel more. Ask yourself daily “For the sake of what?”
Gold going down . . . sweet. Time to back up the truck!!
With peak oil, China and India coming on line, I would think that the 5% growth or greater we require like a junkie is going to be harder and harder to achieve. Sooner or later we may have to go for a steady state- I know that may be foolish to think, but a system that continues to grow 5% ad infinitum in nature is cancer.
Posted by: Don | Feb 5, 2008 2:19:50 PM
_______
OTOH, if I handed you 1/45 an oz. of gold, you’d keep it. It might end up in your jewelry box, but you’d keep it. Because gold is valuable. Always has been, always will be (except in the case of the lead-up to the fall of Constantinople, and if that’s what we’re facing, all bets are off).
Nothing is currency, except currency, yet everything has innate value, except currency.
Europeans CBs dumped 9 tonnes last week, 3X their recent weekly avg…
—-At what point did things become so precarious that a recession or even a slowdown is considered to be a thing to avoid at all costs?—
When people like cinefoz began calling the shots. He apparently believes that you can manipulate the economy to such a degree that growth never stops.
He fails to recognize that the growth over the past 5 years has been debt-induced, and is really only due to the rollover from the .com bubble to the housing/credit bubble.
cinefoz, what you keep failing to come to terms with is what the economy is finally coming to terms with: in an attempt to keep inflating the balloon with “growth,” the balloon sucked all the air out of the room, creating a vacuum. IOW, there ain’t no air left to pump into the balloon (oh, except the 300 bps that the FED has left…)
IOW, there ain’t no air left to pump into the balloon (oh, except the 300 bps that the FED has left…)
_____
The Bernanke Blow.
>>At what point did things become so precarious that a recession or even a slowdown is considered to be a thing to avoid at all costs?>>
When the GOP looked up and saw the possibility of having to hand over power to another Clinton. And they then looked at themselves and saw that the only counter to Hillary was Rudy G.
And thus the entitlement election was born…
You honestly think that Dick Cheney is going to go quietly into that good night???
Not a chance…….however the sequel of the original movie (Entitlement Election) is just starting. I hope all of you are prepared for anything and everything.
Ciao
MS
MS:
Ready.
cinefoz and surfinsriguy
Your sentiments are all fine and good except that it overlooks the fact that sustainability is based on “real” productivity increases. The productivity increases are severely constrained by the time it takes for technological advances, social mores to progress, etc. In fact economists think that has a pretty small maximum and I’ve heard Greenspan say that it’s very confusing why this is.
Any “growth” in the economy that is based on debt for debt’s sake is not sustainable. The same for jobs. Having people work for the sake of working doesn’t add anything to society. This is a major reason why communist economies eventually fail.
I’m not sure who exactly is trying to stop growth…I’ve not heard one person say this. They just say that we shouldn’t be propping up the economy through debt. Sure, in downtimes a lot of society goes down, but it comes back and flourishes even greater. It’s a lot like punctuated equilibrium in evolution.
Being “interconnected” and striving for more isn’t best accomplished by manipulating the economy to have unending growth, it’s by having a stronger sense of community to lean on each other when things do get bad. You can (rightfully) argue that constant debt-fueled expansion actually breeds materialism and a superficial populace and is actually the exact opposite of striving to be better.
I think what cinefoz may be alluding to, perhaps unconsciously, is that many are trading the need to control (or fear of not being in control) from “the economy can’t keep growing and be healthy” to “we need a recession/depression (a big “do-over”) to make things healthy.” What if there is no “right” answer?
What do you think?
Economic recession is a stochastic phenomenon, a deterministic phenomenon or inspirated phenomenon?
Don’t lose faith in gold. A 5-10% pullback can happen any time, but until the Fed starts contemplating raising the Fed funds rate, or even just holding it steady, gold is going higher.
Love Maria Bartiromo….
“C’mon guys?!?!?! So what, a recession? We didn’t know that already….that’s what we’ve been talking about for weeks now…another 300 pt sell off?!??!! C’mon….”
Now there’s some top notch commentary for you.
Cinefoz wrote:
“…fulfill a fantasy image of a state of economic perfection is a benign form of a command economy”
You are on fire today, bro. Please continue posting more comments like the balloon analogy.
Posted by: surfinsriguy | Feb 5, 2008 2:57:14 PM
There is no “right way” or “wrong way” for something to happen. As the new old-saying goes: It is what it is.
I think that the problem with the cinefoz posts are that he is panicking, and at the same time, being an a-hole to other commenters on this blog. He seems to attribute a cause and effect relationship to those who are simply observing the glaring mistakes of the recent past, while trying to determine our position, trajectory, and velocity.
If cinefoz has some magic glasses that will make his view of the current situation become the reality he wishes us to see, he should pass them out. Otherwise he should stop being such a git.
It is what it is.
P.S: Dow down 334. Really.
New York City and the big city bankers and big city news guys are not the economy.
If you guys can just hang on until November the economy will turn on a dime, assuming a Democratic victory. You will have a whole new set of talking points fed to you.
Nothing will really change other than President R changed out for President D, but that will be enough for the news to change scripts from the Republican in office set to the Democrat in office set and everything will be beautiful.
Meanwhile, I am in a community (and region) that has a real economy with real people making real things at real companies. There are no subprime mortgage problems here. There is no Countrywide. Life is good.
A rosey picture this does not paint for tech and financials:
http://finance.yahoo.com/actives?e=us
and that’s POMMY GIT Marcus!!!
LOL
Ciao
MS
I own this corporation. I can get cheap money to make my product. But I don’t have any customers because they are still heavily burden with debt. Gee, I think I’ll make more wigets anyhow…
“Don’t lose faith in gold. A 5-10% pullback can happen any time, but until the Fed starts contemplating raising the Fed funds rate, or even just holding it steady, gold is going higher.”
Gold rose during the last period of rising interest rates too..
great cartoon! By the way, is that Ben B. on the outer side of the second board from the left?
Well said Barry.
Fitch just comes out and says they might cut MBIA… The disconnect those buffoons have to reality is surrealistically stunning…
“productivity increases are severely constrained by the time it takes for technological advances, social mores to progress, etc.”
One might argue that both technology and social mores have actually been in RETREAT in recent years.
Remember, 2007 gave us Vista.
And, more-wise, I heard an interview on Diane Rehm with Senator DeMint of SC who said (without signs of obvious stress in his voice) That the biggest problem facing America was unwed pregnancy. Whoa! At least it beat out gay marriage! What an utter moron! I’d say the Chinese will bury us, except we’re gonna drag each other down.
“You can (rightfully) argue that constant debt-fueled expansion actually breeds materialism and a superficial populace and is actually the exact opposite of striving to be better.”
A Very Deep Thought– and I agree with it.
“Gold going down . . . sweet. Time to back up the truck!!”
On all precious metals.
Productivity increases are key to any economic progress. With them, you can print about as many dollars you want, and get no inflation, as the dollars will be used to produce more for less.
Without them, all the extra dollars in the world won’t get an economy that’s growing on a real basis. The balloon will look like its filling w/ air for a time, but it’ll have a slow leak, and will eventually deflate.
From whence is the next productivity enhancement coming, as the internet/information age enhancements to productivity in the developed world begin to slow?
No telling. But remember, China’s still got about 400 million or so folks that are still subsistence farmers. Each one of them represents a potential productivity enhancement, as they leave the old ways on the farm to the new ways in the factories.
Mikkel and ZackAttack,
I think you’re both right re gold and the $ vs. the Euro — at least in terms of describing the current phenomenon.
Why, I’m wondering, is the $ going to strengthen vs. the Euro? Just because it got so weak that there will be countervailing forces to cause it to strengthen?
It’s not like we stopped running huge deficits or anything fundamentally changed.
I’m wondering if the Mish Shedlock call might turn out to be right.
Bill Fleckenstein has argued that the metals will do well under both inflation and deflation. Mikkel I think you could be right that if there is uncertainty around whether we are moving to a deflationary environment that would shake the foundations of the gold thesis for a lot of people.
So cinefoz, how did your longs work out these last two days?
Max,
You just made the single most accurate post I have read all day. I have been saying this was in store/planned for a while now. I started getting very defensive once the new year came around because I knew, just knew the Media was going to go ape sh*t to get a Democrat in the White House in 2009. Once Obama (who they now really like) or Hildabeast is crowned, amazingly things will get better real quick. In the meantime, gotta stay very defensive, but around 11,500 begin to nibble knowing ’09 will be an absolute banner year – regardless of the real economics out there.
Understand, I’m looking at gold very short-term. I do think the USD goes higher against the Euro and that’s the immediate dynamic.
Backing up a little, it’s questionable to me whether there’s another bubble to blow after real estate. Japan’s lost decade(s)says to me that it’s the bubble of last resort.
But if I have to allow for the possibility of a “next bubble,” to my mind, it would be a commodity or precious metal, maybe even a soft commodity like corn, wheat, beans.
I just happen to invest mostly in oil because I think it captures everything important about the thesis.
Bubbles tend to run by a factor of 20 or thereabouts. South Seas was almost exactly 20. Gold in the 70s – $35 to 850. Nasdaq, 300 to 5100.
If you apply that same yardstick to commodities, it’d imply $5000 gold, $250 oil (they started at 250/12, respectively).
So maybe it’s worth having a little physical oil in the ground, something like a US royalty trust, an SLW, a DBA. I just wouldn’t bank on it being a heckuva lot of protection in the short run.
“One might argue that both technology and social mores have actually been in RETREAT in recent years.
Remember, 2007 gave us Vista.”
Haha, yeah exactly. I think part of the problem is that we didn’t have a full flush from the 90s and more to the point about OSes, there was never a huge decrease in demand for desktop computers. To me it’s no coincidence that Google and Youtube/blogs rose from the ashes of the Dotcom Bubble. Google only got to be Google because of their targeted advertising that is worth a lot more now than it would have back in the 90s when everyone was flush with money. Without that, it would just be another search engine.
Whoa! Hold the presses…
A buddy tells me that Kudlow went on CNBC a little before the close and said we were already in a recession.
Could it be? Could it be? The Kudlow Kapitulation?
Where’s Ben Stein when you need him?
Whammer I read an argument that gold won’t do well in deflation because we are no longer on the gold standard. The gist is that when we were gold represented liquidity, but now it’s more like a commodity.
I asked Mish about this and he said “gold is money regardless of what CBs say.”
To me this says that gold is a commodity unless things get so bad that we are worrying about the governments defaulting or at least there is no cash readily available at all.
Also, from some accounts Europe is as bad as we are in many places. Britain is arguably worse than us, and although the EU and the British like to pretend that they are relatively separate, I don’t see how the EU can hold up with both a British and American implosion.
Eastern Europe has some places that make our real estate bubble look tame. I had a Albanian co-worker who said that houses were going for 20-40x the annual incomes because of all the western Europeans that came in to buy vacation homes. She was complaining that her country was becoming very greedy and wasting all their money on luxury goods instead of building up the infrastructure and education which is still pretty 3rd world.
What a manic Cramer is. Last week he called the bottom, said the “FED knows something”, and turned “VERY” bullish. Today, after just two down days, the “FED knows NOTHING” and is way behind the curve, there has to be an intermeeting rate cut, and the FED must bring rates down to 1.75%. It’s just like Rick Santelli stated, the street is now addicted to rate cuts and the fixes are required in ever shorter increments.
I agree with Barry that recessions are normal. How in the world can we ever recover if the “solution” is to create another bubble?? I wonder what Cramer will want when rates are at 0.0% and we enter the Japanese scenario? It is time to realize recessions are the required inoculations to prevent stagnation and/or depression.
Whammer,
That comment about the longs was precious.
Reality isn’t relative as we both know. However, the fundamental concept in a con is to make the mark believe something that will make you a profit and the other guy a fool.
I’ll bet you that it will soon become illegal to buy puts on a down tic.
Albanian vacation homes!!! Who knew ;-). Thanks Mikkel.
And ZackAttack — very interesting. I get your point about short run. If the 20x hypothesis is correct, silver might have quite a run to go too.
It is a good question whether there is another bubble on the horizon or whether we’re in the “Japan 2” phase.
We are already in a recession, this is masked by the fraudulent BLS CPI and GDP stats. Helicopter Bens biggest fear is a Depression style financial collapse.
Over at Shadow stats, John Williams has pointed out that for the first time since the depression, financial depository institutions have met it’s reserve requirements by borrowing in excess of 100% of it’s reserves from the Fed. In Dec 2007 it was 36%, and in March 1933 when FDR declared a bank holiday it was 46%, now it is over 100%. Glad to know that our banking system has joined the consumer and government in being riddled with debt.
The banks in turn are providing as collateral to the Fed assets that are, shall we say “damaged goods”. Meaning the Bens helicopter pilot is working OT to dump money into the banks, and not into the hands of the greedy debt slave known as the consumer and taxpayer.
Actually, the pilot doesnt really have that many dollars to drop as they won’t print too many of those 100 dollar notes (cost 6 cents per note), they just type in a bunch of numbers, and mumble, “let their be money”, and so the banks have money, so long as they have collateral, even if the collateral is worth only 20 cents on the dollar. Europe is doing the same if it makes you feel any better.
The short term interest rate cuts make it cheap for the banks to borrow from the Fed and result in HIGHER long term rates like mortgages, increasing default rates among prime borrowers, especially those with ARM’s, and higher rates for those who will take out new loans, assuming the banks are willing to loan to them, which will help housing prices drop even further.
Meanwhile, 5 US financial institutions have 180 trillion dollars in unregulated derivatives floating around and off the books, over 15 times our annual GDP. How many future writedowns lurk beneath the surface? No wonder they call them financial weapons of mass destructions.
Could it be that they don’t have the budget and trade deficits we do? Our economy is entirely based on debt creation, not production.
Posted by: tedzbear | Feb 5, 2008 1:08:45 PM
Great post… I’m wondering when the debt hits
the ceiling, what happens ??
Derivatives fact sheet…
http://www.occ.treas.gov/deriv/deriv.htm
US Banks created almost 20 trillion in new derivatives from Q207 to Q307…
For the record, cinefoz only started getting contentious AFTER people were ribbing him.
Also, IMHO, cinefoz’s arguments make a LOT more sense than any other perma-bull we’ve seen on this board.
What I like about this board is the way we’re normally pretty respectful. Let’s keep it that way. (I do realize though that today’s action is stirring up everyone’s emotions.)
Oops, that might give the wrong impression. To clarify: Cinefoz is not a perma-bull. (Maybe his ability to see both sides helps his reasoning.)
Street Creds asked
So cinefoz, how did your longs work out these last two days?
reply: I haven’t checked, but I think I am still up for the year.
“Consider how many of our current problems are due to ill-considered poorly thought attempts to avoid a cyclical recession. Not only is our mess man-made, but it was totally unnecessary.”
Reading that, for some reason I thought of the news, widely reported today, that Heath Ledger died of an accidental overdose of prescription drugs.