Odds of Another Swing to Despair Seem High

As expected and hoped for here in Wednesday morning's post, the financial sector did indeed continue its run higher Wednesday. Our own position in it had an outstanding day. That's all well and good, but some prudent risk management looks to be in order, and is the reason we placed a safety stop under the 62% gain we've enjoyed since the Inauguration Day close.

People look for reasons in the news flow, but there aren't many. What facts have changed since the Nov. 20 market low? We knew back then that banks were in a world of hurt, but the market surged upward anyway. Economic data grew darker and darker to the point where we were forced to discuss shades of black, yet what a run higher we saw at the end of last month and beginning of this. Then, lo and behold, banks came out with lousy data, and the market tanked. Then, the Obama team got busy on the economic front and the market surged again, as if all will be well with a signature.

With all the lay-offs, lack of credit activity, dropping mortgage applications, and such, the odds of another swing to despair seem good. Consider the stimulus package, for instance. Its passage has been cited as part of the reason behind recent optimism, but it's filled with reasons to doubt. It may have made it through the House, but every Republican voted against it and so did 11 Democrats.

The best moment in the discussion happened when Rep. Roscoe Bartlett, an 82-year-old Maryland Republican, brought up the failure of past government spending sprees to do anything for the economy when he thought back to the Great Depression:

"I don't remember any of the many government programs affecting the course of the Depression. Government programs didn't work then, I don't know why we think they would work now. Mr. President, I think our obsessive borrowing has fully mortgaged my kids and my grandkids. Now we're working on mortgaging my two great-grandkids. Mr. President, I think it's more than a little bit selfish to try to solve our economic problems which we created by burdening future generations yet to be born."

The chamber burst into applause.

I see no reason to think the hope/despair pendulum has hung up on the hope side. I see many reasons to be safe on trades.

Comments

[herbert hoover:]

If Roscoe Bartlett believes that government policy had no effect on the course of the Great Depression, then he needs a history lesson

Jan 30 09:37 AM

[Jonathan Ch...:]

Dear Mr Herbert Hoover:

I believe you are right and Mr Bartlett is wrong. Government programs did have an effect on the Great Depression.

However, since the Depression did not really end until the US was involved in WWII and the aftermath, I would not categorize the programs as "successful"

Since the start of the Great depression, the US dollar has been on a downward slide. The dollar today is worth about 2 1/2 cents compared to 1929. Much of that decline has been due to continuation of the policies that started with FDR.

Jan 30 10:11 AM

[CJJ:]

What is the point of a $ in 1929 now being 2.5 cents today? Really? Is there some 78 year old guy out there holding onto a dollar whining that its really only 2.5 cents?
Its a tired complaint. Do a comprehensive overall earnings and cost breakdown of 1929 versus 2009 and then you might be onto something although I think you'll find nothing to report.

Me, I'll just look at pictures of 1929 versus 2009 and tell you its better now.


On Jan 30 10:11 AM Jonathan Christopher wrote:

> Dear Mr Herbert Hoover:
>
> I believe you are right and Mr Bartlett is wrong. Government programs
> did have an effect on the Great Depression.
>
> However, since the Depression did not really end until the US was
> involved in WWII and the aftermath, I would not categorize the programs
> as "successful"
>
> Since the start of the Great depression, the US dollar has been on
> a downward slide. The dollar today is worth about 2 1/2 cents compared
> to 1929. Much of that decline has been due to continuation of the
> policies that started with FDR.

Jan 30 11:28 AM

[Hexan:]

On Jan 30 09:37 AM Herbert Hoover wrote:

> If Roscoe Bartlett believes that government policy had no effect
> on the course of the Great Depression, then he needs a history lesson

You're right, FDR did have an impact on the Depression. His policies made the depression worse.

Read up on the recession of 1937.

Jan 30 11:30 AM

[Tony Petroski:]

Dear Mr. Kelly, Keep smiling. Somehow you made it through the Great Depression, and this great depression won't do us in.

Jan 30 11:44 AM

[CJJ:]

Glad we're in a depression already. Hilarious. We're going to need to update the history books with some new words due to the egotistical "this is the worst ever" mentaility of the "fix it now" set of humans roaming the earth in 2009.

All past recessions will now be called "depressions".

Any past depression will now be called "sad canyons".

All growth periods will now be called "false growth periods caused by credit and speculation between real depressions and sad canyons"

All standard of living increases will be called "global warming intensifying, god defying, earth destroying abomintations"

All happiness will be called "void and null emotion"

All pessimism and whining will be called "noble and righteous"

Jan 30 11:56 AM

[tinman:]

Mr. Bartlett, where have you been hiding the last 8 years while pod people hijacked your party of rediscovered fiscal responsibility?

Jan 30 01:45 PM

[Malkiel:]

When the New Deal created jobs dealing with public infrastructure to prevent workers from starving or turning to crime, that was a successful economic solution to an economic problem. When Social Security was created to provide a pension to workers that didn't have any to prevent them from starving in old age, that was an economic solution to an economic problem. Apparently for Mr. Bartlett, that wasn't a good solution because it wasn't the pure market solution he apparently wanted, but to the unemployed starving people and the retiring starving people, it was the best possible economic solution. The study of the real economy is called Political Economy, not just "economics", because it encompasses the part where economic theory meets human lives. That's the chapter the conservatives hate because it doesn't suit them, kind of like the way they really prefer to read the Old Testament because they just can't fathom all that stuff in the New Testament that burdens them with having to alter their thinking...

Jan 30 03:07 PM

[ain't no fo...:]

Malkiel, you nailed that one! Bravo!.


On Jan 30 03:07 PM Malkiel wrote:

> When the New Deal created jobs dealing with public infrastructure
> to prevent workers from starving or turning to crime, that was a
> successful economic solution to an economic problem. When Social
> Security was created to provide a pension to workers that didn't
> have any to prevent them from starving in old age, that was an economic
> solution to an economic problem. Apparently for Mr. Bartlett, that
> wasn't a good solution because it wasn't the pure market solution
> he apparently wanted, but to the unemployed starving people and the
> retiring starving people, it was the best possible economic solution.
> The study of the real economy is called Political Economy, not just
> "economics", because it encompasses the part where economic theory
> meets human lives. That's the chapter the conservatives hate because
> it doesn't suit them, kind of like the way they really prefer to
> read the Old Testament because they just can't fathom all that stuff
> in the New Testament that burdens them with having to alter their
> thinking...

Jan 31 11:03 AM

[Jake Berzon:]

Yes, the Government needs to "do something," but it needs to do something all the time, not just in crisis situations. Attempting to fix the situation quickly can not work, even if it is only because there is too much delay built into the economic system we are trying to control.

Let me give you a simple,though admittedly imperfect analogy. Think about a bus going at 60 miles per hour. If the bus driver turns a wheel to avoid an obstacle on the road right in front of him, but it takes the bus 1 minute to respond to the wheel turn, the bus will not only run into the obstacle, but also have a problem a minute later, when it finally follows the bus driver's instructions for a turn.

I hope to find some time in the near future to write an article that explains our economy in terms of a closed loop control system with built in delay. My goal would be to explain in very general terms what Government actions may be potentially useful, futile or counterproductive. Does anyone on here thinks such an article would be useful?

Jan 31 12:16 PM

[T.Stamps:]

FDR only made matters worse. Clearly WW2 did the majority.
Consume less than what you produce. Spend less than what you
make.

Jan 31 03:58 PM

[Rikiki:]

"I see no reason to think the hope/despair pendulum has hung up on the hope side. "

When you get the Pres and Vpres constantly telling people that it is going to get much worse, does that inspire hope and change? Or, does ot inspire more FEAR(FDR) which we have to FEAR for its effect on prolonging the recession?

Maybe the new Dem leadership should think of another tactic to get the slushy bill to pass quickly instead of scaring the population into hunkering down and spending less. How about inspiration and accenuating the positives more.

Jan 31 06:32 PM

[unclej0:]

FDR made matters worse than what? Such remarks make no sense because we cannot redo history and try alternatives.

It is true that WWII improved the economy. Do you realize that WWII was a much more intensive government spending program than FDR had the guts to try? That and the GI bill, which gave us an educated professional class, did the trick.

I am willing to listen to opposing views that are well supported but please spare us this mindless ideological crappola. Ideology builds a little box that excludes annoying ideas and reduces the need to think creatively.


On Jan 31 03:58 PM T.Stamps wrote:

>
> FDR only made matters worse. Clearly WW2 did the majority.
> Consume less than what you produce. Spend less than what you
> make.

Jan 31 06:59 PM

[Urbane Gori...:]

Agreed! Even if the programs did not effect a clear-cut end of the Great Depression, at the very least, they did provide relief to the 25% unemployed during hat period. (By the way, we in California now have 9.3% officially unemployed and an 8.2% shadow unemployment figure for a total of 17.5% presently, and climbing). It's too easy to focus on ideologies and measure everything against that yardstick, while forgetting that our country was formed 'by the people for the people'. At time like these, we have to pull out all the stops to serve 'the people'. That's what we are all about. The people.

jegan




On Jan 30 03:07 PM Malkiel wrote:

> When the New Deal created jobs dealing with public infrastructure
> to prevent workers from starving or turning to crime, that was a
> successful economic solution to an economic problem. When Social
> Security was created to provide a pension to workers that didn't
> have any to prevent them from starving in old age, that was an economic
> solution to an economic problem. Apparently for Mr. Bartlett, that
> wasn't a good solution because it wasn't the pure market solution
> he apparently wanted, but to the unemployed starving people and the
> retiring starving people, it was the best possible economic solution.
> The study of the real economy is called Political Economy, not just
> "economics", because it encompasses the part where economic theory
> meets human lives. That's the chapter the conservatives hate because
> it doesn't suit them, kind of like the way they really prefer to
> read the Old Testament because they just can't fathom all that stuff
> in the New Testament that burdens them with having to alter their
> thinking...

Jan 31 08:23 PM

[dcb:]

as an independent the Bartlett comment sickens me, and shows what is exactly wrong with this country. where were all the Republicans and their fiscal restraint over the last 8 years. It didn't exist and that's one of the reasons we are in this mess. At the same time our government ruined regulations to protect the populace. His comments are the height of hypocrisy like most of the Republican leadership and I hope there is a special place in hell for someone like him. We have fought the entire Iraqi conflict off the books. he is a senile shi......

Feb 01 06:24 AM

[dcb:]

I think one of the problems of the last eight years was that government hasn't been telling us the truth. Regardless of what you think about the Dems, I think starting with the truth is a good idea. I'm sick of all the lies of the past eight years. the list is too long to write down.


On Jan 31 06:32 PM Rikiki wrote:

> "I see no reason to think the hope/despair pendulum has hung up on
> the hope side. "
>
> When you get the Pres and Vpres constantly telling people that it
> is going to get much worse, does that inspire hope and change? Or,
> does ot inspire more FEAR(seekingalpha.com/symbo...) which
> we have to FEAR for its effect on prolonging the recession?
>
> Maybe the new Dem leadership should think of another tactic to get
> the slushy bill to pass quickly instead of scaring the population
> into hunkering down and spending less. How about inspiration and
> accenuating the positives more.
>

Feb 01 06:28 AM

[Rikiki:]

>dcb, maybe you should hear more of what F.D.R. had to say in opening of first inauguration speech..

" This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days."

you can do a wiki on words to see and hear entire speech. This dem pres inspired hope and faith in american people from day 1.

Feb 01 02:22 PM