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Do you think I am insane? This is not Mad Money! Making daily predictions just makes me look stupid.
I have standards to maintain. I can't predict the unpredictable on a regular basis and still expect anyone to think I'm credible. It's hard enough to come up with long-term winners of the new world. Incredibly hard, using hindsight of course.
I don't want you to leave empty handed though. Here's something for those who enjoyed the comedy of Better Off Dead, but have always wondered what the horror version would be like.
Enjoy!
Over the long-term, I suspect there will be plenty of horror and comedy in the global stock markets, for both bulls and bears alike. That's been true for centuries. What hasn't been true for centuries is the miracle of modern discovery and its fueling of our ever growing trade deficit.
Tuesday: Case-Shiller House Prices
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[image: Mortgage Rates] From Matthew Graham at Mortgage News Daily: Mortgage
Rates Start New Week With Some Hope
Last week wasn't great for mortgage rates....
3 hours ago
10 comments:
Must read...
Mish: Paul Krugman's Magic Keynesian Mirror
I may be biased though.
Kiss the Illusion Goodbye
However, the reality is there was no recovery in the first place, only an illusion caused by unsustainable stimulus.
Greenspan's policies seemed to work, but it was nothing but an illusion.
You will always want more for the simple reason there is no real demand for goods and services, only an illusion of a recovery that comes from passing out "free money".
When you look in a mirror you see the illusion, what you should see is a Keynesian warthog.
Stag,
I tend to agree with Mish these days. More debt is not the answer at this point especially when the debt is used to bailout the wealthy and irresponsible. But I'm not sure an all out deflationary rout is the way to go either.
I think Mish is as block headed as Krugman. Austrian economics is not the holy grail as Mish believes. All schools of economic thought have kernels of wisdom and truth. But none of them are the perfect fit all the time. That much should be obvious.
Here's a few simple examples. Mish thinks that higher taxes are always counter-productive. But our history suggests otherwise. We raised taxes dramatically at various times and the country thrived. And Reagan and Bush cut taxes and we became impoverished with debt. I know, Mish will find a way to blame it all on the Government. I don't buy it. All successful economies are managed to some extent. It's a matter of degree.
If one can understand the effects of compound interest and wealth concentration (they're related) then why can't one also understand the need to redistribute wealth at various times? I'm all for letting the free market work, but so much the wealth today is not the result of free markets.
I generally prefer smaller Government, but Mish thinks all Government and regulation is evil. Somalia and Afghanistan have free markets, but they're not exactly success stories. And cutting financial regulations under Greensham didn't work out so well either.
Republicans/Democrats, Keynesians/Austrians, us vs them, A or B. Puleeeeeze!
Ultra CONservative is as bad as Ultra Liberal. Where are the measured responses?
mab,
In a perfect world, I think we should probably borrow enough to solve our cyclical problems but no more than that.
No amount of debt can solve our structural problems (as seen in the trade deficit).
I guess you could call it a measured response.
As for taxes, the rich can certainly afford to pay more. My state just opted to tax soda though. The poor will feel that FAR more than the rich will. That tax therefore disgusts me.
Stag,
No amount of debt can solve our structural problems (as seen in the trade deficit).
Agreed. We can't get out more than we produce over the long run. Sadly, your "scary" trade deficit chart proved that we are NOT zero bound - we're negative! And the borrowed money has to be paid back with interest. Many will end up with far less than they otherwise would have.
Beyond that, I'm worried that we've polluted the system with so much bad debt that it is down right unstable.
It's an unbelievable mess.
mab,
It's an unbelievable mess.
Had it been believable, I would have had to compete with millions of other Illusion of Prosperity blogs. I think I would have pursued other interests instead, lol. Sigh.
The problem with this discussion is a misunderstanding between "rich" and "wealthy".
Most people think that rich refers to salary. One can have a very high salary, but if one is overloaded with debt, one doesn't have any wealth.
Wealthy people--these would be the truly rich--protect their money. They set up corporations or form foundations, and pay themselves a modest income. Thus, increasing income taxes does not affect them as much as it does the highly salaried. There is no tax on wealth.
That said, let's do a thought experiment. Imagine a triangle, the three points of which represent three cities, Ed, Mc and Ms.
Ed has a university and the county courthouse. Mc has commercial development, with major stores that lead the nation in sales. Ms has the preferred school district and many finely built subdivisions.
Now, where is the most valuable land?
Answer: it's in the center.
This is what I'm talking about. Back when we bought a real estate company, for $250,000 in 1980, we had one office in downtown Ed. We subsequently expanded to a second office in downtown Mc. Because the board extends to sixteen cities and towns, not to mention an extremely large rural area, we could do business anywhere.
But at one point my mother decided that she had twice the office expense, but hadn't doubled listings and sales. So we shut down both offices, bought an older ranch home (in the center of the triangle) and converted it into one office that could serve the whole area. That was in 1990.
Since then the growth and development has been extraordinary. Ed, Mc and Ms are merging together. Our office sits on six acres of undeveloped land right where the most development is taking place. New homes, retaurants, banks, title companies, shopping centers are springing up all over the place.
Of course, in the current economic environment, growth has slowed significantly, due to the downtrend. So what are we to do?
Wait. Eventually the economy will rebound and growth and development will return. At that time, say fifteen or twenty years from now, those six acres of undeveloped land will be worth millions.
The people I know personally who made a whole lot of money in real estate all did it the same way. By buying land on the outskirts and waiting patiently for growth and development. It may take decades, but if the payoff is 10x what you paid for the land, what's the loss?
Not much. The only real consideration is the gain.
It may take decades And then you die.
Sorry, couldn't resist.
There's a joke about it being best to have miserly ancestors, but I forget how it goes. I do remember the proverb about shirtsleeves to shirtsleeves in 3 generations.
Well, I'm the second generation. And since I don't have any children, that proverb doesn't apply to me.
The people I know personally who made a whole lot of money in real estate all did it the same way. By buying land on the outskirts and waiting patiently for growth and development. It may take decades, but if the payoff is 10x what you paid for the land, what's the loss?
Gawains,
I wish you the best, but caution that that they are still waiting in Japan, Detroit, Trenton, Camden, etc. Also, my father's house is worth about 10 times what he paid. Unfortunately, almost all of the gains are the result of inflation. After expenses and taxes, it turns out his house was not an investment at all. It was just a place to live.
AllanF, GawainsGhost, and mab,
"There's a joke about it being best to have miserly ancestors, but I forget how it goes. I do remember the proverb about shirtsleeves to shirtsleeves in 3 generations."
"And since I don't have any children, that proverb doesn't apply to me."
"After expenses and taxes, it turns out his house was not an investment at all. It was just a place to live."
I don't know if I am safe or not.
My attire of choice is t-shirts with holes in them (mostly from a certain bird's beak, lol).
My generation also ends with me, as I don't have children either.
And lastly, if my house ends up being an investment and not just a place to live it will simply be because I was fortunate to have bought in 1997. I could go either way on that. I expect my house to continue to drop in nominal price and I have very little idea where the long-term bottom might be.
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