Tuesday, April 29, 2008

1970s Style Dancin' (Musical Tribute)

May 5, 2000
Soros withdrawal: a sign of things to come

“We will be more conservative, have less exposure to the market and accept lower returns because we want to lower the risk profile. ... Markets are extremely risky, and in some ways I think the music has stopped—only most people are still dancing.”

April 28, 2008
Carlyle exec sees only U.S. economy woes this year

"Ultimately, the music kind of stopped and people would not lend us money any more," he said. "The debt terms were so favorable that (debt buyers) ultimately had buyers' remorse."

May 6, 1980
A More Severe Slump

The relative employment optimism among economists is based on the current moderate levels of business inventories and the expectation that the recession will end by early next year. Unlike 1973, when businesses started the recession with large stocks of unsold goods, they now have modest inventories. This economic downturn has been predicted for so long that companies have kept a tighter grip on production and not amassed excessive backlogs. A drop in customers thus will not result in immediate widespread firings. Says a Capitol Hill economist: "In certain industries inventories are getting out of line with demand, but we're still avoiding the speculative buildup we had in 1974."

Unlike 2000, when businesses started the recession with large stocks of unsold goods, they now have modest inventories. This economic downturn has been predicted for so long that companies have kept a tighter grip on production and not amassed excessive backlogs. Right?

As long as it appears that the recession will not be extremely long, companies will be slow to fire too many workers. Because of the high costs of hiring and training new employees, some managers will keep underemployed, unproductive workers on the payroll during a short recession in anticipation of a quick economic upswing. People working in banks or insurance companies are thus less likely to be laid off now than are auto assembly line employees. But if companies believe that the recession will last longer than expected, that situation could change very rapidly.


The recession will be short and shallow. That's what we're told. Right? So get out on the dance floor!



Early 1980s recession

The recession was not only unexpected but was the most serious recession since the Great Depression.

13 comments:

MAB said...

Stag,

From the wiki link in your post:

This encouraged extensive chartering of new S&Ls, because a $2 million investment could be leveraged into $1.3 billion in lending.[9][13]

Now that is a risk worth taking. Put up 2 million, loan out 1.3 billion, squeeze X% out of the 1.3 billion and stick the taxpayer with the future losses on the irresponsible lending. Sounds familiar.

The sad part is that this nonsense happens over & over. I'm really losing faith.

If you want to spot the next problem spot in the economy, just follow the sector(s)with the biggest credit inflows.

Stagflationary Mark said...

MAB,

The sad part is that this nonsense happens over & over. I'm really losing faith.

The dance music didn't help?

This [dance] encouraged [dance] extensive [dance] chartering [dance] of new [keep on dancing]...

I have to admit the dance music might be a bit creepy when used this way. Is that the problem?

MAB said...

Stag,

I hate to be permanent Eeyore, but I continue to see trouble ahead. The only positive thing I can say is that things have not been as bad as I had expected - yet.

I knew we were in trouble when unaffordability (stocks, houses) was widely viewed as proof of our prosperity and used as justification for excessive spending. As you can imagine, I'm thrilled with the stimulus plan and the proposed mortgage bailout plans.

One more thought. In 2005, I watched in disbelief as one wall street economist after another prattled on about how Hurricane Katrina would be good for the economy. In my book, natural disasters (and wars) destroy wealth. They are both are widely accepted reasons for money printing though.

BTW, that website appears to be infected.

Stagflationary Mark said...

MAB,

One more thought. In 2005, I watched in disbelief as one wall street economist after another prattled on about how Hurricane Katrina would be good for the economy.

Don't even get me started! Here's something I said back in 2004. It is a bit hard to read since I was debating another.

http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_C/threadview?bn=4110&tid=23054&mid=23058

Those folks on CNBC love to tell us how a weak dollar is good for us. These were the same people telling us how hurricanes would spur our economy. Did you notice how they stopped saying that when the 4th one hit? There's a limit to how many hurricanes our country can take. Hurricanes are not good for our country. They might spur something in the short-term, but in the long-term it is simply something that did damage to us. Why isn't that common sense? A weakening dollar is also not good for our country. If the dollar drops 10% does every worker get a 10% raise to compensate? No. In the long run it makes the average person a bit poorer. And a poorer consumer is a consumer that much closer to being tapped out.

Okay, the consumer looks pretty darned tapped out these days. Now what?

The following one is from 2005.

http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_C/threadview?bn=4110&tid=23704&mid=23711

"About half of the $30 billion in destruction is to public utilities and other infrastructure, the rest is mainly residential. The rebuilding of the damaged properties will increase employment and GDP."

It is enough to make you want to vomit. I was quoting the following article.

The Positive Spin from Hurricanes
http://www.businessweek.com/bwdaily/dnflash/sep2004/nf20040917_5464_db082.htm

Frickin' Illusion of Prosperity if ever there was one. You'd think the chief economist for Standard & Poor's would know better.

Stagflationary Mark said...

I should also mention that it is hard to read because Yahoo changed their formatting.

Stagflationary Mark said...

One more quote from that article.

Spending on rebuilding and repair will see national GDP get a boost -- likely in excess of its reduction from storm damage

Vomit I tell you. If that was truly the case, hand me a sledge hammer and I'll go on a prosperity generating spree down the block. We'll see how many of my neighbors thank me for their good fortune.

Hurricane Mark! That could be my new name, lol.

MAB said...

Stag,

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

I'm a big fan of parables & famous quotes. For some reason they make it easier for me to remember basic ideas that get forgotten/lost in the commotion.

Stagflationary Mark said...

http://www.phrases.org.uk/meanings/64950.html

"But few persons, so prone are we to grasp at the shadow at the expense of the substance, bear in mind the good old adage, 'A bird in the hand is worth two in the bush.'"

There's been a bull market in shadow grasping for about ten years.

Two birds allows you to have your bird and eat it too. Even that isn't good enough these days though. No sir.

Thanks to the miracle of 200-1 leverage, we can now have our bird and eat it, and eat it, and eat it, and so on, and so on, and so on. Or so the theory went anyway, right up until the point house prices stopped going up.

MAB said...

Stag,

http://en.wikipedia.org/wiki/Vandals#Sack_of_Rome

The Vandals were the ultimate GDP stimulus package. Although some might argue that there are times when it's better to avoid prosperity.

MAB said...

Stag,

I should also mention the Visigoths. Their leader, Alaric I, provided Rome with three separate stimulus plans. One of which included starvation.

Thrice blessed. Oh the prosperity. Too much of a good thing I say.

http://en.wikipedia.org/wiki/Sack_of_Rome_%28410%29

Stagflationary Mark said...

MAB,

This was the first time the city had been sacked in 800 years, and its citizens were devastated.

I'm having a hard time keeping my sacked cities stories straight.

History Hints a Recession Would Hit City Hard
http://www.nytimes.com/2008/04/28/nyregion/28york.html?ref=business

Once the layoffs on Wall Street start rippling through the city’s economy, Mr. Parrott said, “it’s going to take something unforeseen to prevent us from having a massive job loss.”

Note that there are references to the 1970s and "stagflation" in the story. Go figure.

MAB said...

Stag,

If that was truly the case, hand me a sledge hammer and I'll go on a prosperity generating spree down the block. We'll see how many of my neighbors thank me for their good fortune.

I think Greenspan called it "creative destruction." NIMBY really applies here.

Stagflationary Mark said...

MAB,

NIMBY really applies here.

It wasn't like I was going to build a prison and increase the sledge hammer workforce using chain gangs. Come to think of it though, it does sound like a good idea. Who wouldn't embrace a creative destruction productivity miracle?