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Recent Recommendations
RE boom in the mid 80s.
Internet boom in the mid 90s.
What's the catalyst now?
REBear need to also add:
Defense buildup by Reagan in the 1980s
Y2K spending by companies in the 1990s
Some possible catalysts in mid 2000s
1. Web 2.0 boom
2. bio-tech growth
3. Growth in alternative energy
4. Boom in derivatives trading
However none of the above are sufficient to improve growth prospects for the economy as a whole.
Another favorable factor in the mid 1980s and mid 1990s were that oil prices were low.
What's the catalyst now?
Global liquidity. There is still a ton of stuff left we can pawn for 'prosperity'... assuming they still want it.
"assuming they still want it"...they will only want our woman. I'd be willing to give em Leearh.
CR -- There has been a clear structural change in the global economy that cannot be ignored. The BRICs have reshaped how the US economy works. So even though I believe a recession is in the cards it may come later than most people think.
The RE markets around the world are still booming. The US appears to be ahead of the game. Lets wait until RE cools in Europe and Asia.
So even though I believe a recession is in the cards it may come later than most people think.
I agree. But while I agree it could be a while off the shift might come blindingly fast and almost 'out of the blue' if you hadn't been expecting it. The 'big surprise' that should not be a surprise at all.
If you believe the Setser entry I linked to above he says there is evidence that PRIVATE investment in US debt is diminishing quite a lot... and that while those same foreign private agents appear to continue to buy our equities the demand is less than in the past... couple that with increased US demand for foreign equities... and what you get is private momentum OUT of USD denominated entities.
But we still run a large CA deficit so SOMEBODY is sending the dollars back. According to him (from the reports he links to)... its the foreign central banks that are keeping the game going.
The last paragraph is a killer...
The world unquestionably saves enough to finance the US deficit, but right now only other governments are willing to lend their savings to the US. That kind of puts the world's leading champion of private markets in a rather awkward position.
Yup.
The other thing to consider is that commodities are trading near new their highs of last year. (Take a look at copper for example). There is no shortage of global demand for anything and everything. True the US econ is slow but I doubt we will actually get a recession here with the global economy on fire.
The big problem now is really inflation not slow growth.
well at least we wont stagflate
Dryfly -- I'm with you. In my opinion the party will go on until everyone gets so drunk with liquidity they will all pass out.
At some point, inflation will force foreign central bankers to raise rates to a level where assets and stock markets will no longer continue appreciating at exorbitant rates. I think we still have a long way to go. But once we get there the US is in big trouble.
Just take a look at chinese stock markets and RE.
True the US econ is slow but I doubt we will actually get a recession here with the global economy on fire.
The big problem now is really inflation not slow growth.
I tend to agree. One caveat - how much of the 'global demand' is really second & third tier US demand?
Say we import a bunch of electric motors (for say HVAC systems going into home building)... and the foreign operations making the motors buy copper for their windings... If the US demand for motors declines will the foreign demand for copper soon follow?
I don't know.
Another possibility is that a substantial readjustment of the dollar causes US inflation to increase (import price driven) but global deflation due to all the capacity & money OUTSIDE the US. That would be a real mess until the two pools rebalance.
sharkbait,
you are confusing the result of speculative excess which is the cause of the current inflation scare and robust demand due to an increasingly strong global economy.
The US is slowing, there will be no decoupling, we blink, the world sneezes.
The kool-aide for sale on every corner today might taste great, but, in the end, it'll kill you.
Kevin wrote: "assuming they still want it"...they will only want our woman. I'd be willing to give em Leearh.
That induced a painful fit of laughter...
A 10yr and a 3yr tbill auction this week will confirm the softness/hardness of that foreign investment (the character, private or cb a little occluded).
It's a nice chart as usual CR, but REbear and Gavin point me in the direction that those mid cycle recoveries had real alternatives and as much hot air as we could muster into nanotubes, stem cells, wind turbines, sowing corn where your lawn once stood...has not produced any New Things to pile that liquidity into. So it'll stay in a few hands it seems to me and with that, a hard landing, it seems to me.
America's best years are behind us...the downfall of middle class America was put into full swing by George Fucking Idiot Bush and his greedy bastard supportershim......if you voted of him in 2000 and 2004 then I hope you have misery because the adjustment for much of middle class America over the next decade is going to be painful...very painful !
About liquidity - the M2 and M3 are not liquidity, they are leverage (IMHO). The real money are M1 and they are on decline.
The second trouble is inverted yield curve. Each of those indicators are giving over 50% correct recession prediction. But taken together it's very close to 100%.
Mish & Kasriel nailed it very well.
KM$,
Very nice really. Sheesh. If you are going to refer to others as idiots, having words like supportershim in your rant is pretty embarassing.
CR,
It seems to me the crux is here for all of us. The predictions here are a recession in 2007. That means two or more consecutive quarters of negative growth. Ya better get moving! Only three quarters left.
I still think worldwide liquidity does the trick and we get through this with no negative quarters. I'm with the majority on this one. Bottom in next quarter and a modest rebound thereafter. As always, we'll see.
The predictions here are a recession in 2007. That means two or more consecutive quarters of negative growth. Ya better get moving! Only three quarters left.
banker - I'm not on a schedule...
I could care less if the official recession comes in 2007 or 2008 or 2009... I take no joy in the 'contest' part of this. As far as I'm concerned that's just more 'jock posturing'.
Its what it does to my future & my kids' futures that has me jazzed. If the problems (debt growth & CA balance) get sorted out so no recession occurs then NOBODY, even the most ardent bull will be happier than me.
But I do not see the corrections that need to happen to avoid a recession - adjustments like USD debt constraint and dollar revaluation. While abrupt dollar evaluation MIGHT lead to a brief near term recession... it could set the stage for another couple decades of very balanced US growth as US 'value added tradables' become more competitive and offshore imported goods & services less so. We'd still import plenty - only we'd export more to balance it. How is that not a win-win.
If I start seeing a trend in that direction then all of a sudden I'm more bullish than you by A LOT.
About liquidity - the M2 and M3 are not liquidity, they are leverage (IMHO). The real money are M1 and they are on decline.
You don't need 'money' as long as people will offer you credit. It's when they will no longer do that and you were COUNTING on them doing it that things get interesting.
M2 & M3 are great proxies for 'money' as long as credit is still 'good'. Mish has such a terrible bias against any and all credit that he can't understand why it has kept on this long... which is why he and many of us have mistimed this thing so badly.
In that sense Mish & Kasriel have nailed nothing yet.
dryfly,
Mish has such a terrible bias against any and all credit that he can't understand why it has kept on this long... which is why he and many of us have mistimed this thing so badly.
I believe it is the same problem the "populationists" have. If you plot worldwide population on a linear scale the parabola would surely make you gasp in horror. Heck, I might have been lured into shorting it myself once the global population hit 1 million. If I felt the need to short growing things, that is.
One interesting chart is to plot total consumer credit divided by total annual wages (BLS weekly earnings times BLS total number employed times 52). Assuming I did it right, it has actually been trending down for the past few years after peaking in early 2005. It could imply the consumer is becoming a bit more risk averse. It is still WAY up from 1993 though (as far back as I found data).
In theory...
Those last 3 are probably worth a commentary. We've got a stock market that "only goes up" again, bubbly home prices, AND near record unemployment. What could possibly go wrong? sarcastic eye roll
2. As long as more and more people find credit cards more convenient than cash (even if they pay their bills off in full) one would expect credit to grow.
Stag Mark - the greatest innovation involving credit cards is now we can all easily haul a wheelbarrow full of money to the grocery store and it easily fits in our wallet.
Money supply is now only limited by the number of electrons we can send each other's electronic bank account.
Isn't every quarter the "crux" for the following quarter?
Agree with dryfly. And in addition even in the narrow sense of transactions M1 is too limited as a proxy for money. With all the online banking available money hardly ever needs to leave interest bearing savings account.
Also, if the CBs had kept the US$ pumped up, then US labor would not be so expensive vs rest of World. In theory, as we exported jobs, the US $ would decline until parity.
But the CBs keep thinks mucked up.
Poor Mish is playing with the Mises folks, but he just ain't one of them.
From David Rosenberg's May 4 commentary:
"Full-time jobs, the key generator of personal income growth,
plunged 687,000 in April which is the largest slide since the economy was
knee-deep in recession back in August 2001 and such a decline has only
occurred three other times in the history of the Household Survey (back to
1968)."
dryfly,
Money supply is now only limited by the number of electrons we can send each other's electronic bank account.
I've been thinking about writing a book or two.
How the Government Will [Literally] Make Money Instead of You During the Next Deflationary Crash
Theoretical testimonials...
I really like how the author showed that I couldn't really prosper from the crash. The price of soup will remain constant even as I lose my job.
The author predicted that the price of his book would hold constant even as people stopped buying it. You know what? He was right! I'm returning my copy tomorrow for a full refund!
Should that book not work (either due to lack of sales or incorrect theory), I also have one more waiting in the wings.
How to [Not] Profit as Your Inflation-Adjusted Weekly Wages Decline
Then again, maybe now is a bad time to write self-help financial books. Who knows!
That chart is devastating.
Let's see -- we have rampant liquidity, historically low rates, massive keynesian stimulus (tax cuts, deficit spending, war), record debt levels, negative savings, huge foreign support... and yet this "boom" is visibly the runt of the litter.
with shark dry and me, it is almost old times again.
John Hussman posted his weekly comment: (View the entire piece with charts at ... Hussman Funds - Weekly Market Comment: May 7, 2007 - Spot the Pigeon )
"It's hard to characterize the recent advance as something other than a speculative blowoff. The Dow has now advanced 23 of the past 26 sessions something it has not done at any other time in the past century, and at the richest valuations of any comparable stretch (most similar to the blowoff near the peak of the 60's Go-Go market). The S&P 500 is currently at about 18.5 times record top-of-channel earnings on record margins. At normalized profit margins, the P/E would be over 25. At every horizon, including monthly, weekly and daily frequencies....
Lately, the bullish arguments (on CNBC) are running so fast and loose that it is apparently no longer a requirement that they have any relationship to fact.
Take for example a remark last week that mutual funds are sitting on piles of cash that these managers are going to have to get invested.
Wow. That's just a bald-faced fib. It could not be further from the truth. Cash as a proportion of mutual fund assets has never been lower. Never.
A similar claim is that there are a lot of shorts out there, and they're going to be forced to cover.
Again, this is not supported by the data. Recent years have seen a proliferation of hedge funds, market neutral strategies, and merger arbitrage vehicles. All of these are based on matched long and short positions. These are not speculative or naked shorts, and in many cases are not even bets that the stocks sold short will decline (instead, the objective is to earn a difference in performance between the longs and the shorts, regardless of whether they both rise or fall in absolute terms). It is wrong to quote the current short interest as a bullish argument, as if the shorts are somehow compelled to cover here.
To the contrary, it is the level of speculative margin debt, not short sales, that has been expanding most rapidly in recent months. The chart below tells the story, where short interest is converted to dollar values using the relatively constant historical average share price of $30 a share (which companies have tended to maintain through stock splits and the like)."
Conclusions here are not to predict an imminent crash, but to show that risks are great and increasing.
GLM
G-10's Trichet May Say Investors Under-Pricing Risk (Update1) - Bloomberg.com
dryfly
The world unquestionably saves enough to finance the US deficit, but right now only other governments are willing to lend their savings to the US. That kind of puts the world's leading champion of private markets in a rather awkward position.
We havent seen this since 1720
"Europe, Japan and China will help carry the global economy as a housing slump cuts growth in the U.S., "
Eh? slump?? Bloomberg is talking about a slump? How irresponsible!
The question is, "What about debt?"
Has the American consumer ever been this indebted before?
Has America ever been this indebted before?
Does it make a difference?
How anyone in their right mind could answer the last question, "No," is beyond me.
Buenos Aires is beautiful this time of year.
"Has America ever been this indebted before?
Does it make a difference?"
Maybe it does not make such a big difference? It does seem as if there is a coordinated high level movement to support the US which then implies there is a belief that by some process the US will not suffer major consequences from its debt that is going to in turn affect the rest of the World.
Some here are arguing for deflation and therefore a debt catastrophe but that is a more or less an unthinkable world event and if the world does not want it then how can it happen?
Some point to Japan as a doomsday example of Americas fate, but fail to see that Japanese wealth and liquidity exits Japan and thus weakens its currency. At some point this money will begin to return and it will strengthen the currency.
The US though is a debtor nation, but for now and for ever perhaps? the rest of the world is content to allow the US economy to act as a motor of consumption of their products fueled by an endlessly devalued debt.
Seems to me that the bears get depressed by a high dow and outraged by high debt.....but in real terms compared to the euro or gold maybe neither are so high?
When do you ever see the debt relative to the price of gold?? And debt as GDP is maybe obscuring the reality that much of "American GDP" is produced overseas and therefore i am assuming never measured as GDP?
Shit at this rate i am going to be the resident bull on this blog!
Another illustartion of a link between real GDP growth and popualtion.
Figure 1.Comparison of the predicted and measured number of 9-year-olds, N9(t), in the USA between 1960 and 2005 according to the following relationship:
N9(t+Δt) = N9(t)[1 + 2Δt(gpc(t) - A/G(t))
, where gpc is the growth rate of real GDP per capita at time t (measured variable), G(t) is the level of real GDP per capita (measured value), A - constant (calibrated). N9 is also measured. Cointegration test is successfully passed. http://www.geocities.com/iokitov/GDPPOP1.gif
http://www.geocities.com/iokitov/GDPPOP2.gif
One can predcit the future of the evolution of real GDP if extrapolates the graph at 9-year horizon. Quarterly flucs are important for traders, but statistically insignificant, because their values are prone to numerous revisions. A comprehensive revision of NIPA is due 2008 for the last 5 years. I guess one will find a lot of novelties in these comprehensive estimaets (also only ~1% accurate), as BEA found in 2003 (previous comprehensive revision) for 2001 - from -1.3% to +0.8. As a result, the definition of recession now is an entire business of the BEA -
The NBER’s Recession Dating Procedure
Banker,
What are the components of GDP that are going to trough and pull the train ahead in the second half? Here are your candidates:
Maybe its a combination of all three?
Health Care seems to be the largest growth segment of this economy- but health care is also melting down for many-
Excess Liquidity can promote growth- but that has always ended in a crash landing down the road
An aging population- negative demographics and a low or non existent savings rate by boomer's is the wild card
Bloomberg article reporting that most analysts are predicting a hefty drop in a lot of metals by the end of the year.
"World supplies of copper outpaced demand by about 50,000 tons in the first quarter, Stockholm-based copper producer Boliden AB said May 3. Global output rose 8 percent in the period, twice as much as demand, the company said."
So important to have a marketing agency for your commodity pricing...someone should do a study on crude oil prices and Bloomberg announcements.
David vs banker...same outcome as David vs Goliath.
Tanta-
I'm surprised to hear you say that you are not a "hard lander". You come off that way to this layperson.
Here's a song for the Hard Landers:
http://downloads.pitchforkmedia.com/Patti%20Smith%20-%20Gimme%20Shelter.mp3