Don't Bet on 'Recovery' Unless You're Willing to Redefine It 32 comments
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If you are investing, looking for a job, making (or not making) a purchase, and generally behaving with the belief that a recovery from this crisis is somewhere over the horizon, you may have the wrong premise. I have believed for a while that if “recovery” means a return to the way things were, then we’re probably not going to see a recovery. This belief is based on my thinking that the current global economic crisis in not simply economic in cause or nature, but cultural in both. As such it will have cultural consequences, and I think they will be wide, deep and long-lasting.
I become more convinced of this when I see how our culture and political philosophy is changing. I came upon another example of that, courtesy of Michael J. Panzner, who is a frequent contributor to Seeking Alpha. He also writes for his own blog, Financial Armageddon, where he sometimes posts articles that are in sync with his basic belief that the world has been due for a “financial unraveling.” His Post of April 7, 2009, “A New Kind of Crowd,” refers to a story from The Financial Times entitled “Assistance Soars in US.”
As Panzner notes in his introduction, “The current crisis has changed the way that people think about a great many things.” The story focuses on Woodstock, Illinois, a town of about 20,000 people some 60 miles northwest of Chicago, and considered a suburb of Chicago. The people there are hurting. The community service director at the county housing authority is notably concerned about how this economic crisis is impacting the middle class, who never before thought about going on the food stamp or any other assistance program. “A decade ago, most homeless people around here were single, mostly male, and many with drug and alcohol problems. Now the majority are intact families - couples with children,” she said.
This is a well-done to-the-point article worth reading. It drives home the reality that this crisis we are experiencing is not simply an economic and capital markets crisis, and was not due to the capital markets meltdown, or AIG or the housing bubble or some particular type of debt instrument or any other single thing or organization we wish to blame for this mess. I believe it arose from the entirety of our culture. Consistent with that, I also believe that we are going to experience cultural changes as we live through this and when we come out of this. Just read the article cited above to get a glimpse into how people are already starting to change.
Can we really believe that once we get to the other side of this crisis the people of the middle class, who are getting a right to the jaw they never imagined possible, will re-adopt their old standards and values and preferred ways to spend money? Is it possible that when (and if) they get off of food stamps that they are going to incur debt for a new flat screen TV (or car or lavish vacation) as they did in the past? Will they want to emulate the rich upper class, as they did in the past, or will they empathize with the working class below them, who have experienced for years the type of troubles the middle class is experiencing now? Will they be willing to buy a Reagan-like economic philosophy that if the rich prosper everyone else will prosper? Or will they be more inclined to support the Obama philosophy of limiting volatility and downside risk for the middle/working class even if it means minimizing upside opportunities for the executive/investing upper class?
One difficulty in answering those types of questions is that, at this point, we cannot know what “the other side” looks like because we do not know how our world will change. We already have seen massive changes in political philosophy. We’re likely to see more political changes, probably globally, plus all sorts of other changes (some of which probably aren’t anticipated currently) over the next few years.
Those changes will be deep. Our economy will change, as it already has. Our capital markets will change, as they are doing. Our political philosophy is changing rapidly in a new direction. What sort of world will we live in? The quasi-capitalism philosophy that is now emerging, may yet prove to be awful, good, or great. We simply do not know yet. But certainly, our culture will change as well. What drives us will change. Our buying habits will change, as will our view of debt and savings.
The degree of change ahead of us could be dramatic. Assuming that happens, we will not return to what existed pre-economic recession, pre-capital markets meltdown, and pre-Obama political philosophy. That leads me to conclude that if a ”recovery” from this crisis means a return to what was, then we shouldn’t expect a recovery.
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Let's follow the money - it's the politicians and their contributors who are gaining power and money (bonuses for Congressional aides???). The end of excess for some is the beginning of excess for others.
Unfortunately, some people believed we were so smart that we would never have another recession. What is happening today is nothing new, just another cycle in the long trend of human history. After 10,000 years of history, some people still believe we can control human behavior and regulate away fear and greed. Good luck to them.
The one factor that has permitted less-than-wealthy Americans to make believe they are richer than they really are is credit. Credit spurred the consumer economy. Now that credit is maxxed out, what next ?? Simple answer really. Bankruptcy rates for individuals will remain a brisk and growing business. Which will create capital losses and earnings shortfalls. Which will create growing numbers of business failures. The result will be a downward spiral like we're in now.
Look, the stock market has winners and losers EVERY DAY. Down days, up days, no difference. So "markets" can be doing well when the underlying culture is not. Do not mistake one for the other.
Finally, if you REALLY want to know the truth about "recovery" don't look for it in the malls and the markets. Check out the soup kitchens and tent cities in America. Both are growing rapidly. Damn DC for making this a corporate bailout and ignoring the citizens. "We the people" deserve better.
Whether Goldman Sachs lives or dies is irrelevant to 99.999% of all Americans. Whether your neighbor has a roof over his head is important to all of us. Or, if it isn't, we deserve what's happening to us and our fellow Americans.
Stock index futures are rocketing higher this morning off of Well Fargo's (WFC) "earnings beat." The significance of this is open to debate, but the shorts are scrambling for cover, no doubt.
I found several other pieces of data released this morning far more telling of current economic, and hence corporate, conditions.
1) Intitial claims for unemployment still extraordinarily high at 654,000.
2) A drop of 5.1% in imports, resulting in a large drop in the US trade deficit. Multi-year lows in imports from Japan and China.
3) Same stores sales at Walmart up an anemic 1.4% and below consensus.
These three pieces of data point to increasing unemployment and hence decreased purchasing power by US consumers. Unemployment continues to rise rapidly, and consumer demand continues to decline. These data are not supportive of higher stock prices either in the US or in countries that depend on US demand such as China, Japan, and the emerging markets.
I believe at this point stock and commodity prices are rising due to increased investor demand as money moves from cash and bonds into stocks and commodities. Also, there is a "hope" that a few months from now the economic picture will be better than it is now, and stocks "anticipate" this. I personally don't see any signs of this. The only reason I would be long stocks or commodities now would be as a trend follower or trader front-running some major asset allocation shifts.
In the debt game it takes two to tango--a lender and a borrower.
With fiat central banking the lending class was provided by the Federal Reserve Act.
Establishment of the borrowing (read indebted) class was more complex. There was a time when debt was rejected as a moral imperative, not just out of economic motivation. What was needed for debt money to flourish was a culture change whereby debt would be more acceptable on a greater and greater scale by an ever larger number of people. Where frugality is considered a virtue our society's increasing indebtedness is a measure of moral decay.
From crime to the disintegration of families, our cultural decline and our experiment with fiat share the same timeframe. This is not coincidence, but causually linked. Fiat is debt-money and acceptance of ever-increasing debt required a moral adjustment downward.
The return to sound money and sound morals will likewise move in tandem.
Please tell us who their contributors are. I dare say if you look, you will find some, if not all, of the Wall Street Bankers.
On Apr 09 09:14 AM Poorer but wiser wrote:
> I agree with Dr. Droock... the locus of global activity will shift
> back to Asia. As for the US, contrary to many of the opinions cited
> here, the primary beneficiaries are not the bankers and Wall Street
> firms. How many bankers are making more money this year? Most have
> seen their net worth fall to pennies on the dollar as their firms
> stock prices evaporated and their incomes fall by 50% to 75%. Brokers
> are going out of business while banks and hedge funds are being regulated
> and salaries capped. Greed will not be allowed to exist on Wall
> Street for many years to come.
>
> Let's follow the money - it's the politicians and their contributors
> who are gaining power and money (bonuses for Congressional aides???).
> The end of excess for some is the beginning of excess for others.
>
>
> Unfortunately, some people believed we were so smart that we would
> never have another recession. What is happening today is nothing
> new, just another cycle in the long trend of human history. After
> 10,000 years of history, some people still believe we can control
> human behavior and regulate away fear and greed. Good luck to them.
If the results are good, it was caused by me.
If the results are bad, it was caused by you.
We look at the data and come up with a hypothesis.
If it doesn't agree, we change the baseline.
Then we clean up the data that doesn't agree.
We then randomly try every statistical model, until one
shows the results we want.
The underlying purpose is how can I profit from this.
1) A near bankrupt banking system.
2) A near bankrupt government.
3) A major demographics shift with no preparedness (massively unfunded social security and medical care programs)
4) An $11 trillion national debt and counting.
5) A war on terror that is not over yet (Iraq and Afganistan is not over yet....and N. Korea is on the radar screen)
6) An energy crisis of biblical proportions with no preparedness
7) A primarily consumer based nation with (currently) no plans to rectify.
8) A deteriorating environment that threatens the livability on this planet
9) A continuing population explosion with no proportionate growth in provisions for food and energy use.
Even just ONE of these examples is an enormous challange and would be a catalyst for drastic change. But we are (or will soon) face these challenges SIMULTANEOUSLY. Change? That would the understatement of the millenium. Like it or not, we are, at this moment, at a major inflection point in human history (a bigger inflection point than perhaps the industrial revolution). A point in time when we must re-define what it is to live our daily lives.
My hope is that we have the right leadership in place to guide us. Because that's what we all desperately need.....
My wife and I had health care thru her work. After she retired, we kept the plan by paying out $300 a month. (several years ago) Shortly thereafter, the HMO sent us a "corrected" monthly bill for $850! Equal to our rent!
Bigger tv's? Oh, I see, you are actually being satirical. . .
On Apr 08 10:12 PM Cetin Hakimoglu wrote:
> It is reflected in the rising standard of living and abundant credit.
> For example, Americans enjoy better heath care than Europeans and
> bigger TVs. This is fundamental econ 101.
And right now, the President's economic stimulus package--with $9 trillion pledged to the financial sector and $1.3 trillion pledged to help American households and businesses--is driving the economy in the wrong direction, almost entirely at the expense of the declining middle class' increasing taxes and longer term debt obligations.
Until we stop giving trillions of dollars to frauds and fools on Wall Street and start focusing on the core needs of American households--I'm talking food, security, health, & shelter, folks, all through living wage jobs--we will not experience a turnaround, much less a recovery.
> Nothing happens the same way twice.
I agree with everything you wrote, except this one sentence.
Everything happens the same way, but different.
We never learn from the past.
From my perspective, 1985 was much worse than today.
The house I lived in was worth 10% of what I owed.
I had a 15.5% mortgage. 75% of the homes in my subdivision were foreclosed on. Reagan changed the rules on income tax and what I owed tripled in one year. My mother and my wife lost the money they had put into Social Security. I got a voucher for mine, with a promise the money would be paid back. My stocks (ave) went from $10 a share to $5 a share (relative to today). It is now around $70-80. 300,000 people within 50 miles of me lost their jobs. Commuting to work went from 45 minutes to 25 minutes. I can also cherry pick the good things and the bads things that are happening now.
Between the two will be a period of uncertainty but those who correctly identify and grasp the new growth paradigms will do well.
It may well be that focus will be, among others, on commodities, nuclear and other energy, infrastructure, organic foods, natural health and wellness. Such technologies will drive exports and be much welcomed in emerging economies based on manufacturing.
On Apr 09 12:31 PM Amish Rake Fighter wrote:
> Luxury...when I was growing up, we lived in a paper bag in the bottom
> of a foreclosed septic tank, our father would wake us up 2 hours
> before we went to bed and poke us with sharp sticks, on a good day
> our meals consisted of gravel and roadkill.
>
> That was the way it was and we liked it
Meanwhile, learn about CPV solar (5 cent/kWh electricity) and air cars (800 miles on 8 gallons of gas and $2 of air), and realize there is a lot of work to do to spread prosperity around the world because oil is not going to be the limiting factor. If government price controls continue to consign a signficant portion of our population to unemployment (and isn't that what happens with price controls?) then we may not be able to participate in that buildout as fully as we could.
From suing evrybody for everything, to everyone is entitled to everything he or she have not worked for.
Some say to destroy America, one has to destroy it from within. America has been "destroyed" from its family, to its faith, to its sense of justice, to the value of hard work.
And guss what, it is this cultural decay that leads to the majority who would elect this kind of "representatives" to the government, which would do the destroying of America for us.
An economy based on geometric increases in consumption is doomed, and in short order, because it fails to measure what really matters to us as human beings on a finite planet. Our culture is, after all, a very very short term experiment. Change while you can...
Unlike Sweden Switzerland, Canada Ireland Norway where the upper 1% do not own such a dispropotionate share of the wealth and the average citizen stuggles so.
www.boston.com/news/wo.../