Recession

bush_cheney2004 · July 14, 2008

He believes he's an American.

He has plenty of company in that regard.

msj · July 14, 2008

msj · July 15, 2008

Although I agree with the sentiment to "not panic" I can't help but point out that there is a difference between not panicking and doing nothing versus not panicking and being defensive (versus panicking and doing nothing or panicking and doing something stupid or panicking and getting lucky).

Beware who you listen to: DON'T PANIC (Again !)

msj · July 16, 2008

Looks like we can now add CEO's to the McCain team list of "whiners:"

Whining US CEOs: Economy is "Dismal"

Frustrated with the current economic policy, another CEO said, “The formula for international competitiveness is quite simple: minimal trade restrictions, predictable regulation, competitive tax rates, strong educational system, trade balance (not deficit), predictable currency, low interest rates, responsible fiscal spending and low corruption. Unfortunately, under the Bush administration, we have failed on many of the factors, with corruption and macroeconomic incompetence being the most insidious.”

bush_cheney2004 · July 16, 2008

Aw shucks.....doesn't look good for the recession mongers...the fix is in for a 2nd quarter GDP boomlet. Better luck next quarter naysayers and whiners.

msj · July 16, 2008

Aw shucks.....doesn't look good for the recession mongers...the fix is in for a 2nd quarter GDP boomlet. Better luck next quarter naysayers and whiners.

Still showing that you don't understand how the NBER declares a recession: see PDF file

Before we get into this, allow us to get one thing off our chests – the issue of whether the economy has entered a recession. As we have said until we are blue in the face, the National Bureau of Economic Research (NBER), the nonprofit organization that makes business cycle peak and trough calls, has no strict definition of what constitutes the onset of a recession. Although most recessions do include two consecutive quarters of contracting real Gross Domestic Product (GDP), not all do. The NBER concentrates on the behavior of the four components of the Conference Board’s coincident indicators – nonfarm payrolls, real personal income less government transfer payments, industrial production and real manufacturing and trade sales. The NBER is looking for definitive peaks in these variables, not necessarily all of them. Because these data are subject to revisions and because with only the passage of time can one determine whether a definitive peak has been established, the NBER does not make a recession call until months after the business cycle has peaked. For example, the March 2001 peak was not announced to be the peak until November 26, 2001; the July 1990 peak was not declared one until April 21, 1991. What we do know now is that all of the four coincident indicators are off their hitherto cycle highs, pending revisions to the data (see Charts 1 – 4). In addition, monthly estimates of real GDP made by a private economic forecasting firm, Macroeconomic Advisers, suggest that real GDP peaked in January this year (see Chart 5). Now, there could be a miraculous strong recovery in general economic activity that would render these apparent peaks as “false” peaks, but as we will argue below, this is unlikely.

Don't know why I bother to post it - anyone else has probably read something like this several times and understands it by now. Don't know what your problem is...

bush_cheney2004 · July 16, 2008

Don't know why I bother to post it - anyone else has probably read something like this several times and understands it by now. Don't know what your problem is...

You can post it as many times as you please, but it won't change the material fact that there is no recession called (yet). Pick any alphabet organization you want....NBER, BEA, GAO, DEA, OMB, or IRS.

Your point of view has been established, as has mine....let the game play out as it always has and we shall see if there was a recession in the United States during calendar year 2008.

I'm saying no....got a problem with that?

Edited July 16, 2008 by bush_cheney2004

msj · July 16, 2008

You can post it as many times as you please, but it won't change the material fact that there is no recession called (yet). Pick any alphabet organization you want....NEBR, BEA, GAO, DEA, OMB, or IRS.
Your point of view has been established, as has mine....let the game play out as it always has and we shall see if there was a recession in the United States during calendar year 2008.

I'm saying no....got a problem with that?

You can say whatever you want.

Free countries allow people to ignore facts.

The problem I have is that you perpetuate the ignorant claim that a recession is two consecutive quarters of negative real GDP.

It is not as has been as shown many times.

Edited July 16, 2008 by msj

bush_cheney2004 · July 16, 2008

The problem I have is that you perpetuate the ignorant claim that a recession is two consecutive quarters of negative real GDP.
It is not as has been shown many times.

Well hell, man, using your definition, the US has recessions quite often, at the frequency of an economic sinusoid.

So what's the big deal?

Topaz · July 16, 2008

Keep saying there isn't a recession and there isn't one. GM says it going to bounds back, Wall Street is thinking bankruptcy. Bush says I didnt do any wrong while Prez and the world knows different. Perhaps by the time it is revealed we are in a recession, it would have gone passed and into a DEPRESSION! When Bush leaves office all the truth will come out and the country will get a BAM!! reality check.

bush_cheney2004 · July 16, 2008

Keep saying there isn't a recession and there isn't one. GM says it going to bounds back, Wall Street is thinking bankruptcy. Bush says I didnt do any wrong while Prez and the world knows different. Perhaps by the time it is revealed we are in a recession, it would have gone passed and into a DEPRESSION! When Bush leaves office all the truth will come out and the country will get a BAM!! reality check.

Whatever you say....I'm making money either way. I can short GM or go long. The rest can whine to their heart's content.

msj · July 16, 2008

Whatever you say....I'm making money either way. I can short GM or go long. The rest can whine to their heart's content.

I highly doubt that you would have the ability to short anything other than a bill at the local Denny's.

You sound like some wannabe who pretends you know something about the economy and the markets but you can never show it to anyone when they ask you.

bush_cheney2004 · July 16, 2008

..You sound like some wannabe who pretends you know something about the economy and the markets but you can never show it to anyone when they ask you.

...and you sound like someone who brags about knowing something about the economy but doesn't have any money to show for it. I'll choose "dumb/rich" over "smart/poor" anyday.

Even the NBER's Business Cycle Dating Committee won't volunteer an opinion on present economic performance, because it works in hindsight by definition.

GM was up big today, as was Ford....I bought 1000 of each last week on the lows. Any questions?

msj · July 16, 2008

...and you sound like someone who brags about knowing something about the economy but doesn't have any money to show for it. I'll choose "dumb/rich" over "smart/poor" anyday.

I'm not bragging that I know more about the economy. I don't know more than what I read and from what numerous clients and friends tell me.

I am saying that you don't demonstrate that you know much. Feel free to demonstrate what you know starting at any time...

Even the NBER's Business Cycle Dating Committee won't volunteer an opinion on present economic performance, because it works in hindsight by definition.

Sure, but I have already linked to one of the NBER guys (probably back at page 15 or so) who said back in January that the US was in a recession but that the NBER won't recognize it until later in 2008 or early 2009.

Granted, he only said this because he is not on the panel that will determine when the recession will be called but it should be clear with a wink and a nod....

GM was up big today, as was Ford....I bought 1000 of each last week on the lows. Any questions?

Good for you.

I don't have much money in the market right now and this is based on my view of the economy and on the stocks that I watch (I don't invest in stocks or index funds when I don't know enough about them).

Better to use the funds within my own business where they are close to home and I am earning a good return.

So, I have been paying debt down more so than building my savings up. The return on investment may only be 5.3% after tax savings but I prefer to sleep at night when markets are volatile and my expectations are for further declines.

August1991 · July 16, 2008

I don't have much money in the market right now and this is based on my view of the economy and on the stocks that I watch (I don't invest in stocks or index funds when I don't know enough about them).
Better to use the funds within my own business where they are close to home and I am earning a good return.

So, I have been paying debt down more so than building my savings up. The return on investment may only be 5.3% after tax savings but I prefer to sleep at night when markets are volatile and my expectations are for further declines.

It's probably a good idea to invest in a family business now, pay down your mortgage or put your lottery winnings in a good, low-MER corporate bond index.

Then again, buying shares in a business is not a bad idea either. The US markets are in Dollarama territory. Ugh.

Edited July 16, 2008 by August1991

msj · July 16, 2008

It's probably a good idea to invest in a family business now, pay down your mortgage or put your lottery winnings in a good, low-MER corporate bond index.
Then again, buying shares in a business is not a bad idea either. The US markets are in Dollarama territory. Ugh.

Don't play the lottery. Don't even know how it works other than it's a voluntary payment to the government.

Also wouldn't necessarily trust bonds.

This is a problem for me right now - OTOH, I can see how the US $ could continue to go down which would be inflationary and, therefore, higher interest rates be forced upon the US/Canada if not the world. Not a good time to own bonds when rates are going up. You buy them because you expect rates to be going down.

OTOH, I can see the case for deflation leading to low interest rates for years to come (think Japan of the 1990's). In this case bonds would be what you would want to have.

I suppose there could be the saw-off approach - pay down debt aggressively in case interest rates go higher; put savings into bonds in case they don't.

bush_cheney2004 · July 17, 2008

I am saying that you don't demonstrate that you know much. Feel free to demonstrate what you know starting at any time...

It's not important for me to demonstrate that I know anything at all....it is important for me to do something with what I do know. An economist can tell me how to measure the success of a seduction, but not how to score.

Sure, but I have already linked to one of the NBER guys (probably back at page 15 or so) who said back in January that the US was in a recession but that the NBER won't recognize it until later in 2008 or early 2009.

This has been my contention all along...no recession until the Fat Ladies sing. The NBER is just one one of them.

Granted, he only said this because he is not on the panel that will determine when the recession will be called but it should be clear with a wink and a nod....

See above.....the NBER committee is perfectly useless in real time.

I don't have much money in the market right now and this is based on my view of the economy and on the stocks that I watch (I don't invest in stocks or index funds when I don't know enough about them).

Different strokes for different folks. For me, applied economics is a whole lot more fun than micro/macro economic theory, money supply, or "stagflation". That's why Eddie Murphy uttered the lines...

The people with

pork belly contracts are thinking,

"Hey, we're losing all our money

and Christmas is coming.

"I won't be able to buy my

son the GI Joe with the Kung Fu grip.

"And my wife won't make love to me

cos I ain't got no money."

They're panicking, screaming, "Sell, sell."

Better to use the funds within my own business where they are close to home and I am earning a good return.

A wise decision if you cannot get a better return on assets.

So, I have been paying debt down more so than building my savings up. The return on investment may only be 5.3% after tax savings but I prefer to sleep at night when markets are volatile and my expectations are for further declines.

Savings do not have to sleep quietly....they can feast on well chosen bargains.

Edited July 17, 2008 by bush_cheney2004

GostHacked · July 17, 2008

http://money.cnn.com/2008/07/17/news/compa...dex.htm?cnn=yes

Well, another major finnancial intsitution is coming under fire for business practices. The reason why these institutions freeze assets is so they don't loose their collective shirts. When to many people take their money and investments out of a bank, the bank risks a run off and bankruptcy.

Notice where we get that term from bank-ruptcy. When collecters demand payment and you do not have the capitol to cover those payments.

This is an example of living beyond their means. People, banks, corps, governments. They all do this.

msj · July 18, 2008

This is too funny.

In the US the SEC tries to keep stock prices up by threatening to investigate "rumors" and forbidding naked short selling on securities.

Maybe Pakistan should do the same thing:

Pakistani Investors Stone Stock Exchange

Why am I reminded of price controls from the 1970's?

Except this time it is "poof, stock prices stay high."

msj · July 18, 2008

While on the topic of naked shorts, I admit that I thought the list of 19 securities was a bit odd.

I think this guy explains it quite well: Selective Enforcement of Regulation SHO

Whatever happened to the theory that you provide the market with adequate, efficient and effective regulations and then get out of the way and let the market pick the winners and losers?

msj · July 18, 2008

Last post for tonight:

Our creative mortgage crisis?

What went wrong? The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation. When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were "private companies.” But market discipline was nearly nonexistent given the general perception -- now validated -- that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe.

msj · July 22, 2008

Posted for interests' sake:

Why No Outrage?

Through history, outrageous financial behavior has been met with outrage. But today Wall Street's damaging recklessness has been met with near-silence, from a too-tolerant populace, argues James Grant

msj · July 22, 2008

Also posted for interests' sake:

The Coming Systemic Bust of the U.S. Banking System: “Dead Stocks Rallying”

May need to get a subscription to read this.

Nouriel Roubini has been extremely pessimistic for the past few years. I admit that I dismissed him as an alarmist but he has been right too often (Fannie Mae/Freddie Mac in particular) that he can no longer be dismissed or ignored.

This article is long and many will consider it very technical so be forewarned (accounting rule FASB 157 is discussed, for example).

msj · July 23, 2008

Some more interesting articles/cartoons:

Moral hazard misconception

Largely agree with this one.

It's funny, really: Greenspan's "put" is mostly responsible for this mess and yet here we are under an administration that is going the other way. Now is the time to throw moral hazard into the wind (as appalling as that is for me to agree with). Back in the 1990's through 2006 was the time to rein in the horses.

Some cartoons:

Moral Hazard?

Edited July 23, 2008 by msj

msj · July 28, 2008

To bring Canada back into the discussion:

Bank of Canada's Monkey See Monkey Do Policy

I find it amazing that more taxpayers are not outraged at this.

Lets put this in simple terms - a bank (with the help of mortgage brokers, appraisers, and lax regulatory controls) can do this:

1) Lend a bunch of money to people without properly documenting whether or not they should be lent to.

2) Package the loans/mortgages together and call it something like a "SBP." (Stupid bank product)

3) Have a company give the "SBP" a triple A rating.

4) Use the triple A rating to get cheap insurance on the "SBP" which further reduces the riskiness of these instruments.

5) Sell this practically risk-free "SBP" into the market.

6) Continue to do 1-5 until the bubble can no longer be sustained.

Then, turn around and do the following:

1) When no one will touch your "SBP's" then blame the rating agencies and insurers for not rating them properly and/or going bankrupt (and, therefore, not able to provide the insurance on the products).

2) Try to raise capital off the backs of taxpayers by convincing the central bank to swap real risk-free assets (as in government backed bonds/treasuries) with the toxic "SBP's" that you can no longer sell and for which their is no liquid market for.

Better yet, have the central bank back-stop $30 billion of liabilities as you take over that investment bank that's going under.

3) When that still doesn't work then convince the securities regulator to put a floor on share prices by disallowing naked shorts. This way you can raise capital while all the shorts have to cover themselves.

4) Have the treasury secretary come out and state that the "banking system is sound" while people get into fights as they wait days to get their funds out of bankrupt banks. Yeah, if the banking system is really sound then there would be no need to say it is sound....

Etc...

Maybe next time governments can just make sure that less criminals are lending money and there are tighter rules under which they can lend the money....