Is the New York Times warming to Austrian economics?
David Streitfeld is out tonight with Grim Housing Choice: Help Today’s Owners or Future Ones. It begins by presenting a view of the problem:
The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.
I am not going to debate whether the post-tax credit drop-off in home sales was unexpected or not. Mr. Streitfeld has set the table. In the third paragraph, he surprises by saying:
As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.
Even more surprisingly, he reports that this solution emanates from one of the citadels of Austrian economics thought in America:
When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.
“Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”
Usually when the Times talks about unnamed "experts", it is referring to deficit spenders when the topic is economics, and "warmists" when the topic relates to climate change. Now all of a sudden, the unnamed experts are preaching the common sense virtues of letting markets seek their own level.
Deeper in the article are references to more mainstream experts, who support the Sanders/George Mason approach:
“We have had enough artificial support and need to let the free market do its thing,” said the housing analyst Ivy Zelman.
Michael L. Moskowitz, president of Equity Now, a direct mortgage lender that operates in New York and seven other states, also advocates letting the market fall. “Prices are still artificially high,” he said. “The government is discriminating against the renters who are able to buy at $200,000 but can’t at $250,000.”
Not present in the article is a Krugmanlike derision of Austrian/free market thinkers as "Austerians".
Moving on to a deeper level of intrigue, an article that comes out on or about Labor Day on this topic has to be considered to possibly be political. Is someone in the administration or at least Congress using Mr. Streitfeld as a stalking horse?
To support that musing, please consider the finale to the article:
Some members of the National Association of Home Builders say a new credit of $25,000 would raise demand but their chances of getting this through Congress are nonexistent.
“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?” said David Crowe, the chief economist for the home builders.
That might give the Obama administration permission to take the risk of doing nothing.
The risk of doing nothing . . . what a felicitous phrase. And from none other than the lead online story in the New York Times. Methinks the debate is, in fact, changing.
And if by some happy reason the Obama administration actually stops intervening in natural processes, perhaps it will realize how futile a poorly thought-out strategy ARRA was; how wrong it was to lean on FASB to change accounting for bank holding companies; and that the "surge" in Afghanistan was simply plumping for one group of narcotics traffickers against another. Might the president also whisper to Chairman Bernanke that a policy of non- (or at least less)intervention in the free market in money might also ultimately be in the national interest?
I know you are thinking, "Dream on DoctoRx". But what's wrong with good dreams? It's time for our long national nightmare to end.
Three months ago, who would have expected to see the Times running this particular article during the kickoff to election season?
Copyright (C) Long Lake LLC 2010
Showing posts with label New York Times. Show all posts
Showing posts with label New York Times. Show all posts
Sunday, September 5, 2010
Sunday, July 11, 2010
A Maddening Headline from the Times
The NYT demonstrates how out of touch the financial community appears to be with the headline of an article today:
Wall St. Hiring in Anticipation of an Economic Recovery
Ouch!
Not to be tendentious, but here's a bit of history review. Wall St. and its media allies led Main Street America astray with the wild overvaluation of stocks in the late 1990s and hypocritical descriptions of a New Era of investing, Dow 36,000 and all that stuff. When a mild recession came, stocks crashed, but at best only to normal valuations at the bottom. A credit bubble succeeded the stock bubble. The current result of the ensuing credit collapse is no greater employment than a decade ago and no greater industrial production than 12 years ago, despite population growth of 1% a year. In that decade, oil and gold prices have both quadrupled, and vast numbers of Americans have been suckered into "buying" houses they could not afford, and now have no equity in their homes.
The large American banks are in far worse financial shape than in the worst of the Great Depression. Even though they are publicly owned, there is no disclosure of the true value of their assets; most Americans have no idea of Level 2 and 3 (mark-to-myth) assets. Short term interest rates are lower than in the Depression, indicating even less demand for credit now than then. Stock market dividend yields are in the aggregate lower now than then, as well.
A growing and aging population needs more medical care, a young population that scores less well on math and reading tests than the generation before it needs better education, and there are few IPOs of American companies.
So why is one of the few growth industries the financial business, which mostly means selling pre-owned stocks and pre-owned or new debt?
And why, about 3 years after the domestic economy started slipping into a downturn, should the cosseted and bailed-out financial industry be hiring in advance of a true sustained economic recovery rather than in response to one?
This is an example of malinvestment. The country needs its real needs met rather than continuing down the road of over-financialization.
Copyright (C) Long Lake LLC 2010
Wall St. Hiring in Anticipation of an Economic Recovery
Ouch!
Not to be tendentious, but here's a bit of history review. Wall St. and its media allies led Main Street America astray with the wild overvaluation of stocks in the late 1990s and hypocritical descriptions of a New Era of investing, Dow 36,000 and all that stuff. When a mild recession came, stocks crashed, but at best only to normal valuations at the bottom. A credit bubble succeeded the stock bubble. The current result of the ensuing credit collapse is no greater employment than a decade ago and no greater industrial production than 12 years ago, despite population growth of 1% a year. In that decade, oil and gold prices have both quadrupled, and vast numbers of Americans have been suckered into "buying" houses they could not afford, and now have no equity in their homes.
The large American banks are in far worse financial shape than in the worst of the Great Depression. Even though they are publicly owned, there is no disclosure of the true value of their assets; most Americans have no idea of Level 2 and 3 (mark-to-myth) assets. Short term interest rates are lower than in the Depression, indicating even less demand for credit now than then. Stock market dividend yields are in the aggregate lower now than then, as well.
A growing and aging population needs more medical care, a young population that scores less well on math and reading tests than the generation before it needs better education, and there are few IPOs of American companies.
So why is one of the few growth industries the financial business, which mostly means selling pre-owned stocks and pre-owned or new debt?
And why, about 3 years after the domestic economy started slipping into a downturn, should the cosseted and bailed-out financial industry be hiring in advance of a true sustained economic recovery rather than in response to one?
This is an example of malinvestment. The country needs its real needs met rather than continuing down the road of over-financialization.
Copyright (C) Long Lake LLC 2010
Sunday, June 13, 2010
Good to See the MSM Dissing Gold Investors
The New York Times continues to demonstrate that we are not close to a 1999-type blow-off top in the gold bull market in Uncertainty Restores Glitter to an Old Refuge, Gold. Any article that says the following reflects skepticism or something stronger:
Since ancient times, gold has been deemed intrinsically valuable, holding its worth even as governments fell and currencies collapsed, while seemingly casting a spell on its owners. . .
True believers note that gold has risen in each of the last nine years, and that while the Standard & Poor’s 500-stock index is down 13 percent since 2001, gold is now worth nearly five times what it was then.
For all its newfound respectability, gold still manages to bring out the inner survivalist in its adherents. Gold bugs like Peter Schiff of the investment firm Euro Pacific Capital in Westport, Conn., envision a black market arising in the United States, with merchants refusing paper money and insisting on gold instead, while Mr. Hathaway, the gold fund manager, says the credit system has entered “the end game.”
“People probably still think I’m nuts,” Mr. Hathaway said. “But I’m not talking to myself in an isolation chamber anymore. We’ve got company now.”
Casting a spell? The message is that investors in gold or Moonies or wiccans.
The inner survivalist?
The Hathaway quote is almost certainly out of context; as written, it makes him appear to be saying that he has a few nuts who now agree with him rather than that doubts about the orderly functioning of all the assets and liabilities floating around are widespread.
The worst of the article relates to the following quote:
To be sure, gold buyers have always been motivated by fear. . .
Since ancient times, gold has been deemed intrinsically valuable . . .
This is just plain wrong.
Since ancient times, gold has been money. Diamonds and other gemstones have been "deemed intrinsically valuable"; gold has been the medium of exchange. Not only has gold always been money until the modern age, but the IMF and the U. S. Government continue to treat it as intrinsically valuable.
Owners of gold are motivated by the desire to retain purchasing power. What emotion(s) drive that desire is (are) not so simple as the author of the article alleges.
Governments like electronic money even more than paper money, as the margins on electronic money are essentially 100%. To say that people who want to own gold are the fearful is like saying that people who own umbrellas are afraid it might rain.
Actually, it does rain, and governments do inflate and default.
Gold is a financial umbrella. Many people just don't want to stay home without it.
Copyright (C) Long Lake LLC 2010
Since ancient times, gold has been deemed intrinsically valuable, holding its worth even as governments fell and currencies collapsed, while seemingly casting a spell on its owners. . .
True believers note that gold has risen in each of the last nine years, and that while the Standard & Poor’s 500-stock index is down 13 percent since 2001, gold is now worth nearly five times what it was then.
For all its newfound respectability, gold still manages to bring out the inner survivalist in its adherents. Gold bugs like Peter Schiff of the investment firm Euro Pacific Capital in Westport, Conn., envision a black market arising in the United States, with merchants refusing paper money and insisting on gold instead, while Mr. Hathaway, the gold fund manager, says the credit system has entered “the end game.”
“People probably still think I’m nuts,” Mr. Hathaway said. “But I’m not talking to myself in an isolation chamber anymore. We’ve got company now.”
Casting a spell? The message is that investors in gold or Moonies or wiccans.
The inner survivalist?
The Hathaway quote is almost certainly out of context; as written, it makes him appear to be saying that he has a few nuts who now agree with him rather than that doubts about the orderly functioning of all the assets and liabilities floating around are widespread.
The worst of the article relates to the following quote:
To be sure, gold buyers have always been motivated by fear. . .
Since ancient times, gold has been deemed intrinsically valuable . . .
This is just plain wrong.
Since ancient times, gold has been money. Diamonds and other gemstones have been "deemed intrinsically valuable"; gold has been the medium of exchange. Not only has gold always been money until the modern age, but the IMF and the U. S. Government continue to treat it as intrinsically valuable.
Owners of gold are motivated by the desire to retain purchasing power. What emotion(s) drive that desire is (are) not so simple as the author of the article alleges.
Governments like electronic money even more than paper money, as the margins on electronic money are essentially 100%. To say that people who want to own gold are the fearful is like saying that people who own umbrellas are afraid it might rain.
Actually, it does rain, and governments do inflate and default.
Gold is a financial umbrella. Many people just don't want to stay home without it.
Copyright (C) Long Lake LLC 2010
Wednesday, May 19, 2010
What Is Going on Politically at the New York Times?
Are we back to the Clinton-scourging Times?
First, they break the story that Connecticut AG and lib fave Richard Blumenthal lied about serving in Viet Nam rather than during the war. Now they are referring to mre experts in attacking their big fave Mr. Barack Obama himself in Scientists Fault Response of Government to Oil Spill in Gulf:
Tensions between the Obama administration and the scientific community over the gulf oil spill are escalating, with prominent oceanographers accusing the government of failing to conduct an adequate scientific analysis of the damage and of allowing BP to obscure the spill’s true scope.
Putting the Obama name rather than no name or that of a lower-level person in the first paragraph does not happen accidentally at the lead story on the Web version of the Times. Is someone at the newspaper of record responding to polls? Will someone at the Times decry the libs and the president taking the simple name "Tea Party" and turning it into the Tea-Bag Party and then from the unobjectionable tea bag, which I use to create a hot beverage now and then and for which I and hundreds of millions or even billions of people use only for that purpose, tarring members of this party with a fetishistic/pornographic use of said implement? Will the poobahs attack Woody Allen for supporting a dictatorship of the One?
Strange things may be happening as more and more Americans fall out of enchantment with the unknown they voted into power in the strange environment of the fall of 2008.
Copyright (C) Long Lake LLC 2010
First, they break the story that Connecticut AG and lib fave Richard Blumenthal lied about serving in Viet Nam rather than during the war. Now they are referring to mre experts in attacking their big fave Mr. Barack Obama himself in Scientists Fault Response of Government to Oil Spill in Gulf:
Tensions between the Obama administration and the scientific community over the gulf oil spill are escalating, with prominent oceanographers accusing the government of failing to conduct an adequate scientific analysis of the damage and of allowing BP to obscure the spill’s true scope.
Putting the Obama name rather than no name or that of a lower-level person in the first paragraph does not happen accidentally at the lead story on the Web version of the Times. Is someone at the newspaper of record responding to polls? Will someone at the Times decry the libs and the president taking the simple name "Tea Party" and turning it into the Tea-Bag Party and then from the unobjectionable tea bag, which I use to create a hot beverage now and then and for which I and hundreds of millions or even billions of people use only for that purpose, tarring members of this party with a fetishistic/pornographic use of said implement? Will the poobahs attack Woody Allen for supporting a dictatorship of the One?
Strange things may be happening as more and more Americans fall out of enchantment with the unknown they voted into power in the strange environment of the fall of 2008.
Copyright (C) Long Lake LLC 2010
Thursday, January 21, 2010
On Massachusetts Senate Race, New York Times Leaves Earth, Aims for DS10
Out of the many commentaries I have seen on the Massachusetts Senate upset and the national political scene, the one that is the most newsworthy is the Times' editorial today, The Massachusetts Election. Read it and wonder:
There are many theories about the import of Scott Brown’s upset victory in the race for Edward Kennedy’s former Senate seat. To our minds, it is not remotely a verdict on Mr. Obama’s presidency, nor does it amount to a national referendum on health care reform . . .
You can stop reading there. Not remotely??? Not just a bit? While the Times bans cigarettes, maybe they are smoking more potent stuff there. Does the Times not even know that Brown signed his name "Brown 41", meaning that he would be the 41st Republican vote in the Senate?
If you read on, you will find irrelevancies and inaccurate statements such as:
Mr. Obama has done many important things on the environment, and in foreign affairs, and in preventing the nation’s banking system from collapsing in the face of a financial crisis he inherited. . .
Mr. Obama was right to press for health care reform. But he spent too much time talking to reluctant Democrats and Republicans who never had the slightest intention of supporting him.
Scott Brown did not run against Martha Obama Coakley on the environment. He did run against Barack Obama on waterboarding (Brown is for) and treating the Pantybomber as a terrorist rather than a criminal suspect, thus nationalizing that aspect of foreign affairs/national security. Brown also argued against the president's recently-proposed bank tax. As an aside, the bulk of the bank bailouts occurred before the inauguration, so the Times has it wrong when it credits this president for saving the system.
Re the second paragraph, given that there are 58 Democrats in the Senate plus one socialist and one independent, how can the Times argue that he spent too much time talking with reluctant Democrats? The truth is that major social legislation traditionally passes with bipartisan support and generally with heavy majorities.
In other words, the Times is aiming for an outpost beyond Deep Space Nine.
A much better comparison than the Times' head-in-sand delusional conclusion is that Ronald Reagan just beat Walter Mondale again in Massachusetts. Reagan won Massachusetts by 3% in 1984; Brown by 5% Tuesday. It is indeed winter in America for the Democrats after this loss. The idiocy of the Times in ignoring numerous voter interviews and polls that the swing voters wanted to send a message to Washington bodes poorly both for its future and for the ability of the Democrats to quickly and decisively get real.
Unfortunately, an unreformed Republican party that is licking its chops at big gains due primarily to the incompetence of the Democrats is bad for the country.
Will the country take up tea drinking and get some real reform such as shrinking the debt culture? We have driven cigarette smoking down. We can do the same with credit expansion. Not that the Times would understand that the tea partiers are descendents of the Perot movement. For them it's all liberalism all the time, infused with a New York/Big Finance tilt.
With the death of the Kennedy seat, one of the last liberal bastions to fall is likely to be the New York Times. As a Yankee TV announcer would say, going, going, gone. Perhaps sooner rather than later. Not to the point of losing the name, but the Times is moving quickly toward irrelevancy. Deep Space Nine is long off the air. Its moving toward Deep Space 10, which will not be a surprise hit, from the looks of this editorial.
Copyright (C) Long Lake LLC 2010
There are many theories about the import of Scott Brown’s upset victory in the race for Edward Kennedy’s former Senate seat. To our minds, it is not remotely a verdict on Mr. Obama’s presidency, nor does it amount to a national referendum on health care reform . . .
You can stop reading there. Not remotely??? Not just a bit? While the Times bans cigarettes, maybe they are smoking more potent stuff there. Does the Times not even know that Brown signed his name "Brown 41", meaning that he would be the 41st Republican vote in the Senate?
If you read on, you will find irrelevancies and inaccurate statements such as:
Mr. Obama has done many important things on the environment, and in foreign affairs, and in preventing the nation’s banking system from collapsing in the face of a financial crisis he inherited. . .
Mr. Obama was right to press for health care reform. But he spent too much time talking to reluctant Democrats and Republicans who never had the slightest intention of supporting him.
Scott Brown did not run against Martha Obama Coakley on the environment. He did run against Barack Obama on waterboarding (Brown is for) and treating the Pantybomber as a terrorist rather than a criminal suspect, thus nationalizing that aspect of foreign affairs/national security. Brown also argued against the president's recently-proposed bank tax. As an aside, the bulk of the bank bailouts occurred before the inauguration, so the Times has it wrong when it credits this president for saving the system.
Re the second paragraph, given that there are 58 Democrats in the Senate plus one socialist and one independent, how can the Times argue that he spent too much time talking with reluctant Democrats? The truth is that major social legislation traditionally passes with bipartisan support and generally with heavy majorities.
In other words, the Times is aiming for an outpost beyond Deep Space Nine.
A much better comparison than the Times' head-in-sand delusional conclusion is that Ronald Reagan just beat Walter Mondale again in Massachusetts. Reagan won Massachusetts by 3% in 1984; Brown by 5% Tuesday. It is indeed winter in America for the Democrats after this loss. The idiocy of the Times in ignoring numerous voter interviews and polls that the swing voters wanted to send a message to Washington bodes poorly both for its future and for the ability of the Democrats to quickly and decisively get real.
Unfortunately, an unreformed Republican party that is licking its chops at big gains due primarily to the incompetence of the Democrats is bad for the country.
Will the country take up tea drinking and get some real reform such as shrinking the debt culture? We have driven cigarette smoking down. We can do the same with credit expansion. Not that the Times would understand that the tea partiers are descendents of the Perot movement. For them it's all liberalism all the time, infused with a New York/Big Finance tilt.
With the death of the Kennedy seat, one of the last liberal bastions to fall is likely to be the New York Times. As a Yankee TV announcer would say, going, going, gone. Perhaps sooner rather than later. Not to the point of losing the name, but the Times is moving quickly toward irrelevancy. Deep Space Nine is long off the air. Its moving toward Deep Space 10, which will not be a surprise hit, from the looks of this editorial.
Copyright (C) Long Lake LLC 2010
Tuesday, December 15, 2009
Mainstream Thinking as Contrary Indicators: Unemployment and Gold
In its current above-the fold online article Poll Reveals Depth and Trauma of Joblessness in U.S., the New York Times may be ringing a bell for the (sort of) end of the jobless recovery and the (sort of) beginning of the "jobful" recovery. To date, there has been much more diminution of firings/lay-offs than there has been new hiring. Basic economic knowledge says that can only take business so far (and it takes it not very far). A year ago, the MSM was full of pictures of people in bread lines from the 1930s. Now, two years after the Great Recession began with a whimper, it is a bit late for the Times to run this sort of story and have anyone think that it has any predictive value (not that there is anything wrong with the content of the story). Let the hiring begin!
The yang to the above yin is that I believe that small business is going to "under-hire" in this expansion because of such factors as healthcare reform mandates, assuming that a bill passes, along with significant state and Federal marginal income tax increases. Having been a small business owner at one point, happily with substantial ability to earn more or less income by working harder or less hard, I can verify that the current level and trend of marginal tax rates had a real effect on my work effort, expansion plans, etc. Thus I suspect there will be a bit of a Potemkin quality to the Dow and S&P 500 indices, wherein the companies comprising those indices will tend to have better business results than average for the economy.
I personally exited the stock market at Dow 13,000, 28 months ago. I resumed stock investing in a modest way this summer at Dow 8500 or so. But my heart was with gold, as regular readers know. Strong companies that have not been directly involved with credit creation look to be sensible investments on a multi-year basis, though in the context of what I believe to be an overvalued stock market on an asset and dividend-paying basis. (Reported earnings don't matter all that much, FYI, when assessing fair value to a minority investor in a publicly-owned company.)
That brings us to gold. Randall Forsyth has a poorly-argued screed against gold in Barron's online today titled Nostalgia for the Gold Standard is Misplaced. He gets it wrong early on by saying:
The fundamental force behind the surge in gold is, of course, the economic crisis from which we may (or may not) be emerging.
Not so. Gold started rising after 9/11 and briefly quadrupled from its 2001 low in early 2008. It then stagnated/digested its gains until as late as 2 months ago, when it broke out not due to the crisis but due to the zero interest rate recovery. Too much credit chasing too few real goods and services. In other words, financial speculation is back, as the Fed and the Feds have more or less successfully reflated without an intervening general deflation of the overall price level.
Forsyth concludes:
Impassioned adherents of the gold standard gloss over the inability to counter deflation. Modern democracies simply will not tolerate the Dickensian unemployment and suffering brought on by debt deflations, however, which is why the Federal Reserve was created during the Progressive Era that also had previously brought anti-trust laws and the beginnings of other government regulation of business.
What we gold investors say is that there is nothing inherent in modern democracy that requires excessive credit creation in the first place. Without that debt creation, there cannot be a debt deflation; and let us consider all the price inflation that has occurred since indexing of tax rates for inflation brought the Federal government larger and larger deficits (inter alia) in the early Reagan years and coincided with more and more debt/income in the private sector. In other words, modern policy is to print money. Helicopter Ben, remember? Keynesians still believe in the price illusion, strange though it is for this blog's sophisticated readers to believe. Give a worker a raise of 5% and have him/her pay 5-7% more for what he/she buys is supposed to make the worker happier than providing no raise and having what he/she buys drop 2% in price. Supposedly this deflation must be "fought" by printing money. But deflation in price is good for consumers. When the MSM brings out debt deflations as a straw man, hold onto your wallets. Inflation is in the works.
There are many, many good points to be made against investing in gold. As someone who came into his first investable money in 1979, I stayed away from gold until 2001. My focus was on growth and disinflation; stocks only till 1997-8, then stocks and bonds.
Putting the Times unemployment article together with the Barron's anti-gold article as representative of an important segment of Establishment New York thinking, here's one scenario to consider:
The economy picks up speed just as it did in 1975-6. Federal and Fed policy are pro-cyclical, as they were then. The Fed does its usual thing and does not raise rates until the unemployment rate has declined a good bit. Price increases pick up steam, and the same inflationary psychology not only of the Carter years but of 1936 return. P/E ratios for stocks fall; long-term interest rates do not fall; and investors go with the inflationary hedges based on "fundamentals" and strong, self-fulfilling chart patterns.
A final bit of history. Gold went from $35/ounce to over $700/ounce in ten years, from 1969-79. It then lost almost all its value vis-a-vis cash or long-term T-bonds in the intervening 20+ years. Timing is everything with this asset.
The NASDAQ index (IXIC) went up about 15 times from its October 1990 recession low to its March 2000 high.
If gold were to have a lesser, ten-fold move from its 2001 low to an upcoming high, that would take it to about $2500. This amount happens to roughly equal its inflation-adjusted high of 1980. But in a broader sense, since gold appears to be in some rough equilibrium with other financial assets, over many years, I suspect that it will rise roughly in line with the general price level (or fall less than any unexpected general decline in the price level).
In a world where "cash is trash" in that we know that even forgetting about taxes on interest, government policy is for inflation rates to exceed bank rates on cash, one can hold gold and forgo essentially no interest income, and one knows that Establishment thinking notwithstanding, gold is likely to be a monetary metal longer than Barron's is likely to have any influence.
So for me, having adequate gold reserves, some physical but mostly in ETFs (GTU preferably), provides speculative upside with a long-term buy-and-hold comfort level that I currently lack for the general stock market, cash, Treasuries, and real estate.
Copyright (C) Long Lake LLC 2009
The yang to the above yin is that I believe that small business is going to "under-hire" in this expansion because of such factors as healthcare reform mandates, assuming that a bill passes, along with significant state and Federal marginal income tax increases. Having been a small business owner at one point, happily with substantial ability to earn more or less income by working harder or less hard, I can verify that the current level and trend of marginal tax rates had a real effect on my work effort, expansion plans, etc. Thus I suspect there will be a bit of a Potemkin quality to the Dow and S&P 500 indices, wherein the companies comprising those indices will tend to have better business results than average for the economy.
I personally exited the stock market at Dow 13,000, 28 months ago. I resumed stock investing in a modest way this summer at Dow 8500 or so. But my heart was with gold, as regular readers know. Strong companies that have not been directly involved with credit creation look to be sensible investments on a multi-year basis, though in the context of what I believe to be an overvalued stock market on an asset and dividend-paying basis. (Reported earnings don't matter all that much, FYI, when assessing fair value to a minority investor in a publicly-owned company.)
That brings us to gold. Randall Forsyth has a poorly-argued screed against gold in Barron's online today titled Nostalgia for the Gold Standard is Misplaced. He gets it wrong early on by saying:
The fundamental force behind the surge in gold is, of course, the economic crisis from which we may (or may not) be emerging.
Not so. Gold started rising after 9/11 and briefly quadrupled from its 2001 low in early 2008. It then stagnated/digested its gains until as late as 2 months ago, when it broke out not due to the crisis but due to the zero interest rate recovery. Too much credit chasing too few real goods and services. In other words, financial speculation is back, as the Fed and the Feds have more or less successfully reflated without an intervening general deflation of the overall price level.
Forsyth concludes:
Impassioned adherents of the gold standard gloss over the inability to counter deflation. Modern democracies simply will not tolerate the Dickensian unemployment and suffering brought on by debt deflations, however, which is why the Federal Reserve was created during the Progressive Era that also had previously brought anti-trust laws and the beginnings of other government regulation of business.
What we gold investors say is that there is nothing inherent in modern democracy that requires excessive credit creation in the first place. Without that debt creation, there cannot be a debt deflation; and let us consider all the price inflation that has occurred since indexing of tax rates for inflation brought the Federal government larger and larger deficits (inter alia) in the early Reagan years and coincided with more and more debt/income in the private sector. In other words, modern policy is to print money. Helicopter Ben, remember? Keynesians still believe in the price illusion, strange though it is for this blog's sophisticated readers to believe. Give a worker a raise of 5% and have him/her pay 5-7% more for what he/she buys is supposed to make the worker happier than providing no raise and having what he/she buys drop 2% in price. Supposedly this deflation must be "fought" by printing money. But deflation in price is good for consumers. When the MSM brings out debt deflations as a straw man, hold onto your wallets. Inflation is in the works.
There are many, many good points to be made against investing in gold. As someone who came into his first investable money in 1979, I stayed away from gold until 2001. My focus was on growth and disinflation; stocks only till 1997-8, then stocks and bonds.
Putting the Times unemployment article together with the Barron's anti-gold article as representative of an important segment of Establishment New York thinking, here's one scenario to consider:
The economy picks up speed just as it did in 1975-6. Federal and Fed policy are pro-cyclical, as they were then. The Fed does its usual thing and does not raise rates until the unemployment rate has declined a good bit. Price increases pick up steam, and the same inflationary psychology not only of the Carter years but of 1936 return. P/E ratios for stocks fall; long-term interest rates do not fall; and investors go with the inflationary hedges based on "fundamentals" and strong, self-fulfilling chart patterns.
A final bit of history. Gold went from $35/ounce to over $700/ounce in ten years, from 1969-79. It then lost almost all its value vis-a-vis cash or long-term T-bonds in the intervening 20+ years. Timing is everything with this asset.
The NASDAQ index (IXIC) went up about 15 times from its October 1990 recession low to its March 2000 high.
If gold were to have a lesser, ten-fold move from its 2001 low to an upcoming high, that would take it to about $2500. This amount happens to roughly equal its inflation-adjusted high of 1980. But in a broader sense, since gold appears to be in some rough equilibrium with other financial assets, over many years, I suspect that it will rise roughly in line with the general price level (or fall less than any unexpected general decline in the price level).
In a world where "cash is trash" in that we know that even forgetting about taxes on interest, government policy is for inflation rates to exceed bank rates on cash, one can hold gold and forgo essentially no interest income, and one knows that Establishment thinking notwithstanding, gold is likely to be a monetary metal longer than Barron's is likely to have any influence.
So for me, having adequate gold reserves, some physical but mostly in ETFs (GTU preferably), provides speculative upside with a long-term buy-and-hold comfort level that I currently lack for the general stock market, cash, Treasuries, and real estate.
Copyright (C) Long Lake LLC 2009
Wednesday, September 2, 2009
How to Read the Business News
In Traders Batter Financial Shares (later renamed Investors Lose Appetite for Financial Shares), the New York Times misleads as much as it informs. Here are some parts of today's market report, with the Times language in italics and my rewrite in plain text in the following paragraph.
For weeks, pessimistic voices on Wall Street have been warning that stock prices were becoming too expensive. On Tuesday, investors started to listen, and sell.
For months, realists had been decrying the speculative activity in financial stocks. In recent weeks, what many increasingly said were lunatic moves in essentially insolvent names such as AIG had dominated trading.
At least for one day Tuesday, speculators took profits and/or short sellers stepped in to stop the one-way moves to the upside in many names.
For Wall Street, it was a third consecutive day in the red and its worst daily performance since mid-August, leaving some investors to wonder whether a summertime rally was beginning to fade.
Its third consecutive down day left the S&P 500 average a little more than 3% below its high of August 27, virtually unchanged from 1 month earlier, but about 13% higher than where it stood when summer began.
It was an odd day for the markets to lose their footing: a new report on the manufacturing sector showed that American factories were growing for the first time in more than a year and a half. And a real estate group reported that pending home sales had surged to their highest levels on record as buyers returned to the housing market.
The sell-off fit a common market pattern of selling on the good news, which today was centered in the manufacturing sector. The positive rise in the ISM Manufacturing Index may have been less impressive than the headline number, as prices paid for inputs into the manufacturing process rose at a faster pace than did prices received, suggesting shrinking profit margins. Good news in the real estate sector may have been tempered by the analysis that the first-time home buyer credit of $8000 may be costing over $43,000 in taxpayer money for each such purchase, a questionable value for the bulk of taxpayers who already own a home or may be happily renting.
President Obama hailed the manufacturing numbers as a sign the economy was pivoting, saying that things were “heading in the right direction, and that the steps we’ve taken to bring our economy back from the brink are working.”
The President tried to claim credit for the good news, even as jobs continue to be lost, his back-ended stimulus has yet to really take effect except for a reprise of President Bush's three tax cuts, and his party steadfastly refused to give any credit to Mr. Bush's tax cuts in 2001 in keeping that year's recession short and mild.
Analysts say the global economy is stabilizing and the big banks are no longer poised to collapse, but many are still expecting a market correction as autumn approaches.
Delete, as what unnamed analysts say is not news.
“The market is failing to rally on positive economic news,” said Anthony Conroy, head equity trader at BNY ConvergEx Group, who added that light trading volumes contributed to the rocky moves on Tuesday. “We’re seeing a change in the market direction that is breeding nervousness, and that nervousness is breeding volatility.”
This sort of substantial sell-off on light volume and no significant negative news is grist for the mill of professional traders, who will say anything to explain away and try to hide the fact that they make money when people trade, especially when the traders are the public (otherwise known as pigeons).
Copyright (C) Long Lake LLC 2009
For weeks, pessimistic voices on Wall Street have been warning that stock prices were becoming too expensive. On Tuesday, investors started to listen, and sell.
For months, realists had been decrying the speculative activity in financial stocks. In recent weeks, what many increasingly said were lunatic moves in essentially insolvent names such as AIG had dominated trading.
At least for one day Tuesday, speculators took profits and/or short sellers stepped in to stop the one-way moves to the upside in many names.
For Wall Street, it was a third consecutive day in the red and its worst daily performance since mid-August, leaving some investors to wonder whether a summertime rally was beginning to fade.
Its third consecutive down day left the S&P 500 average a little more than 3% below its high of August 27, virtually unchanged from 1 month earlier, but about 13% higher than where it stood when summer began.
It was an odd day for the markets to lose their footing: a new report on the manufacturing sector showed that American factories were growing for the first time in more than a year and a half. And a real estate group reported that pending home sales had surged to their highest levels on record as buyers returned to the housing market.
The sell-off fit a common market pattern of selling on the good news, which today was centered in the manufacturing sector. The positive rise in the ISM Manufacturing Index may have been less impressive than the headline number, as prices paid for inputs into the manufacturing process rose at a faster pace than did prices received, suggesting shrinking profit margins. Good news in the real estate sector may have been tempered by the analysis that the first-time home buyer credit of $8000 may be costing over $43,000 in taxpayer money for each such purchase, a questionable value for the bulk of taxpayers who already own a home or may be happily renting.
President Obama hailed the manufacturing numbers as a sign the economy was pivoting, saying that things were “heading in the right direction, and that the steps we’ve taken to bring our economy back from the brink are working.”
The President tried to claim credit for the good news, even as jobs continue to be lost, his back-ended stimulus has yet to really take effect except for a reprise of President Bush's three tax cuts, and his party steadfastly refused to give any credit to Mr. Bush's tax cuts in 2001 in keeping that year's recession short and mild.
Analysts say the global economy is stabilizing and the big banks are no longer poised to collapse, but many are still expecting a market correction as autumn approaches.
Delete, as what unnamed analysts say is not news.
“The market is failing to rally on positive economic news,” said Anthony Conroy, head equity trader at BNY ConvergEx Group, who added that light trading volumes contributed to the rocky moves on Tuesday. “We’re seeing a change in the market direction that is breeding nervousness, and that nervousness is breeding volatility.”
This sort of substantial sell-off on light volume and no significant negative news is grist for the mill of professional traders, who will say anything to explain away and try to hide the fact that they make money when people trade, especially when the traders are the public (otherwise known as pigeons).
Copyright (C) Long Lake LLC 2009
Sunday, August 30, 2009
The NYT May Be Turning Against the President on Afghanistan
Sometimes small changes herald big ones. The New York Times politely but clearly is exploring a stand of skepticism about the President's policies on Afghanistan. In Seven Days That Shook Afghanistan found in the widely-read News of the Week in Review section of the Sunday edition, the heavyweight journalist Dexter Filkins reports on military problems but especially highlights the apparently widespread voting fraud in the recent first round of the election for President. The article concludes by quoting the leading contender to President Karzai, former Foreign Minister (and ophthalmologist) Abdullah Abdullah:
“If people decide that we could not give them anything through the democratic process, then the insurgency will be strengthened,” Mr. Abdullah said. “And then the United States will need to bring more troops and more resources here — and for what?”
That’s a question that President Obama, General McChrystal and, ultimately, the American people, will have to decide.
There is daylight between the Times and Barack Obama on Afghanistan.
The Times appears to have carefully begun to favor the Viet Nam analogy. The operative terminology is the Times' choice to highlight Abdullah's question: "And for what?"
There is no rush to change asset allocations, but investing in a guns and butter economy is very different from investing in a butter-only one.
Copyright (C) Long Lake LLC 2009
“If people decide that we could not give them anything through the democratic process, then the insurgency will be strengthened,” Mr. Abdullah said. “And then the United States will need to bring more troops and more resources here — and for what?”
That’s a question that President Obama, General McChrystal and, ultimately, the American people, will have to decide.
There is daylight between the Times and Barack Obama on Afghanistan.
The Times appears to have carefully begun to favor the Viet Nam analogy. The operative terminology is the Times' choice to highlight Abdullah's question: "And for what?"
There is no rush to change asset allocations, but investing in a guns and butter economy is very different from investing in a butter-only one.
Copyright (C) Long Lake LLC 2009
Wednesday, May 6, 2009
Pangloss at the Times: There Are Plenty of Jobs, But They Are Just Not Plentiful Enough!
The mainstream media has outdone itself with lipsticking the pig with the NY Times article, Bright Spot in Downturn: New Hiring Is Robust. Sounds promising, eh? Let's see what the Times actually reports:
So, while 4.8 million workers were laid off or chose to leave their jobs in February, employers across the country hired 4.3 million workers that month, according to the Bureau of Labor Statistics.
DoctoRx here: Simply astounding. News you can use. Or something.
“The best thing you can say about these numbers is it speaks to the dynamism of the U.S. economy, and the net negative number that we all traffic in masks that,” said Robert J. Barbera, chief economist at ITG, a research and trading firm. “Ninety out of 100 people who know the number — 650,000 were lost in February — think that means no one was hired and 650,000 were fired.”
DoctoRx here. Did Dr. Barbera actually use the term "dynamism" to describe the U.S. economy??? I would think that "dynamiting" is more appropriate. Back to the whitewash of the greatest economic banana in quite some time:
Zachary Schaefer has hired 72 people since February for the Culver’s hamburger and frozen custard restaurant that he and several partners just opened in Surprise, Ariz.
“The amount of applicants who are qualified is definitely up,” he said. “Whereas before we were counting on a lot of high school applicants, now there are a lot more middle-age people applying.”
Eddie Hamm, a former construction worker, was unemployed for five months when he drove by the site where the Culver’s was under construction. Mr. Hamm, 29, applied for a job there, and now he’s a “fry guy.”
“I’m just happy I got hired — I didn’t want to stay home, not doing anything,” he said, hardly complaining that he is earning half the $15 an hour he made in construction. “I don’t look at it like I’m making $7.50. I look at it — I’m having a job in a down time, and it’s a job where I can move up.”
Economists and job counselors advise the unemployed that there are definitely jobs to be had, even if there aren’t nearly enough to go around. With 13.2 million people out of work, there are 4 1/3 unemployed Americans for every job opening.
DoctoRx here. Please reread that last paragraph: there are definitely jobs to be had, it's just that there aren't enough of them! I ask you: how can the Times possibly say that hiring is currently "robust"? Either they have gone insane over there, or they are spinning so furiously to put people in a good mood, especially those who glance at the headline without bothering to read the article, that they have gone way over the top. (I favor the latter option.)
In the meantime, if you want to get an opinion from one of the truly leading, sane, calm experts on financial crises, read the Bloomberg.com article on Dr. Ken Rogoff's views. He predicts that the economy will be so weak that another round of "stimulus", AKA deficit spending, AKA printing money, will be undertaken.
Copyright (C) Long Lake LLC 2009
So, while 4.8 million workers were laid off or chose to leave their jobs in February, employers across the country hired 4.3 million workers that month, according to the Bureau of Labor Statistics.
DoctoRx here: Simply astounding. News you can use. Or something.
“The best thing you can say about these numbers is it speaks to the dynamism of the U.S. economy, and the net negative number that we all traffic in masks that,” said Robert J. Barbera, chief economist at ITG, a research and trading firm. “Ninety out of 100 people who know the number — 650,000 were lost in February — think that means no one was hired and 650,000 were fired.”
DoctoRx here. Did Dr. Barbera actually use the term "dynamism" to describe the U.S. economy??? I would think that "dynamiting" is more appropriate. Back to the whitewash of the greatest economic banana in quite some time:
Zachary Schaefer has hired 72 people since February for the Culver’s hamburger and frozen custard restaurant that he and several partners just opened in Surprise, Ariz.
“The amount of applicants who are qualified is definitely up,” he said. “Whereas before we were counting on a lot of high school applicants, now there are a lot more middle-age people applying.”
Eddie Hamm, a former construction worker, was unemployed for five months when he drove by the site where the Culver’s was under construction. Mr. Hamm, 29, applied for a job there, and now he’s a “fry guy.”
“I’m just happy I got hired — I didn’t want to stay home, not doing anything,” he said, hardly complaining that he is earning half the $15 an hour he made in construction. “I don’t look at it like I’m making $7.50. I look at it — I’m having a job in a down time, and it’s a job where I can move up.”
Economists and job counselors advise the unemployed that there are definitely jobs to be had, even if there aren’t nearly enough to go around. With 13.2 million people out of work, there are 4 1/3 unemployed Americans for every job opening.
DoctoRx here. Please reread that last paragraph: there are definitely jobs to be had, it's just that there aren't enough of them! I ask you: how can the Times possibly say that hiring is currently "robust"? Either they have gone insane over there, or they are spinning so furiously to put people in a good mood, especially those who glance at the headline without bothering to read the article, that they have gone way over the top. (I favor the latter option.)
In the meantime, if you want to get an opinion from one of the truly leading, sane, calm experts on financial crises, read the Bloomberg.com article on Dr. Ken Rogoff's views. He predicts that the economy will be so weak that another round of "stimulus", AKA deficit spending, AKA printing money, will be undertaken.
Copyright (C) Long Lake LLC 2009
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