Comments on: Words from the (investment) wise for the week that was (August 17 – 23, 2009) http://www.investmentpostcards.com/2009/08/23/words-from-the-investment-wise-for-the-week-that-was-august-17-%e2%80%93-23-2009/ Prieur du Plessis’s international investment blog Sun, 29 Jan 2012 22:06:48 +0000 hourly 1 http://wordpress.org/?v=3.1.1 By: dblwyohttp://www.investmentpostcards.com/2009/08/23/words-from-the-investment-wise-for-the-week-that-was-august-17-%e2%80%93-23-2009/comment-page-1/#comment-16205 dblwyo Sun, 23 Aug 2009 17:35:24 +0000 http://www.investmentpostcards.com/?p=10393#comment-16205 Prieur - you're definitely a student of Buffett, particularly his advice to read everything. There are a couple of points to add that start with the excerpt pointing to the disconnect between the markets and the economy. This will be, as Mauldin puts it, a statistical recovery (he has a 3-part series looking at real realities that you might want to point to). The biggest problem we had getting into this mess was the substitution of shibboleths and ideologies for data, analysis and unbiased clear-thinking. May I be so bold as to suggest we're at a similar cusp point now, except the ideologues in pursuit of Say's Law and Austrian economics are going to get themselves and their investors into trouble. Whatever one might think of Krugman's politics his economics is pretty sound. Nor is he anywhere outside the middle of the mainstream fairway on this. First off US stimulus (et.al.) saved the day and added about 2-4% to Q2 GDP. Secondly deficits are not a danger on either the crowding out or inflation front when aggregate demand is so far below potential and the US and the world are awash in excess savings http://krugman.blogs.nytimes.com/2009/08/15/more-on-deficits-and-interest-rates-wonkish/ Kasriel cover all this btw in two Econtrary notes last winter (circa Feb09). This is going to be a terrible recovery at serious risk of not transitioning into self-sustaining organic growth. Beyond that the developed countries will have to re-base themselves and reduce consumption which will shift the demand patterns for China and the other exporters. My own feeble attempts out some of this are here:http://llinlithgow.com/bizzX/2009/07/realities_vs_rhetorics_economy.html On China I've found no better source than Michael Pettis: http://mpettis.com/ The structural shifts and long-term dangers are significant. Which btw impacts all the commodity, oil and quick recovery themes driving the recent spates of risk-on trading.It would be well worth your while IMHO to dig into some of these. Prieur – you’re definitely a student of Buffett, particularly his advice to read everything. There are a couple of points to add that start with the excerpt pointing to the disconnect between the markets and the economy. This will be, as Mauldin puts it, a statistical recovery (he has a 3-part series looking at real realities that you might want to point to). The biggest problem we had getting into this mess was the substitution of shibboleths and ideologies for data, analysis and unbiased clear-thinking. May I be so bold as to suggest we’re at a similar cusp point now, except the ideologues in pursuit of Say’s Law and Austrian economics are going to get themselves and their investors into trouble. Whatever one might think of Krugman’s politics his economics is pretty sound. Nor is he anywhere outside the middle of the mainstream fairway on this. First off US stimulus (et.al.) saved the day and added about 2-4% to Q2 GDP. Secondly deficits are not a danger on either the crowding out or inflation front when aggregate demand is so far below potential and the US and the world are awash in excess savings
http://krugman.blogs.nytimes.com/2009/08/15/more-on-deficits-and-interest-rates-wonkish/
Kasriel cover all this btw in two Econtrary notes last winter (circa Feb09).
This is going to be a terrible recovery at serious risk of not transitioning into self-sustaining organic growth. Beyond that the developed countries will have to re-base themselves and reduce consumption which will shift the demand patterns for China and the other exporters.
My own feeble attempts out some of this are here:http://llinlithgow.com/bizzX/2009/07/realities_vs_rhetorics_economy.html
On China I’ve found no better source than Michael Pettis: http://mpettis.com/
The structural shifts and long-term dangers are significant. Which btw impacts all the commodity, oil and quick recovery themes driving the recent spates of risk-on trading.

It would be well worth your while IMHO to dig into some of these.

]]> By: Paul C Sandisonhttp://www.investmentpostcards.com/2009/08/23/words-from-the-investment-wise-for-the-week-that-was-august-17-%e2%80%93-23-2009/comment-page-1/#comment-16199 Paul C Sandison Sun, 23 Aug 2009 16:14:11 +0000 http://www.investmentpostcards.com/?p=10393#comment-16199 Paul Kasriel and Asha Bangalore: “There is concern being voiced that after the fiscal stimulus wears off, the economy will lapse back into a recession. Anything is possible, but that does not necessarily make it highly probable. In the post-WII era, once the US economy has gained forward motion, it has maintained that forward motion until the Federal Reserve has intervened to halt it.The fault in this reasoning is that the present crisis is not similar to the post WWII recessions.Then Bespoke: ”One argument the bears use is that we saw a number of similar bear market rallies that were this extreme during the overall 86% decline that the market saw from September 1929 to June 1932,” said Bespoke. ”However, as shown below, the current rally is now bigger and longer than any of the rallies seen during the 1929 to 1932 crash. The biggest rally during the ‘29 to ‘32 period was 46.8% over 148 days.”This is not an economic argument - this is just using technical analysis to make an after the fact rationalisation. Why does not the opposite conclusion apply - that this recession will be worse than the Great Depression and that is why the rebound has taken longer?I lack reference to the fundamentals in these explanations.Over $50 trillion imploded in the US housing market post 2006. What effect has that had on spending on goods and services, not only in the US but world-wide? How much has been used to prop up the banks? Last I counted it was over $12 trillion. How will that be repaid without raising taxes and withdrawing even more from private spending? How much has already been withdrawn from private spending due to the US and world population saving more? How much has been withdrawn from the economy due to the reduced incomes of the rising unemployed and especially when their unemployment benefits run out? How many more US and UK homes will be added to the market when the army of unemployed lose their unemployment benefits?What will happen when the Chinese housing and credit bubbles burst?Having not done their sums the market seems to have already priced in a successful global economic turnaround after the Obama stimulus kicks in during the 3rd quarter. What, on a $75 billion stimulus to alternative energy systems? What will that achieve against the larger picture of ongoing imploding wealth?The market is evidently paying no attention to economics just like Icarus paid no attention to the laws of physics and sailed too close to the sun.Having soared so far away from the fundamentals I expect the coming fall to be nasty and brutish and the downward spike to be excessive and lower than March 3rd and the disappointment and disgust of the investors to be crushing.The coming September and October will show where the economy is headed, not this rationalisation and conjecture. Paul Kasriel and Asha Bangalore:
“There is concern being voiced that after the fiscal stimulus wears off, the economy will lapse back into a recession. Anything is possible, but that does not necessarily make it highly probable. In the post-WII era, once the US economy has gained forward motion, it has maintained that forward motion until the Federal Reserve has intervened to halt it.

The fault in this reasoning is that the present crisis is not similar to the post WWII recessions.

Then Bespoke:
”One argument the bears use is that we saw a number of similar bear market rallies that were this extreme during the overall 86% decline that the market saw from September 1929 to June 1932,” said Bespoke. ”However, as shown below, the current rally is now bigger and longer than any of the rallies seen during the 1929 to 1932 crash. The biggest rally during the ‘29 to ‘32 period was 46.8% over 148 days.”

This is not an economic argument – this is just using technical analysis to make an after the fact rationalisation. Why does not the opposite conclusion apply – that this recession will be worse than the Great Depression and that is why the rebound has taken longer?

I lack reference to the fundamentals in these explanations.

Over $50 trillion imploded in the US housing market post 2006. What effect has that had on spending on goods and services, not only in the US but world-wide?
How much has been used to prop up the banks? Last I counted it was over $12 trillion. How will that be repaid without raising taxes and withdrawing even more from private spending?
How much has already been withdrawn from private spending due to the US and world population saving more?
How much has been withdrawn from the economy due to the reduced incomes of the rising unemployed and especially when their unemployment benefits run out?
How many more US and UK homes will be added to the market when the army of unemployed lose their unemployment benefits?

What will happen when the Chinese housing and credit bubbles burst?

Having not done their sums the market seems to have already priced in a successful global economic turnaround after the Obama stimulus kicks in during the 3rd quarter. What, on a $75 billion stimulus to alternative energy systems? What will that achieve against the larger picture of ongoing imploding wealth?

The market is evidently paying no attention to economics just like Icarus paid no attention to the laws of physics and sailed too close to the sun.

Having soared so far away from the fundamentals I expect the coming fall to be nasty and brutish and the downward spike to be excessive and lower than March 3rd and the disappointment and disgust of the investors to be crushing.

The coming September and October will show where the economy is headed, not this rationalisation and conjecture.

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