Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1210.4 | 12.5 | 1.04% |
| Eurostoxx Index | 2352.5 | 20.01 | 0.86% |
| Oil (WTI) | 85.83 | 1.6 | 1.90% |
| US Dollar Index (DXY) | 76.869 | -0.18901 | -0.25% |
| 10 Year Govt Bond Yield | 2.24% | 0.05% |
Economic data this morning: Import Price Index up 13.4% YOY. Advance retail sales up 1.1% for the month of September. August sales were revised higher from flat to +.3%. September’s numbers have generally been much stronger than August. The WSJ has a story this morning discussing economic volatility, and shows that economic volatility has indeed been higher than historical averages. Certainly the stock market has been more volatile, with the VIX index over 30 (even after a gigantic rally). Link: Economy in Full Swing (Watch Your Head) – WSJ
Google reported last night better than expected numbers. The stock is up over 8% premarket. So far, Alcoa and JP Morgan have sold off after their numbers (in spite of “beating” the “analyst estimate”). The initial take from JPM and AA is that Europe is going to be a problem. Last quarter, CEOs were generally constructive on 2H; it will be interesting to hear their views going forward this time around.
Today’s Washington Post discusses the prospect of a double dip recession, (link) and makes the point that the typical drivers of a recession – construction and auto inventories – are already flat on their back, so there isn’t any excess to work off. That is a fair-enough observation, although I would point out that this isn’t the typical inventory-driven recession. This is a recession in the aftermath of an asset bubble, and those recoveries are slower, more fickle, and a lot of the levers that government has to fix things (monetary and fiscal policy) don’t work very well. To give you an idea of how depressed housing is (and why this recession is different), look at the chart below regarding housing starts.
Housing and construction typically leads the economy out of a recession. This time, it is not because there is a massive inventory of unsold homes. In addition, household formation has been depressed as a) immigration has been slowing, and b) unemployed college graduates move back in with their parents. A bottom in housing is a necessary, but not sufficient, condition for an economic rebound.
The WSJ has a depressing piece on how median incomes have fallen during the 2000s. Again, this is typical post-bubble behavior. The equity bubble burst in 2000, and the only thing that provided the economy any real energy was the housing bubble. Although people have the perception that the housing bubble inflated in 05-06, if you look at housing’s historical relationship with incomes, the bubble actually started in 2000, when the equity bubble burst. Guys like Krugman have been advocating inflation as a way out of this mess; so far, the Fed has only succeeded in commodity price inflation. If the “wage” side of the wage / price spiral don’t cooperate, the Fed only succeeds in crimping disposable incomes further, which is a recipe for the dreaded misery index.
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All Things in Moderation 
Of course, you can't fall out of bed when you are sleeping on the floor."At the peak of the last boom, Americans were spending $813 billion a year on residential investment. That figure bottomed out last year at only a $327 billion.In other words, a major part of the story of the economic downturn was of half a trillion dollars in spending on new houses and apartment buildings vanishing from the economy.Since hitting its low ebb, residential investment spending has rebounded only slightly, to a $336 billion annual rate this past spring. That means that, mathematically, it would be impossible for a new housing downturn to be as powerful an economic drain now as it was over the past several years; there isn’t $500 billion worth of housing activity left to vanish. Even if housing investment fell back to its low point from last year, that would subtract a trivial $9 billion in economic activity from overall growth."I quoted Neil Irwin in the WaPo today.Brent makes an interesting point about the slowing of immigration. I know we have had an out-migration of undocs from TX; the drought alone killed the seasonal ag jobs for so many. Has there been a slowing in apps for legal immigration? I had not read this anywhere, but it would not shock me.
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To be clear, Brent has convinced me that it will not get better soon, and I have never thought the federal government could do more than soften this around the edges, by putting a floor on the down cycle with standard countercyclicals, speeding scheduled infrastructure maintenance, and a few other measures. I wonder whether 100K returning fighters will choose reenlistment. I think that is likely.
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I'm very nostalgic for the dot-com bubble. When all the dot-com stocks were going up and up and up, I felt like the future was so bright, I had to wear shades.Alas, it turned out to be nothing but a tissue of lies! Or, as Ray Kurzweil puts it, premature valuation. He argues that the dot-com bubble was created by an accurate recognition of the long-term value of the IT sector, but was far too optimistic about the time scale in which that value could be reached.
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The dot-com bubble was wonderful while it lasted. I remember it fondly. I was living in Manhattan, worked at a big hedge fund, my wife worked in interactive for one of the big ad agencies. We went to all the launch parties in SoHo, and gorged on free shrimp cocktail and drinks. Life was great. Bubbles feel wonderful during the beginning. However the hangover is as bad as it gets. I can only imagine what will happen in China when their real estate bubble blows up. It could get real ugly, real fast.
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Aren't there entire cities in China that are basically abandoned? Ghost cities, many of them relatively new? It would seem they avoid the bubble bursting by largely forbidding conversation. Complete opacity is the way to preserve the bubble indefinitely. http://www.dailymail.co.uk/news/article-2005231/Chinas-ghost-towns-New-satellite-pictures-massive-skyscraper-cities-STILL-completely-empty.html
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During the dot-com bubble, I was in my early 30s, watching my stocks (and those of my dad) go up and up and up, and tentatively planning my retirement at 45. I'm now 42, and planning my retirement for immediately after my death. Damn you, dot-com bubble!
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According to Gary Schilling's latest newsletter, new apartments in Beijing are selling for 57x average after-tax incomes.By way of comparison, the US real estate bubble peaked at around 6x. Of course the Chinese require huge downpayments, but still…
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I owned Berkshire-Hathaway, three shares at $23K in '94 or so. As they did not rise with the dot.coms, I dumped them in maybe '96. Pissed away the money on dot.com Austin startups and newbies, but not Dell!I think "my" B-H would be worth over $400K now…
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Don't know what Chinese after-tax incomes are, but the signs I recently saw for apartments in Beijing and Shanghai had costs of between 15 – 30K RMB (~$2.5 – 5K) per square meter. Luxury apartments are obviously more.
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"I think "my" B-H would be worth over $400K now…"The story of my dot-com investing. "If we just hadn't done that, we'd have $400k. Instead, we have $2k." My dad dumped Apple before Jobs came back at $14 a share. He had $10,000 of it. At $14 a share. Sigh.
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That Apple money when into dot-com startups, all of which failed. Yay!I now invest in normal bank accounts, mattresses, and coffee tins.
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