ozzy43

Summer 2009 Stock Market Evaluation

In the pages of history, will this assertion:

"While uncertainty still looms, the data suggests that the worst of the economic and credit crisis appears to be behind us."

Join with these?

"The spring...marks the end of a period of grave concern ... American business is steadily coming back to a normal level of prosperity,"
Julius Barnes, Head of Hoover's National Business Survey, March 16, 1930.

"We are now near the end of the declining phase of the depression," the Harvard Economic Review, November 15, 1930

Only time will tell...

Why I'm Keeping an Eye on Corporate Defaults

I think the author is overly optimistic. The 'problem' didn't take 25-30 years - it's taken almost 100. Fiat currency and fractional reserve banking began a lot longer than a couple of decades ago. Since 1913 (and central banking as we know it didn't really come together as a consolidated whole in this country until FDR in the 30s), the dollar has lost 95% of its purchasing power. We grew up in this era, and take it for 'normal' - it's not. Current policies cannot but accelerate that ongoing loss. The difference between 'nominal' and 'real' will inevitably become apparent, and sooner rather than latter, it seems likely.

This is not a recession, cooked government figures notwithstanding. It's a depression. A fundamental restructuring of the economy is underway, masked by government bailouts of zombie companies and cooked up figures for economic indicators on all fronts. But the toxicity remains. The 'real' unemployment rate is north of 15% already - what's the 'real' GDP? The 'real' inflation rate? Who knows? I do know it is far, far worse than these metrics reveal - and that this is not an accident.

So does it really tell us anything to look at corporate defaults when you have so many sectors being artificially propped up by so many market-distorting forces? I don't know, but I think, like so many other metrics that would yield useful information in a free market, the answers from reading such tea leaves are likely to mislead.

World War III: U.S. vs. China?

Well reasoned article, as always, but starts with a fallacy:

"It took the onset of World War II to lift the world out of the Great Depression that began in 1929."

This notion has been conclusively disproven by the brilliant Robert Higgs - you can read about it here:

www.independent.org/ne...

"ABSTRACT: Relying on standard measures of macroeconomic performance, historians and economists believe that “war prosperity” prevailed in the United States during World War II. This belief is ill-founded, because it does not recognize that the United States had a command economy during the war. From 1942 to 1946 some macroeconomic performance measures are statistically inaccurate; others are conceptually inappropriate. A better grounded interpretation is that during the war the economy was a huge arsenal in which the well-being of consumers deteriorated. After the war genuine prosperity returned for the first time since 1929."

And in case anyone still believes the nonsense about the 'benefits' of FDR's New Deal, Higgs has helpfully debunked this myth, as well:

www.independent.org/ne...

Economy in Crisis: Three Bears and a Missing Goldilocks

As usual, phenomenal article. But there is one non-factual (though commonly held) assertion:

"the country was pulled out of that depression by the onset and eventual entrance of America into World War II, NOT by government spending programs alone."

Robert Higgs' classic economic analysis "Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s" disproves that notion once and for all. Pity so few have read it. 'Tis here:

www.independent.org/ne...

A Depression and Recovery in Internet Time

I think this statement says it all:

"Indeed, the eye of the storm has passed and 2009 will be a much better year than everyone expects."

Anyone who has lived in Florida can tell you: it is after the eye passes and the 'back' side of the storm then hits that most of the serious damage is done. The author does not seem to realize just how apt his metaphor is, because he does not understand hurricanes any better than he understands economics, which is born out by making ludicrous assertions like 'over the top deficit spending' is the 'only known fix'. I suggest some reading on Austrian economics.

High Cash Stockpile Available for Buying Stocks to Fuel a Rally

"...Gross domestic product will contract in the first half of the year before growth resumes in the third quarter, according to a Bloomberg survey of economists."

These are, presumably, the same economists who insisted up until 3 months ago that the US would avoid a recession?

Given how wrong mainstream economists have been about EVERYTHING recently, it makes about as much sense to trust their predictions going forward as it does to listen to the Intel community's prattle about geopolitics. At least the latter don't constrain themselves via wholly artificial and proven-wrong econometric models.

The only economists worth listening to are those who correctly predicted what has happened - that would be one school and one school only: the Austrian economists.

Fiat Money and a Profligate Congress: A Bad Combination

An astonishingly naive view, politically speaking. If this government of ours has proved nothing else, it is that it is utterly incapable of abiding fiscal restraint of any form.

Also worth noting: every episode of fiat currencies deployment, historically speaking, has ended in massive economic dislocation. In France, in the late 18th century, it ended in the guillotine being put to good use. Perhaps they were on to something...

Friday's Employment Report: A Sobering Dose of Reality

Terrific essay - really, this is simple common sense, but there is so little of that available these days that it's all the more outstanding and refreshing when you run into it.

BTW, regarding the 'New Deal' - in fact, those policies did not 'save' America back in the 1930s - rather, they tipped us from a bad recession into a full-out depression - and then into a global war to obscure that fact! And the war itself did not 'rescue' our economy - that did not happen until 1947, after some (but only some) of the socialist economic controls had been dismantled (does nobody in America believe in free market capitalism anymore? the New deal was socialism, pure and simple - how anyone can still entertain the notion that gross misallocations of capital and monstrous distortions of the pricing system could have led to 'prosperity' is beyond me). The mythology that FDR 'saved' us is just one of the innumerable absurd illusions to which Americans cling, and which have led us to the edge of the precipice, where we stand today, confronting the abyss.

So what is to come? Well, let's not forget that America does not operate in a vacuum. A vast amount of government debt is held by foreign nations, and in many cases we've worked hard to ensure their enmity even as we've begged them to keep buying US Treasuries. As we continue to follow hegemonic policies (and make no mistake - both McCain and Obama are solidly on board with continuing these illusion-driven policies) which give the rest of the world cause to hate us, it seems more and more likely that a global realignment is coming, with America left purposefully isolated. Does anyone seriously think that the Chinese, the Indians, the Russians, the Japanese, the EU and others are not discussing amongst themselves possible new monetary systems to replace the post-Bretton Woods insanity? It was the US, after all, which reneged on that agreement and pushed the rest of the world toward fiat money which is the underlying engine of destruction.

Consider: we now have a 3rd world political system and a 3rd world banking system, in terms of the egregiousness of institutional fraud in both systems (not to mention the more general corporate entanglements in every aspect of that corruption). And it seems likely that we are descending into 3rd world status economically as well - though never was a 3rd world country so despised, even by its friends.

Is it so hard to grasp that our situation may not be a problem which needs to be fixed (it's unfixable), but rather a new condition to which we will need to adapt? At some great cost, obviously.

There seems to be every reason to think so (and very strong historical lessons which indicate this is highly probable) and very few logical or fact based reasons to think not. The Age of American Empire is over. We were warned - over 200 years ago, by a great American allegedly esteemed by all but in fact all but ignored except by a few:

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."
- Thomas Jefferson

Sarah Palin: Wall Street's Candidate

Another seriously out of touch article from this guy. Palin's a VP candidate - and even if elected the VP will have zero power (she's no Cheney). Her preferences and such are a moot point. Her only role is to draw a few extra voters to McCain during the election. Duh.

Gold and the Demise of the American Dream

<-- agrees with bearfund. "We need an energy policy" is code for 'I want someone else to accept the consequences for my choices in life." Asking the government to solve the "energy problem" is like asking a mugger who just stabbed you and stole your wallet to carry you to the ATM and then the hospital. Good luck with that, Fitz.

The author makes a point - a valid one, IMO - with which the vast majority will disagree - that our 'troubles' started with the vaunted industrial revolution (most would say 'progress' started there - but progress toward what?). Yet, the acceleration of this revolution was made possible only via access to energy-dense fossil fuels - coal, then oil. Which brings us back to bearfund's salient points.

The American public, conditioned into mindlessness across generations by TV and other powerful cultural factors as the author notes, is, has been and will continue to be in denial about the costs of their choices to the point of refusing to accept the consequences of continuing to make these choices. Whether these choices involve electing venal leaders whose only goal is to enrich and empower themselves at the citizens' expense, or chasing after ever more of a fiat currency which is constantly diminishing in value (and has, not just these last few years, but ever since 1913 when the counterfeiting outfit that is the Federal Reserve - the originator of inflation - came into existence), or chasing after an American Dream which is growing daily less sustainable as bearfund argues, I see no evidence whatsoever - aside from a few voices in the wilderness - that this will change. America is far too deep in too many holes and far too deep in denial about the realities of the world to stop digging and start choosing wisely. It's far too late for that.

The Oil Bubble Will Meet the Same Fate as Tech, Housing

There are some serious problems with this analysis, but the most severe is this: tracking oil prices in dollars makes little sense, yet that provides the fundamental basis for the argument being made - as though dollars were a fixed store of value!

Try tracking oil in gold prices, which is still not ideal, but is certainly better than using dollars, which are constantly manipulated by the Fed. Using that basis, the analysis looks quite different.

Another flaw is exemplified by this statement:

"gasoline shortages don’t exist and new oil is plentiful"

No evidence is given for this astonishing assertion. The US uses about 20M barrels per day - ~25% of the global total - and when pressed (begged) by the President of the US, the Saudi's - the only exporter in the world with (at least alleged) spare capacity - can only manage to squeak out an extra 200k - 500k barrels per day (and the world expects the Saudi's to generate an extra 10M barrels per day or so in the next decade??). That's plentiful? Have the Saudi's discovered a new Ghawar that I didn't hear about? Doubtful. Thus, there are very real concerns about supply going forward, and 'plentiful' is not the right word to use here.

The market is not based on whether or not there are gas shortages NOW - it's a leading indicator. Priced into oil is the uncertainty about supply and demand in the FUTURE. This analysis seems to miss this point utterly.

Further, there is a major difference between oil and housing on the one hand, and tech stocks on the other: houses and tech companies are not finite, non-renewable resources. Oil is. The same rules do not apply. How is it that so many self-styled 'oil analysts' miss this most fundamental, basic, incontrovertibly vital point?!?!

Oil prices will certainly correct from time to time, but until the uncertainty about long term sustainability of oil supply is directly addressed (and the utter lack of transparency from OPEC and the psychosis emanating from Russia are not encouraging), it's seems foolhardy to assert that high oil prices are a 'bubble', and it seems likely the uptrend, or at the very least a sideways action, will continue. In other words, concrete facts about supply will be required to drive the price trend down. No such facts are in sight at the moment, despite the speculation about demand destruction - speculation does not equal fact.