Economic Reality

[Krazy P]

OK folks, we can see, I think, what the possible scenarios are. We are all INTJs after all.

I have been opining for a little while - if you have read my posts, and you also read Bloomberg, you may see that things are unfolding pretty much as I have described.

I am thinking that we will see a false rally next week - if this unfolds as expected, you can all take advantage and get out of the market and move your assets to cash. Last Chance!

If the market has any intelligence at all the false rally won't happen and then it is down. down, down.

The downturn will last from 3-5 years. Maybe much longer. I haven't had a lot of time to evaluate the bailout bill (been busy). I am guessing that it will make things worse and that subsequent government action will make things much worse. Looks like Obama, so heaven help us. This could last 10 years.

With a D majority and a D president the opportunity to really screw things up is very very high. Yikes!

I will post more as I get a chance to evaluate the options. I am in damage control in my own business right now. So far, we are doing great! - but it is such an evolving situation that it requires a lot of flexibility.

(for example, it looks like the business model of Money Market Mutual Funds being the vehicle to fund commercial paper - short term business cash needs - may be going away. What will replace it? Things are changing so fast...)

Most people have no idea what is really happening. On the one hand M1 and M2 are EXPLODING. On the other, you can't get a loan from a bank (if you don't have treasuries as collateral) to save your soul! There are no dollars to be had! Yikes!

I actually love this shit! For an INTJ this is heaven. All my employees and colleagues are begging me for help! They can't process all the info and changes. This is a time it that an INTJ can shine!

Krazy P

P.S. About ten days ago I warned our operations group that in today's climate, robberies were more likely to happen. Since then, we reviewed and updated our robbery procedures - including training for all the staff. Today, we had a robbery for the first time in 8 years. In August, we moved all our $100 million in extra cash to treasuries. Last week, one of the institutions we used to have funds in was put on ratings watch by Standard & Poors's. As my son says - read your bible! (it's a joke about competency).

P.P.S. Please forgive the Kraziness of my posts. I have 500 employees to protect and am under a lot of pressure right now - so far things are going fantastic - but as an INTJ - I can see only too well how things can become unwound. My employees are depending on me right now - their trust and faith is humbling on the one hand and scary on the other. I better not f#$% this up!

[tp6626]

Looks like Obama, so heaven help us. This could last 10 years.

With a D majority and a D president the opportunity to really screw things up is very very high. Yikes!

Why the concern over Obama? I was under the impression that Bush has done a lot of damage, and that McCain will not be much better. I'd have thought that it will be a struggle for anyone, but don't you believe the democrats are up to it?

[void]

Why the concern over Obama? I was under the impression that Bush has done a lot of damage, and that McCain will not be much better. I'd have thought that it will be a struggle for anyone, but don't you believe the democrats are up to it?

It is true that Obama is a far better candidate than McCain. But if you think he will deliver on a significant number of his promises - especially with the recent bout of retardation on Capitol Hill - then I've got a bridge to sell to you (don't worry, it goes somewhere). His vote on both versions of the bailout bill along with FISA a few months ago have essentially proven that he will not stand up to the corruption of Pelosi, Reid et al. Democratic President + Democratic Congress = epic asshattery.

Now perhaps it won't be as bad as when the Republicans had control of both the legislative & executive branches. But the need for sane third-parties is becoming increasingly apparent with each passing day.

[Sliderule]

Ahh take a rest man relax guy. I still fail to see what the major problem is, I've already had my college fund cashed in to pay for medical bills/groceries, pick a week. And I have no investments so to speak of, as well as no income or job prospects. The only real potential problem I foresee is a total collapse of civilization and a halt on the production of antibiotics (which I desperately need to even function) when that happens I'll be worried, until then I'm just singin' in the rain. Perhaps you need to take a step back and then take a hop over to my side of the fence where the grass is a bit greener.

And yes crises can be INTJ heaven, but eventually things are going to get back to normal so don't get too attached. Maybe, they won't get better, in that case find an oil field and a refinery. Then grab yourself a hockey mask, some dune buggies, and a crazy dude with a mohawk (hmm Krazy p, halfway there already). Then put some of your assets into a desert post apocalyptic mob now, you'll really be sittin' pretty later. I'd imagine at least a 300% return on your investment, although not in dollars they won't be worth much by then. Heck you've already got the manpower in that company of yours, you just need to send out a memo!

[dragonsscout]

I am thinking that we will see a false rally next week - if this unfolds as expected, you can all take advantage and get out of the market and move your assets to cash. Last Chance!

If the market has any intelligence at all the false rally won't happen and then it is down. down, down.

The downturn will last from 3-5 years. Maybe much longer. I haven't had a lot of time to evaluate the bailout bill (been busy). I am guessing that it will make things worse and that subsequent government action will make things much worse. Looks like Obama, so heaven help us. This could last 10 years.

With a D majority and a D president the opportunity to really screw things up is very very high. Yikes!

I'd be willing to bet that will happen, along with some inflation because of spending in Iraq and the Rescue Act. I don't agree on the Obama bit. Democrats and Republicans are fairly divided on economic issues, it seems. There are the Reganites, the third way people, the paleoliberals, and the more libertarianish members of Congress. Paleoliberals might hurt the economy, but the rest would block them or compromise. Most recessions don't last ten years, besides, transitional government (Presidents, Congrss) does have some sway in the market, but it's a lot less than people think. The bureaucracy, which is fairly constant, has more sway other than confidence boosting.

I will post more as I get a chance to evaluate the options. I am in damage control in my own business right now. So far, we are doing great! - but it is such an evolving situation that it requires a lot of flexibility.

...

P.P.S. Please forgive the Kraziness of my posts. I have 500 employees to protect and am under a lot of pressure right now - so far things are going fantastic - but as an INTJ - I can see only too well how things can become unwound. My employees are depending on me right now - their trust and faith is humbling on the one hand and scary on the other. I better not f#$% this up!

For what it's worth, I wish you luck!

[Henry]

OK folks, we can see, I think, what the possible scenarios are. We are all INTJs after all.

I have been opining for a little while - if you have read my posts, and you also read Bloomberg, you may see that things are unfolding pretty much as I have described.

I am thinking that we will see a false rally next week - if this unfolds as expected, you can all take advantage and get out of the market and move your assets to cash. Last Chance!

If the market has any intelligence at all the false rally won't happen and then it is down. down, down.

The downturn will last from 3-5 years. Maybe much longer. I haven't had a lot of time to evaluate the bailout bill (been busy). I am guessing that it will make things worse and that subsequent government action will make things much worse. Looks like Obama, so heaven help us. This could last 10 years.

With a D majority and a D president the opportunity to really screw things up is very very high. Yikes!

I will post more as I get a chance to evaluate the options. I am in damage control in my own business right now. So far, we are doing great! - but it is such an evolving situation that it requires a lot of flexibility.

(for example, it looks like the business model of Money Market Mutual Funds being the vehicle to fund commercial paper - short term business cash needs - may be going away. What will replace it? Things are changing so fast...)

Most people have no idea what is really happening. On the one hand M1 and M2 are EXPLODING. On the other, you can't get a loan from a bank (if you don't have treasuries as collateral) to save your soul! There are no dollars to be had! Yikes!

I actually love this shit! For an INTJ this is heaven. All my employees and colleagues are begging me for help! They can't process all the info and changes. This is a time it that an INTJ can shine!

Krazy P

P.S. About ten days ago I warned our operations group that in today's climate, robberies were more likely to happen. Since then, we reviewed and updated our robbery procedures - including training for all the staff. Today, we had a robbery for the first time in 8 years. In August, we moved all our $100 million in extra cash to treasuries. Last week, one of the institutions we used to have funds in was put on ratings watch by Standard & Poors's. As my son says - read your bible! (it's a joke about competency).

P.P.S. Please forgive the Kraziness of my posts. I have 500 employees to protect and am under a lot of pressure right now - so far things are going fantastic - but as an INTJ - I can see only too well how things can become unwound. My employees are depending on me right now - their trust and faith is humbling on the one hand and scary on the other. I better not f#$% this up!

Krazy,

You made a number of highly questionable statements in another thread that caused me to question your credibility on the subject matter.

Can you please address:

1. You stated that your worst case was "9% unemployment and 7% inflation". You never addressed the deflationary pressure of unemployment, nor have you described how rising unemployment, a rallying dollar, a credit freeze and a bursting commodity bubble will lead to an increase in inflation. Please explain.
2. You state that this will last 3-5 years and that if Obama wins, it will last for 10 years. Why do you think that having Obama as president, who has promised to cut taxes for everyone making less than 250k with considerable tax increases for the wealthy. The other changes he is proposing are comparatively moderate and would be more than offset by the ending of the Iraq war in a timely fashion. Please explain how you think that electing Obama will lead to a 10 year downturn.
3. You still have not addressed the role of the central bank, and how its ability to influence the money supply, rescue failing banks when necessary, and influence interest rates will cause massive unemployment.
4. You stated in another thread that "unemployment may get worse in some areas than in others", but this is almost always the case - rust belt states rarely see unemployment go below 6%, more robust states routinely have unemployment below 3.5%. What is unique about this situation that will exacerbate these tendencies that are already in the economy?

Your posts are long on conjecture, crystal-ball projections, and fear-mongering. No doubt you get a lot of attention by emotionally unstable people looking to validate their fear. But you should probably look to establish credibility by at least providing some supporting rationale.

[Fridays Child]

I am thinking that we will see a false rally next week - if this unfolds as expected, you can all take advantage and get out of the market and move your assets to cash. Last Chance!

If the market has any intelligence at all the false rally won't happen and then it is down. down, down.




So, let me see whether I've got this straight now: your prediction for the coming week is that the market will either go up or go down.

I confess to being new to these complex economic issues but this is a most interesting discussion. So allow me to express my appreciation for this insight, and for the time you took away from your many duties to help us make sense of these troublesome times.

[dragonsscout]

So, let me see whether I've got this straight now: your prediction for the coming week is that the market will either go up or go down.

I think what he's saying is that the market will go up, then tank. However, if the majority of people are smart (they aren't), then everyone would expect the market to do this, so it wouldn't go up at all.

The stock market has a lot to do with perceptions and predictions, which makes it horribly fickle. Anyone high up in the US Treasury or Fed can't say that the market is going to tank, because if they do, then the market will tank. If they don't, then it's possible it will and possible it won't.

[DrEast]

Any comparisons of the two candidates will be superficial when we are looking at the economic validity of either. Both are big-government fellows; they'll both want to increase spending, but in different areas.

I pity the poor fool who gets elected president only to find that the country's been sold out by a generation's worth of bad economists serving their bad political masters and he's holding the hot potato.

[PortInStorm]

Hey Krazy,

I'm an ignoramus on the financial front, but we have an extrodinarily low credit (including cards, line of credit and mortgage).... Should we seriously take our mutual funds out into cash if the market takes an upswing? I thought the buy-and-hold was a solid strategy....

We're Canadian, but I assume that we'll go down with you guys since we're so closely tied.

[Monte314]

I fear that Krazy P is probably correct in his assessment.

[PortInStorm]

I don't think Friday was being sarcastic...

[meanlittlechimp]

I am guessing that it will make things worse and that subsequent government action will make things much worse. Looks like Obama, so heaven help us. This could last 10 years.

With a D majority and a D president the opportunity to really screw things up is very very high. Yikes!


You don't blame the current administration for any of this mess? Here are the major contributing factors to our financial collapse.

[] Sub-prime lending legislation: MBNA was, by far, the largest contributor to Bush's campaign. Their lobbyists actually re-wrote lending laws immediately after he was elected, which helped cause the sub prime fallout.

[] The Bush administration de-regulation of the financial services sector: which allowed the largest Ponzi scheme this country has ever seen which has crippled our financial services sector. This doesn't include the 50 TRILLION dollar "credit swap" market that is completely unregulated which failed in a massive way.

Some markets like energy (Enron) and insurance, among others, should be regulated for good reason. If you don't know how the credit swap markets work, it was basically FAILED insurance to hedge against the bad bets Wall street was making with main street's pension and retirement funds.

[] Bush's retarded foreign policy: The war will cost at least 3 trillion dollars when all is said and done. This overspending has exhausted our coffers, which is making it much tougher to give aid to the financial sector because we broke the bank financing idiotic wars under the guise of terrorism (fueled by intentional lies and misinformation instigated by the Bush administration).

[] Our huge and growing trade deficit: This isn't really the Bush administrations fault, but they aren't doing anything to make it better. We are taking on massive debt to fuel a lifestyle we can't afford by printing increasingly more worthless paper money. We simply don't make products like we used too and our getting our asses kicked in a range of industries we used to dominate from autos, cell phones, semiconductors, electronics, ship building, home appliances etc.

[] Fed's expansionary monetary policy: Their solution to our economic problems is passing the buck to create a bigger problem down the line. We have printed so much money to pay for massive trade and budget deficits that our national debt has hit 10 trillion dollars. Just the interest rate on this debt dwarfs almost all our major expenditures, except for the war. Int'l Banks and governments realize our economy was, and still is, significantly over-valued and burgeoned by increasing bad debt.

Once they (Chinese, Japanese, Koreans, Germans etc) stop buying US Treasury bonds and taking on our bad debt the US dollar will no longer be pegged as the int'l standard (which it has been since the elimination of the Bretton Woods agreement in 1971). The US dollar has become the reserve currency instead of gold since then and when Central Banks around the world stop pegging their money to ever devaluing US currency, our dollar will plummet like we've never seen in our, or our parents', lifetimes.

Considering how badly the Bush Administration fucked up our economy and has made the US the most unpopular it's ever been, in it's entire history (Polls in Europe put us ahead of every other nation as the LARGEST threat to world peace) - and you think the Democrats will screw this up?!?!?

Republicans have their heads up your asses for a long, long time. It's absurd and laughable how you think a republican administration would make this recession end more quickly. Maybe by building creationist museums, blocking stem cell research and stopping funding for alternative energy iniatives and research. They're approach of simply stealing the oil is morally and fiscally irresponsible. I guess the nature of morality in foreign policy is debatable, but the tactical and fiscal failures are not.

Was pretty brilliant when Reagan ripped the solar panels, Carter installed, off the white house when he got into the office. Even more brilliant is that he set up the precedent for the largest anti-science and pro religion administration this country has ever had, up to and including administrations from the 19th century.

[Monte314]

You don't blame the current administration for any of this mess? Here are the major contributing factors to our financial collapse.

Strangely, I never hear any of this ire directed toward "Asleep-AT-The-Switch" Speaker of the House Pelosi and the liberal Congress she heads up. These folks bear at least as much responsibility for the current financial situation as the Executive Branch.

[meanlittlechimp]

Strangely, I never hear any of this ire directed toward "Asleep-AT-The-Switch" Speaker of the House Pelosi and the liberal Congress she heads up. These folks bear at least as much responsibility for the current financial situation as the Executive Branch.

Pelosi didn't lie to the public to justify an invasion of Iraq. Pelosi didn't de-regulate or remove the lending laws that already existed to prevent a sub prime fallout (Bush and MBNA did). Pelosi doesn't put pressure on the fed to increase the money supply to delay the inevitable recession.

The democrats are partly to blame, but not anywhere near to the extent the Bush administration is. Not even close.

[dragonsscout]

I thought the buy-and-hold was a solid strategy...

It is for long-term investment when you've diversified enough. However, if all of your eggs are in one basket or you're looking to make a quick buck, it's not. Interestingly, on average, unmanaged mutual funds do better than managed ones...

[Delarge]

This is only the end of the beginning. The era of U.S. dollar hegemony may very well be arriving at its just conclusion.

[Phalanx]

Good thing the Democrats blocked Bush's proposal for a supervision agency over Fannie May / Freddie Mac back in 2003, otherwise we would be in a lot of trouble.

[metamagnet]

This is only the end of the beginning. The era of U.S. dollar hegemony may very well be arriving at its just conclusion.

The rise of the pound is upon us!!!!!!!! *place dramatic music here*

Edit: The dollar would've been fine and still strong if us Americans hadn't been spending an average of $1.27 for every $1 we made for the past...oh - 15ish years.

[bladeserver]

The rise of the pound is upon us!!!!!!!! *place dramatic music here*

Edit: The dollar would've been fine and still strong if us Americans hadn't been spending an average of $1.27 for every $1 we made for the past...oh - 15ish years.
Ummm the pound???

[DrEast]

Pelosi didn't lie to the public to justify an invasion of Iraq. Pelosi didn't de-regulate or remove the lending laws that already existed to prevent a sub prime fallout (Bush and MBNA did). Pelosi doesn't put pressure on the fed to increase the money supply to delay the inevitable recession.

The democrats are partly to blame, but not anywhere near to the extent the Bush administration is. Not even close.

Personally, I blame 1) Woodrow Wilson, 2) the original banking cartel that bought off enough politicians to set up the Federal Reserve system in the first place, and 3)every fractional reserve banker everywhere, for all time, from the first silo owners who figured out how to get richer than silage fees could make them, thus causing widespread famine in the ancient world, to the current bunch who literally can not imagine a world without ever-increasing debt and are panicking at the thought.

[Monte314]

Pelosi didn't lie to the public to justify an invasion of Iraq. Pelosi didn't de-regulate or remove the lending laws that already existed to prevent a sub prime fallout (Bush and MBNA did). Pelosi doesn't put pressure on the fed to increase the money supply to delay the inevitable recession.

The democrats are partly to blame, but not anywhere near to the extent the Bush administration is. Not even close.

When you list things Pelosi didn't do as the economy collapsed around the Congress she leads, you are certainly on the right track... the list is very long, so you have a lot to work with.

[dragonsscout]

This is only the end of the beginning. The era of U.S. dollar hegemony may very well be arriving at its just conclusion.

Muahahahaha! The US shall fall, clearing the way for me to take over the world! (Was this supposed to be funny? It's hard to tell online.)

When you list things Pelosi didn't do as the economy collapsed around the Congress she leads, you are certainly on the right track... the list is very long, so you have a lot to work with.

That's just one of the issues with democracy and large bodies of people like the House. Nothing tends to get done about problems until they becomes a crisis. I don't see any way to really fix it though...

[DrEast]

That's just one of the issues with democracy and large bodies of people like the House. Nothing tends to get done about problems until they becomes a crisis. I don't see any way to really fix it though...

Actually, you've got it slightly backwards. Every time something gets done about a problem by the government, it becomes a crisis.

Government needs to be limited in its scope. People can't manage unbounded authority. We're not infinitely wise. That's all there is to it.

[thod]

TBH I am happy. Since I am mixed in cash and gold with no stocks at all, I have been doing very well.

The old stocks advice of "never try to catch a falling knife" should be remembered. You do not try to catch the bottom because you will mostly get it wrong. The good trader knows the trend is his friend and will wait for the trend to turn before buying back in.

As I said I don't own any shares but still make money by selling shares I don't own, shorting. You can make far more money in bear markets than bull ones because prices move so much more rapidly as everyone stampedes for the door.

[Melchizedek]

Pelosi didn't lie to the public to justify an invasion of Iraq. Pelosi didn't de-regulate or remove the lending laws that already existed to prevent a sub prime fallout (Bush and MBNA did). Pelosi doesn't put pressure on the fed to increase the money supply to delay the inevitable recession.

The democrats are partly to blame, but not anywhere near to the extent the Bush administration is. Not even close.

As Phalanx has already pointed out, Bush actually pushed for increased regulation of Fannie Mae and Freddie Mac, and it was the democrats who blocked it... twice, in '03 and '05.

[DrEast]

So, on a side note, anyone notice the M0 (physical money) rate recently? Go check it out at Mises.org.

And they laughed at me when I predicted hyperinflation.

[Henry]

So, on a side note, anyone notice the M0 (physical money) rate recently? Go check it out at Mises.org.

And they laughed at me when I predicted hyperinflation.

I'm still laughing. Its histrionic types who are cashing their checking and savings into cash. No real influence on money supply as relevant to inflation. M2 FTW, anyone who points to anything else is a nub.

And let me guess - its gonna be a hyperinflation with 25% unemployment, right?

Our huge and growing trade deficit: This isn't really the Bush administrations fault, but they aren't doing anything to make it better. We are taking on massive debt to fuel a lifestyle we can't afford by printing increasingly more worthless paper money. We simply don't make products like we used too and our getting our asses kicked in a range of industries we used to dominate from autos, cell phones, semiconductors, electronics, ship building, home appliances etc.


The key to slowing the trade deficit is improving the savings to investment ratio. If you want to improve the trade deficit, raise taxes on businesses, which will improve the rate of net national savings and make the US a less attractive place to invest, improves the deficit on both counts.

Regarding this whole "get back to manufacturing" business, its a product of the fact that we've allowed european and asian banks to devalue their currencies relative to ours for so many years that few people have been willing to make investment in plant and capital, or human capital, in these areas and now there's a true competetive disadvantage that has to be compensated for through lower real wages.


[quote[Fed's expansionary monetary policy: Their solution to our economic problems is passing the buck to create a bigger problem down the line. We have printed so much money to pay for massive trade and budget deficits that our national debt has hit 10 trillion dollars. Just the interest rate on this debt dwarfs almost all our major expenditures, except for the war. Int'l Banks and governments realize our economy was, and still is, significantly over-valued and burgeoned by increasing bad debt.[/quote]

The Federal Reserve's monetary expansions are not the source of the national debt. The Federal Reserve basically creates money. It does not add to the debt.

Expansionary fiscal policy does add to the debt, and its been ridiculous under the Bush administration and probably achieved little/nothing.

[meanlittlechimp]

The Federal Reserve's monetary expansions are not the source of the national debt. The Federal Reserve basically creates money. It does not add to the debt.

Expansionary fiscal policy does add to the debt, and its been ridiculous under the Bush administration and probably achieved little/nothing.

I realize that (it's their RESPONSE to the national debt) and I think we agree. It's detrimental to economic health in the long run for other reasons.

Expanding money supply increases our debt exposure which has short term gain for long term pain (that will be more than loss when the economy contracts from the debt actually getting paid). It adds additional inflationary pressures to our dollar on TOP of the "natural" (non-Fed driven) pressures caused by our trade deficit and our ballooning national debt.

[thod]

Regarding this whole "get back to manufacturing" business, its a product of the fact that we've allowed european and asian banks to devalue their currencies relative to ours for so many years that few people have been willing to make investment in plant and capital, or human capital, in these areas and now there's a true competetive disadvantage that has to be compensated for through lower real wages.


Are you living in fantasy land or are you just ignorant.

That may seem a harsh comment but I have to question how you can ignore facts. To say that the Europeans have been devaluing their currency when the euro has gone from under a dollar to 1.6 recently is like saying 2 = 4.

Everyone is trying to devalue their currency, its called competitive devaluation. It makes your workers cheaper and hence boosts competitiveness keeping industry in your country. The dollar has been doing this well. What you need to look at is called USDX, traded on ICE futures, the US dollar index. The Americans have just been better at debasing their currency.

Because everyone is attempting competitive devaluation, currency crosses may not show much movement yet the amount of real world goods bought by a currency unit decreases. Thus you can have little movement in EUR-USD over time but the amount of gold that either currency unit will buy will decrease over time.

Forget patriotism. Because I live in London does not make me your enemy. I am your brother in that we are little guys trying to win against the big guys that play on a global scale.

[Henry]

Are you living in fantasy land or are you just ignorant.

That may seem a harsh comment but I have to question how you can ignore facts. To say that the Europeans have been devaluing their currency when the euro has gone from under a dollar to 1.6 recently is like saying 2 = 4.

I was referencing 1980-2000, not 2001-2008, as we were discussing very long term trends in industrial production.

Everyone is trying to devalue their currency, its called competitive devaluation. It makes your workers cheaper and hence boosts competitiveness keeping industry in your country. The dollar has been doing this well. What you need to look at is called USDX, traded on ICE futures, the US dollar index. The Americans have just been better at debasing their currency.

Because everyone is attempting competitive devaluation, currency crosses may not show much movement yet the amount of real world goods bought by a currency unit decreases. Thus you can have little movement in EUR-USD over time but the amount of gold that either currency unit will buy will decrease over time.

Forget patriotism. Because I live in London does not make me your enemy. I am your brother in that we are little guys trying to win against the big guys that play on a global scale.

[dragonsscout]

Actually, you've got it slightly backwards. Every time something gets done about a problem by the government, it becomes a crisis.

No, because democratic government is overseen ultimately by 'the people.' The government can screw things up and it can also do a good job. The courts in the US generally are pretty free of corruption (even if the laws and their makers are not). USPS does an excellent job considering the amount of material the move. The CIA is also an excellent agency, which excels gathering information otherwise not available and offering policy advice (which is often unheeded).

Consider both the Social Security and the credit crises, both could have been solved by Congress, but the politicians need money and votes to get reelected, so they're afraid to do something too drastic. Likewise, now they have to act as though they're fixing it with the Rescue Act, which destroys any risk when lending.

Democratic government seems to have a detrimental effect on politicians being bold and on long-term planning, just as dictatorships have a detrimental effect on political freedom (and often economic, social, and other freedoms as well).

Government needs to be limited in its scope. People can't manage unbounded authority. We're not infinitely wise. That's all there is to it.

Well, if the government is too small, it would seem that people do have unbounded authority... which they can't handle. Sorry. I agree with you (though probably not on the same scope), but I couldn't help myself.

[DrEast]

Well, if the government is too small, it would seem that people do have unbounded authority... which they can't handle. Sorry. I agree with you (though probably not on the same scope), but I couldn't help myself.

I entirely reject a collectivist utilitarian ethic, which in arguing that people would have unbounded authority if the government does not you seem to imply. Not so; if the government does not have unbounded authority, then any given person only has as much authority as they can manage, and nature, government, and other people take care of the rest.

Now, I'm not saying that government should have no authority. I'm not an anarchist. But the question of what authority is proper for government to wield just never seems to enter our national discourse anymore.

[Max T]

I am thinking that we will see a false rally next week - if this unfolds as expected, you can all take advantage and get out of the market and move your assets to cash. Last Chance!
If the market has any intelligence at all the false rally won't happen and then it is down, down, down.
So, let me see whether I've got this straight now: your prediction for the coming week is that the market will either go up or go down.
I fear that Krazy P is probably correct in his assessment.

So Monte assigns a probability of >50% that Krazy’s views, some of them amounting to 100% of outcome (as Fridays Child points out), will come true.
And if not predicting all 100% of possible outcomes, then thinking linearly (i.e. just straight-lining the present into the next several years) during greatest panic is a chestnut as old as the hills.
What hope is there for rest of us?


From a math standpoint, clearly we’re moving from territory where regression to the average is the standard (i.e. normal distribution curve and which all the PhD finance guys’ financial models that lead to this s**t were built upon (LTCM again))…
… And are now in territory where the long tails of low probability make an impact (i.e. power law (special cause variation)).


From a psychological view- there’s a tendency to blindly follow perceived authority figures (e.g. Paulson) during times of huge uncertainty (a source of stress). To reduce this discomfort (cognitive dissonance), a few of us start fortune-telling and the rest, influenced by social proof (i.e. following the herd), start to listen to the few fortune-tellers.
Any capability for independent thought is now replaced with blindly following the fortune-tellers, who suddenly enjoy self-fulfilling prophecies.
Add to this mix an intense focus on the markets and media sensationalism and we have many irrational, over-reactionary, short-term moves being made.


Here’s my little 2 cents for weathering all this.
First, ignore the macroeconomic stuff- far too many variables in a complex, adaptive system whose outcomes we have no prior comparable knowledge of.

Instead, concentrate on your own partially isolated system- your life- by:
- Adjusting the areas within your direct control- your level of debt, savings rate, job, lifestyle etc.
- Focussing on logical second order effects from the big macro stuff that have a high outcome if they impact you (such as Krazy thinking that increased financial hardship = increased robbery and bingo! an attempted robbery). Spread your cash in different banks.
- Ignore the hyper hyped up media (as Henry rightly criticises)- detaching from that will help you act more rationally, making tweaks in your own system rather than full scale panic and herd-following behaviour.

Apologies for a dull viewpoint based on humility and common sense.

[DrEast]

I'd add to Max T's list: Gain a sound understanding of Austrian Business Cycle Theory and of Fractional Reserve Banking. Understanding the problem is ninety percent of solving it.

[dragonsscout]

I entirely reject a collectivist utilitarian ethic, which in arguing that people would have unbounded authority if the government does not you seem to imply. Not so; if the government does not have unbounded authority, then any given person only has as much authority as they can manage, and nature, government, and other people take care of the rest.

Now, I'm not saying that government should have no authority. I'm not an anarchist. But the question of what authority is proper for government to wield just never seems to enter our national discourse anymore.

I was pointing out a paradox in your argument. However, paradoxes have an element of truth in them, which your statement definitely did. The paradox was that people can't have to much authority, but a complete lack of authority (anarchism or extreme libertarianism) would give some people a lot of authority, resulting in scenarios like those of present day Somalia, 2006-7 Iraq, and 1930s Spain, in which militant, authoritarian groups take over.

However, there is a balance, which I'm sure is what you were aiming for (assuming you're a moderate libertarian). I was also aiming for a balance, though not quite the same point on the scale (social democrat with third way and ordoliberal tendencies).

[Krazy P]

So Monte assigns a probability of >50% that Krazy’s views, some of them amounting to 100% of outcome (as Fridays Child points out), will come true.
And if not predicting all 100% of possible outcomes, then thinking linearly (i.e. just straight-lining the present into the next several years) during greatest panic is a chestnut as old as the hills.
What hope is there for rest of us?


From a math standpoint, clearly we’re moving from territory where regression to the average is the standard (i.e. normal distribution curve and which all the PhD finance guys’ financial models that lead to this s**t were built upon (LTCM again))…
… And are now in territory where the long tails of low probability make an impact (i.e. power law (special cause variation)).


From a psychological view- there’s a tendency to blindly follow perceived authority figures (e.g. Paulson) during times of huge uncertainty (a source of stress). To reduce this discomfort (cognitive dissonance), a few of us start fortune-telling and the rest, influenced by social proof (i.e. following the herd), start to listen to the few fortune-tellers.
Any capability for independent thought is now replaced with blindly following the fortune-tellers, who suddenly enjoy self-fulfilling prophecies.
Add to this mix an intense focus on the markets and media sensationalism and we have many irrational, over-reactionary, short-term moves being made.


Here’s my little 2 cents for weathering all this.
First, ignore the macroeconomic stuff- far too many variables in a complex, adaptive system whose outcomes we have no prior comparable knowledge of.

Instead, concentrate on your own partially isolated system- your life- by:
- Adjusting the areas within your direct control- your level of debt, savings rate, job, lifestyle etc.
- Focussing on logical second order effects from the big macro stuff that have a high outcome if they impact you (such as Krazy thinking that increased financial hardship = increased robbery and bingo! an attempted robbery). Spread your cash in different banks.
- Ignore the hyper hyped up media (as Henry rightly criticises)- detaching from that will help you act more rationally, making tweaks in your own system rather than full scale panic and herd-following behaviour.

Apologies for a dull viewpoint based on humility and common sense.


Good post. Get and hold a good job, save as much as you can, cut expenses, retire debt and help your family if you can. If you can help others in your community, do that too - they are going to need it.

As far as my predictions - Dow at or below 7700 by year end. I think the market was "testing the lows" today when it hit 7800 briefly. I have been saying this consistently. My other prediction was just a short term play. I will start moving slowly back into the market when it hits that level on a very selective level. I will probably be totally back in the market by the end of 2010.

All that being said, it could go much lower - in the 80's the P/E ratio was as low as 5. But it didn't stay there for any serious duration and I don' want to miss the upside by waiting too long.

There is a very good article in the NY Times today that basically reprises the argument I have been making for about 2 months on this site. I think it's called "How Cheap are Stocks?" or something like that: To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

[meanlittlechimp]

I realize that (it's their RESPONSE to the national debt) and I think we agree. It's detrimental to economic health in the long run for other reasons.

Expanding money supply increases our debt exposure which has short term gain for long term pain (that will be more than loss when the economy contracts from the debt actually getting paid). It adds additional inflationary pressures to our dollar on TOP of the "natural" (non-Fed driven) pressures caused by our trade deficit and our ballooning national debt.

Just reread this and I admit I was less than clear explaining this relationship. I majored in Econ - but it's been a while. Let me try putting it this way.

Printing money (or expanding money supply) causes inflation because it makes each dollar already in the system inherently less valuable. This isn't necessarily always problem when we are facing real economic growth or increased productivity (which we haven't).

In the past when there was a gold standard, Governments had commodities with REAL VALUE to back up their paper money. Once the dollar replaced gold as the "commodity" that was pegged to world currencies (meaning they now had to hold US dollars in their treasuries instead of gold) keeps our currency artificially strong. Historically, in times of huge trade deficits, the nations with surplus accumulate gold or silver in exchange for their goods. One of the reason gold prices are skyrocketing is because people are dumping dollars.

Once central banks around the world lose faith in the intrinsic value of the US dollar and they start dumping their dollars and Treasury notes - the dollar will plummet even further (causing more inflation).

The upside is that our products will be more attractive in int'l markets (from the weaker dollar) which should help our trade deficits. The downside is our standard of living will fall to more realistic levels. You can live nice for a while off your credit cards but once the credit gets turned off, we're gonna face a painful dose of reality.

Interestingly, The Roman empire was in danger of losing all their reserves of silver and gold in to the Chinese because of their fondness for silk, until the wearing of silk was banned. And most of the gold and silver - Europe was plundering in the New World - was going straight to East Asia to pay down their trade deficits..

China ended up sitting on the majority of world reserves until the British forced opium on them as payment for their trade deficit. They went from 60% of the world's entire GDP in the 17th century (I think maybe earlier) to 1/12 the size of the US economy by 1950.

[BajanMan]

The upside is that our products will be more attractive in int'l markets (from the weaker dollar) which should help our trade deficits.

Can't really say that getting our products at a much cheaper price is necessarily a bonus to us, unless the asking price and volume of goods sold at a cheaper price is more than it would be at a normal asking price (relative to the value of the dollar). But yep - looks like we're bout to see a whole avalanche of inflation come next year.....

[SeaCzar]

The silver bullet in all of this is falling commodity prices (especially oil, which has fallen by more than half since its peak in July). If oil get to $50.00/bbl, we are out of recession just like that. Clinton's administration was blessed with falling oil prices, and the economy purred. It could happen again, even more so now that OPEC has more capacity coming on line. Those greedy bastards are not going to be able to agree on cuts big enough to drive oil prices back to their previous unsustainable levels.

[meanlittlechimp]

The silver bullet in all of this is falling commodity prices (especially oil, which has fallen by more than half since its peak in July). If oil get to $50.00/bbl, we are out of recession just like that. Clinton's administration was blessed with falling oil prices, and the economy purred. It could happen again, even more so now that OPEC has more capacity coming on line. Those greedy bastards are not going to be able to agree on cuts big enough to drive oil prices back to their previous unsustainable levels.

The reason it has dropped now is mainly due to a temporary fall in demand from the developing world (because of the cold that caught from the collapse of our financial sector). That fall in demand will be short-lived, however. The long term trend will be increasing oil prices because of the overall rise in demand from the developing world (China, India, Vietnam etc) combined with a dwindling finite resource - oil.

If you throw in a devaluing dollar; the prices must go up in the long run (there is no doubt about this, unless peak oil is wrong). The best hope is alternative energy breakthroughs which the right has been stifling for quite some time. Hopefully that will be corrected when Barack takes over.

[BajanMan]

Got gold & silver?

[Tripper]

Watch the movie Zeitgeist, it's pretty much an accurate interpretation of the behind the scenes work going on.
It's all fabricated BS anyway in terms of media and markets - the smart investors should be buying now - banks are, Buffett is and I'm sure managers and their afficionados are buying back their own shares or others.
I think all these bubbles and bursts are created on purpose simply so the banks and managers can increase their profits.
Recession on average lasts 18 months, market tends to rebound up about 30% annually from the middle of the recession.
Buy now and dollar cost average by getting in at better price, buy fundamentally sound businesses which are heavily undervalued.
---------------------------------
Do your own research, I'm not liable for your actions.

Really loving the economic environment atm so much fun and excitement!

[Ool]

The reason it has dropped now is mainly due to a temporary fall in demand from the developing world (because of the cold that caught from the collapse of our financial sector). That fall in demand will be short-lived, however. The long term trend will be increasing oil prices because of the overall rise in demand from the developing world (China, India, Vietnam etc) combined with a dwindling finite resource - oil.

This might be a good time to invest in oil futures again. I'm just afraid that, even if oil prices rise, the derivatives market itself will collapse at some point because there won't be as much oil around as papers claiming to represent future oil.

Of course they're backed up, but if the backer-uppers go bankrupt then that would be that...





Ool added to this post, 13 minutes and 53 seconds later...

Got gold & silver?

Not much interest there, and at some point you'd have to spend your metallic wealth, and then what would you buy next for speculative value increase...?

[zibber]

Not much interest there, and at some point you'd have to spend your metallic wealth, and then what would you buy next for speculative value increase...?

Questions like this appear to me to be part of whatever problem we are experiencing..


As I said I don't own any shares but still make money by selling shares I don't own, shorting.

This isn't to say I'm an expert on these matters, but WHAT?!@

[tp6626]

This isn't to say I'm an expert on these matters, but WHAT?!@

Don't quote me on this, but I think its when you sell something to someone when you don't actually own any of it. It's a bit like an IOU.

The idea is that you're confident the price is coming down, so you sell someone a load of shares at current price, and then wait to buy them yourself at the lower price in the future to settle the 'debt'. The difference, you then make as profit.

It's extremely risky though. If the price rises, you are left owing extra money when the debt is called in, and will take a loss.

I don't understand how it is legal to do this, however. Maybe someone could fill us in.

[AJB]

Don't quote me on this, but I think its when you sell something to someone when you don't actually own any of it. It's a bit like an IOU.

The idea is that you're confident the price is coming down, so you sell someone a load of shares at current price, and then wait to buy them yourself at the lower price in the future to settle the 'debt'. The difference, you then make as profit.

It's extremely risky though. If the price rises, you are left owing extra money when the debt is called in, and will take a loss.

I don't understand how it is legal to do this, however. Maybe someone could fill us in.


I actually thought short selling had been suspended back in September. I was unaware that the suspension had been removed.

[Functianalyst]

Going off topic on what could be a perfect storm if matters continue through 2010. I have asked for 30 years now how the Baby Boomer exodus will effect our economy. This could last for up to fifteen years. Clearly the government cannot take on such a mass of people retiring and taking a bigger bite out of social security, but increasing the retirement age merely provides a band-aide.

[meanlittlechimp]

Going off topic on what could be a perfect storm if matters continue through 2010. I have asked for 30 years now how the Baby Boomer exodus will effect our economy. This could last for up to fifteen years. Clearly the government cannot take on such a mass of people retiring and taking a bigger bite out of social security, but increasing the retirement age merely provides a band-aide.

If you tack on the UNFUNDED social security and medicare liabilities (that the baby boomers will start collecting) our national debt would be almost $59.1 trillion. That means $516,348 in debt per household.

Brilliant strategy by the right to cut taxes on the rich and spend trillions attacking Iraq. Obama is going to inherit a shit storm.

[LaoTzu]

I can say i'm not too worried either about a recession or even a depression. My job is pretty secure, save for the fact i may become a target of the disadvantaged :P

I will say that the idea of an ever growing world economy doesn't really sound right to me, anything that continually grows ad infinitum is nigh a cancer in my mind.

Real things, natural ecologies ebb and flow.... not grow consistently. A little backward movement in the market is natural and should be considered good in some respect.

maybe im just naiive...

I do think that the turmoil will realign some thinking, and hopefully good people will have the ear of those making the real decisions for the future.

[CaptainA]

I actually thought short selling had been suspended back in September. I was unaware that the suspension had been removed.

The suspension was lifted but in any case I think the reference was to another country.

[Agile]

The national debt: If it were ever paid off, it would cause an economic crisis, if not a collapse. Someone who is more familiar, help me out.

Unfunded liabilities: Since the national debt regularly increases anyway, and since no politician ever seems to concern him or herself with it, assume that unfunded liabilities will not be funded...unless of course it they can be funded in such a way as to put a damper on the quality of life for Americans.

A couple questions.
1) We (and I use 'we' loosely) seem to believe the economy would collapse if the market collapsed, can anyone explain how this would happen?
2) We (again) also believe that we need to change our lifestyle habits, etc, etc, to reverse our trade deficits. Could someone please shed some light on this, ie, show the data?

[ProgFusionRoman]

Some reasons why the stock markets go down during a recession (economic downturn):
1) Lower earnings forecasts on companies (some may even fail as they could only turn a profit/attract new investment for an undefined future payoff during a boom)
2) Momentum - has shifted downwards taking all the day-traders down as well as uninformed private investors who did not hold index related investments (as a whole portfolio) and therefore had no reasonable basis for holding the shares they did who panic and sell in a downturn.
3) News that was slightly worse than expected will cause a downwards revaluation (depending what the news is).
4) downturns follow periods of growth - often the growth phase has had a bubble effect on asset prices. This is because people have a short-term memory and do not learn from history. Therefore in a bid to outdo each other and with more risk than the reward justifies they invest by themselves. One word for this - Greed.
5) Sheep factor - some people actually believe they are getting useful information from their local newspaper and TV news (all infotainment) - no research needed from non-INTJs! If "investors" are selling they think they should sell as well. One day the news will say "investors" sold out of fear today then the next day "investors" bought back in out of optimism. They are not "investors" but "speculators". "Investors" buy and hold quality investments. If you do not question the meaning of every word in every context about a situation what is your reasonable basis for a decision which could greatly affect your life? Incredible.


Regarding the potential collapse - the issue is not irrational fear on stockmarkets actually. It is a given that will occur during every downturn every 7 or so years. The issue was (perhaps still is - it is not flowing anywhere near as freely as it normally does still) the liquidity trap caused by banks not wanting to lend each other money due to the public (on a small number of banks justifiably and mostly not according to "fundamentals" - being defined as ability to produce "residual income" as defined by analysts producing "reformulated" financial statement analysis) causing runs on banks. The "financial system" (not markets) had shut down (no flow of money) as there was fear of a "fear contagion" with people trying to withdraw the funds from banks all at the same time as some banks were not sound and were failing so the issue is this spreading as a "fear contagion" to the sound banks. If everyone did this at the same time banks would fail and the economy would shrink - see 1929.

[meanlittlechimp]

Regarding the potential collapse - the issue is not irrational fear on stockmarkets actually. It is a given that will occur during every downturn every 7 or so years. The issue was (perhaps still is - it is not flowing anywhere near as freely as it normally does still) the liquidity trap caused by banks not wanting to lend each other money due to the public (on a small number of banks justifiably and mostly not according to "fundamentals" - being defined as ability to produce "residual income" as defined by analysts producing "reformulated" financial statement analysis) causing runs on banks. The "financial system" (not markets) had shut down (no flow of money) as there was fear of a "fear contagion" with people trying to withdraw the funds from banks all at the same time as some banks were not sound and were failing so the issue is this spreading as a "fear contagion" to the sound banks. If everyone did this at the same time banks would fail and the economy would shrink - see 1929.

This is largely true. But I think this goes way beyond normal "business cycles" that typically occur. The debt is almost incomprehensibly large. This alone wouldn't frighten me as much, if it wasn't combined with peak oil.

So much of our economy and society is dependent on oil. Not just for transportation, heating, electricity but a vast array of goods most people aren't aware of: plastics, paints, solvents, clothes, guitar strings, epoxy, medicines, fertilizers, cds (you can add another couple of hundred major products here). It takes 22 GALLONS of oil to make a single truck tire.

When you have a finite resource that is getting depleted at ever faster rates from the industrialization of billions of people (in China, India, SE Asia etc). The pressure on prices within our lifetimes will be enormous. If you can imagine a world with 50 dollars a gallon, the cost of transporting goods form New York to Iowa, will be obscene. Our entire infrastructure and suburban sprawl is based on cheap gas. When the fuel in a truck is approaching the value of the contents it's transporting, much of our lifestyle will be impossible to sustain.... without major technological breakthroughs.