LilBob

Contrarians Denninger, Dent, Faber and Hoye Looking for Dollar Rebound

I have to agree with the contrarians on a stronger than expected dollar. Right now the value of the dollar is inversely linked to the price of oil, and the two move in lock step. As recent reports have once again shown that American consumers have cut back more than expected in response to gasoline prices hovering around the $3 mark, we are likely to see a period of a stronger than expected dollar.

This may be the best argument out there for finally convincing some of the need for greater energy efficiency: when Americans consume less energy, the dollar gets stronger.

Housing Prices Up Again

Unfortunately I have to agree with you. I don't think there's any question that the $8000 home buyers credit is pushing up prices of homes in the sub $150,000 market. As soon as that credit expires we should all expect to see a drop of right around $8000 dollars in home prices in that part of the market-ergo a drop in the national average of around 3 1/2 to 4%.

Policy Lessons from the Great Depression

I like the idea of Pure capitalism John, I just believe if we're going to go to a pure capitalist model we should go all the way, not leave in the parts of government policy that some wealthy individuals and firms like while also doing away with all social programs. It's the government's job to-broadly-regulate the money supply, and no contractor could or should ever be trusted with such a venture. I am all for eliminating the majority of government interventions in markets, including Sarbanes Oxley and especially the Greenspan Put. I also believe that the government should offer no tax breaks, no government incentives, no bailouts of any firm for any reason and no preferential legislation that favors one firm over another. We would eliminate all government mandates dictating specific unions (such as the AMA) to offer specific services, as well as "preferred provider" status that is offered to certain government contractors. Oil companies wouldn't get government money for finding new oil and would have to build their own pipelines without any government aid. Companies that make use of public lands would have to pay fees based upon the value of the materiasl they extract-thereby eliminating the subsidized stripping of public lands. The automakers would have been allowed to fail-knowing that transplants from other automakers would materialize to satisfy the US market.

On Oct 27 09:44 AM John Galt wrote:

> On Oct 27 09:16 AM TradingHelpDesk wrote:

Policy Lessons from the Great Depression

This is the kind of out-dated and irrelevant thinking that really has no place in modern discussion if we ever hope to fix our current economic mess. What brought us out of the recession was interest on US war bonds, GI Pay and wages paid to Rosie the Riveter. The restoration of the consumer base made possible by the scaling up for WWII was what brought the country out of the recession. Reducing taxes on the wealthy at this point would do nothing but exacerbate the creation of aggressive investment schemes that created our current mess.

This ongoing effort that I see in the media by the "Fox News" crowd to vilify the current administration and claim that private industry can regulate itself and take care of the economy alone is ludicrous.

Personally, I do believe in pure Capitalism and am all for letting industry regulate itself, so long as we also minimize all government contracts and eliminate all subsidies and tax breaks-instituting a flat tax on all organizations-including so called "non-profits" that claim to be for the public benefit but engage in aggressive fund-raising and pay their executives 6 and 7 figure salaries. This would also obviously imply that we never have another government bailout of anybody, and those companies that are still in bailout mode would be subject to harsh penalties-including the institution of an "E-3" pay rank ($1650/month-the same pay a private first class on active duty receives) for all of those who are de-facto government employees.

Nine Signs of America in Decline

On Oct 27 03:20 AM Mayascribe wrote:

> I sometimes hang with the 25-35 year old bracket. I see their > concern. I witness how they have changed their ways.
> I see them becoming more responsible to themselves. I also see that
> they are awaking to what is wrong with the current administration...

I'm one of those "25-35 set" and the problems I see, and that I hear described amongst others my own age have nothing to do with the current administration. It's pretty well known that the root of our problems right now have a lot more to do with Greenspan's insistence that "markets will police themselves" than anything Obama has said or done. Younger people today are forced to accept a lot of bothersome realities: Having a Master's Degree that you have to try to pay off while working for menial jobs-getting letters informing you that you weren't selected for an interview but "please do not be discouraged. There were over 110 applicants for this position". (quote from actual recent denial letter) Working for menial employers who consistently short the hours in your paycheck, so you have to save your pay-stubs and bring the issue up to supervisors and HR (something that started with Wal-Mart and has become endemic for all hourly workers). Alma Maters who downplay the salaries of senior deans and athletic coaches while pleading for donations through continuous mailings. A social security system that probably won't be there by the time we retire. Health care costs that are so ridiculuous most people my age don't go to a doctor-and even if you do find a job with insurance you can't get treatment for any ailments because jobs don't last very long nowadays and once something is documented as a "pre-existing condition" you won't be able to get coverage for that ailment under subsequent insurers.

The "25-35 set" is going to end up being quite a bit different from the "Me" generation, and the solution to these issues has very little to do with who the President is.

A Deeper Look at the Housing Data

"a cash for clunkers effect"..first time I've heard that usage, I like it.

Anyways, back to the issues, another problem that I don't often see discussed relative to housing values is the poor quality of construction in many suburban homes that were thrown up during the boom. It's not uncommon to see-still inhabited-homes that are less than ten years old in some neighborhoods; homes which sold for between 400 and 500k during the peak of the subprime boom that are already showing significant signs of dilapidation. Gaps in siding; paint literally falling off the sides of homes in large flakes because of poor quality siding or improperly stained and sealed shingles; concrete steps that are cracked and sagging; so many homes were thrown up so quickly by unscrupulous builders and now people are expecting these homes to be worth something. When homes that are not even ten years old are showing these kinds of signs of wear it's a good indication that they'll be money pits and fire traps before they reach 50 years old.

The problem with home values isn't just one of credit and mortgages, and sub-prime credit brokers weren't the only ones who got greedy.

Dollar Bear Trade Looks Dangerously Crowded

"Those reserves, applying the typical 7-8x deposit to loan multiplier over the last couple of decades, would translate into a credit surge equivalent to 40-50% of US GDP, underwriting a cyclical recovery..."

I feel you are falling prey to the fallacy of the "omnipresent consumer". It doesn't do any good to have businesses hiring new employees or opening new store locations when no one has any money left in their pockets to spend. The consumer base in this country is seeing a decline in wages, we aren't seeing any substantial or successful efforts to enhance domestic capacity or create new jobs, and we don't have any really hopeful examples of transformative technologies-other than alternative energy-on the table to justify taking out all of those new loans. Just giving out loans so Americans can go back to buying cheap imported crap on credit isn't going to do a thing for this economy but set us up for another, even deeper recession.

3 More Black Swans for the U.S. Economy

I have a different take on the credit issue. In my view, credit is a vehicle of existing and/or pending demand, not a creator of demand. When you have an economy where consumers make extensive use of credit-as we had during the real estate boom-demand during that period is accelerated and we reach an unsustainable plateau of apparent economic prosperity. Given consumer deleveraging and contraction of credit, we are suffering through a "credit hangover" where the balances are being paid off and consumers are learning to do without. In the long run, credit instruments-when viewed from the perspective of productive capacity-actually diminish the total output of an economy (even though it makes enormous profits for those who invest in credit instruments, it actually reduces-through interest rates and fees-the total buying power of consumers). If consumers have learned their lesson-and I believe this time around the lesson has been harsh enough that they will-then we are likely to see a far more robust economy within the next 6 to 10 years as more jobs are supported for those individuals who actually make and sell the goods (I do predict a strong resurgence of domestic production via Economic Nationalism and a weakened dollar-hence I said "make") will be able to enjoy increased total sales.

Two Nations: Market vs. GDP, Unemployment

I would like to see more of where you were trying to go here. This was a very short piece. The comments about two nations just get us back to the fact that we are seeing the return of Social Darwinist ideas where working class people have been rendered analogous to the Deltas and Epsilons in Alduous Huxley's Brave New World. This movement has been facilitated by computers which are incomparable tools for reminding people of "The Policies" and preventing any accidental expressions of humanity or sympathy.

The Future of U.S. Consumer Spending: It's a Generational Thing

I agree with you wholeheartedly that one needs to examine one's primary demographic group and aim advertising and product lines accordingly, but I question your list of businesses as you appear to have half of the list spot on and the other half dead wrong.

4 of the 8 businesses you mention are purveyors of goods and or services that are either of poor quality, or in outrageously competitive markets. Aeropostale doesn't have a chance in an age when more consumers are looking for the "Made in America" tag and quality of products is a growing issue. Chipotle Mexican Grill-that's just a big loser right there, the food in their stores is just plain awful (and I do know food, I was a prep cook in some pretty nice restaurants during my college years). Boston Beer Company-a lot of people do like Sam Addams but there's tremendous competition in Micro-Brews and Sam Addams has lost some of it's microbrew credibility by becoming too omnipresent. Pac Sun-they had stores in the malls near where I live, both of those stores are closed now. The items they carried were very highly priced, and suited to the fashion sense of a suburbanite hip-hop fan with significantly less than average intelligence.

After trashing half of your list I'll do a mitzvah by naming a sector to watch: craft goods suppliers. Gen-Y-for some strange reason I don't really understand-seems to be full of young people who love to do crafts: knitting, scrap-booking, watercolors, etc. Stores like Michael's and Joann Fabrics are likely to enjoy growing sales as the buying power of Gen-Y increases.

A Few Trends Accelerated by the Recession

On Oct 22 10:48 AM John Galt wrote:

> You say you don't want a government run, socialist health care system we already have one ( and we have a TON of problems).

Actually John I'm okay with a limited form of government run health-care. My only problem is that the current attempts to regulate health care costs via insurance are bound to fail. I'm currently working on a paper that suggests a National Service Corp of General Practitioners that's based on the organizational model of the US Postal Service (the one area where public investment has indisputably increased the standard of service offered by private competitors.) I'm probably going to post the paper to my SA Instablog-I think it'll get more exposure there than in some academic journal.

Weak Dollar Will Jeopardize the U.S. Economic Recovery

Michael is spot on about oil prices, but rising oil prices represent an opportunity, and that opportunity si for a resurgence in the development of alternative energy technologies, which-in my view-are our only real hope for a transformative technology that can usher in a new period of economic growth. At this point the economy has fallen so far that continuing to beat the same long dead economic horse isn't likely to produce significant results. Development of new transformative technologies, or the creation of economic policies that break down oligopolistic market structures-thereby increasing competition in the marketplace are needed.

The flip side of the weak dollar argument is that along with the recent return of the "Buy American" ethos a weakened dollar may increase the cost of foreign capital goods and spur more Americans to look for American made goods-thereby altering our trade deficit and reducing the hemorrhaging of American consumer capital via trade. There is even the potential that other countries-such as the Euro nations may increase their imports of US made manufactured goods. (The notion of the Chinese becoming significant consumers of American made goods is-quite honestly-a pipe dream.) The recent weakening of the dollar does show some parallels to the devaluation of the dollar during the Roosevelt years, now the nation needs to find a way to restore the consumer base and increase middle class wealth to restore our nations typical and (presumably) preferred economic structure without the vehicle of war production.

Is Capitalism in Its Death Throes?

When you get too great a concentration of capital in the hands of too few people you end up with a situation where you have too many investment dollars chasing too few consumer dollars, ergo businesses are not able to keep their doors open, employment goes into decline, and more aggressive investment schemes are cooked up to create false impressions of economic security for the investment class. It's entirely appropriate that you should use a quote from Woodrow Wilson, as his tenure at Princeton, his association with Teddy Roosevelt and Howard Taft and later his presidency were all within the 1895 to 1920 time frame-a period of extreme economic volatility-that laid the groundwork for the excesses of the 1920s and eventually the 1929 crash.

So what happens next? History tends to run in cycles and chances are we'll see exactly what happened the last time. Labor starts organizing again; we see huge growth in entrepreneurship, corporations get divided up by anti-trust legislation to create more competition in the marketplace and therefore better value for consumers; the dollar gets devalued (we're already seeing that and I'm convinced it's intentional); and eventually the consumer base is restored to a position of relative economic security that creates the perception of widespread prosperity. Then the whole cycle begins again and our grandchildren will probably be discussing the financial collapse of the nation and how the president and congress are to blame at some point in the future. The missing link this time is how do we create the rapid transition which was WWII the last time around. I've been repeating in my comments that GI Pay, Rosie the Riveter's wages and interest on US war bonds paved the way to 1950s prosperity. This time around we'll need some transformative technology as I don't think any large enough event is on the horizon. Alternative energy and the prospect of energy independence has the potential to be our transformative technology but it's going to take a lot of entrepreneurs who can create results without having to whine to the government for billions in subsidies first.

A Few Trends Accelerated by the Recession

dogwill wrote:

"Why does a 3 hour procedure cost $18000?..Should I tell you about my daughter's tonsils removal that cost over $5,000? At least she stayed in the hospital for about 6 hours."

Since you mentioned $18,000, that's what a broken arm costs nowadays-at least that's what a friend of mine is being told he'll have to pay because his insurance is refusing the bill.

I'll go ahead and say it since no one else seems ready to: The reason health care costs so much is because the Hippocratic Oath is a joke and isn't taken nearly as seriously by many specialist physicians and health-care administrators as the payments on their McMansions, golf club memberships and Corvette Convertibles. Since most people consider chronic pain and, or a lingering death to be rather negative potential outcomes there is little opportunity to forego services, ergo little to no "Threshold of Elasticity" effect. What we really need is some competition in the marketplace-a competitor for the AMA. That's why recent efforts at health-care legislation are bound to failure, without the creation of some entity either public or private to compete with existing health-care providers, or at least to provide preventive care services and end of life palliative care services prices will continue to rise unabated.

Of course to discuss such things is practically useless, as the discourse has become quite polarized as of late. Just watch the comment stream and I'm almost certain some neo-Fascist will try to call me a Socialist because I suggested we need more competition in the marketplace...You know, the logic train just blows right through that pass, doesn't even think about stopping.

If the Middle Class Crumbles What Happens to Political Stability?

Cam Hui, turns out I'm getting a lot of exposure by getting everyone riled up so I'm going to see if I can jump on this bandwagon and make this one like the "Greatest Depression" article.

In the late 19th and early 20th century many new Americans were living in slums and working in factory conditions that-by modern standards-would be considered rather quaint and picturesque. Granted, there were no guards on the machinery and fires were an occasional difficulty but at least you weren't constantly monitored by cameras and subject to non-stop beepings and buzzings. Nonetheless, those 14 hour days proved rather tiresome, and the low wages and lack of health-care and legal protections for workers could also be difficult so people organized and fought for union representation and better working standards. It was the development of a solid capital base-abetted by GI pay, Rosie The Riveter wages and interest on US war bonds from WWII that made the prosperity of the 1950s possible.

Now that the unions are largely a thing of the past, thanks to out-sourcing, we are once again in the throes of a rapidly volatile stock market much like we had between the years of 1895 and 1936. Many will tell you (and with a straight face; something which absolutely amazes me) in one breath that the solution to the problem is to reduce wages, thereby making American workers more competitive so we can restore domestic capacity, then they will tell you (without even snickering) the other problem is how do we get consumers to start buying again. So the solution to the problem-according to that log-is how to get people who are already in debt, and who are seeing their hours and benefits cut to spend more money. If it were somehow possible to get the minimum wage down to only 4 dollars an hour, then figure out how to get people who are only making 4 dollars an hour to spend like someone who makes $150k/yr, then everything would be fixed; oh, and in the process we have to get rid of all the taxes and also figure out how to spend more on the military at the same time.

As I said in my other comments, the real problem is when you get an excessive accumulation of capital at the top of the income scale you have too many investment dollars chasing too few consumer dollars. That's why the amount of investment required to generate additional GDP continues to rise, and it will continue to rise until we see consumers being more careful about how they spend their money, and we see Congress start to regulate American Business rather than just selling favors for campaign donations. Wages paid to working people are akin to fertilizer that's spread over a field. If you keep taking more and more out of the ground, eventually you aren't farming-you're mining, and once the ore is gone it's gone.

The real fear, the one thing that American business leaders are likely most worried about is that their little club might start to fraction as markets become more competitive. In other words, their afraid they might actually have to compete. The notion of trying to go beyond what your competitor offers to attract customers, rather than just relying on oligopolistic market structures to ensure one's own survival must be nightmarish to leaders in the Fortune 500 set-probably makes things a little awkward around those country-club bars.