.....continues apace throughout the media and the internet, but nowhere else locally is it more egregiously done, in a completely knuckle-headed way, than at (where else?) Cone's.
There can be only two reasons for the responses from Cone and his dutiful respondents: They are incredibly stupid - naive, or they are purposefully misrepresenting the situation for some (political/social/economic?) reason that is not so easy to discern.
Here are some facts they ignore, or gloss over:
1. Economic growth will continue throughout 2008, albeit at a somewhat reduced pace. The negative nabobs constantly misrepresent hat people like Bernanke and Paulson have to say about this subject.
2. Foreign trade will continue to support growth this year, with a further reduction in trade deficits. It may indeed be enough to offset the slowdown in new home start-ups. Although the weakened dollar helps here, there are no signs that the greenback value will continue to erode.
3. Excluding major monetary policy changes, the current flux the markets have been going through cannot be explained by anything but forces that artificially interfere with the process. It's really pretty simple, despite the mystery some ill-informed people would have you believe.
If you analyze the so-called "catastrophic losses" of those invested in credit/housing markets, you'll see that "catastrophic" is about as misleading a term as you can use to describe such losses.
As Marin Sosnoff has said:
"Money managers normally panic over bad news on the margin. They know that incremental news that comes as a surprise moves stocks sharply up or down. Anyone who believes in the existence of an efficient stock market needs professional help. There's always too much misconstruing of news that only gets sharply refocused later on."
4. New home builders' inventories of unsold units are dropping, and many analysts say that most of the decline in this area is behind us.
5. The Fed (and other market makers) appears to have a handle on the so-called "credit squeeze". Businesses and consumers (at least the intelligent of these groups) should be able to handle things well enough, and there looks to be some help in the form of new tax cuts on the way.
Some analysts see rate cuts to continue. And, for those who are paying attention, there's money to be had out there.
Ethan Harris, at Lehman (which, by the way, says in a convincing manner that there will be no recession) says "While consumers are likely to grow more cautious in 2008, solid income growth should prevent a sharp contraction in spending." In addition, spending on capital goods shows signs of increasing.
To conclude, I will repeat what Bill Poole, FRB St Louis President, said Wednesday:
"The current financial turmoil will take awhile to play itself out. The fundamentals of our economy remain strong, however, and 2008 looks to be a year of rising growth. Economic forecasters expect slow expansion in the first half of the year and a quickening pace in the second half. Meanwhile, if borrowers, lenders and investors can refocus on financial basics and re-emphasize critical lessons about credit and risk, the financial future can be brighter than the second half of 2007. For that brighter future, we need to infuse our education at all levels with the lessons of 2007—old lessons to be sure but easy to understand at a very practical level from 2007 experience. With continuing effort we can expect that financial upsets such as the current one will be infrequent and milder when they do occur."
I posted Poole's remarks at Cone, but no one seemed to want to discuss it, seeing as how it was contrary to the meme they want to promote.
There's more to come. MUCH more.
Let's leave it at this:
Are there problems in the economy?
Yes, of course, but not to the extent the Cassandra crowd continues to wail about.
Do the signs indicate disaster on the horizon?
No.
Is the constant drum beating over "recession" useful?
Only to those who have some external motive to do so.
It's irrational, and can only lead to an artificial undermining of consumer confidence. That's what we're saying about "talking the economy into a recession". It CAN be done.
If you are one of Cone's "Wally Worry" brigade, be prepared.
I will challenge your nonsense EVERY time I see it.
I'll stick with minor returns and cash for now.
ReplyDeleteAre you advocating that now is a buying opportunity and if so what would you buy?
Bubba said, " It's irrational, and can only lead to an artificial undermining of consumer confidence. That's what we're saying about "talking the economy into a recession". It CAN be done."
ReplyDeleteSeems to me that a safe and well managed economy would be immune to "talking the economy into a recession."
It looks to me as if Bubba is simply attempting to talk the economy out of a recession.
If the economy were indeed safe I would think neither would be possible and the fact that you agree that "talking the economy into a recession" can be done is a pretty good indication that our economy is very near a tipping point.
And as I made the point at Cone's, Consumer confidence is already lost.
Clearly, as Bubba suggests, there can be some benefit to a damaged economy for persons with a certain orientation politically.
ReplyDeleteI think, however, the Republican candidates need to neutralize it by talking about their concern over the economy, and what their plans are to assure its well being. They need to meet people where their concerns are.
"Seems to me that a safe and well managed economy would be immune to 'talking the economy into a recession.'"
ReplyDeleteIf only that was the way it actually worked.......
"It looks to me as if Bubba is simply attempting to talk the economy out of a recession."
Not at all.
I'm attempting to call those who constantly beat the drum of negativity, which DOES tend to undermine confidence, to account for their irresponsible words and actions.
No one objects to an honest appraisal of the situation. what IS objected to is the constant repetitiveness of the same message.
What purpose can the constant repetitive negative drum beating possibly serve than to frighten people?
"I'll stick with minor returns and cash for now."
ReplyDeleteSo you're saying it's all a matter of timing?
"Are you advocating that now is a buying opportunity and if so what would you buy?"
Opportunities exist in certain segments, as I indicated previously, and opportunities are ALWAYS there for those who know how to take a calculated risk.
I would look at emerging market type investments if I had none, and would re-balance some of my holdings if I did (which I have done).
"They need to meet people where their concerns are."
ReplyDeleteThey need to help correct some of the misconceptions created by the hype.
That's an excellent way to help people with their concerns.
For me timing is probably more important than picking the particular companies. I mostly use the S&P 500 derivative now.
ReplyDeleteI try to listen to the employment reports and follow the Fed's interest rate decisions. If they are cutting rates I believe that they are trying to prevent a recession.
My primary investment is my business due to more tangible control.
I have never met investors that will deliberately lose money for political reasons. I hear the thought or debate from time to time but can not attest to any validity. I do believe that politicians will try to pass ideas that give their party an edge.
It is very normal for our markets to pull back after a great bull market.
Bubba, I agree with you about the intent and direction of much of the coverage regarding the economy. And I am glad you are raising questions about it.
ReplyDeleteMy concern is based on what happened in 1992. In the face of a media juggernaut, Bush I chose not to seize public relations opportunities until it was too late. This is a public relations problem.
And the Republican candidate, whoever he turns out to be, will need to demonstrate his concern over the economy in a tangible way. If he appears as if he is unconcerned, or as if he is denying there may be an issue, he will run the risk of getting creamed, as Bush was.
I am not saying he needs to propose a giant stimulus package or ill-considered measures in response to normal business cycles. I am merely suggesting he needs to show how his program is best for the economy, that he cares and is concerned.
There are others-- bloggers like us, and columnists, and others-- who can educate the public. The candidate needs to actively handle this from a PR standpoint to minimize damage to his campaign. Think 1992.
Hi Joe,...of course same question below to others.
ReplyDeleteGood feedback.
What do you think the message should be or what would you encourage republican candidates to offer so as to improve confidence in our 2008 economy?
Bubba, this is a good post.
I have very little interest in all the repetitive debate either here or elsewhere. (been there done that and at the end of the day...simply a waste of my time.)
"I do believe that politicians will try to pass ideas that give their party an edge."
ReplyDeleteSome people will say or do anything to gain a political/social/economic edge, regardless of the cost to the nation or our people, and sometimes without regard for their own particular situation, particularly in the case of someone like George Soros.
"It is very normal for our markets to pull back after a great bull market."
Which it has, aided and abetted by the not-so ethical practices that continue to exist in the money managing business.
It's time to stop that, and it's time for the Wally Worry acolytes to stop the distortions.
I am simply saying to say your piece and move on. Your voice gets lost in all the back and forth name calling.
ReplyDeleteFor a thread to continue takes two...time for me to follow my advice and move on.
Please keep adding new posts that pertain to our markets and economy.
They are interesting.
btw...I don't really think the bulk of the consumers blog that much and therefore probably don't fear a recession because a few say it is here or coming.
Where do you think we would be if the Fed had not made the last few rate cuts and had actually raised one more time?
"There are others-- bloggers like us, and columnists, and others-- who can educate the public."
ReplyDeleteAnd call out those others who constantly mis-represent and mis-educate the public. It's another example of academic and intellectual fraud on the part of any of them.
Sorry, Meb. This subject is too important to give these arrogant jerks a free pass on this subject.
As far as timing goes, if the majority of your holdings are in a cash basis, I would say your timing will be off, and it will cost you.
That's almost always the case if you're out of the market, but intend to re-enter "at some point".
"I am simply saying to say your piece and move on. Your voice gets lost in all the back and forth name calling."
ReplyDeleteWhy does Cone persist?
Is it his ego-driven personality need to always be right?
Is it an intent to purposefully drive up the numbers on his blog?
What is it?
Meb, I don't have specifics in terms of a policy program. But I think it needs to represent a departure from Bush's economic policy; incorporate what are supposed to be traditional Republican approaches such as tax relief and spending restraint; and perhaps add a couple of innovative approaches.
ReplyDeleteSince the concerns especially affect the lower middle and working classes, the candidate would need to speak to these groups somehow. Huckabee is doing that to some extent with his talk on fair trade, but this of course is controversial in Republican circles.
But from a political standpoint, the salesmanship of the program is also critical.
"...incorporate what are supposed to be traditional Republican approaches such as tax relief and spending restraint; and perhaps add a couple of innovative approaches."
ReplyDeleteQuite true.
One reason the current candidates are not doing so is fear of Democrat demagoguery on these issues.
Bubba, I was more than happy to discuss Poole's article - the whole thing. Poole states, "Will housing sector problems push the economy into recession? It is too early to tell right now, but what we can do is to examine the current situation closely and try to learn from it." If Poole is unsure whether a recession is in the future, I wonder how you have such certainty.
ReplyDeleteThere have been serious mistakes lately, 5 that Poole lists. He laments, "It is interesting, and a bit depressing, that investment professionals made four of the five mistakes." It is easy for people around here to ignore, but there are serious home price decreases in many parts of the country, South Florida, where my parents live, as an example. Three things that drove up prices there were people buying more home than they afford (prices keep going up, it makes a great investment), people financing higher percentages of the sale price, and the aggressive use of ARMs to keep initial payments low. All that combined to inflate prices and froth the market, which is deflating now.
Saying that people who are pessimistic are either stupid or lying is ridiculous. As is the idea that people who see a downturn in the economy or in home prices WANT those things to happen. Over the past 5+ years many people have not been handling their finances well - overextending themselves. Fixing that situation will be painful for many, and probably for our economy overall.
"If Poole is unsure whether a recession is in the future, I wonder how you have such certainty. "
ReplyDeleteNobody here ever said the chances of a recession happening are zero, or even close to zero.
Nobody here is saying that commenters who are being pessimistic are stupid or lying.
What HAS been said is that .....
-- The constant and repetitive drumbeat from the same people about "the coming recession" does not serve any purpose but to frighten people, and therefore undermine consumer confidence. All that's needed to establish this point is the execrable example of Paul Krugman, partisan political/pseudo economic hack par excellence, who has predicted 9 out of the last none recessions under the Bush Administration.
-- Some people obviously want to take advantage of a downturn in the economy for political reasons.
If you think that is not the case, I have oceanfront property in Nebraska that I can give you a good deal on.
-- The turmoil in the various publicly traded market issues is subject to forces far beyond those that are described in economics textbooks. Many of these forces are sinister in nature. If you think that is not the case, I have the Brooklyn Bridge available for purchase at a bargain basement price.
As for the mortgage problem, the "liquidity crisis", and the personal finance issues, ALL of these things have been out there for quite a long time for those who are paying attention.
Why has this just NOW become a cause of turmoil?
The timing is just a little too convenient for my liking.
Quote to remember (from a comment in the Krugman link above):
"Some of my friends seem to think that if they are having a tough time paying their bills because of the cost of gas that we are in a recession; it also means to them that 'the economy is in the crapper' and that Bush is the worst president in history."
What does this statement mean then, "There can be only two reasons for the responses...They are incredibly stupid - naive, or they are purposefully misrepresenting the situation"? Because some people may be pooh poohing the economy for ulterior reasons, does not mean that all bears are, and is the weakest criticism of bearish opinion.
ReplyDeletePer new home builder's inventories, when did they peak in the late 80's early 90's? http://www.census.gov/const/www/newressalesindex.html
Seasonally adjusted it was in May 1989 at 377,000. When did the recession of the early 90's start? Q4 1990, almost 18 months later. When did inventories currently peak? July 2006, 18 months later, puts us around today. The inventory of new homes is not falling because homes are selling faster, but there are less being completed.
I have been talking about problems in housing for a while. People ride the wave/bubble because there's a lot of money to be had on the way up. They put off discussion of negative consequences as long as possible, and only face them when required to.
Martin Sosnoff's most recent Forbes article - How To Partner With Recession Say there is a 50% chance of a recession in 2008, isn't it prudent to be prepared for it?
Consumer confidence should have more to do with an individual's situation than the overall economy. My disposable spending (new cars, furniture, electronics) has been relatively constant the past 5 years because my income has been stable. Over that time, many people have been overconfident, and have overspent, and it will take time for those actions to be corrected.
"....isn't it prudent to be prepared for it?"
ReplyDeleteI have yet to see anyone, anywhere, say otherwise.
"Consumer confidence should have more to do with an individual's situation than the overall economy."
And the Cassandras are consistently telling (directly and indirectly) people that their situation is bad, and they just don't realize it yet.
"What purpose can the constant repetitive negative drum beating possibly serve than to frighten people?"
ReplyDeletePeople do not like to prepare for bad situations, like recessions, housing slumps, mortgage crises, or even hurricanes, because it is usually painful or maybe just expending effort that might be worthless. Giving the impression that something won't happen discourages people from preparing for it.
Telling people there is a significant probability of a recession, having them assess how it might affect them, and then taking appropriate action is predicated on telling that a problem may be on the horizon.
What are the main lessons to be drawn from the problems in the housing sector? What are examples of "the not-so ethical practices that continue to exist in the money managing business."
for those interested - a link to Poole's speech.
ReplyDeleteAnd I'll repost the significant passage of Poole's speech again, for context:
ReplyDelete"The current financial turmoil will take awhile to play itself out. The fundamentals of our economy remain strong, however, and 2008 looks to be a year of rising growth.
Economic forecasters expect slow expansion in the first half of the year and a quickening pace in the second half. Meanwhile, if borrowers, lenders and investors can refocus on financial basics and re-emphasize critical lessons about credit and risk, the financial future can be brighter than the second half of 2007.
For that brighter future, we need to infuse our education at all levels with the lessons of 2007—old lessons to be sure but easy to understand at a very practical level from 2007 experience. With continuing effort we can expect that financial upsets such as the current one will be infrequent and milder when they do occur."
The whole speech is worthwhile, and worth the link. Note: "For that brighter future, we need to infuse our education at all levels with the lessons of 2007". To simply say that 2008 will be better than the 2nd half of 2007 is completely missing Poole's point. Highlighting the problems he listed, bringing up other problems - the general increase in leverage - speaks to the education Poole advocates. Simply saying things will get better, is just making a no-risk prediction.
ReplyDeleteHis words mean what they say, Jim.
ReplyDeleteAll of them.
Don't put something in there he never said.