Passover Open Thread
By Barry Ritholtz - April 9th, 2009, 7:33PM
Here is the open thread question for passover:
Why is this Recession different from previous Recessions ?
What say ye?
In any great organization it is far, far safer to be wrong with the majority than to be right alone. —John Kenneth Galbraith
Macro Notes
US$ rally continuesPeter Boockvar
Asian currencies continue to sell off vs the $ on the heels of the news yesterday that South Korea said they will look into hot money inflows stemming from the $ carry trade and the Bank of Indonesia said they are looking into the foreign buying of bills. This follows the news a few weeks ago that Taiwan was limiting foreign deposit holdings and Brazil was taxing foreign inflow transactions. As I mentioned yesterday, we may have reached a short term pain threshold in terms of $ weakness and foreign countries are fighting back as they certainly won't wait for...
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April 9th, 2009 at 7:40 pm
Longer… on the back of a housing bubble… a market bubble… a consumer debt bubble…
Plus the economic recovery from the 2001 recession was pretty weak so we are getting hit HARD from a LOWER level. The 2001 recession was coming down from a huge high in the economy and the GDP levels. I wonder what the recovery from this recession will look like, sometimes it seems like many jobs will not be coming back whether it is in finance or retail… so many stores are bankrupt and/or closed and it’s hard to imagine that we will need that level of people going forward…
Great Frickin Question!
http://moneyneversleepsblog.blogspot.com/
April 9th, 2009 at 7:49 pm
because we never really recovered from the last one? and we had debt binge by business, and consumers? and we spent like mad on Iraq and Afghanistan? we had businesses that basically were in the fraud business? and then there are the ponzi schemes that some have been running (and some are still) that took money out but never gained any thing? we had government that thought it worked for business, and not any body else? incomes have been collapsing are now back to levels from 2000 so there is little likelihood of consumers pulling us out of a ditch any time soon? and business has not been investing much in this country, but lots else where?
April 9th, 2009 at 7:52 pm
We now live in a world economy.
April 9th, 2009 at 7:59 pm
America has reached a consensus that market fundamentalism has failed and government is the only viable solution.
April 9th, 2009 at 8:02 pm
The recessions that we are all used to are driven by the disruption of a small subsection of the economy. Did New York care when the steel industry imploded?
This downturn is a result of too much debt / leverage in all corners of the economy which impacts nearly every business / home.
The unemployment numbers tell the story. 600K / month losing their jobs = 20K per day. If you assume that every job lost directly impacts an average of 2.5 people, 50K people a day are being locked out.
If you built a $50K car that ran on water, how many could you sell in this summer?
April 9th, 2009 at 8:03 pm
It’s good to have a big project like a war, or a big nation that needs highways or the internet to get everybody back to work.
I think that building out Cloud offerings is going to lift a lot of folks and industries, particular software, out of the doldrums.
More on The Cloud and how it will be the next Disruptive Technology and how it will affect trading here:
http://www.transactionlevelanalysis.com/2009/04/dude-youre-getting-the-cloud-1.html
Barry, glad to hear that you have finished the book…I’ll bet that its nice to have the weight off of your shoulders and that you’ll be the talk of the Seder.
April 9th, 2009 at 8:06 pm
And when our sons turn to us many years from now, and ask what is so special about this day?
We shall say that lo, the previously rich Banksters did chase us after we fled the land o’ Goshen, but in mercy did we stop and feed them of all the fatness that we had. In their greed they had no fill, but came back to us for more and more and more.
Truly then did the Banksters grew rich and powerful again, and re-enslaved us with evil intent. Through foreclosure and bankruptcy, corruption and fraud, they conspired to make us to sin grievously. We forsook the true money, the debt-free kind, and did not turn back, and this caused us to be debt slaves forever . . .
April 9th, 2009 at 8:10 pm
Not only do we live in a world economy but we have out grown the old regulated banking system.
Most of my money is not with a bank and neither is my mortgage.
The money in my revolving line of credit, that is with a bank may actually come from anywhere in the world. As well as the money I have in money market accounts maybe be used anywhere in the world. Going back to our last bad recession in the early eighties for most of us still banked and saved locally.
Jack
April 9th, 2009 at 8:11 pm
For the last 15 years, when people would ask me why I did not believe this “consumer” economy was healthy, I kept on telling them that the SHTF when boomers start retiring. We’re there.
The group that will be picking up the baton is smaller than the group exiting and this has not happened since the 1930s:
http://www.census.gov/cgi-bin/ipc/idbpyrs.pl?cty=US&out=d&ymax=250&submit=Submit+Query
Also:
- Because the US is a net importer of oil and money. Current infrastructure was built on cheap and easy to get oil. Maintaining it and growing this infratructure means even more oil than what was previously used to build. And why would China let the US keep on taking more oil than its fair share when it needs it for itself and has more than 2 trillion in (currency) reserves?
- Because the biggest group with the biggest debt is fast approaching retirement… it’s hard to borrow for retirement. They’ll have to sell their assets to the younger ones to touch this money but the younger ones are already tapped out and are a smaller group (first time this happens in decades)
- Most of the boomers don’t have enough savings to retire and will have to keep on working. But history has shown that 40% of retirees are forced to retire early due to layoffs or illness.
- Because people have too much debt. So this debt has to be deflated… this means the US needs inflation but inflation usually means higher rates and higher rates would make asset valuations drop.
When you add it all up, the main reason is that the boomers are hitting retirement years with too much debt and not enough savings. Debt is a promise of future work from someone = if boomers don’t plan on paying it off that means thay are looking for someone else to work for them. They will try to force the younger ones to pay but since we are going from 5 workers per retiree to 2.5/1, those younger ones better be incredibly productive if the boomers want to maintain their hedonistic ways.
Somebody’s got to pay the piper. Many will say that it’s the immigrants but I doubt it. First of all it takes more than a generation for immigrants to really integrate. So we’re too late now. Secondly, the immigrants will be muslims… not sure the US is ready for that especially if they are not educated!
April 9th, 2009 at 8:25 pm
Biggest global debt bubble in the world’s history = biggest global bust. Far from over. The end.
April 9th, 2009 at 8:34 pm
…because recessions are normally about cleaning out the stupidity — essential, much like a fever is essential to your health. This time we are propping up the stupidity with the money that was going to replace it. Not a good sign.
The difference with the depression is there is no dust bowl. Over all I think it just means rich people will make less, and working people won’t have to work so hard for a while. At the end of the day, there is plenty to eat, which is the only thing that really matters.
April 9th, 2009 at 8:40 pm
@danm – nice comments on the boomer effect, kind of forgot about that trend. There were always some doomsday scenarios where people believed the market would fall due to the all boomers selling their stocks and getting into bonds… sadly I think most of the boomers stayed with portfolios that were too heavy in stock and rode them out.. creates kind of a difficult situation for the retirees…
Interested to see if there is some sort of positive “black swan” event whether it is technology, war, whatever that changes the economic landscape going forward that changes the game.
http://moneyneversleepsblog.blogspot.com/
April 9th, 2009 at 8:54 pm
Apart from the fact that this was self-inflicted by Wall St, the fact is that without HME withdrawals, the economy would have had a negative GNP trend (I don’t like saying negative growth which is oxymoronic). This negative now has to be factored into the new self-inflicted decline as the economy searches for its true base.
April 9th, 2009 at 9:09 pm
Distilling what has already been mentioned:
Boomers and entitlement.
Derivative leverage writ large.
or, further:
CDS + MBS +Subprime = different
April 9th, 2009 at 9:11 pm
The jobs that are lost ain’t coming back without destroying the systems that support the global labor arbitrage. This means that the jobs that are lost ain’t coming back without a lot of pain.
April 9th, 2009 at 9:13 pm
Associated Press Sez Recession Over Get Back Out There And Spend Your $$$ BUY BUY BUY
for the second week in a row and basing their ‘ anal – ysis’ on the dow jones going up, ass – ociated propaganda, er, press reports that all is good and quit that hunkering down and do a consumer surge.
April 9th, 2009 at 9:23 pm
I’m just waiting for the crucified Easter Bunny to rise from the dead and eat Matzoh and Cadbury Cream eggs. Wait, perhaps I got the story wrong?
Happy Easter and Passover everyone!
HCF
April 9th, 2009 at 9:24 pm
Don’t think we will fully know the answer until it is over. As you have pointed out on this blog the recovery from the last recession was typified with weak job growth. I suspect this recovery will be weaker with some fundamental changes never before witnessed. The term ‘new normal’ has been bandied about so it will be this new state that will ultimately make this one fundamentally different.
April 9th, 2009 at 9:24 pm
Answer to the first question: We endure our recession because our bankers could not wait for their interest to rise when they were fleeing the stockmarkets, and so they took the money out of their faults while they were still flat, which was recession.
Answer to the second question: TV Gurus eat their words , a bitter herb, to remind us of the bitterness of that our children will endure in the future.
Answer to the third question: We dip twice – (1) green money, and (2) real estate, a sweet mixture of nuts and brokers. The first dip, green money symbolizes the replacing of tears with gratefulness, and the second dip, symbolizes sweetening the burden of bitterness and suffering to lessen its pain.
Answer to the fourth question: We recline at the Seder table because in ancient times, a person who reclined at a meal symbolized a free person, free from debt, and so we recline in our chairs at the Passover Seder table to remind ourselves of the glory of freedom.
April 9th, 2009 at 9:40 pm
Consumer and mortgage debt (as a percentage of income) is higher now than any time in the last 50 years
http://www.comstockfunds.com/files/NLPP00000/176.pdf
[That does not, however, preclude the debt bubble from getting even bigger in the future].
April 9th, 2009 at 9:47 pm
This recession is different because Warren Buffett didn’t see it coming.
I’m watching Buffett on CNBC and he said (paraphrasing), that he wasn’t worried about housing prices or mortgage lending because as he assumed housing prices would continue to rise. Thus, even if a mortgage defaulted because the homeowner couldn’t pay, Buffett wasn’t worried about it because the price of the house was going up, and could be sold by the bank at a profit after foreclosure.
I don’t think there’s much debate that Buffett is a smart guy, which begs the question, did he really believe housing prices would continue to rise when people already couldn’t afford them after new mortgage products were created/re-marketed to make it easier for people to buy?
It’s certainly possible that housing and mortgages are outside Buffett’s area of expertise (I’m guessing he hasn’t taken out a mortgage in a few years) and that he simply listened to the “conventional wisdom” on the subject,* but I still find that cause for concern.
If someone who made tens of billions of dollars solely from investing can’t spot a bubble before it bursts (he admits later in the interview that he was also wrong about oil prices), who, then, should be turned to for accurate advice about issues such as this?
*For an interesting perspective on what “conventional wisdom” is, consult the writings of John K. Galbraith, who coined the term (hint: his definition is a bit different than what many might expect).
April 9th, 2009 at 9:48 pm
1) the size of the funds imbalance (aka “bubble”) relative to the GDP.
2) the complete dedication of multiple administrations to the preservation of the imbalance, in the fact of severe economic shrinkage — stimulus out the wazoo and bailouts galore.
These two things combined will make for ongoing dislocations that will present themselves as a series of “weird” markets, persisting for a VERY long time.
Traders Rule — at least the ones that survive.
April 9th, 2009 at 9:49 pm
Addendum to above formula (after more deliberation…and a few more sips of martini):
[(AIG + CDS) + (MBS / Subprime)] x (GM / Retirement Benefits) x [(Boomers +Beemers)/(Florida+Arizona)]
___________________________________________________________________________________
GREENSPANITY
……… = different
April 9th, 2009 at 9:52 pm
They are fundamentally different.
IMO, most recessions since the GD were caused by the Fed raising interest rates to reduce excess demand that was increasing inflation or expectations of it. This recession, like the GD, was caused by excess supply as the ever increasing demand was met with supply until consumer credit was maximized and, as a result, inflated asset prices (both financial and RE) began to decline leaving many banks and consumers insolvent.
In Fed induced recessions demand is easily rekindled by lower interest rates. But in a supply side, insolvency recession such as this one, lower interest rates do not increase aggregate demand sufficiently to return GDP to growth potential levels for a long time — until enough consumers regain sufficient solvency to materially increase demand.
Further, due to the falling demand and the excess supply/capacity around the world, deflation is a possibility, which, if not prevented, would lead to a further downward spiral of the economy as in the GD.
April 9th, 2009 at 9:53 pm
Each country has had a recession. At different times. This time everyone is in a recession at the same time. Therefore there are no countries with surplus that can be used to offset the decline. Also the US was a net exporter back then.
April 9th, 2009 at 10:09 pm
Debt-anywhere, everywhere found
Energy-price Spike deflated the AMC’s ‘cash cushion’
Pride, excess thereof, ~Hubris
Real Estate Bubble
Entropy~lulled to sleep, stability breeds chaos (thanks Minsky, Hyman)
Stock Mkt. halving– blowing out personal/Institutional ‘pension plans’
Surfeit of Mountebanks
Ignorance, in wholesale volumes, found at retail level
Ongoing U$D Trn+ Budget & Trade Deficits
Nation under siege
April 9th, 2009 at 10:25 pm
Q=Why is this Recession different from previous Recessions ?
A=Because it is a Depression.
Everything economic indicator is falling faster than any recession. Of course, our statistics are as cooked as Enron’s books. By the time the Cramer’s of the world start calling it what it is we will be commencing the recovery cycle.
Happy Passover Barry, thank you for a fantastic blog.
April 9th, 2009 at 10:36 pm
Discussion of several ultralong and ultrashort ETF performance so far in 2009, with emphasis on FAS and FAZ:
http://bespokeinvest.typepad.com/
Nothing shocking here, but the data is laid out for perusal.
April 9th, 2009 at 10:59 pm
It will likely last longer. Even retirees will live on less and spend less, bonds are beautiful,
too bad pension fund managers don’t know how to keep it simple (but gambling is more fun).
http://pensionpulse.blogspot.com/2009/03/giant-experiment.html
Take a break, relax, Have a great weekend, and hit the…
http://thegspot.typepad.com/blog/
April 9th, 2009 at 11:00 pm
How is it different? Its a Depression.
We are witnessing a complete meltdown of the global financial system, caused by the largest credit bubble in human history. Depressions require two things: massive debt destruction (happening) and a secular change in social mood (we are in the early stages). As the Depression matures, we will see the deflationary spiral slow down and eventually end, but it will be followed by stagflation and then pure inflation. It should take us at least 10 years to actually begin the healing process. In the interim we will see the social mood shift from fear to anger, as socialist policies and misguided attempts to control the economy create a fertile ground for class warfare.
Previous Depressions have usually ended in some sort of war. In my mind, the question is whether it will be external or internal. Dark times.
I hope I am wrong, but this aint my father’s recession.
Thanks, Maestro!
April 9th, 2009 at 11:01 pm
The difference? We’ve been fed (and have bought) a line of bullshit that there is such a thing as a bank that is too big to fail, resulting in the greatest power grab by Washington (on behalf of Wall Street) and fleecing of the taxpayer since the inception of the republic.
@franklin411: did you really say government is the only viable solution? Please dear God, Yahweh, whomever, when people start believing government is the only viable solution we are all well and truly fucked. The solution lies within, as always. God/Yahweh/whomever made you a complete and independent person. Government tries to make you its slave. On this Easter/Passover weekend, perhaps that’s the lesson for this recession.
April 9th, 2009 at 11:35 pm
How does this differ from previous recessions? Get me a torch and a pitchfork and let me demonstrate.
April 9th, 2009 at 11:58 pm
What is different:
1) Home equity at 50 year lows at last check (probably worse now)
2) Total credit to GDP at record 370% and climbing
3) Demographics changing…baby boomers going to retire, stopping 401k contributions, saving more and eventually taxing social security and medicare systems
April 10th, 2009 at 12:07 am
Most of the standard tools to combat recession have been negated or dismantled or made ineffective through globalization, fiscal policy and monetary policy.
Thus stimulus helicopter money (dropped indiscriminately from on high) now quickly flows out of the country in buying goods from China or elsewhere, diminishing the multiplier and not making for jobs here.
Interest rates have been kept low for so long there’s no room to move on interest rates and now gimmicks like quantitative easing are trying to take it’s place.
The small government, libertarian crowd and the huge PR machine that has popularized and bastardized that message have made it near impossible for the government to launch jobs programs on a scale necessary to offset the massive private sector losses, so the fewer jobs, less consumption spiral will accelerate unabated.
The deregulation of lending and the marketing of it – have resulted in unsupportable debt loads on consumers. So lowering interest, lower prices, etc. cannot encourage more debt to fuel consumption.
The GOP fiscal policy of 1980 to 2009 has put a vast array of dollars in the hands of our enemies through spending and borrowing to fund government so we could have tax “cuts”. With a sum nearly equal to our GDP in foreign hands we face the possible torpedoing of our currency by the likes of China (taking losses on their dollars is cheaper than a war and human bloodshed).
April 10th, 2009 at 12:41 am
Having 2Wars currently, we’ll not necessarily need another for this recession. Obama appears to be leaving open further involvement with Mexico’s chaos: Blackhawks are the gift that keeps giving.
Oh, and this generation of Wall Street savants certainly made Marx look good. Can you name a finer economist for the moment?
April 10th, 2009 at 12:51 am
dunnage @ 12:41 am
“Having 2Wars currently, we’ll not necessarily need another for this recession”
Obama asks for another $83B for the 2 wars:
http://www.cnn.com/2009/POLITICS/04/09/obama.war.funding/index.html
(Of course, that’s not even enough to bail out one insurance company).
April 10th, 2009 at 1:08 am
Because of Ideas, Insight and Blogs! FREEDOM AND IDEAS that are bringing the establishment to it’s knees with delivering the truth! Keep of the great work BR, CR, Mish, Jesse, Cassandra, Yves, JJansen, MMorgan, InfectiousGreed et all! Ideas are bulletproof!
April 10th, 2009 at 1:18 am
Markets are looking forward and ignoring bad news. The big money got in during the lows, and we’ll never see DOW 6500 again.
April 10th, 2009 at 1:23 am
I see “overcapacity” explanations everywhere. I sometimes agree. But, wait a minute. Take a look around:
1. We have plenty of homeless, er, houseless. These people “demand” roofs over their head but can’t afford it.
2. Some people (especially in other countries but here in the US, too) go hungry. Or they eat junk food because they can’t afford real food. These people “demand” good/any food but can’t afford it.
3. People want health care and can’t afford it.
4. I want a new car. But, I can’t, er, am too cheap to buy one.
So, I see *plenty* of demand. It goes unmet because businesses decided it’s too expensive to give goods/services to incremental customers at the price they can afford. (Since many businesses went in debt to expand to provide that good/service, they’re probably right.) But, is that an “overcapacity” problem? No, I don’t really think so.
So, what is it? There’s a mismatch between (a) IOU’s in the hands of the potential customers and (b) prices suppliers are (currently) willing to charge to provide their goods/services. Basically, the customers are broke.
April 10th, 2009 at 1:33 am
A little inline with what I just said above, I’m appalled to read that some homes — a malinvestment but an investment nonetheless — are rotting away either in Detroit or South Florida while in the hands of banks. For heaven’s sakes, can we not match Katrina victims with vacant foreclosures in Florida? Give them to veterans?
If the market here won’t “clear” in a way that saves the asset instead of letting it deteriorate, then we do not want a market outcome here.
There’s demand. There’s unmet supply. There’s an asset wasting away. This is “sin”.
April 10th, 2009 at 1:42 am
In past recessions the gov’t didn’t try to game the system and make us believe bizarro metropolis actually exists?
April 10th, 2009 at 2:26 am
Were American taxpayers – generally – as patient (some might say stupid) in past recessions as they seem to be now? Was the deception as blatant as it is today? After 2 years we have solved exactly nothing and committed $12 TRILLION doing so. More Koolaid please.
April 10th, 2009 at 3:08 am
This recession is different because it is a debt deflation, with all that such brings.
Read through Irving Fisher’s paper from the 30’s and we have all the signs of a debt deflation.
April 10th, 2009 at 3:46 am
This recession is different in one way due to “Manufacturer Financing”..
The exporting countries of the world relied upon Manufacturer Finance to enable American consumers to purchase their products. They extended easy credit, maintained their profits in USD denominated assets so keep their currencies suppressed and preserve the trade imbalance.
And now.. suddenly they discover that the American consumer is tapped out, not buying their stuff, and their exports are decreasing by 50% and they STILL have to keep their money in USD assets to avoid exacerbating the currency differential they require to make their exports desirable.
To drive an economy, there must be demand and consumption, not merely cheap capital. Goods must be produced that people need and desire, as well as possess the means of purchasing.
Some of these exporting nations are going to learn very nasty lessons from this “beggar thy neighbor” mentality. And I’d wager, difficult as it will be for Americans, it will be more difficult for those nations who have found their economic growth pinned to American consumption.
There are so many other ways it’s different, yet starkly familiar.. The stock market crash of ‘29 was caused by the excessive use of margin (90%) and when those stocks collapsed, the margin calls added fuel to the fire. But in today’s financial world, Real Estate mortgages (debt), has been securitized, repackaged and sold. And since mortgages constituent, in essence, use of 80-100% margin to purchase property, they derivative security ALSO reflects that 80-100% use of margin, which explains why it’s all been marked down so severely.
Then, of course, we come to the CDS.. that form of insurance (by any other name) which has been unregulated, opaque, and so incredibly abused by both the insurers (to collect premiums) as well as the asset holders who want to further leverage their portfolios by use of financial surety against losses.
I could think of a few more differences, but it’s late.
Scrutinizer
April 10th, 2009 at 4:35 am
There are some similarities.
We always look for comparisons.
We have had fractional reserve banking and the FED for some time now.
We are still ruled by greed and fear.
Something really bad has to happen before we are prepared to react widely and overtly
Differences
1) The internet is a much more mature medium of information exchange. Those who use it, and there are more and more each day, are all a lot smarter for it. In fact everyone is a lot smarter due to the group think that can occur.
2) The headwinds are enormous, boomers retiring, very high debt levels, failure of traditional monetary policy, resource depletion, world population higher still
3) I’ve always felt that if I can think of something then so can many others. So a lot of people, as evidenced above, are able to draw more sophisticated conclusions. Assuming I am more sophisticated due to my Blog inspired learning efforts.
April 10th, 2009 at 6:48 am
Further to my comments above re group think there is a very interesting new post over at Michael Pettis’s Blog “China Financial Markets”. I references work by Martin Wolf and Simon Johnson and gets to core of this financial crisis’s origins and therein lies understanding and perhaps the cure.
http://mpettis.com/2009/04/is-governor-zhou-a-closet-bernanke-ite/
April 10th, 2009 at 7:18 am
So, what is it? There’s a mismatch between (a) IOU’s in the hands of the potential customers and (b) prices suppliers are (currently) willing to charge to provide their goods/services. Basically, the customers are broke.
———————
As to overcapacity, I’ve been thinking along the same lines. World population is growing… so how could it be? It’s all in the price. The current customers can’t afford it so prices need to be readjusted. Will it be wages going up or prices coming down?
One thing is for sure, if you make it more affordable for the Western world client, you will also be making it more affordable for the developing world client…. with billions of clients in line from different countries, there is bound to be a tug-of-war.
April 10th, 2009 at 7:21 am
De-Leverering and world-wide interlinked economy
April 10th, 2009 at 7:53 am
This recession is different because it STARTED in the financial market and THEN spread to the economy.
Happy Easter and Passover
April 10th, 2009 at 8:11 am
Demographics. Donning my tinfoil hat for a moment, I can’t help thinking some looked out and saw a large portion of the population going through their maximum earning years, heading towards retirement, and saw a once in a lifetime opportunity to loot them.
April 10th, 2009 at 8:37 am
@wunsacon
It(demand) goes unmet because businesses decided it’s too expensive to give goods/services to incremental customers at the price they can afford.
I agree but I think the reason is that their is no profit in it for business.
This has led to businesses chasing a smaller group of ‘consumers’ who can afford it. Examples of this include the intense use of advertising, the mindless extension of credit to the same people, the ridiculous number of ‘choices’ for a basic product in the attempt to differentiate it. Now no one cares since the main concern is the value provided.
In the end we have a tremendous oversupply of frivolous products/services that will get flushed.
April 10th, 2009 at 8:38 am
AJS,
see: Percentage Depletion: A Consideration of Its Applicability to Income from Farming, by Bennett Finler © 1955 Agricultural & Applied Economics Association.
http://www.jstor.org/pss/1233930
seemingly tangential, though, to the point that fields like Sociology, here Applied Eco-, have been studying Society |shock, right?| and its vatious elements (demography) for many, many Moon..
[Greek dēmos the populace + -graphy]
http://www.thefreedictionary.com/demography
April 10th, 2009 at 8:44 am
this one is different cause no Louis Rukheiser to keep everyone calm. Now we have raving lunatics on financial tv who tell you we’re either going back to 14k or to Dow 1000.
April 10th, 2009 at 8:46 am
@AJS
With so many retirees who would not have to work to support themselves is a threat to the political status quo. They would have nothing to lose and challenge them at every step. Just my tin foil .02. Tee hee.
April 10th, 2009 at 9:00 am
I “hope I’m wrong” but, I think this bear market rally will end on a high note (1k/10k) over the next few months, and significant lower lows will be achieved in almost all asset classes after that. Significant means, if you bought at the recent lows, you will not be happy if you hold long term.
This will actually surprise many because it will look like things are “really” improving first. For this to play out, at least a few years of serious pain are required. It will not crash again, it will just slowly drain away. Unfortunately, recovery could take much longer due to the (bankers’) govt’s interference. The gov’t response to this point is like giving morphine to a heart attack patient. Seems like things are getting better, then later there’s the realization it’s actually getting worse. We are in the seems like it’s getting better phase. We will get more believers before it rolls over.
April 10th, 2009 at 9:04 am
“This recession is different because it is a debt deflation, with all that such brings.
Read through Irving Fisher’s paper from the 30’s and we have all the signs of a debt deflation.”
Debt deflation is what we are facing and what would finally return us to a healthy starting point…except the government, according to the Fed, has not let the debt deflate…we are at a record 52.6 Trillion in total credit. Adjusting by nominal GDP is a way to account for inflation…also a record, 370% of GDP. They are trying to hold debt constant and inflate GDP, but it ain’t working.
April 10th, 2009 at 9:16 am
A good link to Mr. Fisher’s premise via Naked Capitalism.
http://www.nakedcapitalism.com/2009/02/irving-fishers-debt-deflation-theory.html
April 10th, 2009 at 9:30 am
all of the above plus the final bubble that is forming that being the explosion in the ballooning of the insolvent gov balance sheet to create inflation. this final bubble may cause the demise of the US.
April 10th, 2009 at 9:35 am
As George Soros said, “It’s complicated”.
It would take more time than most here would want to take to read about why this one really is different
than any before it. Many, if not all, the reasons above are helpful and one that seems whacky, but is nevertheless true.
The unproven ‘reason’, and likely the most powerful one, you know it in you gut: A Major global Conspiracy at the top financial firms in London and New York, to charge multitrillions in fees and therefore ripoff trillions of dollars in bonuses, forsaking the future for short term personal gain and current wealth accumulation. Add to that no penalty, Goldman Sachs chief Hank Paulson printing money to pay off his brothjers the investment bankers in borrowed or printed money in the trillions, and no Pecora hearings to get to the bottom of this travesty.
Think of the globe as giant asshole, and the Goldman Sachs’ of the world (there really if only one) as galaxy-sized screw.
April 10th, 2009 at 9:44 am
The ongoing wage deflation is a big difference. During past recessions, your pay raise may have been small or nonexistent, but there was no pay cutting for the survivors. Now add on the take away of the 401K match and you have a serious problem, particulrly with the upcoming pension fund implosion.
April 10th, 2009 at 9:48 am
Surprised to see very little on the number and amount of the bailouts. Did they hurt or help? What are their short/medium/long term ramifications?
While recessions are a normal part of the economic cycle, this one was exacerbated by quants on Wall Street.
Instead of spreading the risk, their products spread toxic waste throughout the economy.
April 10th, 2009 at 9:56 am
Total US Debt (aka Leverage)
-Total US Debt (governmental+ personal+ corporate) is at an all time high of some 350% of GDP. The previous high was at some 190% in 1933.
http://www.bullandbearwise.com/DebtOverGDPChart.asp
-Deregulation, derivatives and globalization of investments
The amount of unregulated derivatives floating around is something north of $500 trillion. Easy money by the FED, lack or rules and the creative nature of man, has built a world wide house of cards.
-Demographic Changes
Baby Boomers are retiring in goobs. See above for discussion
April 10th, 2009 at 10:01 am
This recession different? Perhaps over the past three or four that were managed b/c they were manageable. But there have been recessions like this in the past. You just have to find the oldest people in your office to find out what it was like. Ok, so now how is it different than the recessions in the last twenty five years?
It is longer, stronger, deeper than what most are used to in recent history. If you look at most economic charts, you will see this evidence. Great. So what could that mean? Well, kudos to the people above bringing up the baby-boomers. This “chosen” generation has made massive positive splashes all through their accumulation phase of life. The irony is they were also the first to get “screwed” out of pensions and put into self directed 401k. But until recently, they were thinking that was a big winner too. So now you’ve got baby boomers with wrecked 401ks b/c they believed the buy and hold mantra. What percent of those laid off were boomers? I’d love to see age break downs of the unemployed. I suspect they are at least a proportionate percent of the jobless.
Unless the government finds a way to create the shadow bank system and reinflate the economy, a lot of the jobs are simply not going to return. If we go long term into a “Europe” like economy–which some people suggest– of growth at a slow rate, you will see their unemployment rates are much higher at “normal”. If the major autos go bankrupt, the restructuring will create smaller entities. That reverbs throughout the supply chain and is a massive adjustment.
How many people filled their empty lives by grazing in retail? Nothing to do? Go to the mall and buy stuff.
So most recessions we’ve had are short, shallow, and temporary weakness. People don’t usually get their credit lines reduced/removed. We usually see “slow downs” not “stops”. Here in the Midwest, you’d hear of an auto factory closing for a month, not permanently.
April 10th, 2009 at 10:14 am
The actions of the US government and the governments of the other major world economies are consistent with a depression. The length and depth of this economic event will confirm whether it’s a recession or depression. So far it’s walking like a duck…
April 10th, 2009 at 10:24 am
Anybody know a good site for learning how to trade level II? My broker just added it to their tool box and I’d like to learn the ropes. My second choice would be a book. I’m not sure if I want to learn it as something to know or as something to actually use in my trading so I don’t think there is any point spending money to learn if it isn’t for me
Any opinions on level II and if it helps your short term trading?
April 10th, 2009 at 10:40 am
The current recession is somewhat different than previous ones because the dollar is much more vulnerable than it has been on most previous occasions. Prior to 1971 the USD was backstopped because it was linked to gold so the dangers to the currency were minor. That changed when Nixon closed the gold window and the US economy experienced a bout of stagflation. That dollar and economy were temporarily saved when Volker raised interest rates by enough to reduce the rate of inflation to levels considered ‘acceptable’ but the inflation persisted and the stresses continued to build in the system. The major problem that faces us today is a massive amount of government debt that is unprecedented in the history of the United States. At the same time as the US is in trouble the EU is facing its day of reckoning as the consequences of careless spending, massive regulations and pension liabilities are starting to become evident. It seems clear that most of the developed world will have to cut back on real consumption because the monetary system and the financial industries are under significant stress. As such, an external event such as a crop failure, war or some natural disaster could set the world into a massive crisis that will end in a reordering of economic power.
April 10th, 2009 at 10:49 am
The USD index is up 13% y/y at the end of the first qtr. If it continues to rally, it could be up 20% y/y at the end of 2Q. To tech companies that have been used to seeing a boost from a weaker dollar, this is going to kill growth…not to mention the depression underway. My friend in the chemical industry says demand is down 40% y/y. That must be a depression. Stocks should trade at depression multiples, single digit P/Es.
April 10th, 2009 at 11:02 am
@ Steve Barry
I updated my Debt charts with the latest revisions. If you break out household debt between longterm and revolving consumer credit, We have gone to a negative rate for the first time in the 4th qtr with Year to Year comparisons. That has never happened going back to 1953. Fed didn’t track some numbers before then.
Consumer credit growth is disguising the total household debt numbers. Consumer Credit still shows 3% growth Year to Year, for 4th qtr. Consumer credit growth should go to a negative rate in the 2nd Qtr.
Surprisingly Total Debt is up thanks to the fed and the bailouts. A lot of shadow banking debt is coming out into the sunlight and onto the fed balance sheet. I’m guessing 380% for 1st quarter
April 10th, 2009 at 11:03 am
http://www.voxeu.org/index.php?q=node/3421
April 10th, 2009 at 11:11 am
HTCMSI,
this: http://www.programtrading.com/level2.htm
might start your journey..
April 10th, 2009 at 11:33 am
The number of people looking at Irving Fisher is utterly bizarre. He was the Crammer of his day, announcing day after day the market was fine.
Stocks have reached what looks like a permanently high plateau… — Irving Fisher, Sept. 1929.
Irving Fisher stated on October 21 that the market was “only shaking out of the lunatic fringe” and went on to explain why he felt the prices still had not caught up with their real value and should go much higher. On Wednesday, October 23, he announced in a banker’s meeting “security values in most instances were not inflated.” For months after the Crash, he continued to assure investors that a recovery was just around the corner.
Ah yeah the new priest for learning from the past.
April 10th, 2009 at 11:39 am
Re: Overcapacity
Excess capacity is real, in Chinese factories, in commercial retail space here, and elsewhere around the world.
Population has always been increasing; that is no different now than at anytime since the age of dinosaurs. So there has always been excess potential demand in the world’s billions of poor people. But the demand that is relevant is “real” demand – demand that can be funded. That is where debt came in: low interest rates and lax lending standards in the years prior to the Great Recession allowed this potential demand to become “real” demand.
And capacity expanded along with the debt funded “real” demand as capital was put to work to exploit cheap labor in emerging markets such as China. Now that “easy credit” is gone, and many households are insolvent (debt greater than assets) that vast potential demand cannot (banks tightened lending standards) and will not (people don’t want anymore debt) be converted to real demand – at least not to the extent needed to return GDP to potential growth levels.
It seems to me there are three ways out: 1) Debt restructuring with a big dose of debt forgiveness (write-offs/downs), 2) inflation to reduce the value of the debt and increase (inflate) assets values to restore solvency, and lastly, time – a long time, like 5 to 10 years – to enable people and banks to earn their way back into solvency so they feel like lending and borrowing at normal levels again.
April 10th, 2009 at 11:50 am
Thanks Mark
April 10th, 2009 at 12:17 pm
It’s like the game of Monopoly, once all the assets are in one persons hands, or a small group of super large corporations as in real life, the game is over. If we want the recession to end and the economy to work again, we need to break up the monopolies, spread the wealth around, and start the game all over. If we fail to break up the monopolies and more evenly share the wealth of this nation, the recession will not end, and the people of this country will be at the mercy of the Corporation. God help us all then.
April 10th, 2009 at 12:23 pm
The US political and financial system has finally been fully taken over by the cabal of the inbred Ivy-league incompetents. No ideas are accepted or actions taken that may weaken their power – the Ivy league politicians in DC do all they can to protect the Ivy-league bankers on Wall Street. The rest of the US population gets reamed.
April 10th, 2009 at 1:30 pm
The Tyranny of the Incompetent. This isn’t a recession, it’s an Occupation.
Only when GS is declared bankrupt, will the city of New York be liberated.
April 10th, 2009 at 1:47 pm
The bankers became insolvent, so they took over the US government, and they aren’t going to give it back.
I used to think conspiracy theories were the domain of kooks and imbeciles who couldn’t see the more subtle social-psychological-cultural mechanisms at work. But now, it looks like conspiracy theories are becoming the simplest and clearest explanation for current events. It’s getting harder and harder to see this any other way.
April 10th, 2009 at 1:54 pm
Not a very cheerful thread.
April 10th, 2009 at 5:02 pm
“hopeImwrong Says:
April 10th, 2009 at 1:47 pm
I used to think conspiracy theories were the domain of kooks and imbeciles who couldn’t see the more subtle social-psychological-cultural mechanisms at work. But now, it looks like conspiracy theories are becoming the simplest and clearest explanation for current events. It’s getting harder and harder to see this any other way.”
Well said. That’s exactly the way I’m seeing things. I’ve been coming around to this over the last six months or so. I only wish I’d seen things more clearly before and trusted my own instincts and gut feelings instead of swallowing the B.S. shoveled out by the mainstream politicians, economists, etc.
April 10th, 2009 at 6:46 pm
@ Steve Barry, Todd —
Have you ever tried running those charts on a per capita basis, using the US Census estimated/interpolated population estimates? There are a lot more people here in the USofA as of 2008 (~308M) when compared to 1930 (~123M).
I’m thinking that the character of the national economy has changed a lot since the early part of that chart, and that a further normalization to total debt/GDP/population might be more meaningful. I would suggest total debt per capita, but you lose out on the removal of inflation factor via the debt/GDP ratio, and I think that including the GDP allows one to take account of the changing character of the national economy, from agrarian to manufacturing to services economies across the years.
Just wondering.
April 10th, 2009 at 8:37 pm
Happiness is blood on the door. Eat in haste with staff in hand. The 19 that passed may be stopping by the house.
April 11th, 2009 at 12:51 am
The angels have lost their ability to fly. Now they walk among us, begging for bread.
April 11th, 2009 at 7:15 pm
“Why is this night different from all other nights?”.
Hey my surname may be Flaherty but we’re in the US and what’s in a name anyway? (not much in my case).
pat