Archive for February, 2012

LTRO2 will sustain rally or cap it?

As global equity markets over the past few months have been buoyed by QE/monetary easing from the Fed, ECB, BoE, BoJ, PBOC, Indonesia, Thailand, and Philippines to name a few, it may well be for now, and I emphasize for now, that LTRO2 tomorrow may be the last one of substance for a while. Will it further sustain the equity market rally or will it cap it? Looking at US stock market reactions over the past few years after QE1 and QE2 ended, they rolled over each time. While I’m not sure of the extent of the downside over the next few months, I think the equity market rally since last Sept ends within days in a post QE hangover. Also, while longer term US Treasury yields have been suppressed by OT, the extent of it doesn’t square with the optimism of equity markets. On Dec 21st, the day of LTRO1, the 10 yr yield closed at 1.97%. Today it’s at 1.92%. Treasuries are just not drinking the ‘everything is fine’ Kool Aid.

Category: MacroNotes

Top Albums of the 1970s

Top albums of the 70s View more presentations from Rob McMinn

Category: Music, Weekend

5 Signs You’ve Matured as a Trader

Joe Fahmy has guided his hedge fund to outperformance over the past 13 quarters. He has been sharing his trading skills to a novice to intermediate traders based on his 16 years of trading. This is our their attempt at creating bite size, easy to understand, bullet points for traders. The prior posts are here…Read More

Category: Apprenticed Investor, Rules, Trading

S&P: Greece in Default (Late to the Party Again!)

S&P, the notoriously incompetent rating agency that was a prime enabler of the credit crisis, has declared that Greece is in “selective default.” This is, of course, an act of belated cowardice on the part of S&P. When a borrower informs their lenders that they will a) Not be repaying the full loan amount; and…Read More

Category: Analysts, Bailouts, Really, really bad calls

Colbert: Surrender to a Buyer Power

By using predictive analytics, Target doesn’t just track when customers buy sheets, they know what customers are doing between the sheets. The Word – Surrender to a Buyer Power The Colbert Report Get More: Colbert Report Full Episodes,Political Humor & Satire Blog,Video Archive Wednesday February 22, 2012

Category: Consumer Spending, Quantitative, Weekend

Stockman: War Drums Are Driving Up Oil Prices

Stockman: If We Want to Bring Oil Prices Down, We Should Stop Beating the War Drums

While Nouriel Roubini says that attacking Iran would lead to global recession (and see this), Ronald Reagan’s budget director – David Stockman – points out that even beating the drums of war is driving up oil prices and hurting our economy:

I think you can address this decisively by stop beating the war drums right now. And Obama could do that, and he could say the neocons are history.

The policy that they’re talking about right now is the same thing we heard in 2001, 2002, and 2003. And he needs to clearly say that we’re not going to attack Iran. We’re not going to permit Israel to attack Iran. They are not part of the axis of evil. They’re part of the axis of medieval.

In other words, these are backward people that aren’t going to threaten the western world, and we need to get into a serious process of negotiation. If we do that, the price of oil will drop $30 within a few months, and all the speculators who are on the wrong side of the ship would learn a good lesson.

But as long as the war drums continue to beat, as they are now, we’re going to see this kind of speculative fraud. It’s not real. It’s not supply and demand world today.

This is not Stockman’s first anti-war statement. Last year, Stockman – who has proved himself to be a true conservative – said:

We are now at a historical inflection point at which the time has arrived for a classic post-war demobilization of the entire military establishment,” David Stockman said in an exclusive interview.

“The Cold War is long over,” he continued. “The wars of occupation are almost over and were complete failures — Afghanistan and Iraq. The American empire is done. There are no real seriously armed enemies left in the world that can possibly justify an $800 billion national defense and security establishment, including Homeland Security.”

Short of that, he suggested, the United States has “reached the point of no return” with its artificial creation of wealth, and will eventually face a sharp economic decline.

***

This is a profound disappointment that there’s not even a debate — a serious debate about dramatic change in our imperialist foreign policy and war-making establishment in this administration — allegedly the most left-wing administration that we’ve had in modern time.”

“I don’t have much hope that what needs to be done will be done until it’s finally forced on us by a world bond market crisis, which will happen sooner or later,” Stockman added.

***

That’s why we’re just at the beginning of solving this massive financial collapse we had in 2008 and not in the process of healthy recovery as some of the pals in the White House or on Capitol Hill or on Wall Street would have you believe.”

Category: Energy, Video, War/Defense

On PIGS on Drugs

Bruce Kastings: An interesting article in the Swiss press this morning regarding the big Swiss drug companies, Roche and Novartis. Apparently the PIGS are not paying their drug bills. The numbers are big. The bills have been unpaid for years. Some excerpts from the article: Hospitals in Portugal, Italy, Greece and Spain are delaying paying…Read More

Category: Bailouts, Economy, Think Tank

World War II Was Different

“Military Keynesians” – people who think that war is good for the economy – base their theory on the idea that World War 2 pulled us out of the Great Depression.

I have exhaustively demonstrated that this is a myth: war is not good for the economy.

But even if WWII were good for the economy, things are completely different today.

World War II Employed Armies … Not Drones

Wikipedia points out:

Some critics, and even some supporters, contend that in the modern world, these policies are no longer viable for developed countries because military strength is now built on high-technology professional armies, and the military is thus no longer viable as a source of employment of last resort for uneducated young people.

Given that America fights its current wars with drones and smart bombs, it “employs” far fewer men then during WWII. It is a different world.

The Marshall Plan, Special Trade Provisions and Other Unique Circumstances Made WWII Different

Steven Hill noted yesterday:

Krugman has written, “Deficit spending created an economic boom – and the boom laid the foundation for long-run prosperity.”

But this viewpoint ignores a fairly obvious counterpoint. The United States emerged from World War II as the world’s conqueror, with virtually every economic competitor destroyed. Suddenly, America was the big boy on the block, leader of the Pax Americana, and our industries enjoyed numerous competitive advantages over international rivals. The dollar, suddenly, was the dominant global currency, and that granted Americans cheap money and influence that spurred unprecedented economic growth.

In addition, we then launched the ambitious Marshall Plan, which not only rebuilt our former adversaries, but also created international markets for US producers. One of the Marshall Plan’s conditions was that nations receiving funding were required to give American exporters preferred access to their emerging markets. The years of the Marshall Plan, from 1948 to 1952, saw one of the fastest periods of growth in European history, with industrial production increasing by 35 percent and agricultural production substantially surpassing prewar levels. American businesses, especially those specializing in manufactured goods and raw materials, benefited greatly from these fast-emerging markets. Any massive stimulus plan today would not benefit from those same advantages.

Krugman has rejected this critique, writing, “Trade was a minor factor in the American economy both before and immediately after the war, with imports and exports a much smaller share of gross domestic product than they are now.” Krugman admits that there was an increase in trade for a few years in the late 1940s due to the effects of the Marshall Plan, which allowed ruined economies to buy more from the United States, but it’s impact “was temporary,” he says.

But Krugman’s response is unconvincing. Here is a simple thought experiment to illustrate why. Imagine if America had lost World War II and not emerged as the dominant power. Does anyone seriously believe that all of that wartime stimulus money would have resulted in anywhere near the post-war boom that the United States experienced? Krugman is underestimating the impact of being the world’s conqueror, and the financial, economic and psychological advantages that conveys.

Certainly, a large dose of fiscal stimulus right now would spur an increase in aggregate demand, but without a surging export sector, that would probably result in more government jobs (and perhaps more than a few “bridges to nowhere”) than private-sector jobs. There’s no guarantee it would boost private-sector growth, since America’s struggling export and manufacturing base still would face stiff competition from many upstart international rivals, with none of the advantages enjoyed by US exporters in the aftermath of World War II. The world today, and America’s position in it, are far, far different from what they were in 1945.

***

In short, the world is decidedly multipolar now, and even if it was possible to pass a massive stimulus plan through the US Congress, there’s simply no guarantee that it would have an equivalent positive impact without the favorable conditions that existed after the Second World War.

Optimism – More Than Keynesian Stimulus – Got Us Out of the Depression

Economist Robert Higgs – who has studied the effect of World War II on the economy in great detail – argues that it was optimism, rather than stimulus spending, which got us out of the depression:

Which brings us to what may be the most important factor of all: the performance of the war economy, despite its command-and-control character, broke the back of the pessimistic expectations almost everybody had come to hold during the seemingly endless Depression. In the long decade of the 1930s, especially its latter half, many people had come to believe that the economic machine was irreparably broken. The frenetic activity of war production—never mind that it was just a lot of guns and ammunition—dispelled the hopelessness. People began to think: if we can produce all these planes, ships, and bombs, we can also turn out prodigious quantities of cars and refrigerators.

***

To sum up, World War II got the economy out of the Great Depression, but not in the manner described by the orthodox story. The war itself did not get the economy out of the Depression. The economy produced neither a “carnival of consumption” nor an investment boom, however successfully it overwhelmed the nation’s enemies with bombs, shells, and bullets. But certain events of the war years—the buildup of financial wealth and especially the transformation of expectations—justify an interpretation that views the war as an event that recreated the possibility of genuine economic recovery. As the war ended, real prosperity returned.

America’s performance in World War 2 made the U.S. a superpower. The fact that we defeated the Nazis, Mussolini and imperial Japan made us proud.

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Category: Think Tank, War/Defense

Snow Circles

Snow Circles from Beauregard, Steamboat Aerials on Vimeo. Sonja Hinrichsen Snow Drawing Music is “Changing Season” composed by Julie Cooper published by De Wolfe Here is a link to the stills from that same day.. flickr.com/photos/steamboataerials/sets/72157629090418253/ One week later Sonja coordinated another drawing.. See it here.. vimeo.com/37266730 Hat tip: Fubiz

Category: Weekend

10 Monday PM Reads

Some reads for the train ride home: • The Macro Man’s Oscar for Best Picture (Macro Man) • Brain study finds what eases pain of financial loss (Reuters) • Short Selling and the Great Depression (Bloomberg) • What High-I.Q. Investors Do Differently (NYT) • RIAs are starting to create their own 401(k) companies as alternatives…Read More

Category: Financial Press