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"One should either write ruthlessly what one believes to be the truth, or else shut up."

Arthur Koestler 

Entries in Economics (323)

Monday
Jan012018

2018 Predictions

Here are my predictions for 2018. 

1. The stock market will increase 10%.

2. The stock Market will crash 30%.

3. The stock market will decrease 10%.

4. The stock market will rise 30%. 

Confused? You are not alone. There are several reason why I am making contradictory predictions. First, this is the way the prophecy game works. You make contradictory predictions and only point out the ones that ended up correct. There is even a Twilight Zone episode about this.  

But I am following my usual practice of having my even number predictions not being serious. So I do not expect a large increase or decrease in the markets. But either of these options is possible. With the expected repatriation of overseas money legally, but immorally, placed/left overseas, there will be a lot of investments and stock buybacks. The reduction in the corporate tax rates will also increase corporate profits. This seems an unlikely outcome as the rate of corporate profits is the highest in modern history. But nevertheless it is what will probably happen. This could mean another 30% increase for this year like last year. 

Since the stock market is actually higher in relative terms than it was in 1929 before the great depression, one would think that the market will crash. One would be wrong. I still can't believe I am saying this. There will not be a crash for several years. Since the longest period without a recession is 118 months and we are in month 114, this prediction seems unlikely. But looking at the madness that is Japan, the US has a long way to go before the fiscal madness gets out of control. (It is already out of control, but the bubble still has a long way to go.) I think that the stock market will go up slightly next year, prediction 1. 

5. The 1.5 trillion estimated deficit increase that will be the consequence of the Trump tax cut will not even cause a hiccup in the markets. No one will care. 

6. Krugman, since there is a Republican in office will continue to prediction dire consequences, and he will continue to be wrong, as he was when he predicted that the internet would not have a significant impact on business and his prediction that the Trump stock market would be bad. The prediction biz is tough. 

7. The real estate market in Southern California is nuts. If my family had kept any of our family homes from the 60's and 70's, I could sell it and retire to Costa Rica and live the live of leisure. One would think this would mean I am predicting a crash. I am not. Everyone seems to be buying houses and then renting them out. Many rentals on the market are in this category. As long as interest rates are low, this will continue. I do wonder how many of these new landlords are committing loan fraud by claiming they will live in the unit. 

8. Bitcoin will rise to $50,000.

9. There will be no evidence that Trump colluded with anyone, but there will be a lot of noise about it. There will be charges, but the charges will have nothing to do with Russia. I do not think one can be in business and not violate some law somewhere. For example, if a business charges less than the competition, they are trying to monopolize and drive the competition out of business; if you are charging the same amount, then you are colluding; if you charge more, then you are using your market position to cheat the consumer. You can't win. To channel Jan Brady from the Brady Bunch, instead of "Marcia, Marcia, Marcia." It will be "Russia, Russia, Russia."

10. No one will care that no evidence will be found and Trump will still be declared guilty in the court of public opinion. I advise that everyone who can should get out of debt. I am trying to do that. But it is tempting to just go out and buy the tulips. I will be smart enough to know when to sell. Right? 

 


Monday
Feb202017

Why Trump Will Lose: The Economy

As Trump himself said during the election, no matter who is elected, the next president will have to deal with an economic crisis. Trump used the adjective "massive." I think it will happen this year or early 2018. I predicted this in 2014. Of course I could be wrong and there are a number of things that might delay it. But unless the business cycle has suddenly been abolished, it will happen. The only question is when and how bad it will be. 

Trump's tax plan might delay it as massive tax cuts will be a strong, but temporary, stimulus. But the best outcome for Trump is for the slump to come sooner rather than later. Unfortunately, massive tax cuts and spending increases would delay the inevitable, and make it worse. Some are predicting that the recession will be delayed until 2019. 

My update on my 2014 prediction is that it will not be as bad as 2008, but there are plenty of things Trump could do to make it a lot worse. I know the perception is that I am pro-Trump, but in fact, it seems likely that Trump will screw this up badly. I do agree with his policy not to have a war with Russia, and stop mucking around in other countries, but beyond that I do not agree with him. 

Here is David Stockman, Reagan's director of OMB, Office of Management and Budget, on the coming crisis. I am not as pessimistic as he is, but I think he is right.

 

Monday
Nov282016

Doomed By Debt

I am a sucker for a good infographic. Here is one for the problem of sovereign debt.

 

This is only the debt of the national governments. No personal or corporate debt is included. Also the imputed and unstated debt of the various governmental pensions and senior medical retirement programs like Medicare. 

How much does the average person have in retirement savings

Just how much has the average American family saved up? According to the EPI, the mean retirement savings of all families is $95,776.

But that number doesn't tell the whole story. Since so many families have zero savings and since super-savers can pull up the average, the median savings, or those at the 50th percentile, may be a better gauge. The median for all families in the US is just $5,000, and the median for families with some savings is $60,000.

Note that this is the savings for each family. This means that once you include the national debt the net savings rate is zero because most families have more than one member. 

I am not sure that any president, even St. Trump, can really do much about the lack of savings and high debt level. No one is even talking about the unfunded liabilities.  

Monday
Mar282016

The True Cost of Living

While I think that these kind of calculations overstate inflation, it seems obvious that the cost of living is growing much higer than is admitted. Admitting it would help bankrupt Social Security. 

 

I have discussed the inflation rate before. 

 

Wednesday
Mar092016

What Rough Beast Slouches Towards Bethlehem to Be Born?

TURNING and turning in the widening gyre

The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

This is one of Yeats’ most well-known poems. The purpose of a poem is not to predict the future but to capture a moment. Bible Prophecy can work that way too. 

We are in a transition period. But a transition to what? That transition certainly was evident to Yeats in 1921 when this poem was published. The Second Coming, the title of this poem, is not referring to the return of Jesus. It is insisting that something else is coming. We hold our breath as it comes. I think we can all feel it—with dread. 

That is why we have so much fear. I have written against the survivalist mentality here on the blog, but I too share that dread. Something is coming that will shatter our shared culture, our shared lies. I too see the event that the "preppers" see. I just do not think one can prepare for the Apocalypse

That does not mean one should not have some food stored. Nor does it mean one should not reduce debt. These are the things we should do anyway. 

I am not worried about a zombie attack. Or its actual real equivalent. But I am concerned that we are headed toward a decades-long period of decline like the Great Depression in the 30's. Are you ready? Get ready. You can prepare for this scenario. 

Herb Stein once said that if something cannot continue it won't. Our current economic situation cannot continue, so it won't. We are reaching the end of our culture, and its dominance in the world. As Leviathan heads toward Bethlehem to be born the most we can hope for is that we are somewhere else when it happens. 

Here is what Spark Notes, I suppose the internet equivalent of Cliff's Notes, has to say about the poem:

... the next age will take its character not from the gyre of science, democracy, and speed, but from the contrary inner gyre—which, presumably, opposes mysticism, primal power, and slowness to the science and democracy of the outer gyre. The “rough beast” slouching toward Bethlehem is the symbol of this new age; the speaker’s vision of the rising sphinx is his vision of the character of the new world.

The reason so many people are afraid is that they see Leviathan coming and see destruction. They may be right. I suggest that instead you look for the opportunities that this time might bring—for in crisis comes opportunity.