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Robert Brusca

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  • Has China Passed Its Peak? [View article]
    We are getting to a point where China's flaws are going to start to show.

    Up to now it has been able to play the underdeveloped currency card, the new guy card, the 'we are poor' card.

    But now, enough of China is developed that it can't do that. It remains underdeveloped party by choice, since it holds so much of its wealth as unproductive currency reserves instead of using it to develop.

    It has twisted the WTO rules and evaded being called a currency manipulator by the US - something which it clearly is.

    China is NOT politically stable. It is playing game of 'chicken' with US. China thinks it can develop and become strong enough to do what it wants. The US thinks as China develops it will develop a middle class that will make it harder for a communist leadership to control.

    Both arguments have some validity. But China is clearly feeling the constraints and the need to keep the growth machine going. But China is being forced to change its growth tactics and it is not clear that it can shift gears and keep growth up. If it can't, there will be political unrest.

    I can't see calling China's political situation 'stable.'

    Jan 26 12:15 AM | 2 Likes Like |Link to Comment
  • Has China Passed Its Peak? [View article]
    Mr Clark is right on.

    I tried to keep to 1,000 words and there is so much more to say.

    You add - quite rightly - to a long list of things China must face up to including its banking sector problems.

    I wrote this mainly as a counter point to all the China-cheerleaders especially those whoso often say things like, 'China knows what it is doing'.

    This always rankles me because it's as though they are say 'we do not know, that is why we have recessions and China does not'. China is fast growing - so fast that a slowdown that is sharp enough would essentially cause 'a recession' there. It does not need a decline in output to do that.

    As for the notion that it 'knows what it is doing'...It's data are poor, it has been good and lucky but I get the sense that a number of things are starting to stack the deck against China's next attempt to draw to an inside straight.

    And China is riskier for the global economy now because it is bigger and its problems will have a magnified impact abroad.
    Jan 25 12:12 PM | 2 Likes Like |Link to Comment
  • Has China Passed Its Peak? [View article]
    Ok Ricard. I get it. But do you?

    This is about not about any person's most sour forecast but about generalized expectations. My point is that China's 'primrose path' is about to hit some rough cobble stone that could derail it's trip.

    Your literal reading of my 'subject assessment in search of an objective analysis' is noted. I do not think I used strained rhetoric nor do I think that my point is unclear.

    I am left with no idea whether you agree or disagree with my main point. It's as though you decided to be my English composition tutor instead of one to comment on my thesis.

    Do you have a point of view?
    Jan 25 12:01 PM | 2 Likes Like |Link to Comment
  • The Fed's New Approach: Does It Matter? [View article]
    Yes. The Fed is trying and trying, too, to give the Illusion that it can make a difference.

    Still, Bernanke has made it clear that the Fed has logically used its most effective weapons first. That means what it has left are the pea shooters and spit-balls. But it wants to reassure us that these matter too.

    Maybe.
    It's all part of the Fed's communications strategy now that talk has largely replaced action. We used to call it 'moral suasion'. But now it borders on being immoral suasion.

    Economics has come to emphasize the role of expectations, a psychic variables. You do not necessarily need to do anything to achieve that end. But often actually doing something helps to make the point. The Fed is trying to sort that out.

    For example words may not make friends but they can make enemies. The Fed is trying to use its words, its numbers, and forecasts, the kitchen sink, to best advantage. It's like in a western movie when the guy runs out of bullets and so he throws his gun at his attacker. It could be effective weapon because gun is heavy, but it's desperate. And desperate acts often don't have the same impact as those made with a cooler head.

    The Fed is buying a lot of securities 'manipulating the market ' with its conduits as you say. But this is such a limited part of the market and the economy; the economy is so much more than just housing... The Fed looks desperate.

    I would rather not see the Fed trying to convince us that rates can stay at zero for the year or more. More optimism on the outlook for higher rates would inspire more of my confidence. I think HIGHER mortgage rates would help housing because banks would lend more readily. The supply of funds is a much bigger problem now than the demand for them.

    Low and lower interest rates strike me as being a cure that is now more and more like Medieval blood letting, accepted by all in its day but yet to be discovered as a debilitating ruse.
    Jan 24 09:28 AM | Likes Like |Link to Comment
  • Beware The Weather Effect In Buoyant Housing Data [View article]
    True for some. The lags are unclear and idiosyncratic. But since the cash sales are up sharply for a large proportion of these sales for them there is virtually no lag at all. Moreover, other housing reports have borne the same characteristics.
    Jan 24 09:05 AM | Likes Like |Link to Comment
  • The Fed's New Approach: Does It Matter? [View article]
    OK. I can't really dispute that. But it is a really weak form of admitting that the Fed is not omniscient and omnipotent. That is not a very realistic criticism.

    The Fed might be, for example, relatively good at forecasting but might not be good at policy adjustment.

    In fact the Fed just gets badly fooled sometimes. Foreseeing a recession coming is very hard to do but that is only half of the job of avoiding it. There is the issue of forecasting the event and then the issue of being so certain in your forecast that you are willing to make significant and potentially abrupt policy changes to prevent that event (like preventing recession).

    There is also the possibility that you have already made a 'policy mistake' and now you realize that say inflation is rising and that a recession is coming..
    If you stop the recession inflation will build even further in that case what is the right policy option?

    On balance I think it is easy to be critical of the Fed and to blame all business cycles on it. In truth there is a world of grey area. Asking that the Fed be both omniscient and omnipotent is setting the bar too high. No one is perfect and small policy errors can snowball.

    So I do not like the wholesale condemnation of the Fed for its inability to prevent business cycle fluctuations. Not all the shocks that create recession are the Fed's fault and in a perfect world the Fed might not be able to prevent them from having a devastating effect even with some excellent foresight.

    END
    Jan 23 10:35 PM | Likes Like |Link to Comment
  • Mortgage Applications Survey: More Indications Of Deflation [View article]
    I don;t see this. There is both a supply and demand problems. banks are rationing Credit to only the most creditworthy.

    Many potential home buyers are put on the sidelines by under water mortgages. One the credit freeze thaws an the economy grows more I wonder just how fast all this can turn around. maybe I am too optimistic. But once people are going back to work and earning incomes, a lot of the financial ratios are going to start to improve fast. Once house prices are no longer falling banks will see houses as good collateral again. Once the unemployment rate is falling banks will see less risk in lending generally. Sparks light fires. Wet conditions dry out eventually. I am optimistic that we are not seeing in this report a forecast of the future but evidence of how greatly the current state of housing is being repressed. Some of the lowest mortgage rates in history and the greatest home affordability and almost no one is buying? Does that make any sense except by admitting that credit rationing is distorting markets like crazy?
    Jan 19 04:32 PM | 1 Like Like |Link to Comment
  • NAHB Housing Market Index: 25, highest since June 2007, vs. 21 expected and 21 prior (revised). NAHB Chairman Bob Nielsen points to the widespread gains across components and regions. [View news story]
    Nice comments. The stock market is full of so many discounting mechanisms it is hard to say on any given day what it is reacting to and looking ahead to. I am often amused to hear analysis describe a stock market change as due to some economic report or some event of the day and then to see the market unwind its change the very next day with that report still in force. Day to day commenting on the stock market is a humbling experience to any one who has done it and who retains his or her objectivity. Markets are smart and dumb and forward-looking, information-loving, information -lacking and so on. They remain a huge challenge for any economist or investor to manage. Data on investment performance bear that out. So let's Chill on the idea that market reactions tell us anything about data released on the same day as the market does X. X may not mark the spot.
    Jan 19 08:49 AM | Likes Like |Link to Comment
  • S&P Downgrades Were Premature: The Role Of Credit-Rating Agencies [View article]
    My point is, in part, that Germany's rating has almost nothing to do with Germany's own macroeconomic data and debt data if the eurozone makes substantive changes to what it is and how it operates. My point is how do you evaluate such an interdependent entity as the Eurozone and its components when it is in the middle of finding its identity? IF Europe sticks to its current model Germany probably remains AAA. But if does does that how does the Zone survive? How does all the distortion to parities within the Zone created by ignoring inflation differentials for years get remedied? Europe is on the verge of making some historic decisions. having some outsider make credit rating changes in the middle of this process has been destabilizing to say the least. It is far form clear what organizational changes EMU will make and if, once they are made, Germany will remain AAA. That is also my point. Do the credit ratings reflect creditworthiness at this slice in time or do they have any forward-looking aspect to them at all? If they only reflect this slice what good are they? And if they look ahead why make ratings changes when the future is so doggone hard to pin down UNLESS it is an attempt to manipulate that future...
    Jan 19 08:33 AM | Likes Like |Link to Comment
  • NAHB Housing Market Index: 25, highest since June 2007, vs. 21 expected and 21 prior (revised). NAHB Chairman Bob Nielsen points to the widespread gains across components and regions. [View news story]
    It is a good thing. And 100 points a day on the Dow would make for a pretty good year...Mr Cynic. If you wait for the stock market to confirm everything you think you will spend a long time waiting and be often disappointed.

    The NAHB index rises by more than this in a single month only 6.5% of the time. That marks this a large increase. The index is still low, more importantly unseasonably good weather may have brought out more home shoppers distorting the gain.. Winter housing reports are really weather reports. The biggest increase in the regional data was in the NE where the weather effect is the largest. Still the index rose across all regions so there is probably some fundamentally good news in here once the weather effects are stripped away. But don;t look for the stock market to arbitrate economic data.
    Jan 18 04:12 PM | Likes Like |Link to Comment
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