Lok Sang Ho

7 Economic Fallacies

You do not disagree with me. I cited these as fallacies and therefore they are not true, even though I keep reading people making the points.


On Jul 16 05:59 AM Ryu Mei Co wrote:

> I agreed with some of your points, but others I disagreed.
>
> For instance, "4. Increase in the savings rate means no recovery"
> is not entirely true. The market will adapt to a change in consumer
> spending behavior and thus may eventually lead to a market recovery
> no matter how long it takes.
>
> Another one "5. A weakened US dollar is bad for America." is also
> not true. You said, "A weaker dollar will help American exports and
> create jobs for Americans, though Americans need to pay more for
> the goods they import. Americans need to work harder for less (consumption)",
> In this case Americans need to work hard and consume less import
> goods to reduce debts! Ironically this mean more Protectionism. Anybody
> noticing Toyota falling to 3rd place in auto sales. Americans will
> be buying more Ford and GM cars in the future, I bet my life on it.
> LOL......

U.S. Economy Mending Faster than Expected

Case Shiller is based on repeated sales. This means there is no bias due to more expensive homes being traded.


On Jul 06 05:12 AM Steven Hansen wrote:

> very few think the economy will keep sinking forever, and most like
> myself see a true bottom before the end of the year. the exact timing
> is getting harder to estimate because the economy has been weakened
> considerably. upward pressure is weak even though our decline was
> rapid (we normally have strong drivers for rebound in this event).
>
>
> you cannot claim the housing market is coming back quicker than expected
> based on case-shiller when the volumes are so low. there is no indication
> yet that housing volumes are rising. also, the mix of home sales
> has changed enough that higher value homes were selling in higher
> proportion.
>
> i wish you would hyperlink where you take your data from as may 2009
> usa industrial production is down 1% according to the chicago fed.
> i suspect you are using the change in some survey's values.

Most Likely Scenario Is Still Recovery

My forecast for the US economy is not "rosy": I see recovery soon but not strong recovery; I also see unemployment possibly peaking around 10%; I see more need for assistance to the states; I see piles of debt as you do. However, I see a weak dollar and a higher US savings rate to be part of the solution. Americans need to tighten their belts and pay for their overspending in the past. Americans need to work harder for LESS(less consumption). More Americans have to work. But we have seen higher debt to GDP ratios before. When the economy recovers, the debt to GDP ratio will fall, and the current debt levels does not spell the end of the world.


On Jul 09 10:51 AM Larry House wrote:

> Why does someone who sees problems in the economy have to be a pessimist?
> I am an optimistic person, but when I see what I think are problems,
> they don't just go away because I am an optimistic person. I hope
> you are right in your rosy outlook. I don't short stocks; I don;t
> buy distressed debt; I want things to pick up. I have four grandkids
> that I hope live better than I do. However, I guess there had to
> be a "however," I see a consumer on his heals who is spending less
> and saving more; I see credit hard to get; I see 10% unemployment;
> I see massive government debt; I see a weakening dollar, and I think
> those things will prevent a robust economic rebound for many months
> to come. So that affects my investing outlook. I am underweight
> stocks (right now) and overweight bonds. I am not sitting in all
> cash or hiding in a cave or only investing in gold. I don't think
> my view makes me a pessimist, but I don't think things are just fine
> or as good as your cherry picking data would suggest. Can't we all
> just get along!!

U.S. Economy Mending Faster than Expected

I am talking about factory orders, not industrial production.


On Jul 06 05:12 AM Steven Hansen wrote:

> very few think the economy will keep sinking forever, and most like
> myself see a true bottom before the end of the year. the exact timing
> is getting harder to estimate because the economy has been weakened
> considerably. upward pressure is weak even though our decline was
> rapid (we normally have strong drivers for rebound in this event).
>
>
> you cannot claim the housing market is coming back quicker than expected
> based on case-shiller when the volumes are so low. there is no indication
> yet that housing volumes are rising. also, the mix of home sales
> has changed enough that higher value homes were selling in higher
> proportion.
>
> i wish you would hyperlink where you take your data from as may 2009
> usa industrial production is down 1% according to the chicago fed.
> i suspect you are using the change in some survey's values.

Has the Housing Market Reached a Bottom?

I am with Mark. Considering affordability, considering the slowdown in unemployment--which typically is a prelude to a recovery, and considering the uptick in home prices, as well as stronger sentiments overall, the resets need not be a big worry--unless the homeowners lose their jobs they are unlikely to walk away from their homes, and the lenders will also try their best to avoid foreclosures, which typically would amount to a lose-lose scenario. I am fairly confident the recovery is on the way, even though there are still some risks. Japan's case is quite different. Japan has been dragged down by a super-strong yen which would have sunk any exports-oriented economy.

Fear vs. Cheer in the Markets

You need to understand the dynamics of social psychology to know what drives markets during times of irrational exuberance or irrational fear.




On Jun 09 12:05 PM Larry House wrote:

> It is NOT "cheer vs. fear." There is truth underlying the opinions.
> Someone is going to be right, and someone is going to be wrong. Opinions
> do not change fundamentals. We are in crazy period where data can
> support a hopeful view and a less hopeful view. It is a disservice
> to pit view against view in this mess. Opinions are not the problem.
> "Fear-mongers"--what a terrible label for anyone one who dares talk
> about some of the dangers that we face.

The Fate of Nations: Graphs Worth Contemplating

I should also add redistributive policy is more necessary when we choose not to intervene with market prices, because market prices may be very unfair, in the sense that productive people can be hurt, such as when farmers get a super bumper crop, and landlords collect huge rent increases when the entrepreneurs who rent the premises and those who toil long hours on them earn much more modest incomes.

The Fate of Nations: Graphs Worth Contemplating

Much of the very high incomes that people earn are actually in the nature of "economic rent", and taxing economic rent does not hurt work or investment incentives. Consider the astronomical incomes that top soccer players, top singers, top models, make, for instance. Indeed many of the Scandinavian countries are doing very well in subjective well being or happiness and are not suffering the kind of social problems that the US is facing. They are also politically cleaner.

PPIP Must Be Part of the Recovery Plan

It is important to realize that we were very close to the point that would trigger a depression similar to that in the 1930s. You may not like it, but to the extent that the global economy has been saved from a repeat of the Great Depression means that many taxpayers actually end up better off than otherwise.

My point is that without a circuit breaker, the interest rate resets for Atl-A and Option ARM could trigger a second serious tsunami that could swallow many more industries and jobs, and the recovery could take much longer after all the damage is done.

The Economy: Optimism vs. Fact

I meant building permits and housing starts, sorry for the slip.

The Economy: Optimism vs. Fact

The decline in building permits and building approvals helps restrain supply and are good for the market. I call the drop the prelude to the recovery, and the stock market charges ahead of the prelude and reflects the revival in confidence. More important, the revival in confidence will drive purchases and that help stabilize the market, in what I have called the cheer-cheer spiral.

Don't Be Fooled, We've Been Here Before

The problem is that your Table ends in 1932. The present phase is more like 1934, with the New Deal expenditures beginning to be plowed into the economy and fundamentals starting to stabilize. Consider the surge in the GDP and the stock market from 1934. It is huge.

Gas Is Cheaper Today than at Almost Any Other Point

Lower oil prices, lower mortgage financing costs, lower business inventories, more government hiring, firmer stock prices, a weaker dollar, all are lending support to the US economy. These are significant positive developments that WILL have positive impact on the economy.

Is a Manufacturing Rebound in the Works?

My judgement: in the absence of unforeseen blunders from the government or natural disaster of sorts, better than 50% chance for a Q to Q GDP rebound in the third quarter; better than 90% chance for a Q to Q GDP rebound in the last quarter.

Is Industrial Production an Accurate Economic Indicator in the Information Age?

Manufacturing jobs on a global scale have been declining secularly regardless of recession or boom. That is part of the ongoing economic restructuring reflecting in part the huge jump in industrial productivity and in part the growing importance of services. Manufacturing employment need to be detrended and given a much smaller weight in an intelligent coincident indicator today.