Wednesday, November 25, 2009

Tuesday, November 24, 2009

What Does America Value: Security or Vitality?

I prefer an America that is young, vibrant, and exciting and I am willing to take the risk. After reading this article, where do you fall?

Monday, November 23, 2009

Economist Insanity?

The National Association of Business Economists predicts some good things for the U.S. economy in 2010.

"The latest survey by NABE notes that sluggish consumer spending will continue to weigh on the economy. But it predicts rebounds in housing, growth from business spending as more companies restock lean inventories, and a rise in stock prices."

To me, it seems the height of insanity to believe that housing will rebound in 2010. The federal homebuyer tax credits will expire next year, interest rates can only go up, people without jobs don't tend to buy houses, and the number of foreclosures is not likely to stop increasing anytime soon. I suppose it is possible that the nominal value of housing will increase IF inflation starts to take off. In the absence of a more general inflation, as a consequence of current Fed policy, I don't see how housing prices will go up all that much if at all.

I can see how restocking lean inventories makes sense. Although some of that may already be happening. I wouldn't expect a massive increase in business spending.

Finally, I can't see how stock prices will continue to rise. The Dow Jones Ind Average is already at 10,500 and I think it's been over-valued for a long time. How much does NABE expect this to rise? Are we going to 12,000! I have admittedly been wrong, and mystified frankly, by how it has persisted at the plus-10,000 number for this long. Nonetheless, it makes no sense to think the stock market is going to rise significantly.

All in all, I understand the models these people use to make these forecasts. I just think they're insane in using them to predict things that make little intuitive sense. Maybe once the "stimulus" money runs out and the Fed stops the magic tricks with the money supply will see a massive wave of new optimism in the economy. Despite the fact that employers will have significant increases in their operating expenses due to new taxes in a variety of areas. How did that Saturday night vote in the Senate go?

Saturday, November 21, 2009

Barack's Asian Job Creatin

More words from President Obama:

He says his trip to China will create more jobs. This despite the fact that nothing tangible was actually accomplished. Or that one of the major gripes of the Chinese has been that he's imposed tariffs on some of the Chinese made goods we import such as tires. Or that he's devalued the dollar, which negatively impacts global trade flows from China's perspective although it props up our export industries. We can see all the massive job gains we've had from the implementation of a cheap dollar, export driven approach though can't we? It doesn't matter. All of a sudden Barack is a fan of free trade and all the jobs it can in fact create.

Another day another few billion dollars. More good soundin words. Our amateur hour, who wants to be president, night rolls on. How many more hours til last call?

Wednesday, November 18, 2009

Who Is John Thune?

NY Times columnist David Brooks recently wrote a column about the senator from South Dakota who I have always thought would make a great presidential candidate.

Hopefully he will catch on. He has a real shot of beating O'Nightmare in 2012. He's conservative, honest, articulate in an aw-shucks sort of straightforward way. And he's a handsome dude, which I've found from personal experience, has never hurt :) A guy like Thune would be a whole lot better than Palin, Romney, Huckabee or the other cast of characters in the GOP. Hopefully he's interested.

Wednesday, November 11, 2009

Gold. Raisin the Roof.

When gold was $1,000 an ounce, I said to friends it would easily go to $1,500 and possibly even $2,000 over the next couple of years. To predict that is complete insanity. My friends think it's nuts. And it probably is. But it is up over $1,100. That's kind of nutty.

I still think I'm right. When government borrows money on a ludicrous scale that they have little hope of ever recovering, the value of the dollar tanks. Simply put, it takes more dollars to buy stuff like gas, gold, and other commodities. Eventually inflation will kick in, though probably not for awhile.

Because I can see Obama's soul in the same way Bush said he could see Vlad Putin's soul :-) I believe Obama doesn't really care that he's emptying the Treasury. His friends in academia will eventually write how great and courageous he was as a president in the books to come over the next several decades. All the while the task of "fundamentally remaking America" as he pledged to do is underway. A remade America will look a lot like Europe in the 1970's. We'll have double-digit unemployment, declines in entrepreneurship and business activity, and less and less innovation. But we'll have "free healthcare" - eventually. It will be a great place for those with little ambition and few goals in life.

There's always hope though. The American people may wise up yet as the nation's finances get worse and worse.

Tuesday, November 10, 2009

Comin My Way

It seems that economists have revised their unemployment rate forecasts up to 10.5%.

This is up from forecasts 6 months ago when people were between the 9.5% and 10.2% range. I have said 12% by the end of 2010 all along. I stand by that today. The reason is that this recession has 2 waves. Wave 1 is about coming to an end. It's the natural cyclical variation in an economy after a shock like we had last September. It should have already ended but Obama confusion has set in.

Wave 2 is coming. Most economists are missing this because they are slaves to panel data sets and modeling. Forecasting the future is as much about intuition as it is analysis. Wave 2 is due to Obama policies becoming law, "stimulus" spending being wound down, and the Fed putting the brakes on liquidity, which they will have to do. Wave 2 is going to be ugly but will hit when the Senate passes a healthcare bill that will start a frenzy of panic for small business owners trying to figure out what it means and being horrified when they do finally figure it out. It has implications.

So, we'll see. I could actually see it going even higher than 12%. Hopefully, it won't hit me.

Monday, November 2, 2009

Economic Modeling and "Saving" 650K Jobs

President Obama's claim that the stimulus has saved 650K jobs is a great example of the poverty of using static analysis in economic modeling. Most of the stimulus is said to have gone to save public sector jobs such as teachers and police with the idea that these would have been cut without it.

Suppose these jobs were cut. Suppose all 650K would have been laid off. A dynamic economic modeling approach where actual decisions would have been made by each person in the absence of the stimulus would likely reveal it is much lower. For example, suppose all 650K were laid off. How would they react? If all of them literally sat home on the couch and didn't look for a new job, the number would be right. What you would expect is that at least a portion of them would have looked for and found some other work. Further, the amount of taxpayer money (a portion of the $787B that has been spent) that was diverted back to temporarily save these jobs could have gone to economic producers such as businesses. Perhaps if government actions like this that choke off business investment weren't attempted maybe we'd have a sustainable recovery underway by now and new jobs would have been created for a portion of these 650K to fill. We'll never know. How many job openings have been postponed that would have arisen without massive government intervention policies? Unlike the government, I won't guess.

Anyway, a more thorough dynamic model would not view all public employees as merely passive couch potatoes who wouldn't look for a new job elsewhere. When the temporary stimulus runs out and public employees have to paid out of the normal flow of tax revenues, we will find out. We'll probably see these jobs on the chopping block in a year or two and we can test the thesis later. The only long-term way to keep government funded jobs going is for tax revenues to rise as taxable income rises as people go back to work. A stimulus like this only delays the inevitable day of reckoning. Enjoy the growth while it lasts.

Sunday, November 1, 2009

Singin That Ole Tune Again

My favorite recurring Obama line is that he didn't get us into the mess but he's trying to clean up the mess. It's clever. He's right on one hand. He inherited a bad fiscal and economic downturn that was well underway before he was sworn in. On the other hand, people aren't completely stupid enough to believe that his policies, which essentially boil down to borrow and spend more, start a trillion dollar overhaul of healthcare, and regulate, are going to help restore anything.

Who knows how many more people have to endure this pain simply because business is scared to death of President Obama's policies.

So how long should it take for the economy to recover? I thought that by early Summer things could start to go back up under sound economic policies. We had an artificial boost in growth in the 3rd quarter. Nobody believes it is going to get better than that anytime soon. I wonder what his timeframe is? Does it take a year? Two years? Five? Is there any reason why we shouldn't already start to see businesses hiring again? I think I know.