It’s going to get much worse…there is no escape (ECRI)

[urbanrealtor]

[quote=Rich Toscano][quote=pri_dk]

So we can’t use the “economists have predicted 8 of the past 3 recessions” joke?

Bummer.[/quote]

Haha… in this case, we can’t, because ECRI has been real good about avoiding false positives fwiw.[/quote]

So any newer versions of how the plane crashes into the mountain?

Does the funding-crisis-in-the-offing scenario still stand as likely in your mind?

And dovetailing with that:

Where are you currently landing with regard to endogenous vs exogenous inflation?

I have seen you conflate the 2 in the past (apparently implying that the difference is probably moot–which I partially agree with) but I am curious if those positions have evolved at all.

Speak up.

[Rich Toscano]

Here are my thoughts in brief:

Yes, I still think there will be a funding crisis. As ever, I don’t pretend to know when.

Renewed recession fears along with Euro panic is obviously driving money into US govt debt and could continue to do so for some time (in fact that seems likely, based on investor “habits”). But then again, the harm to the US’ fiscal/debt situation resulting from a recession (lower revenue, higher spending), could be a potential catalyst, if it were a sudden and steep enough deterioration to jolt investor confidence down the road.

Recession typically reduces endogenous inflation pressures. The exogenous inflation pressure will happen if/when the funding crisis happens.

Overall I would say that my view on what will eventually happen has not changed. But the path to get there now obviously includes a renewed “flight to quality” (cough). How long that lasts, I do not know.

[equalizer]

Hussman was running scared August:

“As companies cut employment dramatically in recent years, they were able to maintain relatively high levels of output, which was reflected in high productivity growth figures.
At this point, however, there is little latitude to expand profit margins through further payroll cuts, and labor tensions are increasing as well.

Government transfer payments are now substituting for wage income to the greatest extent ever observed in history. In fact, 22 cents of every dollar of U.S. personal consumption is now financed with transfer payments. It would be absurd to imagine that this does not fall to the bottom line of corporations.

Higher profit margins are predictably related to weak subsequent earnings growth over time.”

And here is the clincher.

“But ‘failing’ institutions can be restructured without any loss to depositors or counterparties. When banks become insolvent, my view is that receivership and restructuring is exactly what should happen, and swiftly.”

He states the BofA and Citi have enough assests to cover depositors, vendors and counterparties. The rest is comprised of stock and bondholders. So they are not too big to fail.

“To blame our economic problems on the free market is an insult to what has proved for centuries to be the most effective economic system for creating prosperity and raising living standards. We would be wise to stomp out the incessant policy of bailouts and monetary distortions if we hope for that to continue.”

Semms very logical, but then why are most like me not selling short the market here? Too panicked, or too Goldlilocked to move?

http://www.hussmanfunds.com/wmc/wmc110905.htm

http://hussmanfunds.com/wmc/wmc111003.htm

[CA renter]

[quote=patientrenter][quote=Nor-LA-SD-GUY2]…….
Funny thing is just like japan (because we don’t want to inflate) we will end up with larger and larger defect spending just to keep people busy so they don’t revolt. You cannot get more Gov revenue without growth, you cannot get growth until you solve the housing situation (one way or the other)….[/quote]

Those who gambled on earning income from leveraged speculation on asset prices, especially house prices, are desperate for inflation. It’s the easy way to generate income for those who bought assets with borrowed money. Make thousands every month without having to produce anything! What a deal! Bernanke is a God!

The actual solution to our problems is making more real stuff that we all want enough to pay for, and that substitutes for imports, and exporting things that other people want enough to pay for. Instead we are anxious to shuffle money around so that we can dream that we can get rich by sitting on leveraged housing assets, just like we were doing before 2008.[/quote]

Bingo!

Inflation, in the absence of wage inflation, is the very worst thing one could hope for. What we need is asset price deflation, and a rejiggering (is that even a word?) of trade and tax policies so that we encourage domestic production and exports. If we can hold wages fairly steady while encouraging production and exports, then we can get out of this recession/depression (which I think is a continuation of the recession/depression that began in ~2001).

We also desperately need to raise taxes — in a big way — on speculative gambling (what some call “investing”). Investing directly in business that produce things is a net positive and can truly expand the economy, but speculating on asset price movements (especially if leveraged is used) is zero-sum, and will eventually destroy an economy. Why people fail to distinguish between these two types of “investing” is totally beyond me. We need to raise top marginal rates on speculative gambling to 90%+, while moving rates on other *productive* investments to match those of earned income.

[briansd1]

I’m with Chris Thornburg on the this.

Stagnant growth is very different from recession or never having left recession.

There is growth, just very anemic growth.

[Rich Toscano]

Good counter from my favorite econ blogger (not a direct counter, that is, just a different indicator giving a different signal):

http://www.clearonmoney.com/dw/doku.php?id=investment:commentary:2011:10:03-on_the_value_and_limitations_of_the_stall_speed_concept

Though he thinks that the reflexivity of the ECRI call itself could possibly be enough to push things into recession:

http://www.clearonmoney.com/dw/doku.php?id=investment:commentary:2011:10:01-the_ecri_recession_changes_the_balance

[patientrenter]

[quote=CA renter]

…….Bingo!………..

[/quote]

And bingo back, CA Renter! I agree with almost all of your comments, to the point that I rarely comment myself. Between you and Rich himself, I can at least see that my own crazy minority view of what is going on is not completely unique. And you are both far more articulate. Thanks!

[gandalf]

That’s interesting. Thank you for posting, Paramount.

Nice comments, Rich. That’s kind of what I see too, sluggish, uneven, jobless recovery, unexpectedly long and extended ‘flight to quality’, eventually leading to some sort of event, maybe a funding crisis, currency crisis, or possibly some larger geopolitical event.

Lakshman is super smart, and I thought it was interesting he mentioned the 2008 recession, how indicators were signaling a severe downturn prior to the Lehman event, then Lehman failed and all of the models had to be recalibrated.

[CA renter]

No, patientrenter, you are not crazy…no matter how much people try to convince you otherwise. Having the minority view can be scary at times.

Thanks for the kind words! 🙂

[Rich Toscano]

[quote=patientrenter]Between you and Rich himself, I can at least see that my own crazy minority view of what is going on is not completely unique. And you are both far more articulate. Thanks![/quote]

Thanks PR, but you undersell your own eloquence… in fact, just before I read the above comment, I read the following one from the “No Rise in Home Prices” thread, and thought it was incredibly well stated:

http://piggington.com/no_rise_in_home_prices_until_2020#comment-194428

[barnaby33]

Or as the wise but cranky davelj once said, “it all comes down to who’s ox is being gored.” That whole re-jiggering thing, I’m pretty sure that the current systems winners are strongly opposed to that. As it happens they are also opposed to raising taxes. Go figure.
Josh

[briansd1]

Interesting discussion on recession vs. growth.

As Chris Thornburg said, we are not in recession. We are not in are double-dip recession; we are in a slow growth economy.

First quarter pullback was largely due to defense contraction. Second quarter pullback was due pullback in auto sales because of Japanese auto supply problems. 3rd quarter numbers are good.

http://www.scpr.org/programs/airtalk/2011/09/23/20804/econo-update/

Just in case you didn’t know, Chris Thornburg was a bear and predicted the housing crisis.

[paramount]

George Bush, Queen Elizabeth and Vladimir Putin all died and went to hell.

While there, they spied a red phone and asked what the phone was for.

The devil told them it was for calling back to Earth.

Putin asked to call Russia and talked for 5 minutes. When he was finished,
the devil informed him that the cost was ONE million dollars, so Putin wrote
him a check.

Next, Queen Elizabeth called England and talked for 30 minutes. When she was
finished the devil informed her that the cost was SIX million dollars, so
she wrote him a check.

Finally George Bush got his turn and talked for 4 hours. When he was
finished the devil informed him that the cost was $5.00.

When Putin heard this he went ballistic and asked the devil why Bush got to
call the USA so cheaply.

The devil smiled and replied: *”Since Obama took over, the country has gone
to hell, so it’s a local call.*

[gandalf]

Paramount, c’mon.

You were on a good track with the ECRI post, leading indicators, direction of the economy, then you had to go all ‘Nobama’ on us.

It’s played out, dude. Let it go.

[earlyretirement]

I’m no Obama fan but the truth of the matter is that it wouldn’t have mattered if a Republican, Democrat or Independent was the President the past couple of years. Everything playing out now and the past few years were things set in motion already. VERY little of it could have been changed off it’s course.

I do think Obama could have done some things differently but he couldn’t really have changed the destiny of all the horrible things going on in the economy and the fallout from years of “sins” from Wall Street.

That’s just the plain truth.

[Author]

Posts