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The only place that will add jobs is the government. The overall private sector will continue to lose jobs, even if not at the pace of 2008 and 2009. They mention that household spending will be up...the only way that will be up is if commodity prices continue to increase and they are forced to spend more for goods. How are people going to spend if they don't have jobs and they can't borrow from their property anymore.
We also can't go by the stock market. The same thing happened during the 1930's when the market when way down after the crash, started to recover giving many false hope, and then only for it to continue to slide down. I actually think by mid to late 2010 and early 2011 you will see the stock market make another correction and continue to move more downward than upward.
I do not see a return to good times yet. For the following reasons:
1) Credit markets continue to contract by having consumers deleverage their accounts,
2) People are losing their jobs or are afraid of losing their jobs so they are saving instead of spending
3) Housing prices in some locations are still WAY overpriced (like Seattle)
4) Consumers aren't spending, and consumers are 70% of our economy
5) When polled by Chase, 70% of consumers said they are NEVER going back to their old spending ways and saving more
6) Demand for our products is anemic because we don't make anything anymore, so we don't have exports to lean on
7) All the accounting tricks in the world can't hide the fact that banks are still basically insolvent
8) The Fed is going to pull the plug on its intervention in the markets soon.
I see a gradual decline in the stock markets as dollars become less available and a return to more savings. The Fed can print all the money they want, if nobody bites, we ain't recovering.
I do not see a return to good times yet. For the following reasons:
1) Credit markets continue to contract by having consumers deleverage their accounts.
This is still true, but it won't be that way forever
Quote:
Originally Posted by eskercurve
2) People are losing their jobs or are afraid of losing their jobs so they are saving instead of spending
As the job cuts end, people will resume spending - this is ALREADY starting to happen (as evidenced by the slight uptick in Holiday spending).
Quote:
Originally Posted by eskercurve
3) Housing prices in some locations are still WAY overpriced (like Seattle)
In MOST of the country house prices have pretty much stabilized. There is some downside yet to come in some locations, but overall prices are stable and starting to rise.
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Originally Posted by eskercurve
4) Consumers aren't spending, and consumers are 70% of our economy
See point #2
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Originally Posted by eskercurve
5) When polled by Chase, 70% of consumers said they are NEVER going back to their old spending ways and saving more
See point #2. I don't care WHAT the people say, they will STILL spend. It's called "Pent up demand" - and it's a well-document phenomena that kicks in after every major recession and this one will not be any different.
Quote:
Originally Posted by eskercurve
6) Demand for our products is anemic because we don't make anything anymore, so we don't have exports to lean on
This is ignorant BULL. The US is the 3rd largest exporter on the planet and already our exports are on the upswing.
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Originally Posted by eskercurve
7) All the accounting tricks in the world can't hide the fact that banks are still basically insolvent
There ARE challenges ahead for the banks, but the fact is, now that the crises is abating banks can slowly write off their losses in an orderly manner and in a few years time those losses will be gone.
Quote:
Originally Posted by eskercurve
8) The Fed is going to pull the plug on its intervention in the markets soon.
The Fed will pull it's support once the economy is strong enough to stand on it's own - not before. The good news is, that time is coming pretty soon.
Quote:
Originally Posted by eskercurve
I see a gradual decline in the stock markets as dollars become less available and a return to more savings. The Fed can print all the money they want, if nobody bites, we ain't recovering.
I have no idea what you are trying to say with this.
In MOST of the country house prices have pretty much stabilized. There is some downside yet to come in some locations, but overall prices are stable and starting to rise.
Yes house prices have stabilized, but why? Because the government and the FED have provided large subsidies to the housing market. What happens when mortgage rates raise when the FED stops purchasing mortgage backed securities? What happens when the buyer subsidies end both on the state and federal level? What happens when all the modification programs end?
None of these things can be pursued long term and all of them artificially prop up the housing market. Supporting the real estate market and allowing it to more slowly deflate may have some benefits to banks, but it will not benefit the real economy.
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Originally Posted by LordBalfor
See point #2. I don't care WHAT the people say, they will STILL spend. It's called "Pent up demand" - and it's a well-document phenomena that kicks in after every major recession and this one will not be any different.
There is bent up demand, but its already occurring. It is not really bent up demand on the consumer side that usually brings the economy out of a recession though. One key component here is investment in residential/commercial real estate, but there is an oversupply of each so building will remain weak for some time. All the usually things that pull the economy out of a recession are problematic this time around.
Yes house prices have stabilized, but why? Because the government and the FED have provided large subsidies to the housing market. What happens when mortgage rates raise when the FED stops purchasing mortgage backed securities? What happens when the buyer subsidies end both on the state and federal level? What happens when all the modification programs end?
None of these things can be pursued long term and all of them artificially prop up the housing market. Supporting the real estate market and allowing it to more slowly deflate may have some benefits to banks, but it will not benefit the real economy.
All valid concerns. Mortgage rates WILL of course rise - but the truth is, that not necessarily going to depress home sales - as long as the rise is orderly. Consider the fact that it's pretty likely that as rates start to rise, those folks who are sitting on the fence waiting to see if prices will go lower are likely to make their move into the market - after all, unless one is paying cash, the final cost of a home is not reflected in the price alone but also in the interest rate, so - any move upwards in interest rates is likely goad those folks into buying right away (before rates go even higher). Also - it's pretty unlikely that rates are going to rise either very far or very fast because the Fed has quite a bit of control over that and they are unlikely to allow that to happen. This means it will likely happen slowly and orderly - and (as I said) as long as that's the case it shouldn't lead to any rapid interest rate rise.
Another thing to consider is that even though lots of "Doom and Gloom" folks point to the large backlog of foreclosed homes as a reason that home prices will fall again, the truth is that the backlog doesn't necessarily mean home prices will fall again. For one thing a big part of the reason home prices fell so much earlier is because those foreclosed homes ended up on the market almost immediately upon foreclosure - resulting in a glut of homes and falling prices as a result.
Now, however, circumstances have changed. The government bailouts have given the banks time so that the situation can calm down. Now, banks are no longer operating in "panic mode" - nor are they desperate to raise immediate cash. This means that they can afford to hold on to their inventory longer and dole them out according to demand. They are also a bit more inclined to let lenders stay in their homes longer. In other words, they are better able to manage their inventories and thereby keep prices from collapsing. After the big losses they've taken on all those foreclosed homes they've grown a bit smarter and realize that quickly dumping their inventory is NOT to their advantage. This will be a major factor in keeping the market stable.
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Originally Posted by user_id
There is bent up demand, but its already occurring. It is not really bent up demand on the consumer side that usually brings the economy out of a recession though. One key component here is investment in residential/commercial real estate, but there is an oversupply of each so building will remain weak for some time. All the usually things that pull the economy out of a recession are problematic this time around.
Well, usually it IS consumers that pull the economy out of recession - but THIS time around it's looking like it's likely to be driven a bit more my corporate spending. Fortunately America's corporations have quite a bit of cash on hand. This is cash from their cost savings moves of course - but also from the fact that sales - although they DID drop off - did NOT go off a cliff they way management expected. Subsequently, most American corporations are better off than they expected to be. This is why corporate profits last quarter were so very good - and why early reports of corporate profits in the 4th quarter are looking pretty good too.
This backlog of cash is simply sitting there - with corporations able to spend but simply waiting for a sign that the economy is on track for a recovery. Fortunately, those signs seem to be showing up - with retail sales picking up, factory orders increasing, consumer confidence rising, etc, etc, etc. The truth is EVERYTHING is in place for a substantial recovery to happen. This is why increasingly, more and more analysts and commentators - even including some die hard supply-side believers like Larry Kudlow to finally admit (even though it galled him) that recovery is coming this year - and that the recover y is likely to be pretty darned strong. This is what he had to say:
"The yield curve may be the best single forecasting predictor there is. When it was inverted or flat for most of 2006, 2007, and the early part of 2008, it correctly predicted big trouble ahead. Right now it is forecasting a much stronger economy in 2010 than most people think possible.
So there could be a mini boom next year, with real GDP growing at 4 to 5 percent, perhaps with a 6 percent quarter in there someplace. And the unemployment rate is likely to come down, perhaps moving into the 8 percent zone from today’s 10 percent."
Keep in mind, this is NOT coming from an Obama fan (by ANY stretch of the imagination - he generally refuses to call President Obama "President Obama" but rather simply refers to him as "Mr Obama"). Kudlow is a strong supply-side economics, small government, strong dollar, free enterprise cheerleader. When even folks like HIM admit that a strong recovery is coming then it's a pretty good bet it true.
Finally, remember - the US doesn't exist in a vacuum, the WHOLE world is recovering and US exports are WAY UP as a result - helping to drive a resurgence in manufacturing. In the past the US has led the way out of recessions. This time around - with the emerging nations economies growing so fast - THEY are leading the way. No matter WHO does it, EVERYONE is emerging from the worldwide recession - including the US.
Ken
Last edited by LordBalfor; 01-01-2010 at 09:28 PM..
All valid concerns. Mortgage rates WILL of course rise - but the truth is, that not necessarily going to depress home sales - as long as the rise is orderly.
Oh...the old switcheroo. You mentioned house prices before, now you are talking about home sales. These are of course two different things. An increase in mortgage rates will not have a dramatic effect on sales, but it will effect home prices as what determines what home the average person can purchase is the monthly payment and not necessarily the price of the home.
Quote:
Originally Posted by LordBalfor
Also - it's pretty unlikely that rates are going to rise either very far or very fast because the Fed has quite a bit of control over that and they are unlikely to allow that to happen. This means it will likely happen slowly and orderly...
Sure, the FED will try to make any shift orderly. So home prices will orderly decline in price as interest rates increase. Any, psychological push the slow increase in rates causes now will diminish over time as it is only pulling demand forward rather than creating demand.
The same thing can be seen with the first-time buyer credit. Although it was extended, most of the demand was already pulled forward as people rushed to purchase homes to get their home seller subsidy....oops I mean home buyer subsidy. Prices are already starting to decline again.
Quote:
Originally Posted by LordBalfor
the truth is that the backlog doesn't necessarily mean home prices will fall again...
No, it does not necessarily mean home prices will fall. You have to also look at demand, with unemployment now in the 10%+ range do you believe demand is going to be strong? So, there is weaken demand and an increase in supply and yet...prices are going to increase?
Quote:
Originally Posted by LordBalfor
This will be a major factor in keeping the market stable.
You mean keeping prices inflated, but the banks, fed, government, etc will not be able to keep prices inflated long term. Their actions are already wearing off...
Quote:
Originally Posted by LordBalfor
Well, usually it IS consumers that pull the economy out of recession - but THIS time around it's looking like it's likely to be driven a bit more my corporate spending.
No its not. It is always investment that pulls the economy out of recession, one key area being in residential and commercial real estate. These lead the economy out of recession, where as consumption lags the recession (i.e., it does not increase until the recessions is already over).
Quote:
Originally Posted by LordBalfor
Fortunately America's corporations have quite a bit of cash on hand. This is cash from their cost savings moves of course -
Where do you get this idea? American businesses are going bankrupt left and right. Furthermore, even if they have cash on hand why exactly would they invest it in increased production? Just because they can? No, they'd do it if they projected increase demand. But where is the future demand going to come from?
Quote:
Originally Posted by LordBalfor
The truth is EVERYTHING is in place for a substantial recovery to happen. This is why increasingly, more and more analysts and commentators..
You must be drinking some rather strong koolaid. Although a lot of the data has recovered from the depths seen in early 2009, much of it is starting to flat-line at levels much lower than pre-recession levels. The recovery is running out of gas, but that is only natural. The recovery was based on government spending and peak stimulus spending is about to pass.
There are far too many imbalances and structural problems in the economy for it to be kicked started with meager stimulus. Its going to take years for these things to be worked out and the government and FED are just insuring that the US economy sees another lost decade.
And are you seriously quoting Larry Kudlow? I mean really? Let see what he had to say in 2005:
"So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market."
Where do you get this idea? American businesses are going bankrupt left and right. Furthermore, even if they have cash on hand why exactly would they invest it in increased production? Just because they can? No, they'd do it if they projected increase demand. But where is the future demand going to come from?
Where do I get the idea that American businesses are flush with cash?
Gee I don't know - maybe it's from the fact that corporate tax revenues are UP or maybe it's from the fact that companies's quarterly reports are SAYING SO. You show try reading the quarterly announcements. Why do you think the stock market is up so much? Yes the weaker companies went under - but the remaining one are increasingly in very fine financial shape, with lots of cash on hand.
"Profits before tax increased $157.9 billion in the third quarter, compared with an increase of $90.6 billion in the second."
These companies will invest that money once their confidence builds that the recovery is real - and that confidence is increasing. Already many firms are increasing their sales projections in upcoming quarters.
Yes, I KNOW Kudlow was wrong about the housing crises - so what? When has ANY such financial analyst or reporter been right ALL the time.
Gee I don't know - maybe it's from the fact that corporate tax revenues are UP or maybe it's from the fact that companies's quarterly reports are SAYING SO. You show try reading the quarterly announcements.
I like anybody else does not read the quarterly announcements of all businesses. Undoubtedly there are some companies that are sitting on cash, they are also companies that are crippled with debt. The question is what does the situation look like in the aggregate? Feel free to actually post information that shows what you are saying is indeed true.
Quote:
Originally Posted by LordBalfor
These companies will invest that money once their confidence builds that the recovery is real - and that confidence is increasing. Already many firms are increasing their sales projections in upcoming quarters.
Yep, they will invest once their confidence builds and their confidence at the moment is not particularly high. Is it better than the depths seen earlier in 2009 Yes...is it good? No. You seem to believe that because the numbers have improved somewhat that they are now good, but that is far from the truth. Almost every measure of economic health is still well below its pre-recession levels. Not only that but they are starting to flat-line now as the stimulus is starting to wear off.
You do understand that there was a stimulus package and that the growth seen in GDP was largely the result of this stimulus? You can't solve imbalances and structural problems in an economy with a few quarters of stimulus, it takes prolonged action. The free markets can solve the problems too, but that requires the government, FED, etc actually let the free markets work.
Quote:
Originally Posted by LordBalfor
Yes, I KNOW Kudlow was wrong about the housing crises - so what? When has ANY such financial analyst or reporter been right ALL the time.
Kudlow was wrong about ever facet of what was going on, he mocked those that disagreed with him and so on. Why anybody would take someone that was that wrong and obviously biased seriously is beyond me.
This is not to mention what he was saying in that article was largely rubbish. But that is to be expected from him, he is not trying to understand matters he has an agenda.
I like anybody else does not read the quarterly announcements of all businesses. Undoubtedly there are some companies that are sitting on cash, they are also companies that are crippled with debt. The question is what does the situation look like in the aggregate? Feel free to actually post information that shows what you are saying is indeed true.
I DID post information tht shows what I am saying is true. Here it is AGAIN:
"Profits before tax increased $157.9 billion in the third quarter, compared with an increase of $90.6 billion in the second"
Follow that link and scroll down to the "Corporate Profits" section. Tax revenues from corporate taxes are UP because corporate revenues are UP - and yes that is in the aggregate.
Quote:
Originally Posted by user_id
Yep, they will invest once their confidence builds and their confidence at the moment is not particularly high. Is it better than the depths seen earlier in 2009 Yes...is it good? No. You seem to believe that because the numbers have improved somewhat that they are now good, but that is far from the truth. Almost every measure of economic health is still well below its pre-recession levels. Not only that but they are starting to flat-line now as the stimulus is starting to wear off.
OF COURSE they are well below pre-recession levels - that's the way it WORKS when are just coming out of a recession - if we were at pre-recession levels the economy would already be recovered wouldn't it? DUH!
And NO the stimulus is NOT starting to wear off - we are only now entering the period where most of it starting to kick in (most has not yet been spent). You really should learn the facts before you make such an obviously incorrect statement.
Quote:
Originally Posted by user_id
You do understand that there was a stimulus package and that the growth seen in GDP was largely the result of this stimulus? You can't solve imbalances and structural problems in an economy with a few quarters of stimulus, it takes prolonged action. The free markets can solve the problems too, but that requires the government, FED, etc actually let the free markets work.
OF COURSE the GDP growth was a result of the stimulus - that was IT'S PURPOSE after all - to kick start the economy. The WHOLE IDEA is that the government spends money when everyone else is too frightened to do so and therefor "priming the pump" for the economy. As the economy begins to heat up again the government spending slowing winds down.
Quote:
Originally Posted by user_id
Kudlow was wrong about ever facet of what was going on, he mocked those that disagreed with him and so on. Why anybody would take someone that was that wrong and obviously biased seriously is beyond me.
This is not to mention what he was saying in that article was largely rubbish. But that is to be expected from him, he is not trying to understand matters he has an agenda.
This coming from someone who thought that the stimulus was winding down and didn't even know that most of the stimulus money had not yet been spent.
Sorry - you clearly know even less than he does.
The fact is - Kudlow is not alone in recognizing that the economic indicators are now pointing towards a recovery - what is unique about Kudlow is that he is STRONGLY anti-Obama and has been very reluctant to say anything positive about the state of the economy. While still refusing to credit Obama, even HE is now facing the fact that the economy IS on the verge of recovery. When even HE is admitting recovery is on the way, it's pretty telling - especially when until very recent he was making the very same kinds of predictions folks like you have been making - specifically: hyperinflation, collapse of the US dollar, etc, etc, etc. He's not saying anything like that is imminent now. While he still has long term concerns, he's admitting that NONE of that is likely to happen anytime soon - instead it's likely we'll seem a booming economy instead.
Ken
Last edited by LordBalfor; 01-02-2010 at 09:01 PM..
Oh I guess this is where you change the topic again. Not only is having cash on hand much different than having a profit, but corporate profits although increasing are still much lower than pre-recession levels!
Profits tell you nothing about how much cash (or cash equivalent) a business is sitting on.
Quote:
Originally Posted by LordBalfor
OF COURSE they are well below pre-recession levels - that's the way it WORKS when are just coming out of a recession
Nope, not "of course". There are different sort of measures, you are thinking of coincident indicators. The leading indicators are the ones to watch and they are still pretty bad. Not only that they and the coincident indicators are starting to flat-line.
Quote:
Originally Posted by LordBalfor
And NO the stimulus is NOT starting to wear off - we are only now entering the period where most of it starting to kick in (most has not yet been spent). You really should learn the facts before you make such an obviously incorrect statement.
I always get a kick when people tell you to "learn the facts" when they say something not supported by facts. Peak spending should be in the 2010 Q1, but peak growth from the stimulus was in 2009 Q3. See the charts here:
Hence, the stimulus effect on growth is starting to wear off.
Quote:
Originally Posted by LordBalfor
OF COURSE the GDP growth was a result of the stimulus - that was IT'S PURPOSE after all - to kick start the economy.
Right that's the point, and to say it again stimulus cannot correct imbalances and structural problems in the economy.
Quote:
Originally Posted by LordBalfor
This coming from someone who thought that the stimulus was winding down and didn't even know that most of the stimulus money had not yet been spent.
What I said is true, feel free to cite information that shows otherwise. And please, don't change the topic again. It is the stimulus' effect on growth that is at issue here, not how much stimulus money is left.
The issue is that the stimulus money was spent most quickly at first and the rest is going to be applied more slowly over a longer period of time.
Quote:
Originally Posted by LordBalfor
The fact is - Kudlow is not alone in recognizing that the economic indicators are now pointing towards a recovery
The word "recovery" is rather vague. The question is what will the recovery look like? Will it be V-shaped? Will it be W-shaped? and so on. There is a huge difference between having a V-shaped recovery and having the economy sluggishly recover over say 5 years.
Contrary to what you seem to think the data is not pointing to a rapid recovery, if think that feel free to state which indicators you think show that.
Quote:
Originally Posted by LordBalfor
making the very same kinds of predictions folks like you have been making - specifically: hyperinflation, collapse of the US dollar, etc, etc, etc.
I have never predicted hyperinflation, the collapse of the US dollar etc. I have always thought those concerns were largely silly, feel free to look at my post history for confirmation.
Kudlow says whatever peopel want to hear, he has no interest in actual economics.
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