There is a small cadre of Economists — original thinkers, contrarians, out of the box theorists — whom  I respect a great deal. It is a modest list ranging from Richard Thaler to David Rosenberg to Robert Shiller, with lots of smart econ wonks in between.

This morning, however, I find myself somewhat disagreeing with one of the smarter of the economists, Professor Bob Shiller in his NYT column. For those of you who may be unaware, the Sunday Times Business section (now that Ben Stein is gone) is a veritable Murderers’ Row, a 1927 Yankees of economic thought and insight. It is one high percentage power hitter after another, with very little weakness in the line up. And Shiller is one of the star batters in that powerhouse line up.

Hence, it is with trepidation that I point out the flaws in Shiller’s discussion about the recovery, (titled “What if a Recovery Is All in Your Head?“). It is a thought provoking but unpersuasive argument, as we shall soon see. To be fair, he uses the column to incite a debate, rather than defend the position that the recovery is “mostly mental.”

I find numerous things worth challenging in the column. Let’s start with the basic premise:

“Beyond fiscal stimulus and government bailouts, the economic recovery that appears under way may be based on little more than self-fulfilling prophecy.

Consider this possibility: after all these months, people start to think it’s time for the recession to end. The very thought begins to renew confidence, and some people start spending again — in turn, generating visible signs of recovery. This may seem absurd, and is rarely mentioned as an explanation for mass behavior late in a recession, but economic theorists have long been fascinated by such a possibility.

The notion isn’t as farfetched as it may appear. As we all know, recessions generally last no more than a couple of years. The current recession began in December 2007, according to the National Bureau of Economic Research, so it is almost two years old. According to the standard schedule, we’re due for recovery. Given this knowledge, the mere passage of time may spur our confidence, though no formal statistical analysis can prove it.”

Not exactly. Let me offer 10 items that challenge that basic premise:

1. Time: The typical post-war Recession lasts 8 months, not “a couple of years”; We are now in month 23. If people started to spend because they sensed it was “late in the recession” or somehow intuited that it was time for the contraction to end, well then, based upon history, that would have been somewhere around August 2008.

2. Not Totally Irrational: One of my complaints about economics is it over-emphasizes people as rational, unemotional actors. However, when it comes to sentiment, economics seems to make the same mistake in the opposite direction — it assumes that people are foolish, unthinking creatures unable to engage in ANY rational thought whatsoever. All sentiment, no rationality at all.

The reality is quite different: Sometimes, people behave the way they do because they have figured out a problem and are responding to it intelligently.

Home Economicus does not really exist — but then again, neither does Homo Idiotus.

3. Healthy Fear of Job Loss: Employed people began to spend their money more carefully when they saw coworkers getting laid off in increasing numbers. That is a rational act in the face of an increasing possibility of a loss of income. This is unlikely to change in the near future, so long as large public layoffs remain a news item. Is this a Sentiment factor — or a rational response to changing conditions?

4. Asset Deflation: Consumers cut back their spending when they saw their biggest assets (Homes, Stocks) lose a significant value. Again, a rational response to a change in personal financial conditions, or bad sentiment?

5. False Belief System: Earlier this year, the Dow had dropped over 5,000 points in 6 months. One of the collective fallacies our culture operates under is the delusion that the market is some kind of astute forecasting machine. It is not — it represents the collective wisdom of 10 million panicked monkeys. That millions of slightly clever, pants wearing primates can combine their collective ignorance, their intellectual foibles, biases and false beliefs somehow into something resembling intelligence was one of the false beliefs of the era. Unfortunately, this is a condition the monkeys are prone towards (Witch burning, bloodletting, organized religion, etc.).

Note however that this does not reflect collective negative sentiment, but is actually the result of what happens when a faulty belief system dominates a society.

6. Doom Warnings Began Making Sense: Many of the doomsayers have been warning of the coming apocalypse for years. Pick a Cassandra: Jeremy Grantham, James Grant, Steve Roach, Nouriel Roubini, Robert Prechter, David Rosenberg, Mark Faber (as well as your own humble blogger).

Why did this group suddenly gain traction in 2008? Maybe it was because  the population is not nearly so stupid as the politicians believe. The masses saw with their own two eyes the decay in the economy. Suddenly, the warnings were not as far fetched as they previously seemed.

7. Reacting to Flat Income: Families have recognized their incomes have remained flat to negative over the past decade, while their expenses have increased. What should be the rational reaction to this realization? (Hint: a new car, a bigger house, a new vacation are not on the list of options).8. Time to Exit the Bunkers: Ten months ago, people were betting the economic world was coming to an end. The economy was in freefall, consumers froze, dramatically reduced spending. But the freefall is now over, and while its arguable whether the recession is over (by some measures it is, others not) most of us will agree that the Great Recession ended sometime in Spring of ’09.

The US consumer is no longer frozen like deer in headlights. Is that sentiment, of just the reality of the situation — what happens when the ice melted?

9. The Cheerleaders Now Look Like Fools: At the onset of a recession, we often see cheerleaders, OpEd writers, and money losing fund managers make the argument that there is no economic slowdown — that the weakness is only in people’s minds. I call these people the Pervasive Pollyannas of Prosperity. (Think Phil Gramm, Amity Shlaes, Don Luskin). Some are partisans, others are dumb, others still merely incompetent — a few are all three. Yet despite their best efforts of the cheerleaders, the economy still went into freefall.  Perhaps the public has learned (a teeny bit) who to listen to and who to ignore.

10. Deleveraging: We know why this recession was so deep and long — the wanton use of leverage by people and financial institutions. The deleveraging that is taking place is a long slow process. It is rational, it is intelligent, and it will be how families will restore their balance sheets — the paradox of thrift be damned . . .

I appreciate that Professor Shiller was not arguing in favor of “its all mental.” He sought to spark a debate; I hope this response rose to the challenge . . .

>

Source:
What if a Recovery Is All in Your Head?
ROBERT J. SHILLER
NYT, November 21, 2009

http://www.nytimes.com/2009/11/22/business/economy/22view.html

Category: Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

54 Responses to “How Overrated is Sentiment in Economics?”

  1. 1001 says:

    I’ll back Shiller on this one

    ~~~

    BR: He asks what if — so you are backing his question?

  2. Machiavelli999 says:

    The saddest thing is that “#9 Cheerleaders now look like fools” isn’t really true. Those people are still out there talking, making TV appearances and treated as they are respected voices on the economy. If anything, Amity Shales has had a bump in popularity. I remember when the stimulus debate was taking place, Michelle Bachman was pushing people to go out and read “The Forgotten Man”.

    This really is the most sad part of this. It basically implies that we don’t learn from our mistakes. The cheerleaders who now look like fools actually only look like fools to a few people in the know. To the rest, if the cheerleaders are saying what the people want to hear, they don’t even care about their past track record. How many times does Larry Kudlow have to be wrong before people tune him out?? Sadly, I think the answer is never.

    This is sad and scary and makes me question the value of democracy. Perhaps Alexander Hamilton was right, “The masses are asses”

  3. vine2wine says:

    Hi Barry, you are correct in pointing out that Shiller is simply creating a platform for argument (he is a prof after all!)

    I do disagree with some of your top 10 rebuttal in reference to the article’s premise, although most of it is factual opinion.

    His article ( at least from how I read it) was pointing out intangibles (psyche) of the masses vs how historically economists will attempt to measure tangible stats (past/current financial performance) to illustrate a point to only backup the stats and give them a name (Depression/Recession).

    “For now, our common efforts at building confidence appear to be working somewhat. But the economy has still not recovered, by any means.”

    I think his point is that to a certain extent, there is a tipping point at which the group en masse “feels” either confident or not. It is a fair argument if one were to simply look at 70% of our economy and how the consumer controls it. Again this is about the tangible vs intangible.

  4. KidDynamite says:

    Barry – to me, there is an important fact that economists seem to be overlooking: CONFIDENCE matters less now than ever. What I mean is this: in past times of trouble, the government’s goal seemed to be to “restore confidence” to get people to lever up and spend more to keep the great machine going.

    THIS TIME, however, this “ponzi scheme of confidence,” as I’ve been calling it, is a dead end – even if people somehow bought the party line that things are ok (despite the fact that they don’t have money or jobs), there isn’t anything they can do about it – they can NOT re-lever and resume spending like they have for the last 30 years.

  5. GB says:

    Number 7 is a soar spot for me. I get upset that ceo compensation is so high right now while average joe is getting same pay or less for a decade. If the old boys club would help us out a bit we could get out of this recession quicker and maybe get some velocity going to the consumer. Does anyone know if wynn increased salaries and 401k before giving a 4 dollar dividend?

  6. Doc at the Radar Station says:

    I’ve disagreed with more than one of Shiller’s columns over the last year or so, but to be fair you said: “The typical Recession lasts 8 months; We are now in month 23.”, while Shiller said: “The notion isn’t as farfetched as it may appear. As we all know, recessions generally last no more than a couple of years.”

    I think the public is aware that this is a severe recession. There are quite a few folks out there that can remember the 1974-1975 and the early 80s experiences and they were protracted. The younger ones can see the charts and point out that the post-war recessions at *worst* lasted a couple of years. So, I don’t think it is far-fetched that a good chunk of the populace now thinks things like: “It’s been a bad one, but we had GDP growth for Q3, stocks are up, so we should be pulling out of this one by now”.

    What has me worried is the different *nature* of this kind of recession- a balance sheet recession like the 30′s experience. If people are feeling more optimistic and this reinforces the recovery through their willingness and ability to take on more debt and spend, then Shiller is right. But, I think he is wrong here, not because optimism doesn’t have an impact, but because the supply of credit-worthy borrwers isn’t there and lenders are cutting off the unworthy borrowers and shafting even good ones through interest rate hikes, etc. In summary, we will have another big dip, not because psychology sours, but because we won’t be able to create enough new debt to grow.

  7. huxrules says:

    If people are spending again (and I’m not sure thats the case) it might just be because they need to replace things. Personally I haven’t bought a computer in 4 years. My laptop looks like its been in the trenches. It’s time for new stuff. I also have several friends looking at new cars – just because the old one is starting to show its age. Not that this is much to be proud about economically.

  8. CaptiousNut says:

    The stock market hasn’t so much as downticked in 8 months.

    When it does inevitably tank, reality will return to fore.

  9. Mannwich says:

    @Machiavelli: I totally agree, and am quite saddened to see my really basic theory of human beings (at least 75%+ of humanity are blithering idiots that never learn from their mistakes and/or prefer wishful and blissful ignorance over facts and reality because the latter are too sobering to face) come to fruition. Even my wife, who is a “glass is at least 3/4 full” type of person, is coming around to this train of thought.

  10. Mannwich says:

    I also think that any “confidence” that we see right now is of the “fake” (or hopeful variety based on nothing substantive). Real “confidence” or “trust” in our system won’t come back until there are real reasons for it to come back. In the meantime, we are all in “extend & pretend” mode. Live it up.

  11. MRegan says:

    “Consider this possibility: after all these months, people start to think it’s time for the recession to end. The very thought begins to renew confidence, and some people start spending again — in turn, generating visible signs of recovery. This may seem absurd, and is rarely mentioned as an explanation for mass behavior late in a recession, but economic theorists have long been fascinated by such a possibility.”

    A few reflections:

    What people? Why do they think that? The ‘very thought’ to ‘renew[-ed] confidence’, that leap has no legs to stand on! Yes, it seems absurd because it is. Please give me a list of the ‘economic theorists so fascinated.

    The thought process revealed in the paragraph excerpted points to a serious problem in the author’s view of reality. He posits a concatenation that cannot happen.

    Shouldn’t already exist data which describes the ‘mass behavior’ that Shiller is hoping will draw the economy out of its doldrums (by engaging in the very behavior that drove us off the cliff)? Why is this object of fascination described as a possibility? (Answer: because it doesn’t have much probability.)

  12. Mannwich says:

    So basically our fearless “leaders” are COUNTING on the populace to be stupid enough to be confident enough to go even FURTHER into debt with shaky job security (or no jobs) to keep the economy rolling along (and/or not c0llapsing). Does that sum it up enough for everyone? It just might work for a while but it doesn’t seem like a very solid long (or even mid) range strategy. Might work out OK with this latest political cycle though.

  13. Anyone who takes a dollar bill as reward for his skills and labour has already entered a confidence game

  14. Steve Barry says:

    “We know why this recession was so deep and long — the wanton use of leverage by people and financial institutions. The deleveraging that is taking place is a long slow process.”

    Does it matter that on a macro-level, the deleverrging hasn’t even started yet? Still at 375% credit to GDP in the US. World governments are going further into debt to prop up what I estimate is 50 TRILLION USD excess total global debt above what is healthy. In other words, trying to solve a debt problem with more debt. I chuckle at the thought that this could even remotely have a chance of ending well. I don’t think sentiment really changes this outcome, except sentiment can be used to time the next downleg, which is long overdue. Nothing goes straight down.

  15. lafemmeverte says:

    And what if everyone has just decided to stop buying? I’m seeing a huge shift in attitude, especially generationally, where consumerism is looked down upon….thrift stores are doing big business, but mainstream retail is dying, except in the high end sectors….given that the age group between 18 and 25 is looking at a 20% unemployment rate in the near term, I don’t see that improving…and the 25-35 group is struggling with massive debt….I’m a freelance bookkeeper, so I get to see a real slice of life in terms of everyone’s financial health…the only people with money right now are baby boomers or the very wealthy, and most of them lost 50% of their pensions in the downturn…everyone else is paddling upstream….it doesn’t bode well for any kind of miraculous turnaround in sentiment.

  16. Steve Barry says:

    @lafemmeverte:

    Good point…whenever I go to a more upscale restaurant, I notice that everyone else in there looks over 60. No young families at all.

  17. jenniferl says:

    I don’t see how there can be a recovery. I am what our government would consider wealthy. This year, my rental income has gone done, my interest income has gone down, my kids tuition has gone up, utilities, taxes, insurance food has all gone up. It looks to me like I am poorer. Where are people going to get the money to spend? The last 20 years were built on borrowed money. Unless we can figure out some what to do that again, or they can give the printed money to the masses, I don’t see a way out!

  18. billbengen says:

    Sorry, much as I admire and value your work, Barry, I can’t be convinced that with absolute certainty, the “Great Recession” is over, as you aver. We are still in uncharted warters, with government stimulus accounting for much of the “recovery”. The financial excesses of the last 25 years have yet to play out in their fullness; the financial sector has yet to be humbled, America has yet to come to grips with the fact that it has promised far too much to too many (Social Security and Medicare). Until these issues, and related ones, are resolved, I fear that at best we will linger on with a recessionary cough, at best, with occasional lapses into fever and possibly near-coma.

    Best regards, Bill

    ~~~

    BR: You may be right, but the free-falling terror portion of it is over (and hopefully wont reappear anytime soon).

  19. VennData says:

    The “Wall of Worry” is what’s in people’s minds. Keep up the good work bears, keep up the fear and pessimism. Thanks.

  20. kmckellop says:

    The symmetry of this market is amazing it’s begging to look like counter wave two is ending with a 50 % retracement in 50% of the time wave of primary ( impulsive wave) one. With today’s electronic market a “Minsky Moment” is just a click away.

  21. Transor Z says:

    Who decides and how much power to set momentum does that group have?

    If there’s been one consistent theme over the last few years it’s how oligarchical and undemocratic things have become through regulatory capture and the rise in closely held wealth. I thought that the “consumer confidence” that caused this collapse had more to do with confidence among bankers in the shadow banking system’s viability…

  22. VennData says:

    Sentiment is often a reflection of what “thought leaders” tell their flock.

    Here, on the ‘popular’ Fox Channel, Glenn Beck tells his devoted listeners that the Treasury prints the legal tender in our great nation…

    http://www.diggersrealm.com/mt/archives/003051.html

  23. Wes Schott says:

    the Shiller article is nonsensical

    what is the measure of a recession? only NBER knows? perhaps – but, they ain’t tellin’ until 6 months after they conjure the economic tea leaves.

    the people aren’t spending, compared to what? yoy? well they spent more than they could afford last year, so what does that really mean – deleveraging, well good then, its about time.

    the financial markets have not finished deleveraging, holding on to suspended mark-to-market accounting (suspended, guess when, right around the March devil’s bottom) maybe the illusion can be extended further – extend and pretend

    we have under utilized resources? a so-called output gap? well no one apparently wants that crap anyway – we’ve transformed our country into a producer of things to a producer of financial products, money changers and paper pushers – lloyd is doing god’s work, yeah right, and thanks for that Bubbles.

    And after all that has transpired and has been written about it, the grand plan is to take on more debt, to solve our too much debt problem, to spend our way out, as the WS banks horde their cash to bunker for the next round of mbs blow-ups, the gov really expects them to lend to the peeps to crank up the credit cards to live pay check to pay check in order to save our economy? isn’t why fed monetized all of this debt? devalue the dollar, rebuild our “real things” economy, and sell to the new up and coming asia?

    never mind the vacuous entertainment and sports industries (except F1 and professional cycling, he, he, he – my favs)

    it’s all about jobs and their uncertainty. the old saw –

    “a recession is when your neighbor looses his job, a depression is when you loose your job”

    well think about that cute little saying. think a little deeper. clear away the nonsense, that little ditty says it all, and i don’t mean this in the literal sense of defining the difference between a recession and a depression, because their really is none.

    what i mean is that it’s personal, very personal

  24. drey says:

    “The “Wall of Worry” is what’s in people’s minds. Keep up the good work bears, keep up the fear and pessimism. Thanks.”

    No problem – perhaps when the markets turn you could return the favor by ‘buying the dips’ for a couple of years? LOL

    Don’t get me wrong – I probably speak for many on the board when I say that we are not rooting against the market as much as we are waiting for an advance that is built on a proper economic foundation (and hence sustainable) as opposed to the godawful fundamentals which underpin the current rally.

  25. investorinpa says:

    Rush Limbaugh (and please everyone, spare the partisan replies) has a quote that I personally like that many people adopt…
    “Just because a recession is going on around you doesn’t mean you have to participate in it”.

    In other words, some see a recession as a great bargain opportunity to buy assets, doodads, gadgets, etc at bargain basement prices. This in turn gets those who are “deer frozen in headlights” jealous that others are getting great deals, prompting the previously frozen consumers to go out spend again.

    My thoughts…

    ~~~

    BR: In the past, I have referred to this as Counter-Cyclical spending

  26. [...] history tells us our business cycle is due for an upturn.  Barry Ritholz of The Big Picture pooh-poohs most of the salient points put forth by Shiller.  I’m not sure I’m ready to buy his [...]

  27. kmckellop says:

    @ Wes Schott-

    RE: it’s all about jobs and their uncertainty.

    Hmm… is employment a lagging indicator and unemployment a leading indicator?

    Ya gotta stop diggin before you can start fillin.

  28. van schaik says:

    In seven of the last ten recessions employment was a coincident indicator. In only the last two downturns did the unemployment rate deteriorate significantly after the recession’s official NBER end and after the 1969 – 1970 recession the unemployment rate basically drifted sideways for a year. You can see some long term charts at http://bit.ly/21yYaT or read more at http://www.scribd.com/doc/20188020/Unemployment-A-Lagging-Indicator. http://jpetervanschaik.googlepages.com

  29. Marcus Aurelius says:

    investorinpa:

    Reminds me of the dishonest and oversimplified explanation from the political right on why people didn’t “participate” in the evacuation of NOLA as Katrina bore down on the city.

    The “recession” won’t affect you if you simply don’t participate in it? So don’t participate in it. While you’re at it, why don’t you just make a hundred million bucks? How? Simple — just make a hundred million dollars by participating fully in capitalism. Participation is the key. The financially crushed in America have simply chosen to participate in the recession (actually, we’re in depression territory), and are too blitheringly stupid to simply not go along with it.

    Somebody who sees a deflationary depression as an opportunity to buy cheap shit has a job (that pays adequate income) and/or money in the bank and/or sufficient credit. Those qualifications alone disqualify a very large and growing portion of the consuming public. Weird thing about to few dollars chasing too many goods — there aren’t enough dollars and there is not enough demand to buy the discounted goods.

    Deer in the headlights, like the people currently disappearing from the US economic system, are probably more driven by fear than jealousy.

    Somebody should ask Limbaugh how the people that were laid off by financially-troubled Clear Channel Communications (his employer to the tune of $400 million over 8 years, in what is amounting to a very bad deal for the company) are currently participating in the economy.

    Why is it that rich conservatives seem to destroy everything they touch but in the process manage to enrich themselves, while poor and middle class conservatives wholeheartedly participate in their own fleecing?

  30. constantnormal says:

    10. Deleveraging

    What deleveraging? For ever dollar of consumer debt that is either defaulted on or paid off, the goobermint borrows an additional thousand dollars.

    When deleveraging ACTUALLY begins, we will finally see the Real lows in the stock markets (and the Real peaks in unemployment, etc, etc).

  31. Goldilocksisableachblond says:

    ” In the past, I have referred to this as Counter-Cyclical spending”

    Next time I see a vulture plucking the eyes out of some roadkill , I’m going to think of it as ” Counter-Cyclical Dining”.

    All part of the natural… or free-market… order , I guess. Still , it sucks.

    ~~~

    BR: Some hunt, others scavenge — that is natures way.

    We have big frontal lobes. This allows us to conceptualize, imagine think. That means you can overpay during the boom years, or underpay during the lean years.

  32. danm says:

    BR: You may be right, but the free-falling terror portion of it is over (and hopefully wont reappear anytime soon).
    ————
    Until it hits again.

    1. The banks haven’t written off anything and more is being added on.
    2. Delinquencies are still increasing with a second wave coming.
    3. Many homeowners who can afford their homes are probably going to strategically foreclose, adding oil to the fire.
    4. People have just realized they have to save 10K per year, never mind spend 10K more than their income per year.
    5. CRE has not been written off yet.

    What we saw was the tip of the iceberg. We’re in 1930 right now.

  33. kmckellop says:

    @BR:
    RE:We have big frontal lobes.

    The fight or flight reflex (emotion) drives the markets. This is controlled by the amygdala which has been shown to function independent of the neo-cortex (seat of reason). see the research of Joseph E. LeDoux et al. (NYU).

    http://www.cns.nyu.edu/ledoux/

  34. common-sense says:

    I just have one question:

    What part of the word “unsustainable” are we not comprehending?

  35. hue says:

    “Until it hits again.”

    Mr. Market is waiting for the last bear to throw in the towel, and for everyone (including retail investors) to believe Armageddon is off the table, to go cliff diving again.

    but then are, there any retail investors left? they’re all upside down in their houses, where is theire money to invest or trade? 70% of US trading volume maybe flash trading. http://bit.ly/65ZPMN Goldman buying and selling for Uncle Sam?

  36. investorinpa says:

    Thanx for the reminder BR about counter cyclical spending…that was the term I was trying to remember, but Rush Limbaugh made a much more memorable phrase of it, despite what poster Marcus Aurelius says.

    MA, your thoughts on Clear Channel workers having it bad while Rush has it good just goes to show ya that if CC’s management had any brains about them, they’d bring in more radio programs like Limbaugh which people actually listen to, have growing audiences, and growing revenue streams. Right wing radio is hot right now. Problem is too many radio stations on the FM side forgot the “content” portion of their programming and are losing with all music all the time satellite and internet stations. You NEED exceptionally good radio hosts, and (politics aside) guys like Limbaugh, Beck, etc are delivering it.

  37. hue says:

    geez investorinpa, you’re compare Rush to left wing radio. or Fox to other cable news. you should really compare Rush and right wing media to overall media. a lot of people on the left and middle don’t spend all day listening to politics or politainment. to opposite of Rush is not Air America, the opposite of Rush is the entire FM side, satellite and internet. ok, enough cultural war for me.

  38. hue says:

    geez investorinpa, you’re comparing Rush to left wing radio. or Fox to other cable news. you should really compare Rush and right wing media to overall media. a lot of people on the left and middle don’t spend all day listening to politics or politainment. the opposite of Rush is not Air America, the opposite of Rush is the entire FM side, satellite and internet. ok, enough cultural war for me sans typos.

  39. investorinpa says:

    Hue, my bigger point was that radio, esp on the FM side of things, totally missed the trends that were obvious to everyone….notably:
    1) Just music alone is not enough any longer- you need something different than what satellite, ipod, and internet radio offers
    2) There were trends and needs that were not met by Clear Channel..namely, a growth in right wing radio audience, a growth in exceptionally funny radio personalities to take the place of ppl like Stern, Opie & Anthony, and a few others who went to Satellite
    3) Maybe its me, but there is a HUGE opportunity for a (can’t believe I’m going to say this) Jim Cramer like radio host talking business and stocks. Bloomberg Radio can be sooooooooooooooo dry sometimes. An arguing/screaming/blaring back and forth style similar to when Kudlow does the Octobox may work in radio. I know there are lots of times I’m in the car and would love to hear about the market but I’m stuck listening to some boring ass broad on Bloomberg telling me the Nikkei is up 2 points when in reality I wanna hear a host arguing with Roubini, Schiff, Luskin etc.
    4) Radio (esp CC stations) are all one in the same. Every major city has 1-2 “black” radio stations consisting of “loud mouth young hipster paired with older host”, 1-2 alternative/rock stations with either a past his prime host trying to act young or a not ready for prime time host trying to seem older. There’s a country station that plays the country version of Taylor Swift & Carrie Underwood. There’s a pop station that plays the pop version of Ms. Swift & Underwood. There’s the “Jack/Ben/Steve” type radio format where they play whatever they feel like with no DJ in the house. My point is they are ALL boring right now.

  40. hue says:

    my point is the only people listening to the radio are Limbaugh fans. the Internet has disrupted that medium like it did with newspapers. if there was money to be made in financial radio, there would be a station. hell, CNBC’s ratings are tiny for cable TV. the mass audience for financial information doesn’t exist. big ratings for CNBC last fall during the market crash, now the masses have tuned out again.

  41. TakBak04 says:

    @danm Says:
    November 22nd, 2009 at 6:36 pm

    BR: You may be right, but the free-falling terror portion of it is over (and hopefully wont reappear anytime soon).
    ————
    Until it hits again.

    1. The banks haven’t written off anything and more is being added on.
    2. Delinquencies are still increasing with a second wave coming.
    3. Many homeowners who can afford their homes are probably going to strategically foreclose, adding oil to the fire.
    4. People have just realized they have to save 10K per year, never mind spend 10K more than their income per year.
    5. CRE has not been written off yet.

    ————-

    Yep…they sold it all as we’ve got to get “Credit Going Again…it’s an Armageddon”….”The Sky is Falling..Globally.”

    Bait and Switch…a Con Game. It’s out there…where are the INVESTIGATIONS…ACCOUNTABILITY. Lies and More Lies… The more we learn the worse it seems what they did to the Taxpayers.

    But…Hey…it’s a Great Year End Holiday for “GS and the survivors.” We hold the empty bag while Congress stews and fritters and Blankfein says he’s doing “God’s Work.”

    Just in time for the Holidays…….”Doing God’s Work” and a “Roasted Goose with the trimmings on Every Banker’s Table.” Dickens’ “Christmas Carol” would be a good watch to remind us this holiday of what humility means when one has been responsible for great greed at the expense of others in the society who were just trying to do “an honest days work” who have been penalized for no fault of their own, but were guiled by Media and Bankers into going beyond their means. Reassured along the way by the “best minds” of Wall St. , our own Federal Reserve, Guru’s of the finance world and support from the Cable Media with shows like “Flip this House.”

    All complicit….May the “Ghost of Times Past” visit them with howls and chains and journeys through their past to see what the REAL world is all about.

  42. TomOfTheNorth says:

    Now THIS is an economist (and he ain’t sentimental):

    http://outsidethe-cardboard-box.tumblr.com/post/249074091/the-new-australian-school-of-economics-wonkish

    G’day!
    TOTN

  43. DuchessGateau says:

    Barry,
    You should do editorial commentary on television, the medium of the masses. Your list provides an excellent overview of the types of economic indicators used by ordinary people outside the financial sector. People always notice when their income drops. They also noticed that their retirement funds disappeared. States and municipal taxes are going UP due to revenue shortfalls. Across the economy, deflation is real (astounding!), however, household costs for food, gasoline, health insurance, credit cards, and college tuition have risen. Spending CANNOT return to previous levels under these conditions. True, the stock market has been going up for 8 months, but the financial sector is still tied to a millstone of unregulated, insolvent investment banks with hundreds of trillions in derivatives of overstated value, and we are all paying for that through the Fed’s purchases of MBS, Fannie and Freddie (insolvent! worth zero!), etc. We cannot “spend” like before when the dollar has become worth less. And there are fewer dollars, due to higher reserve requirements at the largest lending institutions. This means the economy will contract further, and I don’t see how it can be otherwise. Stimulus spending is a great idea, but I don’t see how it can possibly make up for the size of the economic contraction. But I’m very glad you have been making money for 8 months, and I hope you continue to prosper. But I don’t think the recession is over, even though you may be back to business as usual.

  44. Spitzer says:

    As time-inconsistent as monetary policy may be, it is also very compelling: When people run ou of money they MUST stop spending. Some people anticipate and supress spending before they run out of money, but rationalities apart, there is a physical limitation to spending. That limitation is determined by monetary policy.
    In short, pople stopped spending because they were broke. Even those who desperately «want» to spend can not spend because, physically, they don’t have the money for it. People have run out of money. There is no more money to spend. People are not stupid.. they’re just broke. People aren’t unwilling, they’re pennyless. Finitto!

    There is no point in cheering pennyless and already indebted consumers people to spend what they don’t have. Consumers ceased spending because they were broke and they aren’t six-pence none the richer now. Economic recovery thus is no more a problem of consumer confidence than you can pull yourself out of a swamp by pulling your hair. Economic recovery is a problem of public spending AND money supply AND income distribution.

    Public spending is in good hands. It may be argued (and has been argued) that it has been insufficient. Bay be but that may be straightforwardly corrected. It is just a question of political will.
    In order to foster PRIVATE spending both money supply and income distribution must be tinkered with. In the housewife definition of money credit won’t do. When the housewife has money (as in income) the housewife will start spending. They’re women, It’s their nature. All they need is a reasonable expectation of a stable income. That’s what «money» means to millions of people.
    [Put aside our definitions of M1 and M3.. what people need is reliable income. That's what most people call «money».]
    A sane economic recovery must thus be based BOTH on a sound credit (money supply) policy AND a matching income (distribution) policy: incomes must be able to pay for what is being bought (thus, produced). When people expect income that allow them to meet their responsabilities they will start spending, again. Not before.

    «Money» (in the housewifes’ deficition) being the problem, the major instrument for economic recovery that has been missing is monetary policy. As long as economic policy stays in the hand of (unelected) bankers , then monetary policy will not serve the purpose of providing liquidity to make the «real» economy operate properly. As long as monetary policy serves the interests of the finance community it will not provide money for people to spend: and what people need in order to spend is «money», not confidence. Money (in the sense housewives give to the word) is the key ingredient that can fuel a sutainable recovery and money has been missing.

  45. Eric Davis says:

    This stuff is the same reason CNBC, feels honor bound to “Cheer lead”. I’m a huge fan of behavioral economics, but if you listen to the interpretation of some of the more Conservative economists, their interpretation is more like “When you wish Upon a star” economics.

  46. danm says:

    In 1929, everyone was in the market. Then the market tank and probably knocked off more than 50% of players.

    Then in 1930, the market went back up. Probably spurred by those who were on the sidelines during the preceding years and finally felt it was their time to go in.

    Then the market tanked again­. This played out time and time agains until 1935. In 1935, it was finally time to go back in for real but there were barely any players left.

    IMO, the same thing is going to happen. You got the first batch of investors who lost their money and for cash flow purposes (60+ retired) can not tolerate the volatility anymore.

    I wouldn’t be surprised if this rally was triggered by a huge number of people who had been on the sidelines for the last couple of years finally jumped in + all those who think government involvement is going to fix everything .

    The way I see it, we are just now starting to see the effects of moral hazard (strategic defaults). That can’t be good.

  47. [...] The Big Picture: How overrated is sentiment in economics? [...]

  48. hue says:

    danm, i thought Canadians were an optimistic bunch, too much free h-care clouding your judgment?

    other people compare the current market to 1938, let’s jump straight to near the end of the Depression, we operate on Internet time, or 1974, which wasn’t preceded by a huge crash, well the market did drop 40% over 2 years, but retested the lows, unlike this rally. or better yet 1987, when the market snapped back and up up and away for 30 years.

  49. [...] a recession, but economic theorists have long been fascinated by such a possibility.” On his Big Picture blog, Barry Ritholtz thinks sentiment may be overrated. “One of my complaints about economics is [...]

  50. [...] Sentiment is overrated in economics.  (Big Picture) [...]

  51. “False Belief System: . . . That millions of slightly clever, pants wearing primates can combine their collective ignorance. . . into something resembling intelligence was one of the false beliefs of the era. Unfortunately, this is a condition the monkeys are prone towards (Witch burning, bloodletting, organized religion, etc.). Note however that this . . . is actually the result of what happens when a faulty belief system dominates a society.”

    You forgot to mention the faulty belief that the federal government is living beyond its means. You can live beyond your means. So can I. So can cities, states and corporations. But the federal government cannot. It has unlimited means, as it has demonstrated during the 1,400% increase in gross debt in only 30 years: no bounced federal checks and no inflation. The faulty fear of federal debt dominates our society, causing great harm as all faulty beliefs do.

    “Doom Warnings Began Making Sense: Many of the doomsayers have been warning of the coming apocalypse for years. . . . Maybe it was because the population is not nearly so stupid as the politicians believe.” Or maybe it was because even a stopped clock is right twice a day.

    Rodger Malcolm Mitchell
    http://rodgermmitchell.wordpress.com

  52. “False Belief System: . . . That millions of slightly clever, pants wearing primates can combine their collective ignorance. . . into something resembling intelligence was one of the false beliefs of the era. Unfortunately, this is a condition the monkeys are prone towards (Witch burning, bloodletting, organized religion, etc.). Note however that this . . . is actually the result of what happens when a faulty belief system dominates a society.”

    You forgot to mention the faulty belief that the federal government is living beyond its means. You can live beyond your means. So can I. So can cities, states and corporations. But the federal government cannot. It has unlimited means, as it has demonstrated during the 1,400% increase in gross debt in only 30 years: no bounced federal checks and no inflation. The faulty fear of federal debt dominates our society, causing great harm as all faulty beliefs do.

    “Doom Warnings Began Making Sense: Many of the doomsayers have been warning of the coming apocalypse for years. . . . Maybe it was because the population is not nearly so stupid as the politicians believe.” Or maybe it was because even a stopped clock is right twice a day.

    Rodger Malcolm Mitchell
    http://rodgermmitchell.wordpress.com

  53. [...] a recession, but economic theorists have long been fascinated by such a possibility.” On his Big Picture blog, Barry Ritholtz thinks sentiment may be overrated. “One of my complaints about economics is [...]

  54. [...] hedgies live and work is a chaotic social institution built on short-term incentives that “represents the collective wisdom of 10 million panicked monkeys.” Introducing short term, numerically-driven metrics into public schooling will only lead to [...]