The economics behind the bull and bear case

[basilio]

On the other hand, the shadow stats site seems to agree with your unemployment stats. What I'd be interested in hearing is how you think having a high unemployment rate is going to contribute to the US defaulting and the hyperinflation that is due in the next 2 years(I'm assuming that you were agreeing with basilio when you thanked him after his prediction previously)

The comments I made on the outcomes of runaway debt come from the analysis offered in the paper that Explod cited earlier on. The title tried to say it all "This time it will be different".

US Debt is currently $12.4 trilllion and climbing steeply. They are trying to sell government paper in the hundreds of billions to China, Japan and anyone else who has a pulse and a cheque book. There are serious questions about the continuing capacity of other countries to effectively finance this debt.

As unemployment soars in US the budget comes under even further pressure from loss of tax income and increases in benefits.Thus increasing deficits, more attempts at selling bonds to finance these deficits.

At some stage there will be a reality check. Other counties will be unable or unwilling to keep pouring $1 trillion a year + into US debt bank. How will the government then finance it's deficit? The two traditional choices are repudiation - just refusing to pay or inflating your way out of trouble. Inflation is easier to do initially because it isn't as bad a look as just saying we won't pay. But as it gets out of hand the currency starts to crash, no one wants to hold your money and it becomes worthless. All this has happened time and again.

If you go down the repudiation path there is an instant cataclysmic shock to all the institutions who originally trusted the government with their money. That includes the banks, pension funds, overseas borrowers, councils. Suddenly all the "wealth" these organisations based their balance sheets on has evaporated. And we are talking of trillions of dollars. You can fill in the rest.

Take your choice.

http://www.brillig.com/debt_clock/
________________________________________
With regard to the crash of the German Mark in the 1920's. It was certainly true that the war laid the groundwork for inflation as a result of the deficit budgets that were financed by paper. (This also happened with every other country of course). But it was the pressure of the reparations demanded by the Allies - around 27% of the GDP (plus huge amounts of physical goods ie power poles, rail cars ect) that tipped the government over the edge. And remember this was in an economy that had been devastated by the war and had lost a big slab of it's economic capacity to the French as the first downpayment of the reparations.

 

[Unnamed User]

Thank you Basilio.

Professor, my view is that inflation figures currently produced from Government of say 1 or 2 percent are unrealistic. Most housewives will say that goods in the supermarketsare up 20 to 30% on a year ago. A thing noticed also are packets of goods, perporting to be the same have net weights less, fuel is about the same, rates and taxes are increasing a great deal, interest payments up and some reports of saleries down. All anecdotal to a great degree.

Reports from the USA, again not empherical (spellin?) suggest a worse

All these bear and conspiracy sites you are reading seem to be invading your posting as you are just making up numbers and plucking "stats" out of thin air.

Most housewives will say that goods in the supermarketsare up 20 to 30% on a year ago

Most will will they? 20 - 30%? Looking forward to seeing the link for those survey results....

I do the shopping in my family due to having more time to myself and i would disagree with that.

Sure some items are more expensive but there are many that are actually cheaper or virtually the same price.

A thing noticed also are packets of goods, perporting to be the same have net weights less

How could they be "perporting to be the same" if they are weigh less? That is false advertising and i doubt many, if any, companies would open themselves up for legal action.

My guess is that you don't do the shopping in your family and all of your references to it are pure guesses to back up your theory.The Safeway i shop at reports the per 100 grams price for virtually every product on the shelf.

rates and taxes are increasing a great deal

Rates are increasing from emergency lows and are still at low levels historically and what are these tax increases you speak of?

and some reports of saleries down

I'm sure "some" salaries are down but considering the latest wage growth figures, 24/02/2010, show that wages grew at 2.5% in the december quarter and 2.9% in the last year your "reports" must be more Chinese whispers from your conspiracy sites

 

[Trembling Hand]

All these bear and conspiracy sites you are reading seem to be invading your posting as you are just making up numbers and plucking "stats" out of thin air.

Hard to argue with a religion. Belief becomes fact.

 

[Uncle Festivus]

As unemployment soars in US the budget comes under even further pressure from loss of tax income and increases in benefits.Thus increasing deficits, more attempts at selling bonds to finance these deficits.

What I'd be interested in hearing is how you think having a high unemployment rate is going to contribute to the US defaulting and the hyperinflation that is due in the next 2 years

Professor, money in must equal money out, otherwise you have a deficit of which has to be derived from somewhere. In the case of the USA & others it comes from 'friends' who would also like their respective ponzi schemes to continue as long as their economies are based on the USA buying their 'stuff' ie China. The old $USD switcheroo - in exchange for trinkets & nick-nacks made by underpaid labour, while the ruling classes make all the money and the rules ie Goldman Sucks.

They not only make up the rules as they go along they can also print as much currency as they like, so to speak, for they are the owners of the worlds default currency.

I'm not sure about the hyperinflation hypothesis, apart from in China who has rampant money supply inflation problems, because the money supply figures for the USA don't indicate this, in fact they have gone down substantially, indicating credit contraction if anything ie deflation ie the debt written off is greater than the money 'created'???

Hard to argue with a religion. Belief becomes fact.

I believe in the US Fed, who supply shiploads of facts to provide ammo for the bear cause - straight from the horses mouth, even though it's bolted a long time ago (try about 1971 when the link to restraint was severed)
And this is the data that they have decided to release to the public! Who knows what the real state of affairs is? Remember M3?

Time we updated the 'Jaws Of Death'? Hey buddy, can you spare a dime?

 

[professor_frink]

Professor, money in must equal money out, otherwise you have a deficit of which has to be derived from somewhere. In the case of the USA & others it comes from 'friends' who would also like their respective ponzi schemes to continue as long as their economies are based on the USA buying their 'stuff' ie China. The old $USD switcheroo - in exchange for trinkets & nick-nacks made by underpaid labour, while the ruling classes make all the money and the rules ie Goldman Sucks.

They not only make up the rules as they go along they can also print as much currency as they like, so to speak, for they are the owners of the worlds default currency.

I'm not sure about the hyperinflation hypothesis, apart from in China who has rampant money supply inflation problems, because the money supply figures for the USA don't indicate this, in fact they have gone down substantially, indicating credit contraction if anything ie deflation ie the debt written off is greater than the money 'created'???



I believe in the US Fed, who supply shiploads of facts to provide ammo for the bear cause - straight from the horses mouth, even though it's bolted a long time ago (try about 1971 when the link to restraint was severed)
And this is the data that they have decided to release to the public! Who knows what the real state of affairs is? Remember M3?

Time we updated the 'Jaws Of Death'? Hey buddy, can you spare a dime?

Thanks for the reply UF

I agree with you in that things have been more deflationary than anything else of late, hence my questions to explod about us being at risk of hyperinflation.

 

[Uncle Festivus]

Blow-off top in world markets - get ready!
----------------------------------------

Let's see how the 'recovery' in the US is going -

-- both consumer confidence and sentiment have fallen unexpectedly;
-- after-tax personal incomes adjusted for inflation have flattened;
-- sales of both new and existing homes took a surprising stumble;
-- orders for most durable goods are down;
-- manufacturing has slowed;
-- jobless claims are up;
-- fourth-quarter GDP growth came largely from a slower pace of inventory liquidation, not from an increase in consumer spending;
-- and as a matter of fact, consumer spending weakened last quarter.
Understand that the changes in the data above were not insignificant:
-- consumer confidence fell to a 27-year low;
-- new-home sales fell to record lows and they are likely to fall even further, since mortgage applications are down to 13-year lows;
-- existing-home sales are down two months in a row to a seven-month low;
-- first-time claims for unemployment benefits have risen in six of this year's first eight weeks;
-- and new orders excluding transportation fell 0.6%; orders for capital goods fell 2.5%, while capital spending itself was down a thumping 3.5%.

http://www.marketwatch.com/story/economy-is-running-on-empty-2010-03-02?pagenumber=2

The worlds 5th biggest economy is insolvent? Does anybody care?

Jamie Dimon, chairman of JP Morgan Chase, has warned American investors should be more worried about the risk of default of the state of California than of Greece's current debt woes.

Mr Dimon told investors at the Wall Street bank's annual meeting that "there could be contagion" if a state the size of California, the biggest of the United States, had problems making debt repayments.

California however poses more of a risk, given the state's $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

LONDON (MarketWatch) -- Allied Irish Banks said Tuesday that it swung to a net loss of 2.41 billion euros ($3.26 billion) in 2009 due to surging loan loss provisions from Ireland's property crisis, as the bank said the coming year will remain extremely challenging.

Pump & Prime then Dump & Debt

What happens when the stimulis incentives are withdrawn??? We are left with a big debt and new (worse) global recession? This will be a similar story for the Oz car market now it too has had it's pump & dump scheme completed... home insulation - pump & dump too.....

LONDON (MarketWatch) -- New car registrations in Germany totaled around 195,000 in February, down 30% from the same month last year, the German Association of International Motor Vehicle Manufacturers, or VDIK, said Tuesday, according to Dow Jones Newswires. For the first two months of the year, registrations are off 20%, to 376,000 units, compared to the same period in 2009, the report said. The decline is attributed to the expiration of Germany's car-scrapping incentive program in the fall.

The UK - mmmm, how will we pay for all this? How about spending cut's & tax hikes -

As many as 100,000 jobs could go in councils over the next three years as Government spending cuts start to bite, a leading expert has warned.

And finally, a word from our sponsor, the glorious PRC.....what goes up must come down - with a thud........ 40% less loans......

China's four-biggest banks made net new loans in February of about 294 billion yuan ($43.1 billion), down about 39 percent from January, banking sources said on Tuesday.

 

[GumbyLearner]

Yogi yo

Just one example of the impending Global Supply Glut.
At a time when the stimulus is GONE.

From today's Chosun Ilbo
March 2, 2010

http://english.chosun.com/site/data/html_dir/2010/03/02/2010030200322.html

Korea's Top 5 Industries Face Oversupply Crisis

Korea's major industries are at the great risk of being hit by oversupply problems in the global market. If automobiles, steel, petrochemicals, ships and semiconductors end up sinking due to a worldwide glut, the Korean economy is expected to face the greatest shock since the Asian financial crisis.

According to an internal Ministry of Strategy and Finance document obtained by the Chosun Ilbo on Sunday, the global automobile industry faced a 56.7 percent oversupply last year, while the steel industry was hit with a 37.7 percent glut. The oversupply ratio refers to the amount of production capacity that exceeds demand when production facilities are running at 100 percent. A ratio of 50 percent means there is enough production capacity to produce 50 percent more products than needed.

The ratios were 17.9 and 14.4 percent for the petrochemical and shipbuilding industries. In the semiconductor industry, the threat abated as the world's no.5 chipmaker Qimonda of Germany went bankrupt early last year, but still some products including NAND flash memory chips, a flagship item for Korea, are expected to face an oversupply.

These industries have propped up the Korean economy since the financial crisis last September. But as China and other emerging nations have increased investment in them to stimulate their economy, there have been growing concerns over worsening situations with rising productions, calling for urgent measures to deal with the problem.

◆ Worsening Supply Glut

There are fears that the global automotive industry would face the worst-ever supply glut this year. According to industry consulting agency Global Insight, demand is expected to total 66.1 million vehicles, while output capacity stands at 95.1 million, leading to a possible record oversupply of 29 million cars.

Interesting that governments around the world had been subsidizing people to buy new cars and cash in their perfectly workable clunkers. They couldn't give 'em away.

I smell a terrible waft of bull****.

 

[Dowdy]

Most will will they? 20 - 30%? Looking forward to seeing the link for those survey results....

I do the shopping in my family due to having more time to myself and i would disagree with that.

Sure some items are more expensive but there are many that are actually cheaper or virtually the same price.

My mum done the maths - rice is up 39% in less then a year

 

[>Apocalypto<]

More good news out of the USA on the jobs front.

 

[MR.]

Time we updated the 'Jaws Of Death'?
View attachment JAWS OF DEATH--.bmp

Could the jaws of death be looking even worse now?

Perhaps it is time UF to update the "jaws of death" mid 2009 isn't really up to date. (refer UF's post above on 28/2/2010 for clearer chart)


View attachment JAWS OF DEATH2-A.bmp

I must say I hate charts that arn't set up correctly. I am not a bull, but charting to multiply points I don't agree with. Not intended apon you UF as it is my guess it is not your chart.

Looking at the chart above two larger recessions were also in the early 80's and mid 70's. Expenditure in the 80's was 33% more than receipts.


However expenditure in the 70's was 40% more than receipts. See below (figures used 250 - 350)

View attachment Photo270-b22.bmp


So what is the expenditure in the current US recession as a % of the receipts? (suggested figures 2200 - 3550)

The point of the chart remains intact.

.

 

[explod]

Dan Norcini's take on the job jamboree from JS Minset today :

"The jobs number came out this morning and had Wall Street giddy with excitement that “only” 36,000 jobs were lost. What do we get as comments: “that is a fairly strong employment report.” Let’s see, that means the last 25 out of 26 months this nation has been shedding jobs and folks are excited about that? Are they out of their damn minds?

Tell that to the folks who are out of work and unable to find a decent waged position. By the way, the U6 number, which includes discouraged workers and those working part time who want to work full time but have been unable to do so rose to 16.8% from 16.5% the previous month. Obviously, the spinmeisters did not want to touch that one with a ten foot pole.

I do not know exactly what the public relations blitz that the Caesar’s were putting out while Rome was disintegrating around them but something tells me that it was probably not all that different than what this current crop of market analysts and financial TV talking heads are serving up for public consumption. How much more of this, “It’s not as bad as we were fearing therefore it is great” BS do we have to endure from these hucksters? Well, one thing is for sure, this so-called, “JOBLESS” recovery is certainly living up to its name.

The way I look at it that is another 36,000 folks who will not be buying LCD TVs, autos, boats or even furniture and other major appliances. "

 

[MR.]

The way I look at it that is another 36,000 folks who will not be buying LCD TVs, autos, boats or even furniture and other major appliances. "

http://www1.voanews.com/english/new...-Unemployment-Rate-Holds-Steady-86629122.html

The U.S. Bureau of Labor Statistics says the economy lost 36,000 more jobs last month than it created. Many analysts see it as good news, because the expectation was for a loss double that figure.

I see reason to rejoice

 

[Unnamed User]

Anyone worth their salt will have looked at where some of those jobs lost came from and that they will become hirings next month.

(No i won't state what they were as you should know).

Prepared to put my anaylsis under scrutiny, rather than just cast conspiracy theories or quote end of the world theorists, next months report will have minimum 30,000 jobs growth and i believe it will be closer to 100,000.

 

[Aussiejeff]

The "economics" behind the bull & bear case? Hmmm.

In light of Mr Market totally ignoring what some may see as "economic reality" (aka "The Frozen Jaws Of Death"), perhaps the thread title should be changed to "The faux economics behind the bull and bear case"?

I get a distinct an uneasy impression that the Big Boys funding Mr Market now firmly believe they have gotten out of jail SCOTT FREE this time around (thanks in great part to massive financing by taxpayers and much more vigorous positive media hype by their supportive government friends) and that only blue sky beckons (for now at least).

Let's face it, looking at that graph you have to be mighty impressed at how they have managed to pull off one of the greatest recapitalisation "con" & "boom" tricks of all time, while simultaneously laughing in the face of what some might regard as ominously bearish economic indicators (such as this so-called "Jaws Of Death" scenario).

Can spin, hype & propoganda prevail over "real economics" in the long run? It certainly has so far in this New Age of global media empires.

 

[explod]

Anyone worth their salt will have looked at where some of those jobs lost came from and that they will become hirings next month.

(No i won't state what they were as you should know).

Prepared to put my anaylsis under scrutiny, rather than just cast conspiracy theories or quote end of the world theorists, next months report will have minimum 30,000 jobs growth and i believe it will be closer to 100,000.

And another take from our ole Pal Chucky before the numbers came out overnight. In fact I will find some other US comentators later in the day, off to Doctor now.

Well... Today, being the first Friday of the month, is a Jobs Jamboree Friday here in the U.S.... I would have to think that the Gov't officials who claim that the stimulus created / saved jobs last year, would be dreading the print of the Jobs report... You see, somewhere along the line, that line about "saving jobs" is nothing but rearranging the deck chairs on the Titanic... All the while, the job losses, albeit not as deep as they were a year ago, continue to mount... And that's what's expected this morning... More job losses...

I'll tell you this now, so you when you hear it on your cable news station, or wherever you get your news, that February's job losses are going to be blamed on the weather... That's right, all the snow in February will be blamed for the job losses... More rearranging going on I see!

 

[MR.]

Anyone worth their salt will have looked at where some of those jobs lost came from and that they will become hirings next month.

(No i won't state what they were as you should know).
Prepared to put my anaylsis under scrutiny, rather than just cast conspiracy theories or quote end of the world theorists, next months report will have minimum 30,000 jobs growth and i believe it will be closer to 100,000.

What anaylsis?

"next months report will have minimum 30,000 jobs growth and i believe it will be closer to 100,000" ??

 

[Unnamed User]

What anaylsis?

"next months report will have minimum 30,000 jobs growth and i believe it will be closer to 100,000" ??

Part of that is already answered.

The rest is based off economic statistics that are there for everyone to see for themselves.

Of course we all put different weightings or interpretations on these statistics but my opinion is there for the record, is yours?

 

[MR.]

Part of that is already answered.

The rest is based off economic statistics that are there for everyone to see for themselves.

Of course we all put different weightings or interpretations on these statistics but my opinion is there for the record, is yours?

I know part is already answered "the conclusion" where is the analysis?

You offered the analysis, not me!

This has nothing to do with my opinion.

 

[Unnamed User]

I know part is already answered "the conclusion" where is the analysis?

You offered the analysis, not me!

This has nothing to do with my opinion.

Now i see what you mean and i worded it wrongly, apologies. I can't edit that post now unfortunately.

"Prepared to put my conclusion under scrutiny" is what it should have read.

My analysis is exactly that, mine.

 

[MR.]

Criky Chuckey!
I hope your figures prove to be correct. Back to topic.

If you throw enough money at anything you can fix it, but only for so long if the problems still exist. Maybe there really wasn’t any choice. I don’t know. Now I just hope these governments make the hard decisions needed.


- If governments don’t change things for "the better" perhaps the bulls will see stock markets return to their highs sooner rather than later. That’s if there isn’t persistent deflation anyway. ie: The Bull

- If governments make the hard decisions we will not see markets return to their highs anytime soon. I just hope enough of the problems are addressed. ie: The Bear (which will become the bull)

Of course the governments may still have little control and free markets may yet run their course.


The holders of debt have been rewarded to the disgust of savers. This better not persist as a very clear picture has been painted.

.