Market Today

[RecycleMichael]

I hate to bet on the failure of the market, but I'm in for a 12 pack (that way I can buy a case, and drink the other 12 myself to make me feel better). 

12 oz!

We have a bet.

12 bottles of Marshall's it is.

[swake]

Catch 22 at this point.  If he raises interest rates it will further stagnate a housing market that is over 25% in the dumpster, and any growing businesses struggling for financing.  

The picture is becoming far more clear now.  Everything focuses back on housing and the bubble generated.  There is a huge amount of capital locked up (and on fire).  

If he RAISES interest rates? pancakes are you talking about? Why on Earth would that even be a consideration?


The drop in housing was expected, and if it doesn't pick up in the next 60 days it's easy to fix. Just reinstitute the buyers tax credit. It's not like there are no options here.

[nathanm]

Catch 22 at this point.  If he raises interest rates it will further stagnate a housing market that is over 25% in the dumpster, and any growing businesses struggling for financing.  

That makes no sense. You don't raise interest rates to head off deflation. You either create money (in this case, you'd want to do things like buy MBS, corporate bonds, or other instruments that stimulate demand) or a credible threat of future inflation.

That's what the Fed can do anyway. The government itself could buy more stuff (more stimulus, essentially), reduce working hours of individuals so as to cause employers to employ more people or pay existing employees more in overtime, decide we are indeed going to send a manned mission to Mars before 2020, or start another war, among other things that would create demand.

The point being that someone has to do something, otherwise we're going to continue down the road we're on, the one that leads to Mordor.

[Gaspar]

If we keep spending at this rate, Japan and China will stop buying our bonds.  They don't even need to stop.  If they slow down, we're screwed. We have already started to print money to make up for spending.  China is facing a property bubble and it's own debt, and I don't think we even need to address Japan's problems.

Deflation can be cured by printing, but we have pending decreases in the value of the dollar based on all of the wonderful factors that make up our "new" economy, and increased federal spending, we become more reliant on foreign debt.  Pimping our economy to foreign investors, gives them the right to "B!tch-slap" us at any time, and puts us at the mercy of their economic decision making.

You are correct, demand is down, and if that were the only factor, some delicate adjustment in volume would work.  I do not subscribe to the "Stimulus" thing because we do not live in a closed loop.  When the government spends it is borrowing from you and me, or it is borrowing from other countries and stealing the interest from you and me.

Ultimately you have to pay the piper.

[we vs us]

Deflation can be cured by printing, but we have pending decreases in the value of the dollar based on all of the wonderful factors that make up our "new" economy, and increased federal spending, we become more reliant on foreign debt.  Pimping our economy to foreign investors, gives them the right to "B!tch-slap" us at any time, and puts us at the mercy of their economic decision making.

There's very little attention paid to their reliance on us.  As is everything in supply/demand relationships, they need us as much as we need them.  We're providing them with one of the most stable and lucrative investments in the world (yes, still), as well as an incredibly rich and mature market into which they can dump their products. 

I'm not condoning the structure of the relationship, and don't believe it's sustainable, though don't think it will end quite as catastrophically as others seem to.  Mostly because the Chinese still need someone to offer them good debt to buy, and a market that will help them sustain the growth that their political system has become reliant on.

I think, too, that the recession has encouraged us to do some of the right things to rebalance that relationship:  address good debt vs bad debt (on public, private, corporate, and individual bases) rethink our obsession with consumer goods . . . and the mistake of thinking of our houses as the biggest consumer good of them all. 

One of the things we're losing in the "reduce the deficit at all costs" conversation is that, much like the migration from fossil fuels to renewables, we're not gonna get there tomorrow . . . or with catastrophic cuts in anything. 

[Townsend]

Index   Last Change
I:DJI  10067.4 +26.95 +0.27%
INX  1055.93 +4.06 +0.39%
SPX.X  1056 +4.13 +0.39%

[swake]

The wails about our debt load are another red herring. Our debt as a percentage of GDP really isn't problematic, it's really not even close.

Our debt load is only 47th in the world, it's only 2/3 the size of Germany's or Canada's for instance, and they aren't in trouble either. Our debt load is less than half of countries with real issues like Greece. We would have to rack up another 5-6 Trillion in debt with no growth before we are in trouble.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html

[nathanm]

If we keep spending at this rate, Japan and China will stop buying our bonds.  They don't even need to stop.  If they slow down, we're screwed. We have already started to print money to make up for spending.  China is facing a property bubble and it's own debt, and I don't think we even need to address Japan's problems.

Deflation can be cured by printing, but we have pending decreases in the value of the dollar based on all of the wonderful factors that make up our "new" economy, and increased federal spending, we become more reliant on foreign debt.  Pimping our economy to foreign investors, gives them the right to "B!tch-slap" us at any time, and puts us at the mercy of their economic decision making.

You are correct, demand is down, and if that were the only factor, some delicate adjustment in volume would work.  I do not subscribe to the "Stimulus" thing because we do not live in a closed loop.  When the government spends it is borrowing from you and me, or it is borrowing from other countries and stealing the interest from you and me.

Generally, stimulus pays for itself through GDP growth, and government debt is paid back with cheaper dollars. In the economic environment we have today, people are happy to hold bonds that are nearly certain to lose value, but are certain to only lose a little bit if they do. Otherwise, demand for Treasuries wouldn't be so high right now and overall interest rates wouldn't be so low. The invisible bond vigilantes are nowhere to be seen. (sub-4.5% 30 year fixed mortgages are a pretty good indicator of that one)

I agree that we can't keep using stimulus forever, but I don't think fiddling while Rome burns is a viable option, either. It's a matter of doing thing thing that's less bad, as there aren't many good options out there at the moment.

[Rico]

posted by nathanm
"or start another war, among other things that would create demand."

See, Bush, had a plan for the economy.

Worked pretty well for a while.... Made he and Mister Chaney a truckload of cash.
Now George enjoys his wealth... in a house next door to Ted Nugent.

The American Dream.

[Hawkins]

The FAZ and FAS briefly intersected today. But then the market sprung back up.

Its seems the battle-line is drawn at Dow 10,000.

Sooner or later this year, I predict, the battle will be lost. Dow at 8,000 by December is my prediction.

Inflated home prices and easy credit are gone. What is going to get us back up in the short term? This recession was never allowed to complete its cycle the first time around. Hence, the double-dip we are entering into now.

No more bail outs, no more artificial bubbles. Lets just let it crash and pull ourselves up by our bootstraps and start over. After the double-dip, Dow should get back to 14,000 in about 10 years if this country gets its act together.

[guido911]

Sooner or later this year, I predict, the battle will be lost. Dow at 8,000 by December is my prediction.

Well aren't you a bundle of good news. Gosh I hope you are wrong.

[we vs us]

The FAZ and FAS briefly intersected today. But then the market sprung back up.

Its seems the battle-line is drawn at Dow 10,000.

Sooner or later this year, I predict, the battle will be lost. Dow at 8,000 by December is my prediction.

Inflated home prices and easy credit are gone. What is going to get us back up in the short term? This recession was never allowed to complete its cycle the first time around. Hence, the double-dip we are entering into now.

No more bail outs, no more artificial bubbles. Lets just let it crash and pull ourselves up by our bootstraps and start over. After the double-dip, Dow should get back to 14,000 in about 10 years if this country gets its act together.

It's interesting. My cubemate and I have this ongoing argument.  He subscribes to your view:  not that Dow will hit 8k, necessarily but that the whole thing should've been allowed to run its course.  That we let everything crash to the ground, pick up the pieces, and start again.  If it's a Depression the country needs then it's a Depression the country gets, etc.

I spend most of my free time googling first hand accounts and photos of the Great Depression to jog him back to reality with accounts of what it was like.  I mean, the Great Depression lasted ten years and throughout most of that period, unemployment was 15% and above (peaking at just below 25%).  There was mass dislocation, vast squatter camps, and troops of nomads going from area to area looking for work (Okies, anyone?).   Riots were regular occurrences and poverty was widespread.  And because it was so deep and so long, all kinds of interesting alternative economic and political movements were born -- like modern Communism, Naziism . . . Fascism in all of its lovely forms. 

But we forget that these things came about because the system that exists was failing so spectacularly.  They didn't just take the world by storm because there were enough latently evil or careless people around to take up those banners.  They took the world by storm because people thought these would work better than a decade of global failure. 

And lest we forget, the Great Depression led directly to WWII and tens of millions dead worldwide.

So anyway, my constant point to my cubemate is, be careful what you wish for.   A nice cleansing Depression sounds great on paper, but something of that magnitude would be far from pretty, and I can guarantee that you (and I, everyone on this board) wouldn't come out unscathed. 

[nathanm]

No more bail outs, no more artificial bubbles. Lets just let it crash and pull ourselves up by our bootstraps and start over.

I think before making a pronouncement that a crash will refactor the economy in an appropriate manner for a resumption of growth, you need to study Japan's lost decade.

And we vs us's point about a poor economy leading to undesirable politics is a good one. Economic dislocation caused by reparations and forced disindustrialization was the primary reason the Nazis were able to gain power in Germany. Repetition of that cycle is certainly an option, but not a particularly appealing one.

There is nothing good about a protracted cycle of deflation, which is essentially the meat of a long term depression.

[Gaspar]

Generally, stimulus pays for itself through GDP growth, and government debt is paid back with cheaper dollars. In the economic environment we have today, people are happy to hold bonds that are nearly certain to lose value, but are certain to only lose a little bit if they do. Otherwise, demand for Treasuries wouldn't be so high right now and overall interest rates wouldn't be so low. The invisible bond vigilantes are nowhere to be seen. (sub-4.5% 30 year fixed mortgages are a pretty good indicator of that one)

I agree that we can't keep using stimulus forever, but I don't think fiddling while Rome burns is a viable option, either. It's a matter of doing thing thing that's less bad, as there aren't many good options out there at the moment.

Very dependent on what your definition of stimulus is.  President Obama's dumpster of new programs topped with Obamacare and sprinkled with the promise of new regulation and higher taxes for producers is not my definition.  Pushing us to 13 Trillion in debt via programs that have no real long term return, but rather require long term funding ain't gonna do it.

[Townsend]

Another surprise helps the market.

Tomorrow will be something else...Hell, this afternoon.

NEW YORK — Stocks rose moderately Thursday after a drop in claims for unemployment benefits relieved some worries about slowing economic growth.

The Labor Department said claims for unemployment benefits fell to 473,000 last week, after claims climbed above 500,000 for the first time since November a week earlier. Economists were expecting a more modest drop to 490,000, according to Thomson Reuters.

http://www.msnbc.msn.com/id/38862352/ns/business-stocks_and_economy