What Stories Aren’t Being Told? was my most commented piece since the inception of this blog, and I thank readers.? But Dr. Jeff pointed out in the comments, the tone was on of extreme negativity.? What?? Is there nothing going right that is under-reported?? Here are a few ideas from me:
- Credit spreads are below average in general.
- Energy prices have moderated, particularly for those who buy natural gas at spot rates.
- There is still very good foreign demand for Treasury auctions.? Oh, Treasury yields are low.
- On the low/middle end of housing, where there are conforming mortgages, the market has come into equilibrium, where bargains are balancing out more foreclosures in the future.? This may not apply in the really hot markets of 2005.
- Dividend decreases seem to have stopped.
- Corporate balance sheets seem to be more able to handle additional pressure.
- The insurance industry seems to be in very good shape, aside from that faker, AIG.
Okay, the same as last time, I offer this to my readers in the comments section — what is going right now, particularly in what is not being reported.? It can be small or large issues.? Let me know.? Last last piece got a lot of play, even the comments, so let me know what you think.
This is vague, but a small positive is that people can find out what is going on. The internet and blogs like this help people connect the dots. It seems the panic is worst, not when people see a bunch of data showing problems, but when they see only a few symptoms and don’t see or understand the patterns. Just the fact that there is so much more info available so quickly helps people make more judicious decisions. I was looking at report online from the Boston Fed about mortgages. http://www.bos.frb.org/economic/ppdp/2008/ppdp0806.pdf
Twenty years ago, I wouldn’t even have known this report existed until I might just by chance see it referenced in a book. Now I can look at it with morning coffee.
Yield curve, money supply, initial claims, confidence, new orders, sales to inventory ratios, low inflation (no need to slam on the brakes yet), expanding international economies, good conditions for banks to make money (which is necessary for recovery).
The decline in the dollar – often mistaken for a bad thing – will also help boost exports and the domestic economy.
The biggest thing I see going right is the resistance to the undertow of anti-immigrant sentiment in the US. Our country desperately needs the influx of immigrants to help support our entitlement hurricane that is on the horizon. Countries in our position historically turn to xenophobia and blaming minority groups and immigrants. We certainly remain at risk to this with the disaster developing in Mexico and the continued terrorism issue – I fear one attack could usher in terrible reactions.
By the way, Jeff’s comment about the almost uniform negativity in the 1st post directly supports my argument regarding shifting risk preferences. These cycles tend to persist for a long time, so after a 20+ year period of increasing risk preferences, it is unrealistic to expect the current cycle to terminate so quickly. In fact, I suspect we are just at he beginning.
The P/E10 from Shiller is already back to 18 and never reached levels typical of secular lows around 7-9. Those secular lows have emerged at least 75% of the way into a full cycle of shifting risk preferences. So while the current cyclical recovery is something to be enjoyed, it is likely to be fleeting on a secular basis.
Finally, the most bullish economic story is ECRI’s WLI growth rate reaching an all time high. Unfortunately, this may result in a growth shock in markets during the 1st half of next year. How can the dollar and long term rates handle a GDP print of 7%+ if the Fed is still at zero percent? I think we will find out.
Be realistic about expectations for future achievements of immigrants. They bring the values and habits of their home countries. We need human capital not just bodies. If the immigrants are educated and productive, and they possess the human capital including strong family structure, then yes immigration could help. Birthrates in countries with that profile are lower than they are here so I don’t expect a wave of high performing immigrants. Well educated successful, conscientious people are not equivalent to totally uneducated immigrants with sky high illegitimacy rates and whose American born children have high school graduation rates of less than 50%. Low wage and low skilled immigrants consume more in social services over their lifetimes than they generate in tax revenue. They are a net loss. They will not have the disposable income to buy our stocks and bonds 20 years from now so we can enjoy retirement, nor will they be able to buy much of the goods and services produced by those companies whose stocks and bonds we own. Immigration is not a panacea. I doubt any growth in the US economy anytime soon.
We are in a transition phase. That could lead to a renaissance of sorts. I would call that good news.
David — Thanks so much for giving this a try. I wonder what the results tell us?
In my public policy experience, there have always been many things to worry about. Historically, most have been worse than our current issues.
On the “good news” front I think that the credit story is very important. The cessation of normal lending was the proximate cause of the collapse. What has happened?
B of A’s Jeffrey (the other) Rosenberg wrote today as follows:
The remarkable speed with which credit markets have repaired is a testament to the success of government intervention to stem the credit panic….With the support of TALF, consumer ABS financing has returned, and the effective nationalization of residential mortgage finance leaves only bank lending and commercial real estate lending still lagging the improvements.
On another front, the ECRI leading indicators are very strong.
There are a lot of smaller things — retail sales showing that the consumer is holding up and people like Barton Biggs (who looks at what companies are expected to do) seeing valuation as cheap.
None of these is a very sexy story for a reporter. Writing about the ghost fleet in Malaysia gets more attention on trading desks.
It is very boring to look at data.
Thanks again for trying this. Maybe I’ll expand on these comments and link.
Jeff
1. Recapitalization of many public companies, especially REITs, via the public markets.
2. Expansion of the Fed’s balance sheet does not have to be permanent. If the QE can be unwound or in some cases allowed to expire, the much feared massive inflation need not come to pass.
3. Severe hurricanes continue to be less frequent than feared.
4. A positive from the negatives. I support no political party, but I do support the idea that financial markets do better when Congress is ineffective or out of session. Although much of the vitriole toward the party in power is coming from the minority party, the real battle is within the controlling party. Democrats have enough votes to pass anything they campaigned on. The fact that in-fighting (Pelosi vs. Obama) has halted cap & trade, higher taxes on production, and government run health care has played a larger role in the market rebound than is commonly cited.
A lot of financial commentators have fretted that people are starting to save a lot more and this causes lower consumption which is bad for the economy. But the same commentators rarely notice that the worldwide demand for financial instruments to hold and grow savings is a defining feature of our age that was true before the crisis and remains true after. I’m not sure which if any economic theory really comes to grips with the idea that the worldwide demand for investment of investable wealth may naturally outstrip the intrinsic supply of capital investment opportunities with good growth/return potential. This situation is a “wrong” from the standpoint of economic stability and efficiency, but a “right” from the standpoint of supporting security prices.
Your next piece blames bubbles on the governments. But I believe our bubbles are analogous to the outbreak of forest fires in very dry areas with a lot of brush. Wealth inequalities, aging demographics, the worldwide breakdown of the extended family as a primary means of retirement support, and ideological/political opposition to socialism are some of the important conditions that make our financial environment bubble prone with excess money sloshing around. In the absence of enough true income opportunities, the money naturally adheres to whatever asset class is apparently increasing in value.
One thing that’s going right is the Chinese economy. I went into this in greater detail on my blog earlier (“China’s New, Self-Propelled Economy”), but James Kynge’s “China Continental” thesis from last spring (that China was transitioning from an export-dependent economy to one fueled by internal growth) now appears to be true. That’s good news for companies that produce the raw materials China’s economy needs (e.g., miners such as BHP), little-known vendors to those companies (e.g., the tiny titan I mentioned here a couple of weeks ago, Alloy Steel International), and, more broadly, countries that export raw materials to China, such as Australia and Brazil.
As the FT’s Martin Wolf pointed out, in one of the columns I linked to in my post, China’s economy isn’t big enough to carry the global economy, of course, but prosperity there is good news nonetheless.
James Dailey,
“The biggest thing I see going right is the resistance to the undertow of anti-immigrant sentiment in the US. Our country desperately needs the influx of immigrants to help support our entitlement hurricane that is on the horizon.”
You are being intellectually dishonest if you don’t distinguish between the economic effects of immigrants with high levels of human capital versus those with low levels of human capital. Importing fourth grade dropouts from Mexico and Guatemala will make our entitlement hurricane worse, not better. These immigrants tend to have low levels of human capital and thus consume more in government resources and services than they pay in taxes. The same is true of their children.
In addition, these unskilled workers lower the wages and increase unemployment for native unskilled workers. Importing more poor, uneducated people makes no economic sense.
Well the bust has awakened alot of people who thought the FED could always lower interest rates and make everything alright.
Alot of bad businesses have been bankrupted.
The baby boomers got the wake up call and are making the necessary arrangements for their retirement.
Alot of people are learning alot about these complex financial markets, especially me.
The blogs have been crucial in the crisis in allowing information to flow from economists to the public, none of this information is on the news.
That company I mentioned above, Alloy Steel International, was up another 27% today.