12 Questions on Markets and the Economy

Why is sentiment so negative? Look at numbers 1-12.

How can anyone be positive in the face of the worst economic turn down since the depression? It took several years for the worst effects of the depression to take hold and this will be no different. It takes time for people to lose their savings, their homes, their jobs and their hope.

We have only seen the beginning innings of this “thing”.

We are in for major dislocations in our economy and lives and it will not matter who is in the WH as it will take a long time to work through this mess.

Most people are too young to remember the hard times of the 70’s and early 80’s. Many in our work force, and those in college have never seen a real recession and have never experienced real economic hardship and they have no idea what is coming.

Japan 1990-1999. Fed has undone–in the past 36 hours– all of the credibility they belatedly earned in the days post March 17th. Have to own Two year notes 88 basis points above Funds, and the Fed on hold for a LONG TIME as we begin the switch from inflation to DEFLATION, and be short Crude with the global contraction upon us. China bubble to burst before the Olympics.

To your salient questions:

1> Consumer is just about to begin the drowning process. The prolonged downturn is here.

2>Massive Delation is here, will show-up in the #’s during next 6 months.

3>Further Fed Cuts are inevitable. US Equities do not have reality priced in. Look at them after next week’s painful triple witching when we have no liquidity because of the ARBs not knowing what their 3 month cost of $$ might be.

4> Market technicals—We have not approached the lows for the year whether you look at momentum (moving averages) or the Tom DeMark indicators or E-Wave theory.

5> Weekly claims will blow through the 400k level by September. The War has kept the unemployment numbers controlled but that is coming to an end. The odds of a robust job recovery are slim and none, and you know what happened to slim….

6> US Real Estate will bottom sometime in 2013, if global central banks allow market forces to keep steep yield curves.
We are Japan of the 1990’s.

7> Credit crunch has permanently changed the behavior of global banking. The ninth inning? Surely you jest. The National Anthem is still playing.

8>Tax rebate checks are paying for beer and cigarettes, and other forms of entertainment–nothing to stimulate the economy.

9>The election is too close to call at this point, but one might think this will be a non-event unless the Democrats sweep two of the three branches up for grabs. This economic contraction trumps politics as it has in the 30’s and the 70’s. Only time can cure it. Better Global Central Banking can soften the damage but not the duration.

10> War is tough to have an economic view on other than it has obviously helped the airlines (or maybe just delayed their failure) and prevented unemployment from showing levels in the high 8% with jobless claims north of 450k. As oil and the crude complex collapse, this part of the world will become a bit less of a “hot spot”–not cool, just less hot.

+++++++++> In the meantime, keep up the great work BR. This blog is a daily destination for many. Thank you.

Holy Crap, BR, you’ve opened the floodgates with this one… be prepared for the commenting deluge. Oughta be interesting!

I think the talk for the forseeable future will be inflation, inflation inflation!!!

The $10 daily rise in oil futures caught the attention of the Fed. They have no choice but to talk tough about inflation. But what can they actually accomplish? Raise rates 1/4 point? There is a chance of runaway inflation in the coming months, all fuelled by the Fed’s low interest policy.

Runaway inflation has the potential to completely destabilize the US and world economies.

OAO Gazprom just released an estimate for oil to reach $250 !

The Saudi’s are realizing that the less crude they bring to market, the more value it will have down the road. Oil in the ground is considered to be real money in the bank!

America has been in a recession since the turn of the century. Inflation will skyrocket (borrowing money is much more inflationary than printing it). Trickle-down economic theory is a fraud.

Sentiment sucks because the cost of the things that people pay for most often, i.e., fuel and food, has been skyrocketing for a year, and the prices are now hitting painful levels.

Fuel has doubled…food is up 40-50%…but my salary has not increased more than 3%.

When you hear people at parties start talking about “hypermiling” and changing their driving habits and forgoing the obligatory summer beach vaca, you know that the problem has reached that pain threshold.

I choose an adjective: depressing.

Without trying to hijack the thread, but as a suggestion for another one, I have not seen any serious discussion of the effects of the continuing Chinese meltdown on our economy. The Chinese markets were down over 40% when the government pumped them by removing the the transaction fees. They are now even lower. Chinese mainland averages fell 7-8% last night in response to credit tightening (think DJ down almost 1000) and there’s barely a mention on the news this morning. Surely the collapse of the economy with most of the worlds accumulated foreign currency reserves will have some substantial effects.

The Democrats will significantly increase their majorities in both House and Senate for these reasons:

• Consumer sentiment in the toilet
• Changing attitudes in party identification are to the Dem’s advantage
• Large fundraising advantages for the Dems for the Senate and Congressional races
• The GOP has more seats to defend in the Senate than do the Democrats
• The GOP has had great trouble in recruiting quality candidates for open seats in Senate and Congressional races
• Dem activists are energized and enthusiastic, while Republicans are dispirited
• Dems can campaign against very unpopular President, while GOP candidates either have to defend Bush or distance themselves
• Not much evidence at the moment that McCain will have positive coattails
• Majority of public views war in Iraq as a mistake

High inflation = high misery index. Incompetent national leadership leads to a discontented middle class. Years of propaganda where up is down, and don’t believe your lying eyes. Disparity between the wealthy and everyone else at levels not seen since the ’20’s.

In an election year, this is not a good time to be an incumbent…

1. I think we will experience a slow-motion slide into a moderately severe recession. This is going to be driven by feedback loops between the multiple crises in: housing, credit, energy. The US government’s hands are tied and any kind of traditional Keynesian pump-priming is off the table. We will recover stronger, I think but it is going to be a long climb back to daylight.

2. Lots. Until demand destruction starts to eat away at energy prices inflation is going to be an (officially unacknowledged) driver of the recession. See also food if the current weather in the Midwest adversely affects the Fall harvest, which it will.

3. How much more can be cut? You have a serious (and officially unacknowledged) inflation problem, so cutting rates isn’t really the answer anyway.

4. Not a market guy. I do see strength in the technology sector (my own field) as companies use technology as a hedge against rising fuel costs (telecommuting) and labor costs (productivity).

5. I think that US manufacturing and large employers are already pretty lean, so layoffs as a rescuer of profits is just nibbling around the margins. Again, “official” statistics mask the true figures of people who have given up looking and are working in the (increasing) grey economy.

6. I think there is almost no bottom to housing prices. Even as the bubble cycle works itself out through the traditional means, people will then begin to re-think the economics of living in far-flung suburbs. I see an “energy-echo” housing double-dip.

7. Dunno. I suspect there are yet at least one or two big shoes to drop. This could spook markets further.

8. Are you kidding? Short-term effects only as the money runs like sand through recipients’ fingers.

9. At the current time I would put the odds of a trifecta: 60 Senate Seats, veto-proof House, White House for the Dems at about 75%. Long time ’till November though. I think markets will be neutral to positive, probably thankful that reality-based grownups are back in the driver’s seat. See above about the possibility of Keynesian-style spending.

10. Bush would be suicidal to attack Iran prior to the election. I literally think it would be torches and pitchforks at the White House. That said, the EU seems to be moving in our direction on Iran and there is a chance for serious diplomancy and sanctions there. Iraq will continue to be a suppurating wound for at least a couple of more years while President Obama tries a graceful exit.

1. The US has entered in what will become a major depression.
2. Complicated q. The inflation potential is huge, considering the amount of dollars the FED has been printing. I think that 80% is held by foreigners.
3. No more cuts and no increase. I don’t think the FED really mind inflation. The US is in a lot of debt. They want to inflate themselves out of this mess.

I find it very interesting that the DJIA is very much in line with it´s saisonal tendendency in election years(seasonalcharts.com). Also the behavior of the small speculators (those that are usually on the wrong side of the market) in the S&P500 does not suggest, that the stock market is going to fall a lot more. Actually the small speculators have had a smaller net long position for the last couple of months, then they had at the lows of the last bear market in 2002. It would be very unusual if the so called dumb money would be right this time.

“The Remorseless Algebra of a Deflationary Death Spiral” by Mike Whitney.

02/05/08 “ICH” — Look around. The evidence of a withering economy is everywhere. In “good times” consumers shun the canned meat aisle altogether, but no more. Today, Spam sales are soaring; grocery stores can’t keep it on the shelves. Everyone is looking for cheaper ways to feed their families. The Labor Dept. assures us that core-inflation is only 4 per cent, but everybody knows it’s load of malarkey. Food prices are going through the roof. White bread is up 13 percent, bacon is up 7 percent and peanut butter is up 9 percent. Inflation is rampant and there’s no end in sight. The dollar is closing in on the peso and working people are struggling just to get by. The bottom line is that more and more people in “the richest country on earth” are now surviving on processed pig-meat. That says it all.

In Santa Barbara parking lots are being converted into hostels so that families that lost their homes in the subprime fiasco can sleep in their cars and not be hassled by the cops. The same is true in LA where tent cities have sprung up around the railroad yards to accommodate the growing number of people who’ve lost their jobs or can’t afford to rent a room on service-industry wages. It’s tragic. Everywhere people are feeling the pinch; that’s why 9 out of 10 Americans now believe the country is now headed in the wrong direction and that’s why consumer confidence is at its lowest ebb since the Great Depression. This is the great triumph of Reagan’s free trade “trickle down” Voodoo economics; whole families living out of their cars waiting for the pawn shop to open. (cont.)

http://www.informationclearinghouse.info/article20027.htm

Btw Mucho Gracias Senor Barry for this forum and your input/thoughts.

SR said: “This is the great triumph of Reagan’s free trade ‘trickle down’ Voodoo economics…”

Agreed.

It’s amazing how Americans never seem to learn, either from history or from other people’s experiences. They allow the economic royalists to perpetrate these frauds time and time again.

Mexico swallowed the Ronnie/Maggie neo-liberal nostrum whole, and as a result suffered a severe financial meltdown in 1994-95. The similarities between what happened then Mexico and what is happening now in the U.S. are stunning.

The great wordsmith Carlos Fuentes had this to say about the Mexico crisis, which seems to perfectly mirror what has happened in the U.S.:

“The country was threatened with an acute case of schizophrenia. A minority centered their lives on the New York Stock Exchange, and a majority on the price of beans. One economy was all gilded wrapping paper, the other all huts and untilled land. The former was the minority’s, the latter the majority’s.”

The greatest risk the U.S. currently confronts is if the situation deteriorates to the point where there is panic and capital flight from the dollar. If that happens, Americans have no concept of the amount of suffering that is in store for them.

Two suprising omissions in the list…oil and China. Oil for obvious reasons. Shanghai Comp has crashed 50% off its high and Olympics buildout is near over. China’s demographics are about to send its growth into reverse.

As for housing, it seems my years in chart school are not wasted. Anyone who looks at a housing chart who has a brain realizes it must fall 40% more at least and anything done to prevent that will be futile.

I will stick to No. 1. Politics is merely a sideshow to me.

I have become convinced that the US economy is in recession right NOW; I don’t think the data is necessarily “bad,” but clearly we are measuring different things than we used to measure, so some of the old metrics no longer have the same predictive power. Jiggering the data to show some tiny increment of positive “growth” does not alter the underlying reality. It says more about our measuring techniques than it says about the actual economy.

Consumers can pull back a lot more. A LOT more. And they will. (This will be a catastrophic summer for US airlines, for instance.)

Even those much-maligned younger consumers, with their i-pods and i-phones and i-wallets. Yes, they bought when times were good, and now they will cease buying. Some of them were poor kids once, and they also have parents and older siblings who remember tough times. They are not foolish…of course they bought when times were good! We all did.

Now, we tighten our belts.

Great question, Barry. I’ll answer in a few parts.

1. The economy is clearly in recession. The five NBER indicators point to Dec 2007 as the beginning.
US Recession Signal

2. Inflation is out of control. I think the ECB is taking the right approach. Long-term, the real worry is deflation. But the Fed still needs to worry about an inflation spiral
Forget Inflation, debt deflation is the real problem

3. The Fed is done for now. I don’t think the equity market sees raises though. After all, currency markets show they trust Trichet and distrust Bernanke. They have to put up or shut up.
Caroline Baum: Dollar Policy for Dummies

4. Market technicals? tough to call. I see the market lower this summer. But, it’s a fundamental argument. I have heard that we approaching critical downside technicals whose breach could send us to the 2003 lows.

5. Employment is going to get worse. Rosenberg at Merrill sees 6 percent. Claims below 400,000 demonstrate that the real economy has not felt the full effects of the housing bubble. Companies like GE, Dell, Pfizer — they’re not laying off. Wait for the second leg down. As for recovery, the last two downturns saw a return to normalcy after two years on jobs. That means Jan 2010 for us. We are only six months in.
Another Perfect Recession Indicator

Second set of questions?

6. The housing market hasn’t hit bottom. Alt-A and Prime markets are deteriorating and we have a massive inventory overhang. When this changes? Who knows.
Mortgage distress shifts to prime borrowers
New Writedown Risk: Alt-A

7. Credit Crunch Damage has been severe. The IMF thinks we’ll see in excess of $900 billion in writedowns globally. We are so far from bottom. This is inning 4.
Credit Crisis Timeline: Escalating Losses

8. Tax rebate checks are not going to stimulate enough. It’s a drop in the bucket.
Sorry, Gas and Food Inflation Has Already Eaten Your Rebate Check

1) A not so mild recession, however the stats won’t show it due to mismeasured inflation. Consumer spending will remain strong until the consumer taps out every possible source of cash or credit. Once they run out of credit cards and the like, spending will drop like a stone, and the impact will be even worse than normal because people will have burned through what normally would be their emergency funding sources in an attempt to maintain their lifestyle (house, car, commute, plasma).

2) Price inflation will hurt because the dollar will continue to slip (that budget deficit isn’t going away anytime soon) and we import pretty much everything. Wages will remain flat as our standard of living starts to adjust to more European standards (but without the public health care, transportation, or vacation time that makes it acceptable).

3) Can’t tell about the cuts. I’ll say that the Fed is the market’s biyatch so they’ll cut if it looks like the financials need the help. Otherwise, the Fed has zero moves that work out well for them. Cut and the dollar tanks more, raise and the market will tank, hold and people think you’re a wimp.

4) Dow will dip below 12,000 again this year. S&P is doing poorly because it’s a better indicator of the state of the domestic companies. Not sure why the NASDAQ is doing so hot. Tech companies still have growing markets and less overseas competition? I don’t know.

5) Outsourcing. It’s back and it’s better than ever. The days of moving entire departments overseas is finished, but 50/50 or 70/30 splits (India/US) will be very common. The talent you get is very raw and requires training. Also there is still a language, cultural and time difference which makes having a solid core of stateside talent a good thing.

6) I’m drinking the CR kool-ade on this one. Further notional drop of 10-20%, flat prices for another five years. Overseas buyers (Eurozone, I’m looking at you) will soften drops in certain markets.

7) I’d love to say seventh inning stretch because it sounds sort of cool, but we aren’t. Bad earnings this quarter for pretty much everyone (except GS, I bet their hedging strategy is shorting all the other financials) then a failure/breakup/takeover event. Then we’re ready to take a break, buy some beer and sing a little song. The go-go days of the financial world are done for at least a decade though. Making a mess with hot .com stocks is one thing, making a mess with other peoples’ homes is another.

8) 70% gas and food. 30% stimulating. The average American has the saving habits of Paris Hilton.

9) The chances of a Democratic president are very good. Best they’ve been since the 80s. Unless the Dems get a filibuster proof majority though, it won’t make too much of a difference. We need to make painful choices (raise taxes, cut spending) to get our house in order and that’s not likely to happen. It’s too easy to sit back, block and delay, and then run on a platform that the other guy didn’t do anything.

10) It’s the whole package. Eight years ago we were at point X, now we’re at point Y. I can’t think of a single way that Y is better than X. Plus, food and gas are ‘in your face’ items, so you always see how much they’ve gone up.

11) The data is accurate, you just have to remember the definition of what they are measuring. Like core inflation. Totally BS name for the statistic, but probably pretty damn accurate measurement of price increases that don’t include the two items that people need the most.

12) Any action against Iran will increase oil prices to $150 or more. If Israel attacks, Iran will probably respond via Hezbollah. Which is cool in the grand scheme of things, since I don’t think Israel will get the stupids and replay the last fiasco in Lebanon. Probably a few weeks of shooting at each other, maybe a few rockets heading south. Basically a ramped up version of what normally happens up in the north. If we attack Iran, then all bets are off. If I were Iran, I’d launch everything I had at anything in range. US airstrikes are efficient enough that there probably wouldn’t be any anti-ship missiles left after 48 hours, so use it or lose it. Ditto for ballistic missiles. Lob them suckers over at any fat oil targets in Saudi Arabia. That’s not even counting what they’ll try in Iraq. If I were them I would have supplies of RPG-29s and MPAD systems sitting around just waiting to be used.

Steve C: “High inflation = high misery index. Incompetent national leadership leads to a discontented middle class. Years of propaganda where up is down, and don’t believe your lying eyes. Disparity between the wealthy and everyone else at levels not seen since the ’20’s.”

This certainly applies in my case, and many in my peer group as an explanation for low consumer confidence, and overall confidence about the future. I think even the uninformed masses are starting to understand where the appalling lack of good leadership that we have suffered under for the past 8 years is taking us. My hope is that an Obama win this fall, coupled with near certain gains by Democrats in the House and Senate will improve national sentiment. Coupled with some type of “New New Deal” to rebuild our national infrastructure, this could help turn things around. Whether this is possible given the huge problems that Bushco has saddled us with is an open question.

1) Economy: Mild recession now, serious recession in six months with unemployment over 8% and lasting until Q3 ’09.
2) Inflation: We are no where near the wage / push inflation of the ‘70s. It will cool with the global economy and generalized deflation is still a potential problem in the USA over the next 12 months.
3) Fed cuts: Yes, we will get to 1% again. Talk of rate hikes this year is pure bollocks.
4) Market technicals: We will see lows typical for a bear market in the 30% from the peak area – including the Nasdaq.
5) Employment: We are headed for 8% unemployment. Job creation has been weak and unemployment claims low due to the off-report jobs taken by 12 million illegal immigrants and outsourcing due to globalization.
6) Housing: Has the real estate market bottomed yet? No. How much further will home prices fall? 10% When will inventory of real estate get worked down? Next summer. When will home sales turnaround? Next summer. When will real estate stop negatively impacting the macro economy? Next summer.
7) Credit crunch: How much damage is being done to Main Street is the important question, and the answer is A LOT! Are we in the ninth inning, as some have posited, of the credit crunch? Or, do we still have all way to go, to work away through financial issues? We are just starting the fifth inning.
8) Tax rebate checks: Are they stimulating the economy? Are they merely paying for food and gas price increases? 40% stimulating / 60% gas and food.
9) Politics: Obama wins. We will see a New New Deal with many new social programs to help poor people and stimulate the economy, and we will have higher taxes on the wealthy and capital gains.
10) Sentiment: Why is sentiment so negative? Because we are experiencing a perfect economic storm and our leadership has taken us into another Vietnam type quagmire. Has sentiment reached an extreme level where it can be considered a contrary indicator? Not yet.
11) Data analysis: The date is more accurate than many want to believe. Is it possible that this data can be improved? Of course.
12) Iraq, Iran, Afghanistan: It seems a strike against Iran in on the table and very likely before January 20, 2009. Pakistan is becoming more of a concern than Afghanistan.

To me, the most important thing to remember is that the US dollar is a variable, not a constant. So, when we talk about house, energy, food and stock “prices”, there are two variables, not one. Further confusing the issue is that no one seems to really know what inflation is right now. Successful investing is beating inflation and that has become near impossible to calculate.

“Sometimes, I think it’s a shame, when I feel like I’m winning, when I’m losing again.”
– Gordon Lightfoot

Barry has always professed that he is not a conspiracy guy; not me though. When it comes to the BLS, NBER and the Fed, I am quite comfortable throwing the “No one’s THAT stupid” flag.

The best way to answer most of the questions asked is in terms of inflation, so here goes:

I am 100 percent convinced that housing will underperform inflation for the foreseeable future (10 years?). The real question is how much inflation (currency collapse) will we tolerate? A one percent increase in a 30-year fixed mortgage translates into an 11 percent increase in monthly payment. Combine that with the fact that, starting in 2005, the personal saving of Americans are the lowest since the great depression (and that’s without a recession) and it becomes obvious that the consumer is toast. Maybe equity isn’t the same as savings after all…..

Technicals mean nothing without a stable currency.

As long as currency collapse is “the plan”, commodities in general will continue to be the best performing asset class. I believe that there has been manipulation in the price of gold, and that it is about to break down. Jim Sinclair will win his bet of at least $1650 per ounce by early 2011.

Monetary policy of the last decade has maintained price stability in one area – wages, and I predict continued success. If you really want a good laugh (or cry), check out the BLS growth occupations of the next 8 years.

http://www.bls.gov/emp/emptab3.htm

The sad part is I think this is about the only data they’ve got right. That explains employment outlook and sentiment. So, do you want fries with that?

Credit standards will continue to tighten and, at some point, “consumers” will scavenge retirement funds for necessities. It is at this point that it will become apparent that the participation of the middle-class, through 401(k) mutual funds, was the primary driver of the S&P’s 1300+ percent gain of the last thirty years.

Americans have always and will always externalize their problems, so more wars (probably Iran) are in the cards. All part of the grand distraction, but, this will create even higher oil prices, because these people ain’t as dumb as we think.

Elections – probably the Dems in November, but that doesn’t mean anything. To fix a problem, you must understand it, be willing to fix it, and have the support of citizens. We’ve become too wimpy as a country to support higher interest rates and taxes. The world will need to put us on a starvation diet, and I think they will.

Stimulus – I’m for that. I’m spending mine on clothes – something that won’t make me look fat.

Obama will win, and in doing so open the door for a major surge in progressive politics (whether he wants to or not.)

Peak oil and global warming will be ongoing, major issues for decades to come.

Whoever figures out how to make electricity cheaper than coal will become richer than Bill Gates. Someone will, too. The Google Foundation has made this a major priority.

Wind, tidal, wave, and solar power will become mainstream. Nuclear will enjoy a huge resurgence.

REBATE CHECKS: My wife and I are using ours to pay estimated taxes, and the rest is going to our savings which we raided to pay the marriage penalty. Wonderful tax policy we have here in the USA.

Edward Harrison asks,

I like Obama as well, I have to say. You seem very negative on McCain. What are your politics? Does McCain have any chance at all? Right now, he seems like a gaffe machine.

My politics are libertarian. So no matter what, I always lose. ;)

I wouldn’t say that McCain has no chance. The campaign season is long. Politics can be unpredictable. It’s a little like predicting the markets.

If I were a betting man, I’d put it on Obama. But I’m not rushing out to make a huge wager on Intrade Political markets.

Make of that what you will.

Downsouth said: “Mexico swallowed the Ronnie/Maggie neo-liberal nostrum whole, and as a result suffered a severe financial meltdown in 1994-95. The similarities between what happened then Mexico and what is happening now in the U.S. are stunning.”

You couldn’t be more wrong and I was there so forget about your armchair views. The reason why the Peso crisis “happened” was due to the central banks complete inability to continue buying their currency (spending reserves) on the open market. The Mexican economy was run into the ground by the preceding import substitution (a/k/a populist nationalists) governments who spent Pemex profits on themselves, ran a shoddy banking system and “negotiated” social policy with the trade unions. The only thing they created was a bankrupt system that churned out corruption. Finally, your comparison is doubly ridiculous because Mexico’s economy in 1994 was 60% dependent on crude extraction. Due to a failure on the government-run industries’ part to reinvest and clean up, Salinas was left with a defunct, poorly managed publicly managed private sector. The privatization period was a first step towards free market. Through financial discipline and some very tough times, the Mexican economy has been rocking and rolling since 2000. Mention housing crisis down there and folks stare at you with blank eyes. Unless your market is USD for sale condos for gringos, the housing market is booming, flat out. Mexico has problems on the Pemex front but please, save the comparison. The US bailed Mexico out and it’s high time the US start acting like Mexico was an ally versus some third rate punching bag on which to make shallow shoddy comparisons. Ignorance out there is unbelievable.

A) It doesn’t matter who the next president is. The tide of history is against them.

B) What has begun economically (several years ago) is a long process of international wage/income arbitrage, where the wages/income of the developing world rise and of the developed world decline until they reach some sort of rough parity. In the US, the mechanism through which wages/income will decrease is dollar devaluation, i.e., inflation, mostly because it seems less painful than an actual cut in pay, even if it works the same.

C) The US markets will be sideways for some years to come, bouncing around but not getting anywhere. The oil nonsense will also pass.

D) The wars are killing the dollar, just like Vietnam did in the late sixties, early seventies. Some sort of resolution will be necessary if dollars are to remain the world’s reserve currency. This plays into (B), inflation, above.

E) The Fed, too, is killing the dollar, but mostly with its Bear Stearns rescue. The world knows the Fed is now implicitly backing up the banking/real estate finance world, but it hasn’t any real assets with which to do it, so they know it will be forced to print dollars. This, though, will help the wage arbitrage along, as well.

F) Pax Americana has seen its apogee. China, India, Russia…any number of rivals will arise to compete with American hegemony in the world.

G) The long slide down won’t be nearly as fun as the ride up. Losing an empire is a wretching affair, even if done with a spoonful of Uncle Ben’s sugar.

Things will stink for a while then get better. Been here before seen it before, I think most of the angst comes from the young pups who have grown up during a huge expansion era.

I remember reading an article about a year ago where a recruiter was talking about how they had to cater to the youth and coddle them or they would just up and leave for greener pastures……wonder how long that attitude will last in a recession.

Elections….My dearly departed father always said “show me your friends and I will know who you are” This nugget of wisdom has always proven quite accurate.

I have seen Obama’s associates…..Wright, Ayers, Rezko, Rashid Khalidi and the list goes on…..Damn my father was a smart guy

I swore off the republicans this year and I was going to do a protest vote, I must say Thanks Barack for pushing me back home. After really reading up about the man I am sure as hell gonna vote against him(GO MCCAIN! even sent him money). I would suggest everyone to look past his pretty speeches and do some internet searches about his career…….CAVEAT EMPTOR

These comments come from a “user” of the economy, not a “developer.”
1.We are in a depression. A wealthy friend of mine in the mortgage business just killed himself. This defines a depression for me. People who see no way out. People walking away from their homes. I don’t care what the numbers say.
2.Plenty of inflation. Prices are going up all over the place, as the dollar declines. What’s an inflation? A time when the dollar buys less. Bingo.
3. No more rate cuts coming, or we will be back where we were. On the other hand, then I can refinance my house.
4.The technicals? Have always been b.s. No one knows in this new and different universe what is going to happen. Technicals are just one way to disguise this. Too msny variables. Everything nowadaways is a Black Swan.
5.Job market FOR GOOD JOBS, jobs that pay a decent living, is weak. Young people are living with their parents, or in communal arrangements. Not only does it take more than one worker to support a family, but it takes each worker more than one job, unless somebody is a hedge fund manager. And the suitability of people for jobs is not what it should be. Maybe that’s why the market for good jobs is weak. We don’t let the smart people into the country anymore, and the people here don’t know how to do the available jobs. Is this weak? Or different?
6.Nope. I live in Phoenix part of the year. We have inventory of over 50,000 resale homes. And people who make deals can’t close them because of financing issues. Values still going down.In Half Moon Bay, where I live the other half of the year, houses on my street have gone to short sales, lowering values across the street from the Bay. That never happens.
7.Long way to go to work through the financial issues, as the financial community moves like sheep from one extreme to the other. Now they are at “no loans.” And those worthless mortgages? Some of them still have to adjust.
8. Rebate checks are barely paying for food and gas increases.Even my profligate foster kids used their rebates to pay debt.
9.Obama. More Democrats. But it will take a long time to turn the ship, especially since health care is such a weighty problem and is a big source of people’s financial woes. And then it might go too far the other way.
10. Of course it’s a contrary indicator. Nobody knows what to do or has any faith in the future of America anymore. You guys on Wall Street are in a bubble.
11.The data is based on outmoded indicators. It is probably accurate for what it measures, but measures the wrong things.
12. The war? Has bankrupted the country financially, emotionally, and morally. If Israel attacks Iran, of course things will get worse. If we can’t get some modicum of peace, people will live in fear. People who live in fear are frozen. They don’t invest. They don’t spend. They don’t innovate.

So. That’s the inexpert opinion of a person who deals with startup enterprises and young people every day, in the worst and the best markets in the country. This was very clever, Barry, if you get answers from anyone but your same old friends with the same old info and perspectives:-)

Namaste :-D

To the SUV comment.

I am looking to buy a bigger SUV. I guess I could cram my family into a prius or a camry for 30 miles to gallon as opposed to 15. The other part you don’t figure is the premium you will pay for a high mileage car like a hybred. 25 to 30 thousand as opposed to getting a comparable SUV for 30 to 35 thousand with many many incentives. I think I’ll pay the extra 100 to 150 a month for gas for the comfort and safety of my wife three children and two dogs when we go to grandma’s, the mountains, or to the lake.

All I’m sayng is their argument is very plausable and makes sense.

“Data analysis: There’s been lots of chatter (elsewhere as well as here) about the reporting of economic statistics by the United States government.”

______________________________________

“How accurate is the data that we get out of the BLS, BEA, Census Department, Federal Reserve, and other official outlets?”

Answer: The accuracy is a joke. The “data” is intended to play down the recession in this now has-been country.

“Have we reached the point where this data has lost significance?”

Answer: We are long past that now.

“What does this do to the credibility of these governmental agencies?”

Answer: Nothing, as these agencies are too frightened to tell the truth lest they get tossed.

“Is it possible that this data can be improved?”

Answer: No, the government is corrupt. Bush wants to leave office without ever admitting that his 2001 recession never really ended regarding jobs!

1) Economy:

Yes, recession.
Spending, weak. Will fall until credit cards are maxed out.
Yes. Recession till 2011 seems likely, or, at least, the markets will track sideways.

2) Inflation:

7-10%.
Expectations somewhat elevated. Common person is just starting to realize it so probably further to go.
Elevated due to world-wide demand for commodities and the fall of the dollar. I mean, cmon, do you realize how much copper alone it takes to put up telephones in China? WHY in gods name with a dollar falling like this and prices rising would you hold onto your dollars at the same time that your people want to industrialize anyway? World-wide scramble for resources.
It will not moderate in the coming year.

3) Fed cuts:

Maybe. Fed is obviously saving ammunition for a reason.
No. Market still expects the Fed to be able to reduce rates.
No. If the Fed hikes rates this year it will cause a lot of pain. Current dollar support/rate support language coming out is just Fed’s attempt to keep things under control for longer (i.e., stalling) at a time when there is already temporary dollar support due to the recent large fall. They certainly won’t raise rates before the election.

4) Market technicals:

The lows will probably not hold. I expect 1 more downdraft, probably below the January lows.
Generally there is a great deal of danger, not just because of an expected downside, but because it is likely the market will at most track sideways for the year. There are many BOOMING markets and to own stocks instead you’d have to be nuts (or it’s not your money).
NASDAQ… don’t know.

5) Employment:

Terrible. It has been weak this cycle because the past bust was basically printed out of. Does it not seem as though the markets will basically track sideways this DECADE?
I imagine unemployment will continue to increase. As to why it has been slow to do so, I can only guess, though, I imagine it’s because the numbers are B.S. Plus other numbers have been trending down already (hours worked, full-time vs. part-time, etc) so pick your poison.

6) Housing:

No bottom yet.
Prices… I don’t know, several more %.
Probably 2 years for the inventory but that is a pure guess. I imagine prices will bottom before that.
Isn’t the question when will the economy stop negatively impacting real estate?

7) Credit crunch:

7th inning stretch with a nice 10th inning tie breaker in 2011 in favor of the authorities that be. It should be interesting, beer sales get cut off before the 8th and people get grumpy.
2011 will be a great time to start buying US assets (dollars in particular) again in prep for the next game.

8) Tax rebate checks:

Maybe but probably not having much of an effect. I mean, hell, I haven’t even gotten mine yet. Shoulda done direct deposit ;)
Mostly being spent on necessities. I mean, cmon, $600? Seriously? $600?! Being short $600 is the least of my worries. $600 buys crap unless you’re poor and even then, if you have no debt, it’s barely a month stipend.

9) Politics:

It’s already been decided: Obama is going to destroy McCain. Well, unless Obama is injured/shot or we invade Iran or Pakistan.
Democrats will pick up many seats in both chambers–a full sweep is practically guaranteed.
Don’t know about the economic reprocussions though I do not envy the time period Obama is coming into. It’s going to be a tough 4 years but should recover towards the end. Then he should win re-election and the Dems will loose some seats in Congress.

10) Sentiment:

Shit sucks my man. Bad jobs, bad incomes, rising prices (oh yeah just wait till packaged food picks up this year) in all of the things which people notice immediately (food, energy, bills, etc), the War, uncertainty about future wars, tiredness from 8 years of shrill politics and 9/11 induced coma, rising debt levels, falling house prices, difficulty in obtaining credit, etc. How many more do you need, anyway? Oh, I forgot: if you want to get away from the craziness for a bit and go overseas people not only dislike us they charge us twice as much for everything they used to.
No, not a contrary indicator. Contrary is when people are bat-shit insane which I don’t really see yet.

11) Data analysis:

I would say… not lost it’s significance. For individuals it has but for a guy managing a $40 billion portfolio, why rock the boat as long as your returns are as good as anyone else? I suspect it starting to permeate the collective brain though, which will make it significant… some day. By that point though the economy should be better and no one will really care. :)

12) Iraq, Iran, Afghanistan:

Afghanistan: shit. Iraq: shit. I must point out though–it’s not a war of conquest where you win or lose. It’s a war of occuption where just by being there and in control and denying the space to our enemies we win. Make no mistake–sure, it was a pre-emptive war, but not again Iraq. Pre-emptive against China/Russia. So in that respects things aren’t that bad.
Iran: it does seem like they will get hit before the election, doesn’t it? I worry, politically, that it will make McCain president. Economically… meh. I kind of think the US Navy will rape the Iranian fleet incredibly quickly.

The way that economic data is cherry picked to create the kind of stir that makes short term investors money is a problem. The fed has to stop catering to certain factions on the street and tend to the whole economy, otherwise it will be bubble after bubble.

Some more thoughts about the Iran thing:

a. The economic effect of a strike on Iran I don’t think is as bad as people think. So Oil goes to $200, big deal. We can handle another 25% cost. Besides, it would be temporary and you could compensate in other ways.

b. If Israel struck, the Iranians will in all liklihood not attack the U.S. significantly. What would be the point? Get all pissy, launch everything at US interests, and then see your country get bombed back to the stone age? Because there would be no fucking around if the Iranians did that.

The U.S., knowing Iran knows this, will let Israel handle the situation. The biggest issue is fuel/range: Israel has refuelers but if they needed more I’m sure we could cough up a few. There might be a protest at this but, really, what are the Iranians going to do, attack us? We’ll just say that we lent the tanker to Israel and they were Israeli crewmen, or that we hastened a planned purchase/lease agreement. Tough shit, ya?

And, I gotta say, there is always the chance the U.S. will participate directly. (We have more than the usual fuel in Diego Garcia, BTW) I’m not sure there’s any drawbacks if the strike is contained.

c. Blockade. If the Iranians attempt to blockade the straight, I would suspect we would treat that as an attack on Iraq and respond in kind. Simply put: the Iranian Navy is absolutely no match for the US Navy. The Iranians would get completely decimated. They know this.

d. In other words, the Iranians have everything to lose if they retaliate inappropriately and we have plenty to gain from removing them out of the equation.

Besides, Iran with a nuke is just a non-starter. This isn’t some piddly little speck of land north of Korea that doesn’t even have enough arable land to feed it’s people and that no one really cares to invade anyway. This is one of the last portions of Oil in the WORLD in unfriendly hands. The U.S. would be foolish to not keep open the option to invade it, and, frankly, it’s not possible to invade a country with nukes so… yeah.

12) Iraq, Iran, Afghanistan:

If there is an attack on Iran, they US will have to make a fighting retreat from Iraq via turkey. Iran will ‘silk worm’ US fleet in straights of Hormuz (as done to Israeli frigate in Lebanon war). Also they will attack a la USS cole, also Iranians have pledged to attack US interests around the globe. McDonalds, Coke all the big US brands will become toxic and dangerous.

China will re flag Iranian oil tankers to ensure delivery of their oil, US unable to blockade Chinese tankers shadowed by Chinese destroyers.

70% of US truck movements in Iraq is bottled water for the troops, re supply by very vulnerable helicopters. Iran has nothing to lose and everything to gain, for the US and by extension western world has everything to lose.

My 2 cents:
1) We are turning down. Look at the 54-Year cycle, it peaked in 2006. I think we will blow thru the recession and end up in deep doo-doo. The Fed is running low on options. It’s time for the 545 Club to step up to the plate and make some hard but necessary choices. Of course, I’ll probably win the lottery before that happens.
2. I look for inflation to continue until the Fed Printing Press stops printing fiat money. See above lottery comment.
3. I think the Fed is down to coin flips. They will do whatever most benefits their private interests. As a private corporation independent of the US gov’t, they don’t care about the taxpayers or getting re-elected. CYA first.
4. I see a further move to the lower 10,000 area if not lower.
5. I think the job mkt is wobbly at best. I feel the lay-offs will get worse as time progresses, and I do not see a robust recovery inside of 3 years.
6. Real estate is tied to gas prices in the land of fruit and honey. So long as gas is expensive the outskirts of suburbia will continue to suffer and decline. I think this is where most of the pain will come from. I don’t think home prices in well established neighborhoods will fall much more.
7. I think we’re in the 6th inning as evidenced by LEH recent disclosures. I look for some more issues to come to light. Once GS declares its thong is in a bind, then I’ll feel we’re in the 9th.
8. The stimulus will only briefly help those who need the help the most. I think it was more of a political issue than one of substance. For example, once the Dems started wanking about it on the campaign trail, Bush came on TV and called for and got action. It’s all BS.
9. I think McCain will take the WH, but the Dems will add to their margins in the House and Senate. I don’t think they’ll have a clear majority in both chambers, but the Republicans can’t breathe easy either. What we really need to do is fire the whole bunch and start again. Americans are idiots. Congress has the lowest approval rating in history and now we’re going to make one them jokers the head nut? We’re so screwed.
10. Sentiment is down because the media is controlled by people who think America has lost its greatness and cannot recover without government intervention and a lot of it. Consequently, if you hear the BS long enough and if you are uneducated enough to research it and try learn something, then you will be blue because Barbie and Ken on TV told you to be.
11. I think the data is definitely manipulated, skewed, and otherwise questionable at best. Granted, crunching the numbers for this country and economy is a monumental task. However, I think we need to revist the way things are done and see if they are still germane in this global economy and to see if there needs to be a realignment of release dates to better give the preparers more time to collect and crunch.
12. Yes, we (the US) are making headway in Iraq and Afghanistan, so the media must turn our attention to more depressing things since they were all on the white flag bandwagon. Now that progress is clearly being made and they are again proven wrong this issue will be relegated to the back pages if not the tucked away in the classified ads. If anyone goes into Iran oil prices will spike just because. I don’t think the global economy will be much affected unless things really escalate by China or Russia joining the fray. I don’t look for the US to go in, but, as you suggest, I think Israel will with discreet US help. However, if the US takes overt action I think the elections can swing into a Democrat sweep.

Patrick:

Us carriers cannot turn in the straights of Hormuz, they control nothing. As seen by the Iranian zodiacs menacing the US and British Navies.

The Iranians have the latest anti ship missiles from china as evidenced in Lebanon war.

The US is very vulnerable, you couldn’t even kick Iraq’s ass and you want to take on a better armed and equipped Iran.

remember US troops in Iraq are the leveraged hostages in this argument.

Posted by: andy in NZ | Jun 10, 2008 7:13:58 PM

Patrick:
Get your atlas out. Taking a major surface fleet into the confined waters of the Persian gulf where the Iranians have certainly hundreds, possibly thousands, of land based surface to surface missiles and a huge fleet of Zodiacs which are armed with s/s missiles and are in any case floating bombs would be suicidal. Sure we’d do a lot of damage but so would they and meanwhile Oil would be at 250 a barrel and the Muslim world would be going apeshit. Unfortunately, what all you keyboard Nicholas II’s don’t seem to get is that this is a war that would do us more harm than them.

Wow Barry, you ask a lot of your readers to respond to here. I could write reams to each aspect. However, for the sake of being concise here is my 2 cents:

I am downcast about the economic future in the US primarily because we have a broken political system. I hate the Republicans for their diabolically heinous handling of the economy on every level. What is terribly unfortunate is I feel the Democrats offer failed policy of previous generations as an alternative. I think the real despondency happens in 2010-2011 when people find that Obama economic policy is making things worse. Of course, they will all be blaming Bush who saddled us with this pathetic situation.

This is a country full of immature people that has gotten way off track in its values that has turned people like Paris Hilton, Britney Spears and Donald Trump into icons. People elect and re-elect a moron for President based upon who they would wanna drink a beer with. Why should we be surprised that a dude who probably cheated just to get C’s at Yale after Daddy finagled his way in despite being entirely un-Ivy League material, was arrested for drunk driving and allegedly did coke would screw the country to the point of fubar?

My conclusion: this country needs to grow up and face its problems square on. That means full recognition that both GOP and Democratic economic dogma are both of terrible design. Only centrist policy can rectify this mess. That means 2012 or possibly 2016. The stock market went from 1968 to 1982 without making any gains at all. 1999 to 2013 is repeating history. Maybe we will have to wait until 2016 before the US cleanses itself of the absolute morons who are in charge, and I mean in both parties.

Here are my 2 dollars (no cents any more!) on the topic.

US Consumer spending, Housing
From first principles, US consumer spending should reduce until the time incomes become greater than interest cost, food and basic expenses. US housing loans are non-recourse loans (as I understand it) –hence jingle mail is best solution to get rid of the liability. Other loans, particularly credit card loans, might become a threat. To make an impact on the economy, this change requires strong-willed cost cutting across the population. This implies that downturn in US will be both prolonged and deep.

Can US avoid this debt trap?
There is a possibility that through structuring, financial engineering US can get out of this situation. It needs a creative solution involving legal, financial and regulatory skills put together. Following ideas can help define a solution:
• The human life is finite but firms’ life is infinite.
• All dues need not be paid back and all debt cannot be waived off
• The process of repayment of dues may be unfair – some people may choose to pay more than their share. (One example is taxes – taxes are unfair payments between individuals) In addition, some organizations will bear larger losses.

Inflation – how much, how soon, how to avoid
The excess money supply created over the past decade has to manifest itself. For long, this excess money remained contained with few resulting in a crop of billionaires, few sovereign wealth funds and overall salary hikes. After a certain passage of time, this wealth has to trickle down. This is what is happening currently. This will continue until such time the excess wealth exists. Wealth contraction can help correct inflation problem quickly. It implies currency revaluations, deep stock market corrections or pricking of asset bubbles. But this will create a lot of pain for the most important class of people politically – the influencers.

Employment – worse still to come – but totally avoidable
Employment is function of jobs available and skill availability. There is a strong mismatch here. If you don’t have skills jobs will move where skills are available. But will the low-skills jobs come back to you? US, in my humble opinion, needs a stronger manufacturing. That will take-off only if US dollar is correctly priced. We have already seen employment spurts with dollar falls.

Credit Crunch – impact on financial sector
Financial sector has itself to blame with the way it handled the excess money supply. Financial sector will go through salary rationalization, product rationalization, management control rationalization – in simple words it needs to go through Business process re-engineering. All financial companies need to talk to James Champy en masse. There is a lot of cost to be cut in these companies.

US Politics and war
The outcome of US election will have no impact on the crises. The current crises and possible solutions require unreasonably high skills of diplomacy. The potential for wars for forcible resolution of economic litigation will soon increase and pose direct threat to world peace. This will be most inconvenient for US. World economies will not take US opinion courtesy of Iraq and Afghanistan experience. It will take a real leader – a statesman – to sort out this mess without the war pains. I believe Hillary Clinton is lucky to have missed the nomination.

In Sum
We are going through one of the worst phases of economic history. No doubt we will come out of it. The only question is will we come out wiser?

These are the questions. Here’s my take:

1-2: Stagflation. Whether we actually fall into recession is secondary to the reality that high inflation will apply downwards pressure to potential growth deep into 2009 and likely into 2010. A weak dollar and strong global economy will continue to drive strong exports, preventing a really nasty outcome.

The big deal is not housing or credit, but oil: Every 1 cent change in gas-diesel prices diverts ~$2 billion from spending on goods/investment: At current prices, we’re looking at ~$250 billion (nominal) going up in smoke, about 1.8% NomGDP. Looking towards $150/bbl., oil is probably a 0.5% GDP drag in 2009.

3. As a big chunk of inflation is coming from food and energy, the Fed’s ability to control the game is limited. Watch the core, not top-line for guidance on Fed actions.

4. Truckers (supply-side story) and agricultural chemicals (demand-side story): You gotta be picky at this point. For guidance, my fingers are crossed and I’m knocking on wood.

5. Demographics and productivity growth make for an intersting mix and suggest relatively low unemployment rates during the downturn and relatively low job creation in the recovery. Deferring to your work Barry, it would be nice to see the data with all the apples counted.

6. We’ve gone from a 2.3 million start rate to a 1 million rate: We can’t fall further than we have. Hence, the drag from housing will lessen, but the 11 month inventory of unsold homes makes recovery unlikely before the end of 2009, more like early 2010.

7. Look at the “commercial and industrial loans” data: What credit crunch? If you’ve got a good balance sheet, bankers are throwing money at you. If you don’t, your screwed, or you’d better have a pretty strong case for the funds. This is the way it should always be. Your Dilbert post in last night’s e-mail says it all.

8. Misnamed. Not stimulus, but sustinance. Either way, $160 billion is being added to the economy in 2H’08.

9. The Democrats should kill at all federal levels in November. In addition to the war, the oil and food price spikes happened on Bush’s watch. The Democrats should be able to make hay just on these two points alone.

Just yesterday, the Republicans were put in the position of defending oil company profits. Look for the Democrats to put the Republicans in that position as often as possible between now and November. Walmart Republicans might finally realize they have been dupes.

Not to generalize, but the downside for TBP readers is that our taxes will be going up in 2009.

10. Food and energy, jobs, housing, the war, equities… Fortunately, we still have to live: the economy can only contract so far.

11. It’s better than what they serve in Mexico! Outside of inflation and the interpretation of employment, I think the data is reasonably sound. Then again, those inflation numbers help to hold down COLAs, so the changes have not been without purpose. For emplyment, use the participation data, not the crap they serve up to the media.

12. It’s been FUBAR since the first U.S. soldier stepped onto Iraqi soil. The Iraq situation appears intractable and we’ve burned mountains of political capital, blood, and treasure, so our ability to deal with/take on Iran is decidedly limited.

At the end of the day, Afghanistan is a sad afterthought that should have been kept foremost in our strategic vision. Since they don’t produce oil, they were deemed expendable. Unfortunately, they are major exporters of Islamic extremists. The Bush administration’s lack of vision vis-a-vis Afghanistan and Iraq will haunt the U.S. for another generation.

you forgot, FEAR, LOL……

you forgot, FEAR, LOL……

Re: Iran/Carriers/Missiles

Yeah, I agree about the Iranian missile thing. I read the public studies. But why would they do that? Picture it: Iran blows up a carrier and a couple destroyers. What is the response? We blow the hell out of them.

Iran has everything to lose. All we have to lose is, unfortunately, some sailors and some ships. It sucks but it’s not insurmountable.