The Recovery Thread

[Greenbeard]

You have to understand that those who don't get your metaphor are those who get most of their news from Daily Kos, Huff Post, and such as that and probably never heard about the 'tingle up the leg'

Isn't the conventional wisdom that those are the very people who are mostly likely to watch MSNBC?

 

[Foxfyre]

You have to understand that those who don't get your metaphor are those who get most of their news from Daily Kos, Huff Post, and such as that and probably never heard about the 'tingle up the leg'

Isn't the conventional wisdom that those are the very people who are mostly likely to watch MSNBC?

I didn't see it on MSNBC though. I saw it on NUMEROUS other sources, however, as an illustration of the fanatical adoration being heaped upon the candidate and/or the newly elected President at that time. Sort of like Farrakkhan referring to him as the Messiah, or Oprah to him as "the ONE" and numerous other metaphors, imagery, and platitudes. The hard left press covered almost none of that because it really did look sooooooo bad to those who had been pretty well trashing the religious and religion for so long.

Even WAPO got in on the phenomenon:

Is Obama a (or the) Messiah?

Is Obama the Messiah? People are asking these days and it's not so hard to understand why: the desperate throngs, the tears, the great awakening of a slumbering demographic. All that larger symbolism.

The emotional landscape of many American voters is calamitous of late -- frightened by our Babylonian war, unhappy with our President and depressed by the cleansing crush of the credit crunch -- so it's not surprising that the coming presidential election would take on a certain biblical coloring.

The Messiah question is a loud one coming from all corners. Even a blogger for Mother Jones, the hot heart of the far left, worries that the Obama-passion will be used for nefarious purposes by right-wingers, he himself writes "Barack Obama has a messiah complex and no one will convince me otherwise."

The salty 62-year old Chris Matthews of MSNBC puts the phenomenon of Obama on the good book scale, telling the NY Observer that "I’ve been following politics since I was about 5. I’ve never seen anything like this. This is bigger than Kennedy. [Obama] comes along, and he seems to have the answers. This is the New Testament. This is surprising.”

Timothy Noah has been on his "Messiah Watch" for over a year now for online magazine Slate though he says he doesn't suggest it is Obama that believes in himself as the second coming but rather "that a few excitable souls in the media bear the apparant conviction that Obama is the Redeemer."

More here:
Under God: Is Obama a (or the) Messiah? - Claire Hoffman

Oh, and really so few people watch MSNBC, the probability that any particular blogger or commentator would have happened to catch Matthews on that particular night is pretty teensy.

 

[loosecannon]

loosecannon, I hope you are right. But what about the commercial mortgage issues that have come due the ending quarter and this quarter? I have heard some banker friends tell me that this could be far worse than the private mortgage meltdown. What do you think?

as always I dunno. The private mortgage meltdown had all kinds of ripple effects in construction and destruction of personal wealth. I think the commercial meltdown is a natural gleaning effect required in capitalist business cycles.

But aside from banks being forced to recapitalize again and perhaps relying on fed support again I dunno that distress in the banking sector matters a whole lot, since they aren't lending much anyway.

Is the credit rating of the US consumer improving or still declining? There is your turning point. IMO.

 

[loosecannon]

and the leading economic indicators published by the Conference Board are as strong as they have been in 3 years.

It certainly falls like we are near the bottom of the business cycle, unless another shoe falls.

I agree. From what' I'm hearing, corporations are generally pretty positive.

The big hurdle will be what happens when QE2 ends in June?

This is what a balance sheet recession feels like, moving in stops and starts. It's different from the recoveries we had post-war during the last century.

Interesting, what is a balance sheet recession?

 

[william the wie]

the balance sheet is

equity + liabilities = assets.

when the market value of assets decline accumulated savings are destroyed.

 

[loosecannon]

sure, but "balance sheet recession" is a new term to me.

I looked around and everything seems to point to this scholarly work by a man named Koo: http://www.spfusa.org/program/avs/2003/jun0403.pdf

But the term is only used in the title. It is a 30 page treatment, medium dense. I was hoping somebody could spare me the effort.

 

[Toro]

sure, but "balance sheet recession" is a new term to me.

I looked around and everything seems to point to this scholarly work by a man named Koo: http://www.spfusa.org/program/avs/2003/jun0403.pdf

But the term is only used in the title. It is a 30 page treatment, medium dense. I was hoping somebody could spare me the effort.

I have read several pieces by Richard Koo. He seems to be the most vocal proponent of Keyneisanism, arguing that Japan has been a success, not a failure. Without the Keynesian response, Koo argues, Japan would have been much worse off.

I refer to a "balance sheet recession" as one caused by changes in debt and asset prices. This differs from the typical economic cycle, which was driven by the inventory cycle and inflation. The economy collapsed into a recession because asset prices fell and debt was liquidated. Past recessions have been caused by inflationary pressures and tightening capacity.

 

[william the wie]

What do you think of that Ned Davis report that the S&P will head to 1550 and crash in June when QE II runs out of steam and the 10 year treasury gets past 4% yield?

 

[editec]

Recovery?

I doubt it.

Not with the price of oil looming on the horizon.

Not with the move of many of our debt holding nations to dump the dollar.

Not with continued tax breaks for billionaires and FREE TRADE.

We borrow, I am informed, 42 cents of every dollar we currently spend.

I think this is unsustainable.

What's worse I do not think that either party really cares.

They're getting theirs while the getting is good.

The rest of us are basically screwed.

 

[Toro]

What do you think of that Ned Davis report that the S&P will head to 1550 and crash in June when QE II runs out of steam and the 10 year treasury gets past 4% yield?

I think that is very possible.

It feels like the market wants to go back and test its all-time highs. The Russell 2000 is only 10% off its highs.

How the economy and the market reacts after QE2 ends is going to be paramount. It wouldn't surprise me one way or the other if everything crashed after the end of QE2 or it turned out to be a non-event.

 

[Zander]

I believe that the over the short term "the market" has nothing to do with the economy, earnings, or reality. As the economy improves the market will fall and vice versa.. We really should all hope for more bad news........It's the only way to get higher stock prices.

 

[Foxfyre]

I believe that the over the short term "the market" has nothing to do with the economy, earnings, or reality. As the economy improves the market will fall and vice versa.. We really should all hope for more bad news........It's the only way to get higher stock prices.

There was a time when people invested in business and industry on the theory that it was riding rising stars that would prosper over time. When you invested you were looking ahead five, ten, twenty years with the expectation that the enterprise would continue to expand and grow and thrive. There was a risk, but generally if you spread it and invested wisely, over the years you would see your nest egg grow and multiply and you could prosper with a reasonable degree of security.

These days I'm guessing many if not most investors are playing the market like a sports book at Vegas, gambling that they picked the winning team or number or whatever. And when the team loses a quarterback or the start running back or whatever, they immediately bail out on the theory there will be short term losses. The fortunes of the franchise beyond the immediate foreseeable future are not a consideration. I think few, if any, look for those profitable splits that increase the value of a long term investment. I'm guessing some have never held a stock or mutual fund long enough to enjoy that phenomenon.

But the fact is, when the stock market is the only game left in town--there is still too much uncertainty in real estate, taxes, regulations, etc. to make other forms of investment palatable, and the dollar continues to lose value, folks will put their money in the most likely place they can grow it. And that's the market.

 

[william the wie]

I believe that the over the short term "the market" has nothing to do with the economy, earnings, or reality. As the economy improves the market will fall and vice versa.. We really should all hope for more bad news........It's the only way to get higher stock prices.

There was a time when people invested in business and industry on the theory that it was riding rising stars that would prosper over time. When you invested you were looking ahead five, ten, twenty years with the expectation that the enterprise would continue to expand and grow and thrive. There was a risk, but generally if you spread it and invested wisely, over the years you would see your nest egg grow and multiply and you could prosper with a reasonable degree of security.

These days I'm guessing many if not most investors are playing the market like a sports book at Vegas, gambling that they picked the winning team or number or whatever. And when the team loses a quarterback or the start running back or whatever, they immediately bail out on the theory there will be short term losses. The fortunes of the franchise beyond the immediate foreseeable future are not a consideration. I think few, if any, look for those profitable splits that increase the value of a long term investment. I'm guessing some have never held a stock or mutual fund long enough to enjoy that phenomenon.

But the fact is, when the stock market is the only game left in town--there is still too much uncertainty in real estate, taxes, regulations, etc. to make other forms of investment palatable, and the dollar continues to lose value, folks will put their money in the most likely place they can grow it. And that's the market.

The long and short cycles of equity action are driven by cashflow. "Stock Trader's Almanac" published annually is a good source for keeping track of these cycles and how they change overtime but a quick warning:

The ADD traders jump on these cycles and tend to eliminate them.

The cycles are probabilistic so big money is dependably made based on betting that relationships that work 90% won't work 10% of the time and that panic will result from them not working.

Asset allocation works as well.

Fundamental investing works too.

What is lacking is the discipline to carry out any of the workable strategies.

 

[Toro]

I believe that the over the short term "the market" has nothing to do with the economy, earnings, or reality. As the economy improves the market will fall and vice versa.. We really should all hope for more bad news........It's the only way to get higher stock prices.

I am sympathetic to this argument because I think the market can become unhinged. However I know of no economic recovery that wasn't preceeded by a strong market, and after doing this for almost 20 years, this feels to me like a recovery.

But I think it is very fair to be skeptical because of the affects of QE2.

 

[william the wie]

I believe that the over the short term "the market" has nothing to do with the economy, earnings, or reality. As the economy improves the market will fall and vice versa.. We really should all hope for more bad news........It's the only way to get higher stock prices.

I am sympathetic to this argument because I think the market can become unhinged. However I know of no economic recovery that wasn't preceeded by a strong market, and after doing this for almost 20 years, this feels to me like a recovery.

But I think it is very fair to be skeptical because of the affects of QE2.

Based on the Endogenous factors used in economic models I would agree but we are teed up for so many possible exogenous shocks that unless the Yen and Yuan unpeg in an orderly fashion I think we could be screwed.

 

[Trajan]

sure, but "balance sheet recession" is a new term to me.

I looked around and everything seems to point to this scholarly work by a man named Koo: http://www.spfusa.org/program/avs/2003/jun0403.pdf

But the term is only used in the title. It is a 30 page treatment, medium dense. I was hoping somebody could spare me the effort.

I have read several pieces by Richard Koo. He seems to be the most vocal proponent of Keyneisanism, arguing that Japan has been a success, not a failure. Without the Keynesian response, Koo argues, Japan would have been much worse off.

15-20 years of what we have seen is success? Okay, so what does defeat look like, empty shelves circa March 45?

 

[loosecannon]

sure, but "balance sheet recession" is a new term to me.

I looked around and everything seems to point to this scholarly work by a man named Koo: http://www.spfusa.org/program/avs/2003/jun0403.pdf

But the term is only used in the title. It is a 30 page treatment, medium dense. I was hoping somebody could spare me the effort.

I have read several pieces by Richard Koo. He seems to be the most vocal proponent of Keyneisanism, arguing that Japan has been a success, not a failure. Without the Keynesian response, Koo argues, Japan would have been much worse off.

I refer to a "balance sheet recession" as one caused by changes in debt and asset prices. This differs from the typical economic cycle, which was driven by the inventory cycle and inflation. The economy collapsed into a recession because asset prices fell and debt was liquidated. Past recessions have been caused by inflationary pressures and tightening capacity.

I always considered Japan's enduring deflation to be a huge blow to Krugman Keynesianism.

In fact the OP is titled Japan and the Limits of Keynesianism - Megan McArdle - Business - The Atlantic

The bottom line is that it just hasn't worked. And arguments that it would have been worse are lacking any supportive evidence.

After the fact, and safe from an actual test that proved or disprove the alternatives, advocates will always defend their positions with arguments like "it would have been worse" or "we were on the edge of economic Armageddon".

But since that didn't happen it isn't real. Making predictions about the past that never happened is as dubious as predicting the future that hasn't happened yet.

Just saying.

 

[Toro]

sure, but "balance sheet recession" is a new term to me.

I looked around and everything seems to point to this scholarly work by a man named Koo: http://www.spfusa.org/program/avs/2003/jun0403.pdf

But the term is only used in the title. It is a 30 page treatment, medium dense. I was hoping somebody could spare me the effort.

I have read several pieces by Richard Koo. He seems to be the most vocal proponent of Keyneisanism, arguing that Japan has been a success, not a failure. Without the Keynesian response, Koo argues, Japan would have been much worse off.

15-20 years of what we have seen is success? Okay, so what does defeat look like, empty shelves circa March 45?

Koo's argument is that it would have been much worse. Debt deflation - like we are facing here - would have collapsed the Japanese economy. Instead, Japan was able to avoid the pernicious affects of deflation and maintain one of the highest standards of living in the world.

I don't know if he is correct or not. I think "something bad" is coming in Japan this decade. But that is his argument.

 

[Trajan]

I have read several pieces by Richard Koo. He seems to be the most vocal proponent of Keyneisanism, arguing that Japan has been a success, not a failure. Without the Keynesian response, Koo argues, Japan would have been much worse off.

15-20 years of what we have seen is success? Okay, so what does defeat look like, empty shelves circa March 45?

Koo's argument is that it would have been much worse. Debt deflation - like we are facing here - would have collapsed the Japanese economy. Instead, Japan was able to avoid the pernicious affects of deflation and maintain one of the highest standards of living in the world.

I don't know if he is correct or not. I think "something bad" is coming in Japan this decade. But that is his argument.

the Japanese have picked their poison apparently, the death of a thousand cuts.

 

[william the wie]

Trajan, a simpler way to look at what is going on is to see China, Japan and Germany relying on the US and to a much lesser extent Canada, Australia, New Zealand and the British Isles as consumer of last resort and provider of transparent financial investment vehicles. That's why three of the four deepest capital pools are English speaking: Chicago, London, New York and Tokyo. For example the paperwork for shipping from China to Japan is usually handled out of London.

With English speaking deleveraging fewer goods and services can be exported and less money can be invested in Real Estate (note Sauerkraut's comments on housing) and for that matter equity investing also becomes more chancy. Tokyo is one of the big four capital markets because it is relatively transparent compared to other non-English speaking countries. In China only tracking stocks for state owned and/or controlled enterprises have sufficient volume to be worth buying. Germany has other problems mostly dealing with an unusual business model of family firms and industrial banks. Nothing shady about it but the capital structure of businesses are sufficiently different from the English law model that non-natives do not know how to price the stocks and bonds. Japan has similar problems but it goes much further in trying to make its market more Gaijin friendly.

If English language consumption goes down the sideeffects in the next three biggest economies will be drastic.