Big Inflation

Here's an article on inflation -- not deflation -- on Seeking Alpha.

Calling the Bottom (psych!)

I earlier pointed out that Sonders of Schwab could have called the bottom, but didn't. The market has now lost all the recent gains and is negative for the year and appear to be going lower yet. How could that be, if the major funds have all delevered and sold to meet losses? Shouldn't there be nowhere else to put money besides equities? Well, that's because a) this is a credit crisis like none other, b) other investors are hoping for Obama's stimulus package to bring the same magic to the economy that his team brought to the campaign, and c) we are in the midst of an economic correction without historical parallel.

With that, who in their right mind would call a bottom at this time? No one can possibly know.

Who Knows The Economy?

The real question is not who knows or understands the economy. The question is who understands the fall, and who understands the way through the trough, and then who knows the way up again. Any given economic or market genius may only know one part of the cycle. For example, check this out if you want to see someone who understands what brought us down, but has lately shown little comprehension of the trough or the way through it.

Or, think of Krugman railing against tax breaks. Please tell me, Mr. Nobel, how does a stimulus alone make up for the coming wage deflation? It doesn't. The only way to get people to simultaneously delever and consume is to put more money in their pockets.

I just got around to reading The World Is Curved. I am curious to see what Smick sees about the next phase.

Sonders Calling a Bottom?

Schwab's Sonders has a great article/analysis available.

I think if it weren't for the economic chaos, she'd be calling a market bottom based on some of the facts: hedge funds deleveraged, hedge funds' and mutual funds' redemptions having peaked, etc. No one in their right minds (yeah, I'm calling you out, Professor Siegel!) would think that there is a quick V-shaped turnaround coming, though.

Maybe we're at the bottom, I don't know. I suspect we're bottom-ish, but there's just too much uncertainty remaining. Obama's stimulus, the effect of four more years of mortgage resets coming, inflation/deflation, corporate solvency in the coming two quarters, etc. Oh, and did I mention that at some point the War Bubble in the DC metro area is bound to pop? That's a good thing on balance, of course. Peace is always preferable to war. But, economically, it's one more detriment looming.

I've got a prediction: We've already begun a Depression. We won't know it for another year, though. In thinking of the business cycle, it is impossible to compare Bush's America to Hoover's America. It's like comparing a Hummer to a Model T. If you take a step downward from a Hummer, you're still driving a Jeep or a Nissan Xterra. Retreat from a Model T and you're hoofing it. So, if you're looking for GD2, you have to think in today's terms.

Spitzer on Slate

Oh how I wish he had kept his ego health in line:

http://www.slate.com/id/2207920/

To add to his ideas for transformative stimulus projects, I would mention that WalMart is ready to roll out a nationwide network of nongas stations. Would it be so bad if WalMart saved our country? I could live with that.

Thanks Slate and FP!

Slate and Foreign Policy are now under the same umbrella. Here's five economists noting all the reasons why we still have a long way to go before economic recovery ensues:

http://www.foreignpolicy.com/story/cms.php?story_id=4590

I couldn't be more thrilled to see such a perspicuous collection of notes, thoughts, and analyses. Look at the names, too: Roubini, Shiller, Smick, Roach, and Baker. Big brains.

The one thing lacking from the analysis is the possible ameliorating effect of Obama's stimulus plan. I don't fault the economists, though, because there is no way to predict how an inchoate rescue plan will operate. I hope in ten months' time these same analysts will be singing the praises of Obama's proper application of Keynesian stimulus. Somehow, though, I think we're in for a rough ride with an uncounted number of stimulus projects being marred by graft and waste.

Of particular note is the emphasis on an inflation bomb (Baker), weak commodities (Roach), and the overwhelming absence of a valuble asset in the marketplace right now. It's as though for fear of a bubble emerging, nothing is worthy buying. That is a crisis of confidence. Only time will restore fundamentals to the world economy and restore reasonable prices to assets and goods.

Globalism Update

As I mentioned in an earlier post, globalism itself will come under fire. Here's the first stirrings, albeit from a source that is presumbably very pro-globalism:

http://www.foreignpolicy.com/story/cms.php?story_id=4592

Here's Roach's statement statement on globalism:

A second megaforce at work is globalization—the cross-border linkages that
during the past decade have increasingly taken the form of trade flows, capital
flows, information flows, and labor flows. The credit crisis itself is
essentially a powerful cross-product contagion—a virus that began with subprime
mortgages but then quickly spread to asset-backed commercial paper,
mortgage-backed and auction-rate securities, and other instruments throughout
the credit markets. But because financial engineers were so adept at
distributing the complex products they created, there is a critical cross-border
dimension to this crisis as well. Little wonder this is the worst financial
crisis in 75 years.

In a conversation with my wife, I posited that failure to recycle is not that big of a deal because eventually some economic event will transpire that incentivize raiding landfills for reusable materials. Such an event could be triggered if we see any notable combination of protectionism and scarcity wrought by war and strife.

Please note that the image appearing above is an illustration done by Nenad Jakesvic for Foreign Policy Magazine. Link: http://www.foreignpolicy.com/story/cms.php?story_id=4595