What if ... it is different this time?

[tidal]

That's like hypnotizing chickens

'Cause I'm just a modern guy
Who's had it in the ear before
I got a lust for life

I'm worth a million in prizes
Drive a G.T.O.
Wear a uniform
All on a government loan
I'm worth a million in prizes
Yeah I'm through with sleeping on the sidewalk -

Of course I've had it in the ear before

'Cause of a lust for life
'Cause of a lust for life
I got a lust for life

[big easy]

Some stark viewpoints concerning what may or may not be happening in today's global economy and stock/bond/currency markets...

Francois Trahan on Wealthtrack

...who at least has the wit to explain today's (US) yield curve and what it really represents.

Not sure I believe this but here are my notes:

Why this time its different:

US consumer deleveraging instead of borrowing to buy buy buy
Government austerity at the state and local levels (shedding jobs)
The Fed no longer has the lever of interest rates to stimulate the economy (rates near zero)

Inflation is the new Fed funds rate: high inflation slows growth, low inflation/deflation stimulates growth
Decreases in prices of commodities such as oil will put more disposal income in consumers pockets

Fed should target nominal inflation (not core) because this is what effects consumer spending

Death of traditional economics:
Traditionally the difference btwn long and short rates (slope of yield curve) was a predictor of economic health (inverted yield curve bad, positive curve good)
This no longer holds with zero ST interest rates (see Japan, US)
The new metric would be Long term rates less inflation
30 yr bond yield minus nom. inflation = 2% - 3% = inverted yield curve = slowing economy

Growing corporate profits do not equate to rising US employment because jobs and profits are being created overseas

He is predicting at least one qrt of negative growth if not a dbl dip

Age of Uncertainty:
Meltdowns to occur more frequently
Globalisation and the interconnectedness of markets (eg Greek crisis, Lehman Bros, LT Capital, Russian Debt crisis etc.)
US stock market revenues are 40% foreign based

He likes safe securities:
Treasuries
Utilities
Consumer staples

Buy 10yr treasuries at 2%

[mudLark]

A. Gary Shilling

[mudLark]

Lakshman Achuthan (ECRI) has a decades long habit of accurately predicting the ups and downs of economic/business-cycle expansions and contractions. In this clip he is doing the latter again - only a few years after he called the last recession he now says we are already in/entering the next.

Of particular note he explains that: "Recession is a process ... where sales disappoint so production falls, employment falls, income falls and then sales fall. That vicious cycle has already started." Emphasis mine.

But, more importantly he notes that: "It is a new recession." This will come as very bad news to the "...double-dips never happen..." pundits.

Another possible sign that "it ain't gonna be pretty folks" is that the (Max Headroom look-alikes or) talking-heads of the Cable TV business press world, typified in my mind by Larry Kudlow, have recently and noticeably begun integrating a more pessimistic economic outlook into their comments. Conversely, there's this.

[newguy]

Lakshman Achuthan (ECRI) has a decades long habit of accurately predicting the ups and downs of economic/business-cycle expansions and contractions.

Not according to Mish.

More importantly the ECRI totally blew the the recession that began in 2007, as well as the strength of it.

As long as the ECRI persists in its false claims, I will persist that people take a look at ECRI's recession predicting track record.

newguy

[mudLark]

Not according to Mish.

There is little doubt [in my mind] that Mish is a good economic analyst, and that he means well (i.e. is dedicated to ensuring his readers know the facts - as he sees them). However, he does tend to be a little pugnacious about others' predictions when they coincide with his own, and I've noticed over the years he often picks holes in their work, even when he agrees with the conclusions - as seems to be the case in this instance.

ECRI first signaled the possibility of a US recession in December 2007:

...the breadth of deterioration evident in the latest data on the components of ECRIs many leading indexes has rarely been seen except near the cusp of a recession.

See here. More a coincident than a leading prediction, as it turned out, but well ahead of most.

Much as I respect Mish's work, in this instance I prefer to be in the company of those like The Economist and John Hussman:

For us, the ECRI is an important source of analysis to confirm or question our own views, as it is undoubtedly the best private economic research group we know. They are conservative in their major economic calls, but are still invariably far ahead of the consensus.

[newguy]

Not according to Mish.

There is little doubt [in my mind] that Mish is a good economic analyst, and that he means well (i.e. is dedicated to ensuring his readers know the facts - as he sees them). However, he does tend to be a little pugnacious about others' predictions when they coincide with his own, and I've noticed over the years he often picks holes in their work, even when he agrees with the conclusions - as seems to be the case in this instance.

I was surprised when I read the Mish piece because I thought ECRI had done very well. I too agree with the conclusion but was surprised at some of their missed calls. I remember about last year everyone was calling for a recession based on the ECRI indicator but Lakshman said no, not necessarily. Anyway, pretty bad day. I'm off to buy precious metal, brass and lead .

newguy

[tidal]

And you can send me dead flowers every morning
Send me dead flower by the US mail
Say it with dead flowers at my wedding
And I won't forget to put roses on your grave
No I won't forget to put roses on your grave

[newguy]

And you can send me dead flowers every morning.....

newguy

[chiaroscuro]

The lyrics are a metaphor. No one is literally sending dead flowers, and no one would be literally waiting to put roses on someone's grave. I think you can garner some meaning from it by thinking of the juxtaposition of images...dead in life...and life for death. Futility of action perhaps? The ultimate meaninglessness of the conversation may be? I don't even think it was a slight at you Newguy...more riffing off of meager ideas, and not necessarily your idea!!

Think Bach and the musical offering.

[BRIAN5000]

And you can send me dead flowers every morning.....

newguy

This is a way better unit, pills drop into drawer and beeper sounds till draw is removed and replaced. Four times a day, cassette holds 7 days, batt & 110v operation.

[tidal]

It's just a song. It's not directed at anyone.

I am sure one can read many meanings into it. I think it's about something that is over but for which one still holds some bitterness and affection. And I rather like this Townes van Zandt version - which also is the closing track to The Big Lebowski, as I recall.

It's also pretty clearly about drugs. Maybe that's what newguy meant! In any event, there is some apparent communication failure here.

[FinEcon]

It's just a song. It's not directed at anyone.

I am sure one can read many meanings into it. I think it's about something that is over but for which one still holds some bitterness and affection. And I rather like this Townes van Zandt version - which also is the closing track to The Big Lebowski, as I recall.

It's also pretty clearly about drugs. Maybe that's what newguy meant! In any event, there is some apparent communication failure here.

The closing track to Lebowski, I believe, is Shawn Colvins (sp?) most excellent rendition of Viva Las Vegas.

[tidal]

It's just a song. It's not directed at anyone.

I am sure one can read many meanings into it. I think it's about something that is over but for which one still holds some bitterness and affection. And I rather like this Townes van Zandt version - which also is the closing track to The Big Lebowski, as I recall.

The closing track to Lebowski, I believe, is Shawn Colvins (sp?) most excellent rendition of Viva Las Vegas.

I have the film here on the iPod Touch... checked. We're both kinda right.

Colvin's track runs on the closing credits. "Dead Flowers" runs over the final scene - after Walter and the Dude scatter Donny's ashes out to the Pacific (and all over the Dude...), the movie returns to the bowling alley. "Dead Flowers" plays, the Dude appears and briefly speaks to the Stranger, goes bowling, and the Stranger winds the movie up in monologue... then it goes to credits (still playing "Dead Flowers"), and then switches to "Viva Las Vegas".

[Pickles]

Ok, guys, will you can the photos and videos for a while and return to the topic (or open a thread in Watercooler?) Thx.

[ghariton]

From GARP:

Consumers and businesses are stashing more money at local banks, showing a reluctance to spend amid continued economic uncertainty, according to newly released data from the Federal Deposit Insurance Corp.

The agency's annual summary of deposits, a snapshot of holdings on June 30, revealed that deposits at metropolitan Washington banks rose $7 billion, or 5.2 percent, from a year ago (deposits from ETrade Financial were excluded from this calculation). Across the country, meanwhile, deposits shot up 7 percent, to $8.25 trillion from 2010 to 2011, outpacing the 2 percent deposit growth that occurred between 2009 and 2010.

Consumers have become so risk-averse that they are pulling money out of mutual funds and staying away from the gyrating stock markets to accept low returns on checking and savings accounts, said Alexandria-based banking consultant Bert Ely.

"Bank deposit interest rates are lousy," he said, "but people are looking at it from the standpoint of preservation of capital. Money in an insured bank account is as good as any to preserve principal and keep your powder dry for a better economic day."

Lew Sosnowik, a bank analyst at Koonce Securities in Bethesda, put it more bluntly:

"The public is scared; no one likes the unknown, so they are hoarding cash," he said.

Makes sense. The money supply has indeed grown tremendously. But a lot of people are sitting on cash and near-cash. (Posts on other threads here certainly support that.) That means that the velocity of money is very low. (I apologize to tidal and mudLark for using monetary theory/Friedman-like concepts.)

In my view, this has created a money supply "overhang". If velocity increases -- if people decide to start consuming and businesses decide to start investing -- then nominal GDP will grow strongly. Given current conditions, there is a strong chance that this will be partitioned into a relatively modest growth in real GDP and a strong growth in the price level. Quite possibly stagflation, a phenomenon that many traditional Keynesians dismiss as impossible.

Straws in the wind: Local Starbucks has increased the price of a grande coffee from $2.10 to $2.26 (7.6%) and a grande tea from $1.94 to $2.05 (5.7%). I'm not aware of any consumer prices that have decreased.

George

[Shakespeare]

Quite possibly stagflation

It may be that the authorities want a modest dose of stagflation.

[newguy]

What I'd like to know is it because people are paying off overdrafts (by request or default) or increasing an already positive balance.

http://research.stlouisfed.org/fred2/series/WDDSL

newguy

[tidal]

That means that the velocity of money is very low. (I apologize to tidal and mudLark for using monetary theory/Friedman-like concepts.)

What are you talking about?

I have made the case many times here and for quite some time that the increase in the money supply does not have to lead to price increases - in fact I didn't think it would much in the current circumstances - and that the mechanism for this would be a slowdown in velocity. (There's also a lot of slack in productive capacity, so I think P might be the last variable to respond to an increase in M in current circumstances...)

If anything, it's Friedman that tends to argue the opposite. That the relation between prices and money supply tends to be close and stable, that we could fight deflation by dropping money out of helicopters, yadda, yadda. Sheesh.

I certainly understand that money supply CAN cause an increase in prices. I just don't see it happening much under present conditions.

And anyone who looks at what has played out here - quantitative easing, zero interest, etc. - without any traction has to find it unnerving.

In any event, formulas like MV = PQ are stolen from analogues in the physical sciences by economists cum physicist wannabes. But it's abundantly clear why economics is a social science, and as such, you can fairly precisely say why it is different from the physical sciences. First, there are no conservation laws in economics. Second, there are no true experiments, at least in macroeconomics. Third, there are no unchanging underlying relationships between economic quantities. Economic relationships evolve in (largely) unpredictable ways.

Given that — no conservation laws, no experiments, and a constantly moving target — the real wonder is that economists can sometimes say something useful… But's it's about all we can hope for at present...

Fwiw, John Quiggin is speaking at the Rotman School of Management early next month... John Quiggin on The Role Played by Discredited Economic Ideas in the Meltdown, Nov 10 at Rotman‏... John Quiggin, Hinkley Visiting Professor, Johns Hopkins University; Australian Research Council Federation Fellow and Professor of Economics, University of Queensland... “The Role Played by Discredited Economic Ideas in the Meltdown And Which Ideas Need to Be Killed to Prevent Future Crises" ... takes the reader through the origins, consequences, and implosion of a system of ideas whose time has come and gone. These beliefs--that deregulation had conquered the financial cycle, that markets were always the best judge of value, that policies designed to benefit the rich made everyone better off--brought us to the brink of disaster once before, and their persistent hold on many threatens to do so again. Because these ideas will never die unless there is an alternative, Zombie Economics also looks ahead at what could replace market liberalism, arguing that a simple return to traditional Keynesian economics and the politics of the welfare state will not be enough--either to kill dead ideas, or prevent future crises

[newguy]

Nobody looks at M3 anymore? It's around the same level as in 1999.

newguy

[tidal]

Quite possibly stagflation

It may be that the authorities want a modest dose of stagflation.

In what scenario would that be a policy goal?

Genuinely curious, where would that apply? I'm just trying to think that through. To get people spending because of fear of rising prices? So that GDP doesn't go negative? (Maybe asking the question is getting me to the answer? But still curious as to what you meant...)

[Shakespeare]

The western democracies have three basic options: default, devaluation, and inflation. The latter option is the most benign.

If growth can no longer be achieved, inflation will at least devalue obligations.

[mudLark]

And here is the reality of employment compensation in the U.S.--it's falling off a cliff. This is unsurprising if we examine the employment statistics below the gamed "headline number" of unemployment. Roughly 18 million of the 140 million jobs are part-time, and another 17 million are self-employed people who are counted as "employed" even if they earned next to nothing. Millions more of these jobs are temporary, i.e. contract or free-lance, without benefits or stability. Many "permanent" jobs have have their hours of paid work slashed.

[newguy]

What I don't get is why the employment / population ratio is seen as good when it goes up. Nevermind the idea that women should stay home and raise kids for healthy families if you believe that. But what about not working as hard to survive? I'm glad that productivity increases in the last century free me from farming and I can now stay home and play with my kids.

newguy

[ghariton]

What I don't get is why the employment / population ratio is seen as good when it goes up.

Indeed. We live to work, rather than working to live. Shouldn't it be the other way around?

The problem is that, in our society, work has two different functions. First, we use it, in combination with capital and resources, to produce goods and services. Second, we use it as the primary means to distribute society's wealth/income among its members. There has to be some linkage between the two, of course, for otherwise people wouldn't work. But I believe that the linkage is not that tight.

Unfortunately, in public policy discussions, we seem to give absolute priority to work's second function, over work's first function. As a result, he who doesn't work is often seen as an object of pity (and sometimes scorn).

This permeates public policy thinking to an astonishing degree. Take just one example. China deliberately keeps its currency low relative to ours, and exports a whole lot of the stuff it makes to us. From the point of view of our economy as a whole, we should celebrate. Just look at those silly Chinese, giving us clothing, and food, and other stuff, in exchange for bits of colored paper that are promises which might never be fulfilles (especially in the case of the United States).

Are we grateful for all this free stuff? No. we are worried, and downright resentful. The Chinese are "stealing" our jobs!!! We don't want the Chinese making all this stuff for us, while we relax under the palm trees (okay, maybe the maple tyrees in winter, but still...). We want to work and make the stuff ourselves -- and if possinble, make even more than we need, so that we can export and have someone else living off our labor.

How does that make any sense?

Makes sense to me only because we use jobs as an allocator of wealth/income in our society. But couldn't we find another allocator, which would allow us to relax under the palm trees (sorry, maple trees), while enjoying a fair share of Chinese largesse?

George