Promod Radhakrishnan

The Case for a New Normal

Except a bit of higher taxes probably affecting areas which can absorb it the most, the new normal should be nothing like what you have articulated...All of the opinions are valid from a medium-term point of view - and not suggesting the fact that the Fed or the government needs to pull the rug on stimulus/incentives/lower rates right now. The question is - once we are positively out of the woods from the recessionary cycle, what should be the way ahead?


On Aug 17 10:47 PM j-dub wrote:

> THE NEW NORMAL?
>
> 10% unemployment
> effects of socialism
> depressionary states
> higher taxes
> oppressive oversized government
> social unrest
> decending to mediocrity
>
> NO THANKS

The Case for a New Normal

The new normal is a macro-economic perspective from a 3 year horizon - and the purpose of this article was not to take a directional view of the markets. But, if you ask my personal opinion, i feel the market's a bit overvalued at this point from a 1-year forward earnings point of view. I would guess (no crystal ball here!) that we would see high volatility and multiple up and down cycles while the DJIA slowly makes it's way to the 11K or so levels by mid-Q3 next year. There is no reason to assume that there's enough punch in the growth/revival story at this point to justify a rapid rise to pre-Oct 2007 levels.


On Aug 17 03:29 PM E Nuff Sed wrote:

> I don't see an investment thesis in this article. I ask the author
> to comment if we were to assume a "new normal" is the market over,
> under or fairly valued?
>
> Mr. Krishnan seems (but not quite) stating that the govt may be in
> danger of re-inflating another bubble? I don't see any evidence of
> such a bubble.
>
> I am always skeptical of a focus on the "economy" vis-a-vis the stock
> market. The economy was never as bad to justify a 57% fall in the
> stock market, nor has the situation turned around so much to justify
> a 50% increase from the bottom. Looks like 90% emotions to me. Surely
> fundamentals will take on at some time.

The Case for a New Normal

whidbey,

I understand your point of view - but small business can thrive and innovation can continue to be driven only if we have a macro-economic atmosphere condusive for the same. If monetary and fiscal policy is not controlled in a balanced manner, it would probably result in expedited economic cycles and whenever we see a downturn, the biggest hit is often small business. What we need is balanced growth which would then nurture small and medium businesses...


On Aug 17 10:29 AM whidbey wrote:

> You seem to assume that someone is driving.
>
> Not the Fed, not the treasury, but only the small businessperson
> can define the new normal and its terms.
>
> Planners, such as yourself, are the major failing in modern economics.
> You know very little of what you recommend and you, and others like
> you, seem to think there are choices that will work. No true for
> the most part. It is a muddle through economy, that is not going
> anywhere quickly.
>
> Be supportive of the job creation, small business sector and it will
> shake out the economy by shear weight of its impact.

PPIP Killed the 2008 Bear

The PPIP does involve some risk for tax payer money, but its probably one of the only few options to revive the MBS/ABS/CMO markets and have liquidity flowing again. The question is not whether big banks will gain from this...but whether there are enough controls to safe guard public moeny. Considering the situation, Tim Geithner and team have done a decent job. If there's nothing on the table from the government, tha market's going to stay off such assets for a long period. Fresh Fed lending alone doesn't help - banks just park it back as deposits with the Fed itself! So, i would say the PPIP is one of teh few good options to get the credit markets functionaing near normalcy again!

Economic Fault Lines Emerge

Nice article..i agree we need to make a long-term move towards a balanced fiscal strategy and work our way up the savings ladder. However, the current crisis is unforeseen and of enormous proportion - and hence the need for seemingly counter-logical interim steps to pull us out of the rut before we can work on a longer term strategy. As long as the current administration does have a medium-to-long term strategy of balancing the budget, we can very well live with an interim fiscal deficit brunt.

A Sensible and Refreshing Move from the Fed

Reinko, pardon my exuberance associated with a good day at the market. I just though a massive up-day after long gloomy weeks deserved some cheer.

As for macro economics, i cannot agree more with you on the fact that deficit budgets, over reliance on consumer spending and over dependence on foreign investment in treasuries and US assets won't keep the economy stable and growing for long. There are obvisouly fundamental changes required - hopefully some of that to start coming with the next government in power. However, we are not really in a time where we could/should cry over macr economic ills and the fact that a crash is bound to happen. All said, i don't hold a view that a 200 bn kitty is enough to avoid slow down or recession completely. However, we need the establishment to think forward, think positive and take steps that would smoothen the slow down and make it bearable for the economy and all of us. If we keep a prudish you-did-wrong appraoch with the money center banks, how would you expect them to lend for homes and education...and in that case, how would you expect the economy to stay resilient.

Just to recap - this single Fed move won't make for a turn of the tide. However, we need multiple steps like these to bring some sanity to the credit/fixed income markets.

Tony, likd your story :-)