Predicting the economy
This book sounds interesting:
Like a pair of financial sleuths, Ms. Reinhart and her collaborator from Harvard, Kenneth S. Rogoff, have spent years investigating wreckage scattered across documents from nearly a millennium of economic crises and collapses. They have wandered the basements of rare-book libraries, riffled through monks’ yellowed journals and begged central banks worldwide for centuries-old debt records. And they have manually entered their findings, digit by digit, into one of the biggest spreadsheets you’ve ever seen.
Their handiwork is contained in their recent best seller, “This Time Is Different,” a quantitative reconstruction of hundreds of historical episodes in which perfectly smart people made perfectly disastrous decisions. It is a panoramic opus, both geographically and temporally, covering crises from 66 countries over the last 800 years.
I wish them well. But we can’t seem to learn from history, except (perhaps, every now and then, a little bit) for the history we ourselves experience personally. For example, many people such as my mother who went through the Great Depression pooh-poohed all the boom times that followed and refused to speculate even a little bit. It can be a double-edged sword for such individuals, though. For someone like my mother, it meant that they did not ride the wave and make much money during the go-go years, but it also meant they didn’t lose much when the downturn came.
For society as a whole, it’s perilous to not learn and understand economic history, but it seems to be our fate, no matter how many books are written and how many theories abound. Because who can tell which ones are correct? People would usually rather be seduced by the idea of the quick profit; they think that they will be able ride the wave and jump off at just the right time before the inevitable wipeout. The motivation for short time gain is huge, and hubris is rarely in short supply.
With the stock market lurching again, plenty of investors are nervous, and some are downright bearish. Then there’s Robert Prechter, the market forecaster and social theorist, who is in another league entirely.
Mr. Prechter is convinced that we have entered a market decline of staggering proportions ”” perhaps the biggest of the last 300 years.
In a series of phone conversations and e-mail exchanges last week, he said that no other forecaster was likely to accept his reasoning, which is based on his version of the Elliott Wave theory ”” a technical approach to market analysis that he embraces with evangelical fervor.
Right? Wrong? Who knows? He advises to get out of the market entirely and stay in cash. But for most people who got into the market at what turns out to have been the wrong times (and there turns out to have been a lot of those times), that would mean incurring a huge loss right now.
As for me, I get fatalistic about it and don’t do anything too rash either way. If the economy becomes that bad, I figure the vast majority of us will be in deep doo-doo and it doesn’t much matter what I’ve done to prepare, unless I’ve learned to become a survivalist and frontierswoman, and it’s a little late for that.
These two articles are right in line:
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/04/AR2010070403856.html?nav=rss_opinion/columns
When you’ve lost the post….
http://www.lvrj.com/opinion/barack-obama–the-great-jobs-killer-97758294.html
Richard Russell, who has published the Dow Theory newsletters for over half a century is pretty bearish, too. After his “Sell Everything, You Won’t Recognize Ameirca By The End Of The Year” call (linked below), Russell followed it up by saying not to even think about getting back in until we reach Phase III of the bear market.
And when is Phase III? He’s not sure. But he thinks Phase II doesn’t even START until we go below the lows of March 2009 (the March 2009 low is about 6500 on the DJIA and the ominous 666 on the S&P).
On the other hand, Barton Biggs thinks there might be 10%-15% downside from here. I hope he’s right and Russell and Prechter are too pessimistic.
http://www.businessinsider.com/dow-theorist-richard-russell-sell-everything-liquid-you-wont-recognize-america-by-the-end-of-the-year-2010-5
With the obligtory “I’m no economist, but….” out of the way:
This is not rocket science. Ups and downs there surely are, but the way to prosperity is known, tested, tried and true: Lower taxes; less regulation; get the government out of the business of business altoghether – except to enforce the law and see to it that the play really is fair.
After that, people take over.
People like Adam Smith and F.A. Hayek are right – the invisibile hand or the collective knowledge and desires of the masses know best and do best. People will prosper and create and grwon given the right incentives and conditions.
The Socialists are wrong. Keyens was and is wrong. They know nowhere near what they think they know. Obama – one of the most conceited bastatrds that ever lived – never had a job and he’ll never create one unless it’s a bureacrat or a political supporter (like a union member) – and they don’t count. They cost two or three jobs for every one thet ‘save or create’.
There is only one thing we need to get things going again: vote out every democrat there is. If the Repubs even so much as take the House, the economy will begin to get ready to boom again. If they take house and Senate, it will boom.
Once Obama is hog tied and a ceremonial figure only, he won’t be able to inflict more damage. Long term, the ship will right itself.
But there are two tings that cannot and will not ever ever ever go together: a Tyrant and Prosperity.
We have our Tyrant. There is no way anything gets better until he is voted out, quits, or is basically rendered politically neuter by losing Congress.
Obama is arguably the most anti business president since FDR and we know how that worked out.
Even should the Repubs gain every seat up for election, they will still lack the needed votes to override a Presidential veto.
Thus the most likely scenario to unfold between the midterms and the Presidential election of 2012 is gridlock and finger pointing.
Nec,
I notice that there is a new Kindle Blog called NeoCon Express available.
Is that you by any chance?
Neo: Did you notice your investment philosophy resembles that of your Ma?
Nothing wrong with cash, esp. with deflation, which is in fact afoot. But a hedge for inflation will be prudent, and that would be precious metals aka gold.
It is possible to walk both sides of the investment street at the same time. That’s not surfing! And fatalism is seldom productive of anything good; if you were fatalistic, you would not be Neo-neocon.
Wish FredHJr were with us!
Goeffrey: I welcome gridlock and Obama’s political death by a thousand cuts. Though he will be vicious.
Ah, but if that happens the Republicans could scupper Obama neatly, and jam his program where the sun don’t shine. Obama and henchmen allocated most of the stimulus expenditure to the out years (i.e., in the runup to the next Presidential election, for obvious reasons), and thus haven’t spent it yet. If the Republicans take control of Congress they could pass legislation to return the unspent stimulus funds to the taxpayers. Let’s see Buraq veto that puppy.
If he signs it, he undoes his entire agenda, enrages his Red base, and denies himself the wherewithal to buy the Presidential election. If he vetoes it, in this economy, he’s done as a politican. Finished. Kaput. Fin.
The poetic beauty of this is that it employs Dem-style demogoguery — “vote for us, we’ll give you stuff” — to undo the damage wrought by Dem demogoguery. And the strategy can only be implemented because of earlier Dem demogoguery that amassed the funds in the first place.
Gotta love it.
Tom: I somewhat resemble my mom, it’s true. The difference is that I took many more financial risks a few years ago than she ever did in her entire life, and I am saddled with the results now. I have actually become more like my mom as a result of the post-2008 world. And I have become more fatalistic about certain things post-2008, including finances. I didn’t start out that way.
Kaba: No, it isn’t. I looked into signing my blog up with Kindle, but I haven’t done so because Kindle doesn’t have links—that is, the links in my blog would lead nowhere on Kindle. My blog depends heavily on links for the reader to understand what I’m referring to and where I got my information, so it would seem odd to put the blog on Kindle, at least at present.
Geoffrey Britain,
You write as if there is something wrong with “gridlock”.
The entire problem is that people think government can, and should, “do” something.
What they should do is “shut the Blank up” for a few years and go fishing. If all Barry did was golf every day for the next two years and never said a word except how great America was everything would improve by leaps and bounds.
You are just parroting crap you have heard other parrots parrot your whole life.
Stop. Think. Observe…And vote for whoever knows they are shyte. They are the best ones.
We got out of the market several months ago after gaining back most of what we had lost in 2008. I’ve always been the optimist telling my husband not to worry…but I suddenly began worrying so we pulled it all out. Maybe that isn’t smart, in fact, it most certainly isn’t smart, but I feel more secure now.
We have no credit card debt, but we do have a mortgage and a car payment. I think if anything happened to our jobs we’d be okay for several years.
A little history lesson if anyone is interested.
About 30 years ago, a PHD student in history started her dissertation by reading public school history books from the 1800’s through 1980. What she found was rather amazing. Because she was a liberal, she couldn’t understand a reason for what she had found.
What she found was that all History text books in America were the same from the 1800’s through 1918. Then in 1918, history text books changed radically. From then on, all history text books were the same.
How were they different?
From the 1800s to 1918, history books explained that ideologies took hold, and then if successful for their time and place would build societies. As the societies built on a certain ideology grew, they would overthrow older societies based on older ideologies. Eventually this new society would itself fall and be eclipsed by a new belief system. History books discussed the various systems and what they believed.
After 1918, history books were a collection of names, dates, places and battles without any intellectual coherence.
Who would you guess thought it would be a good idea to remove all the intellectual content from history books – and why? The most important intellectual movement of the early 1900s was the progressives. Making people intellectually weak would be helpful for their agenda.
Economic history is an interesting topic. I bet no more than a tiny portion of Americans would be interested. School proved to them that history is boring and useless.
The book explaining this story was called “America Revised” by Frances Fitzgerald. From her book, she says:
“The ideology that lies behind these texts is rather difficult to define…it does not fit usual political patterns…the texts never indicate any line of action…authors avoid what they choose to and some of them avoid main issues…they fail to develop any original ideas…they confuse social sciences with science…”
I’ve also become much more fatalistic. I wish I’d been a boy scout or something, because then I feel like I’d have some more practical skills that might be necessary if things get as bad as I sometimes imagine.
As far as the question of gridlock, while I agree that gridlock has its benefits–and that our system was designed with a certain amount of gridlock in mind, I also know that many of the sheep who voted for Obama can be whipped into a frenzy believing that gridlock is bad because Obama will say it is. Don’t get me wrong: gridlock would be greatly preferable to what we have now. I just worry that in 2012 Obama will run against the “do-nothing Congress” and win re-election. After all, it has happened before. And in the most recent instance, Clinton managed to turn the whole government shutdown standoff to his advantage (of course having the press on his side helped).
Neo,
You’ve become more like your mom. etc. etc. So have I. Funny, that.
Tom,
Re: “Wish FredhJr were here with us”: so do I. I’d bet he doesn’t, though! 🙂
I don’t know when I’ve seen such a helluva mess in all my born days.
Registered as an independent in California (which was appropriate at the time I registered), I’m now continually bombarded by purportedly independent screeds excoriating the “gridlock” in Sacramento that prevents raising taxes, i.e., pushing the throttle to full-on in our fiscal power dive.
Inference: the Reds have infiltrated nominally independent voter organizations. No rational person could possibly think legitimately that California’s salvation lies in raising taxes at this juncture. Not possible. Perfidy is the only possible motivation for advocating such a policy.
After being an investor, lender, and saver for 55 years I know a great deal more about markets and financial issues than when I started out. (Bought my first stock at the age of 22.) Compared with 1955, we are drowning in information now, but three things have never changed:
1.The time value of money.
2. The miracle of compound interest.
3. The idea that “This time it’s different.”
If I could start over knowing what I know now, I would most certainly do things differently because I would be more patient and more disciplined. Few people have the ability of a Warren Buffet to carefully evaluate companies, to wait for bargain prices, and to allow time for an investment to pay off. It is hard work and requires nerves of steel coupled with the patience of Job. Few of us have those abilities.
So, what is an average person to do? Save by paying yourself first. Always have a year’s living expenses in safe investments (Savings or CDs). Remember that substantial amounts of money have been accumulated by investing only in CDs, and savings accounts. (Yes, CDs and savings are paying nothing now, but higher rates are coming. Patience.) Owning a home is an investment in your well-being. Everyone who can should own a home they can afford. Do not invest in anything you don’t understand thoroughly. When you do invest write yourself a short note about why you are investing and what you expect the investment to do. Consult the note frequently and ask if the investment is doing what you expected. If not, do not hold on and hope. Get out! Remember, “He who runs away, lives to fight another day.”
Had I followed those rules consistently, my financial situation today would be much better than it is.
Born during the Depression, I have seen a lot of financial muddy water flow under the bridge. There have only been a few times when things looked really good. The 1970s were ghastly financial times. We had “stafgfaltion.” A stagnant economy with really bad inflation. Things looked very bleak, but we elected a President (Reagan) in 1980 who turned that around. And he was working with a democrat Congress. The situation is not hopeless……..yet!
A Congress that doesn’t rubber stamp Obama’s anti-business agenda and slows the growth of spending could at least lead to renewed confidence
in the economy. And that would be a good thing. It is up to us as voters.
That is “STAGFLATION.” Sorry.
Excellent advice, J.J. Re “This time it’s different,” I’ve told my teenaged boys that whenever people start saying that, it’s time for them to pull their coats over their heads and run for the exit.
I’ve also gone through with them a credit card statement, line by line, a performed a complete exegesis thereof, and of course emphasizing the crucial point: the importance of a sentence on it is inversely proportional to the font size.
I discovered Karl Denninger’s Market Ticker blog in March of 2009 and promptly sold everything I had in the market. Right. The exact bottom. I wish I had found his site a few months earlier or later than I did, but you can’t have everything. The thing is, I was already close to panic even before then. My Roth IRA had already crossed into negative territory (total value less than the sum of my contributions), the new administration was relentlessly anti-capitalist, and the market seemed to be in a death spiral. So I got out, salvaging what I could, and never looked back.
I’m completely in cash now. I have some in a bank, some in a credit union, and some here at home in a safe. Lately I’ve begun getting out of fifties and hundreds and into twenties, tens, and even fives. I don’t want to look like I’m rich when (not if) things really go to hell.
Even before I found Denninger’s site, since Obama’s election I had already begun stockpiling guns and ammo, and I’ve since added food, water, tobacco, and beer to my list. I also have a bit of gold and silver that I bought several years ago. My house is paid for, I have no debt whatsoever, and I’m fortunate to still be employed. I’m going to try to ride out whatever comes. I don’t consider myself a survivalist, though, since I live in the suburbs and not out in the country, and I don’t have a lot of skills. But I think (hope) I’m better prepared than most people.
Here’s Denninger’s mid-year review, where he grades his January predictions: July 4th Market Musings – Half-Year Checkup I don’t pretend to understand everything he says, but he puts out a lot of valuable information and opinions.
Click the Tickerforum Comment Zone link under each post to see the comments. Yes, I know it says “No Comments” but don’t be fooled. The Ticker Forum is a VAST place, and there are always comments.
Geoffrey – “Even should the Repubs gain every seat up for election, they will still lack the needed votes to override a Presidential veto. ”
AVI broken record: This is a ten-round fight.
This is sort of tangential, but Ken Rogoff was a very strong young chess grandmaster in the mid-1970s. I suspect that being an esteemed academic economist pays a lot better!
Foe those who don’t have the time or inclination to read the book that Neo references, one of the authors (Carmen Reinhart) was interviewed by the Cato institute this past June; the 11:35-min podcast is available on the Cato site.
re: Robert Prechter and Elliott Wave; about 4-5 years ago a friend of ours bought heavily into this guy, so I did some research into everything and it was interesting but I didn’t put much stock into it (literally or figuratively).
One of the things Prechter was saying was that we were headed for a very big and longlasting downturn in all markets (including housing), and that we would have a woman president after the next election.
In hindsight, the predictions were eerily close to reality–we went on to have the huge burst in the housing market and then Hillary made a serious Presidential run. There were some other things he was saying back then but I’ve forgotten them now, wish I could remember just out of curiosity.
Neo – it’s never to late to start prepping! I’ve started doing a little – I’m not a “survivalist” but it helps to be prepared. There are a lot of places out there that can help you do some of the baby steps to get started.
I would also recommend the book that this guy wrote:
http://ferfal.blogspot.com/
He’s from Argentina and has lived through their crash. His ‘survivalism’ is urban-centric and reality-based. Practical info – not Mad Max-type info. English is his 2nd language, so the book is quirky, but it adds to the charm.
>>wish I’d been a boy scout or something, because then I feel like I’d have some more practical skills that might be necessary if things get as bad as I sometimes imagine.>>
Do it! Become active in your local BSA group. Other leaders will help you learn… Start out small – with the Cub Scouts, if you feel inadequate to the task. It’s never too late to learn new skills!
And they can always use the help!
How can the economy recover if we have no manufacturing? It’s true that we still have people who produce intellectual property – software, etc – but other than that, most of our business is service oriented. If you don’t have in influx of money from _somewhere_, how can you get an increase in wealth? What about the people who are unable to do the mental tasks required for intellectual property production? what are they supposed to do?
Obama wants “everybody” to have a college education. Great…so who are you going to call when your toilet gets plugged? The local guy with a degree in engineering? Baloney. The reason he wants everybody to go to college is because the socialists dominate the universities. They’ll indoctrinate the upcoming young adults, and determine which have “futures” based on their wholehearted adoption of the “correct” ideology.
Or not.
Tom,
Gridlock is to be preferred to the cramming of radical dem legislation down our collective throats.
Occam’s Beard,
I very much like your proposal for the Republicans after the mid-terms, to counter-punch and place before Obama the two-edged legislative sword you describe.
Very astute thinking my friend.
BTW, I also am a registered independent in Calif. located about 1/2 way between Fresno and Yosemite.
Mike Mc,
I don’t happen to think there’s anything wrong with gridlock, under most circumstances, these however are not normal times and leaving things as they are is not really a viable option.
Much repeal is needed, entire Federal Dept’s need to be abolished, regulations and laws changed and the entire Federal Gov’t scaled WAY back. So we are in agreement.
In my evidently too brief comment above I was referring to what we will face after Jan 2011.
Look for the administration to switch its blame game from former Pres. Bush to the majority Republican Congress after the mid-term election. And again, as the Republicans cannot attain a majority sufficient to override a Presidential veto, look for gridlock and finger pointing.
The finger pointing of the Democrats will be supported by its propaganda organ, the MSM, which shall endeavor mightily to assign all blame to an “obstructionist” Republican majority, “obstinately blocking” all needed reforms and attempts by Obama to address the nations problems.
They will paint Obama as competent but frustrated by Republican efforts at obstruction.
A weak argument if the Republicans counter-punch with pointing at Obama’s deficits and use clever strategies like Occam’s that throw Obama off-balance and have him on the defensive.
His performance in the gulf spill has confirmed his incompetence in the public’s mind and his future moves in foreign affairs will sink him as well, so in my view, he’s already lost the 2012 election.
The real question is if in 2012, a Republican President (go Sarah Palin!) will have a majority Republican Congress to right the ship of state.
And all of this ignores the very real possibility that the Global economic system will collapse in 2011.
Geoffrey, thanks for your kind comments.
On the money. Libs are already blaming Republican obstructionism, in fact. When it is pointed out to them that the Dems have majorities in both the House and the Senate, and control the White House (to the extent Soros lets them), so they can do anything they want.
Their response: “Oh, yeah. Look, a puppy!”
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>>Libs are already blaming Republican obstructionism, in fact.>>
Very true. And the GOP is starting to own it – as in “We’re not the party of ‘No’…we’re the party of ‘HE!! NO’.
They need to keep this up – and if they win in November, pass stuff even if they know O won’t pass it. No, they won’t be able to overcome a veto, but just the fact of _having_ a veto is worth something. Make him say “NO” to stuff the people want – like repealing HC, and using the stimulus funds remaining to pay down other stuff – or simply not using them.
Although on the latter – I’d be willing to bet that if the Dems lose the majority in Nov, they’ll spend every cent in that fund before the session ends.
Yeah, maybe. It’s sort of the “shoot the moon” strategy. It’d be easy for Republicans to turn that to advantage: point out how much each person would have received had the Dems not spent all the money. Then cut to footage of some union fat cats laughing.
At that point, there’d be a hue and cry to outlaw the Democrat Party.
Freeze, personalize, isolate, demonize. Alinsky has shown us the way.