The Sarcasm Report v.276

May 11, 2017
CNBC: Macy's shares plunge after huge earnings, sales miss; shows recovery a long way off

Nothing screams "recovery" like the long-term chart of the USA's department store employees since 2000. Yes, sir. Has recovery written all over it. Just need to be patient.

Speaking of easy recoveries, I'm looking for investors to help fund my state of the art Mexican 8-track tape factory. With your help, we're going to be cranking out all the hits of the 1970s just as nature intended, again.



¡Viva la recuperación!

Alien Conspiracy Theory of the Day

September 8, 2015
Alien Nuclear Wars Might Be Visible From Earth

If we can see "them" then "they" can see us.

The Trinity test involved only one explosion. But if there were many more explosions, involving many more nuclear weapons, it might generate enough heat and light to be seen from nearby stars, or from the deeper reaches of our galaxy—so long as someone out there was looking.

"They" may have better sensors than we do, sensors that might not even be limited by the speed of light. That means "they" may have seen us on July 16, 1945.

In 1955, Area 51 was acquired by the United States Air Force. Why? What was the real reason? To study alien scouting ships?

In 2002, Dick Cheney said that deficits don't matter. Well, deficits definitely wouldn't matter if "their" invasion fleet was first detected in 2002 and it would take just 14 more years for "their" slow moving colonization ships to get here. Would it?

In 2016, we're going to elect our next president. Donald Trump was born on June 14, 1946. That means he was conceived roughly two months after the Trinity test. Coincidence? I can't speak for you, but I'm going to need to see his birth certificate!

Crazy theory? Well, maybe. But consider this. Which candidate wants to move 11 million terrestrial aliens to Mexico? Is this some sort of practice run for the real thing? Think of the logistics and infrastructure needed to move millions of extraterrestrial aliens around this planet! Think people! Before we have blood coming out of our wherevers! ;)

A Friendly Reminder for Mexico

The cash we keep sending you is very valuable so please stop pooping on our vegetables! Thank you! Have a nice day! :)

September 10, 2015
2nd death linked to salmonella-tainted cucumbers

The outbreak, caused by a strain called salmonella Poona, has been identified as coming from cucumbers grown in Mexico...

September 5, 2015
What We All Need To Know During A Cucumber Salmonella Outbreak

While Salmonella comes from animal feces, fruits and vegetables can become contaminated.

One Overlooked Advantage of the Amero

North American monetary union

A concern with any unified North American currency is the differing economic situations between each country.

Like Germany and Greece? Hey, if Europe can pull it off then so can we! This is America, dammit! There is nothing we can't do if we put our minds to it!

So what is the overlooked advantage we would have? Well, right now we like to blame the POTUS (President Of The United States) for everything that goes wrong. It doesn't matter if it is a Clinton, a Bush, or an Obama. It doesn't even matter what the problem is. No matter what, the president is always to blame!

I just got off the phone with the Koch brothers, and they say we need to simplify the process. Make it even more clear to the American public who needs to be blamed.

An American Union could do just that. Instead of a POTUS, we would have a SCROTUM.

SCapegoat of 'R' Once Thrivin' United 'Mericas

Why did I lose my job? SCROTUM!
Why did my bank close? SCROTUM!
Why did my taxes rise? SCROTUM!
Why is the crime rate up? SCROTUM!
Why is my Social Security check missing? SCROTUM!
Why does my breath smell bad? SCROTUM!
Why did my wife sleep with the mailman? SCROTUM!
Why did they cancel Gilligan's Island? SCROTUM!

One office to take the blame! One office to protect and deflect! With nothing to gain and everything to lose, what could possibly go wrong? The SCROTUM is our future!! We must not let the European Union win!!

I Have Finally Solved Will Rogers' Toughest Puzzle

Live in such a way that you would not be ashamed to sell your parrot to the town gossip. - Will Rogers

Our pet parrot is roughly 20 years old and has been with us for about 10 of those years. She has bonded to me and me alone. Selling her to anyone else would make both of us sad and me very ashamed. For the longest time, I could not see a solution that allows me to live my life as Will Rogers intends. I have finally found the solution though.

I must become the town gossip!


Click to enlarge.

Seriously. No frickin' way I'd consider selling that bird, our other pets, or any other members of my family. He really didn't think it through.

And on that note, OMG! I just heard a rumor that Donald Trump might have actually been born in Mexico. A friend of a friend's friend just told me that they overheard something at the local mall!! Is it true? Who can say? Inquiring minds want to see his birth certificate though, if he still plans to become president.

Oh, and get this. It was also overheard that Trump wants to build walls made of gold around Mexico so that he can turn the entire country into an epic gated golf course for the world's elite. If true, kind of puts his "rapists" and "murderers" quotes in perspective. Perhaps it is simply intended to drive down labor costs? Who knows? I have not heard him deny it though.

Gossip, baby. That's what I'm talking about. It's the only way to protect our bird! Hahaha! ;)

Parabolic Trend Failure of the Day: Real Net Interest Income

The following chart shows the 10-year moving average of real net interest income (interest received minus interest paid).


Click to enlarge.

Check out that blue parabolic trend failure. With an r-squared of 0.99956, it's yet another parabolic sight to behold. It never ceases to amaze me how many unsustainable but nearly perfect parabolas this economy can generate. Okay, now on to the good stuff.

What does it mean if the red trend continues?

Although it is a parabola, it is one with a very long period (and the lower r-squared value implies more volatility). As more and more bonds are issued and more and more money floods into the banking system, the combination just isn't generating any additional real net interest though, at least not yet. Big shocker. If you believe that our empire is in a period of slow decline, as I do, this really shouldn't surprise you much. A slowly declining empire cannot support rising real yields. Ours can't even support steady real yields. They've been falling for decades.

Here's the good news though, if you can call it that.

1. Rome was not built in a day.
2. Rome did not fall in a day.

That's especially true in a world where the actual Rome isn't doing all that well. The rest of the world is setting the bar pretty low for us.

What have I chosen to do about this parabolic trend in red?

At every opportunity, I have locked in real yields on long-term TIPS and I-Bonds. It does not pay to procrastinate as real yields fall over the long-term. In my opinion, sitting in cash is the ultimate form of procrastination.

Much to the dismay of "bond bubble" prognosticators, so far the plan has worked out well. I suspect that it will continue to work out well. I could be wrong though. The economic dam has cracks in it. There's really no telling how long it can last. I'm 50. From a purely self-serving standpoint, I'd strongly prefer that the dam holds until at least 2050.

Bulls and bears alike should really be rooting for my plan to work, for if I am financially ruined holding a "safer asset" then I will not be going alone. I'll be taking a great many "risk asset" holders with me. (As I've stated before, the same does not work in reverse though. I do not depend on "risk asset" holders nearly as much as they depend on me.)

In any event, I continue to be extremely grateful that I was born when and where I was. I enjoy modern conveniences. I have no desire to move to China. I won't be bribing the border guard to get into Mexico. There are probably worse places to be on this earth if and when the you know what really does meet up with the fan. I definitely expect the fan to get plenty of use. I retired in 1999. There have certainly been plenty of things flung at it so far. Seriously.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Small Time Deposits vs. Large Time Deposits

Click to enlarge.

Small time deposits have become an endangered species.

There was a temporary exponential trend failure (seen in the break from the blue line) heading into the Great Recession, but we're apparently getting back on trend soon (using the new red line).

Giant Sucking Sound

The phrase, coined during the 1992 U.S. presidential campaign, referred to the sound of U.S. jobs heading south for Mexico should the proposed free-trade agreement go into effect.

North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994.

Click to enlarge.

Source Data:
St. Louis Fed: Custom Chart
St. Louis Fed: Trade Balance: Goods and Services, Balance of Payments Basis

Imports: China vs. Mexico

Click to enlarge.

It looks to me like China's competitive advantage relative to Mexico has peaked. It happened during the Great Recession and we're well below that point now. I can't say with any certainty if the peak is permanent or simply temporary. I am willing to call it an exponential trend failure though.

In any event, I wonder what the savvy Chinese have to say about that?

Source Data:
St. Louis Fed: Custom Chart

Operation Titty Twister

The following chart shows the Fed's treasury securities maturing in more than 10 years divided by the Fed's treasury securities maturing in 1 to 5 years.


Click to enlarge.

The twisting will continue until morale improves?

What is Operation Twist?

“Operation Twist” is a program conducted by the U.S. Federal Reserve (“the Fed”) in late 2011 and 2012 to help stimulate the economy. Operation Twist is the nickname for the Fed’s initiative of buying longer-term Treasuries and simultaneously selling some of the shorter-dated issues it already held in order to bring down long-term interest rates.

From Dusk Till Dawn

After successfully reaching Mexico, they arrive at the "Titty Twister", a strip club/brothel in the middle of a desolate part of Mexico, to meet their contact Carlos at dawn.

Coincidence?



What would we do without gallows humor?

Source Data:
St. Louis Fed: Custom Chart

A World of Currency Manipulators!

Well, number one on day one is acknowledging something which everyone knows. They're a currency manipulator.

There's nothing I enjoy more than being told what I'm already supposed to know. And when we're done with China, let's go after Germany, Japan, Canada, and Mexico too! All the world is manipulating our world's reserve currency!

The following chart shows our real monthly trade deficit per capita (March 2012 dollars). The black line represents Germany, Japan, Canada, and Mexico. We have large trade deficits with each of them individually. The combination is a bit brutal. The red line represents China.


Click to enlarge.

It would seem that China was late to the currency manipulation party. Keep in mind that China has a whopping 1.3 billion people (roughly 4x more than the combined total of the other countries I have listed here). All things being equal, one would therefore expect to see their contribution to our trade deficit be much larger.

Perhaps China should do the rational thing and break into four smaller countries so that we don't notice them as much. Be like South Korea. Attempt to stay under the radar.

Or, alternatively, we can make China our scapegoat. It won't fix our problems but it will create some applause in a presidential debate. And in the end, isn't applause all that really matters?

Source Data:
St. Louis Fed: Custom Chart

Wholesome Sustenance

Click to enlarge.

So much for rising prosperity as seen in the eyes of fresh whole milk. That party ended several decades ago.


Click to enlarge.

Et tu, manufacturing? Then fall, Caesar! Some to the common pulpits and cry out “Liberty, freedom, and enfranchisement!”

Al Gore on Free Trade

With one third of America’s growth due to exports in the past six years, and export-related jobs paying 12-18% more than other jobs, Gore has fought for free and fair trade to improve the lives and livelihoods of American families.

...

In the fall of 1993 the White House faced heavy opposition to NAFTA from labor and House Democrats. The opposition said the accord would accelerate the exodus of high-paying manufacturing jobs across the border. That point was made most vividly by Ross Perot, who predicted that it would produce a “giant sucking sound” made by the companies headed for Mexico.

NAFTA's effect on United States employment

According to the Economic Policy Institute’s study, 61% of the net job losses due to trade with Mexico under NAFTA, or 415,000 jobs, were relatively high paying manufacturing jobs. Certain states with heavy emphasis on manufacturing industries like Michigan, Ohio, Pennsylvania, Indiana, and California were significantly affected by these job losses.

Inglorious Wage Basterds (Musical Tribute)

I suggest you listen to the music while reading this post. It can't hurt, much.


Click to enlarge.

It looks a lot like the cumulative trade deficit chart. Big shocker.

June 25, 2011
Missing Jobs vs. Trade Deficit

Click to enlarge.

The difference seems to be that the boost to the stock market is/was temporary but the cumulative trade deficit lives on. Behold the staying power of endless debts and deficits.

January 14, 2004
NAFTA's Legacy -- Profits and Poverty by David Bacon

Predictions of U.S. job losses were, if anything, underestimated. By November 2002, the U.S. Department of Labor had certified 507,000 workers for extensions of unemployment benefits under the treaty because their employers had moved their jobs south of the border. Most observers believe that is actually a significant undercount, partly because many workers losing jobs don't know they qualify for trade-related benefits. According to the Economic Policy Institute in Washington, NAFTA eliminated 879,000 U.S. jobs because of the rapid growth in the net U.S. export deficit with Mexico and Canada.

While the job picture for U.S. workers was grim, NAFTA's impact on Mexican jobs was devastating. Before leaving office (and Mexico itself, pursued by charges of corruption), President Carlos Salinas de Gortari promised Mexicans they would gain the jobs Americans lost. In the United States, he promised that this job gain would halt the northward flow of Mexican job-seekers.

NAFTA's first year saw instead the loss of more than a million jobs across Mexico. To attract investment, NAFTA-related reforms required the privatization of factories, railroads, airlines and other large enterprises. This led to huge waves of layoffs. Mexican enterprises and farmers, who couldn't compete with U.S. imports, also shed workers, and the subsequent peso devaluation cost even more jobs. Because unemployment and economic desperation in Mexico increased, immigration to the United States has been the only hope for survival for millions of Mexicans.

This was written when the unemployment rate was 5.7%. It now stands at a whopping 9.1%. It's the gift that keeps on giving. Sigh.

Source Data:
DOL: History of Federal Minimum Wage Rates
St. Louis Fed: Dow Jones Industrial Average

32.4 Million Missing Workers

The following chart shows the civilian labor force (those who have jobs or are seeking jobs). I've included an exponential trend line based on the data from 1948 through 1989.


Click to enlarge.

Here's a chart showing the difference between where we are and the trend line.


Click to enlarge.

Ross Perot on Free Trade (1993)

NAFTA is really less about trade than it is about investment. Its principal goal is to protect US companies and investors operating in Mexico. The text of the agreement is contained in two volumes covering more than 1,100 pages. The text is mind-numbingly dull. Large portions of it are written in the type of obscure legal terms found on the back of an insurance policy. Buried in the fine print are provisions that will give away American jobs and radically reduce the sovereignty of the US.

Mission accomplished. Now what?

It isn't just the trade deficit that hurts us going forward though. Think demographics.

January 14, 2010
Long-term Household Formation Trends

U.S. Census Bureau: State & County QuickFacts

Persons per household, 2000: 2.59



There's a risk that the long-term trend is forming a bottom. There's an additional risk that it won't just bottom, but that it will actually begin to reverse. The stock market's been stagnant for a decade. Unemployment is now extremely high.

The population will most likely continue to grow, but if more and more people live together in the same household ("for economic reasons" as seen above) then that's just one more headwind for the housing market.

Here's an update.

U.S. Census Bureau: State & County QuickFacts

Persons per household, 2005-2009: 2.60

See Also:
This Labor Day Is Different
39.0 Million Missing Payroll Jobs
Missing Jobs vs. Trade Deficit

Source Data:
St. Louis Fed: Civilian Labor Force

The Sarcasm Report v.56

Deflation is the worry; inflation looms, too

More than any one data point, the bet on deflation really depends on pessimism: a glass-half-empty look at sluggish growth, feeble consumer demand and the large swath of American workers, factories and resources that are idle.

Deflation depends on pessimism? That's good to know. You won't find any of that here. If anything, this blog has been too optimistic.

Calculated Risk: Negative News Flow

Although not unexpected, the news flow is about to take a more negative tone starting with the existing home sales report on August 23rd.



There you go. More negative waves. Have a little faith baby. Have a little faith.

Strong economy may fix border problems, says top border official

"If you combine the natural resources of Canada with the fiscal and financial capital and knowledge of the United States with the human labor resources of Mexico, it will put us in a very good place to compete."

The human labor resources of Mexico? Sweet! The natural resources of Canada? Fantastic! The fiscal and financial capital and knowledge of the United States? Priceless!

Citigroup

Heavy exposure to troubled mortgages in the form of Collateralized debt obligation (CDO's), compounded by poor risk management led Citigroup into trouble as the subprime mortgage crisis worsened in 2008. The company had used elaborate mathematical risk models which looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn, or the prospect that millions of mortgage holders would default on their mortgages.

...

Over the past several decades, the United States government has engineered at least four different rescues of the institution now known as Citigroup.

We'll be supplying the world with "Citigov" and its elaborate mathematical risk models! How can we possibly lose? Woohoo!

Immigration Math Is Not What You Would Think

The Economics of Immigration Are Not What You Think

With my colleague Jiwon Vellucci, we found, to start, that more than one-third of recent immigrants come from Europe and Asia, while less than 57 percent have come from Mexico and other Latin American nations.

That is such an interesting way to word it. I think it pretty much sums up any potential biases within the article.

Let's say Mr. Shapiro and I won the lottery together. Can't you just picture him saying...

Let's split the winnings fairly. I'll take less than 57% for myself. That will leave you with more than one-third!

Hey, just a thought.

The evidence regarding the impact of immigration on wages also turns up some surprising results. First, there’s simply no evidence that the recent waves of immigration have slowed the wage progress of average, native-born American workers.

Rumor has it that obscenely highly paid CEOs are making the "average" native-born American workers seem better off than they really are. Has that been factored into the analysis?

Critics blast Boy Scouts for CEO's $1 million compensation

"This is crazy. This is just crazy. First class tickets. Country clubs, Admirals Club? This is ridiculous,” said Ken Berger, president and CEO of Charity Navigator, which provides independent analysis of non-profit organizations.

How about "average" native-born American teenagers? Has that been factored in?

Are immigrants to blame for teen unemployment?

"The decline in teenage employment is very worrisome because a large body of research shows that those who do not work as teenagers often fail to develop the work habits necessary to function in the labor market later in life," said Steven Camarota, the director of research at the Center for Immigration Studies who co-authored a study about the issue.

Overall immigration – both legal and illegal – is a major factor in the steady decline in U.S.-born teenage participation in the summer workforce, according to a report issued Wednesday by Camarota's organization, an anti-illegal immigration think tank that believes in restricting legal immigration.

"A Drought of Summer Jobs, Immigration and the Long-term Decline in Employment among U.S. Born Teenagers" shows charts comparing various occupations and states. Before the current recession, the summer labor force participation of U.S.-born teens was decreasing, the report says.

Mexico's Insurance Policy

Mexico buys $1bn insurance policy against falling oil prices

"We want this as an insurance policy," said Agustín Carstens, Mexico's finance minister. "If we don't collect any resources from this transaction, it's OK with us." That would mean the oil price had remained above $57 a barrel, he added.

I own TIPS and I-Bonds as an insurance policy against higher inflation. If deflation appears and I don't collect any resources from the transaction, it's OK with me.

I also have fire insurance on my house. If my house doesn't burn and I don't collect any resources from the transaction, it's OK with me too.

3 Ways to Fix the Current Account Deficit

On April 22, 2008 I posted What You Would Expect to See in a Developing Country.

In that post, I referred to the following paragraphs from America, the Next Great Banana Republic written by Richard Backus in January of 2008.

Let's see how the predictions are going so far.

There are basically only three ways to remedy a current account deficit. One is to impose trade barriers in order to force a balance between exports and imports. This is what the IMF and US government have discouraged Mexico from doing. The IMF and US government are committed to "free trade" and are advising all countries to do likewise. In many cases this is not in the best interest of these less-developed countries because they will continue to need protection for their infant industries if they are to survive.

The second way to remedy a current account deficit is to allow a devaluation of the currency making it more costly for its citizens to buy foreign products and making its exports more competitive overseas. The third way is adopt economic policies designed to create recession, which undermines the public's ability to buy foreign-made goods. Unfortunately, if this is done when a country in already in recession, it simply creates a depression with widespread unemployment instead of simply less purchasing power.

In response, I said...

The second way is being tried now. Unfortunately, there are at least three problems. First, as our currency declines the price of oil rises. Paying more for oil makes the trade deficit worse. Second, we're addicted to oil. Our consumption of oil isn't falling nearly as fast as the value of the dollar is. Third, one of our major exports is food. Don't we kind of want to eat it ourselves or is that just me?

I'm seeing a major problem with the third way. Perhaps it is that "if this is done when a country is already in a recession" part? Or perhaps it is the "depression with widespread unemployment" part? Who knows?

September 16, 2009
U.S. Current-Account Gap Shrank Last Quarter on Trade (Correct)

Sept. 16 (Bloomberg) -- The U.S. current-account deficit narrowed in the second quarter to $98.8 billion, the least since 2001, reflecting a smaller shortfall in trade of goods as imports and exports both decreased.

This is good news. We only have $100 billion per quarter to go before things are in balance. We're half way there! Woohoo!

I'm confident that a mixture of all three ways to shrink the current account deficit will ultimately work in the end. We're making so much progress. The annual current account deficit used to be $800 billion a year.

Here's the plan.

We use the first way by placing tariffs on incoming Chinese tires. Check! We use the second way by making our currency as toxic as possible. Check! We use the third way to drive our unemployment up past 10%. Check!

We're using all three ways now! So what could possibly go wrong?

“We expect to see more stable demand going forward so we could see a mild widening of the current account next year,” said David Semmens, an economist at Standard Chartered Bank in New York.

Oh oh. Can't have that. Where is Greenspan's Age of Turbulence when we need it? Fortunately, I'd wager that it is just a matter of time.

Only after the last tree has been cut down. Only after the last river has been poisoned. Only after the last fish has been caught. Only then will you find that money cannot be eaten. - Cree Indian Prophecy

Sin Tax Thoughts

First off, I want to say that I don't smoke.

On the one hand, if people find pleasure in doing something that will most likely lower their life expectancy that's just fine by me. We're all going to die someday. Smokers should be aware of the risks by now. I'm generally not in favor of government attempting to dictate risk management onto individuals.

On the other hand, I am in favor of smoking bans to protect me from smoke in public places and the workplace. That does not mean that I would be opposed to private restaurants that allow smokers to smoke though, since nobody is forcing me to patronize them. Further, one would think that in a capitalistic society, the free market itself would eventually open up at least a few smoke-free restaurants to cater to my desires.

So anyway, that's my stance on smoking.

We are repeatedly told that smokers are a financial burden to us all. It is used as a justification to increase the taxes on smokers as a way to pay for it. However, is smoking actually a financial burden on society?

May 14, 2009
Do smokers cost society money?

A Dutch study published last year in the Public Library of Science Medicine journal said that health care costs for smokers were about $326,000 from age 20 on, compared to about $417,000 for thin and healthy people.

The reason: The thin, healthy people lived much longer.

It seems that the "smoking burden" myth falls into the Iraq's weapons of mass destruction filing cabinet. Big surprise there.

Now there is talk of a soda pop tax.

Pro-Con Should Congress tax soda pop to pay for health care?

Let's start with the "No" camp first. That's the camp I'm in. It's a tax on food. That means it hits the poor the hardest (since the poor spend a larger percentage of their incomes on food). How is that even remotely fair?

You know how everyone was telling us to invest in “Forever” stamps before the postal rates went up this week?

Here’s an even more useful tip: Stock up on soda.

Been there, done that.

Here's a glimpse from the "Yes" camp.

The thinking, in part, is that, as with smoking, those who sell soda and those who consume soda ought to help pay for the cost of health care associated with the product.

As seen above, smokers do not appear to be a financial burden on society. They cost more per month (as seen in insurance rates for smokers vs. non-smokers) but they live fewer months. Further, it doesn't even speak of the savings to Social Security and Medicare as smokers die earlier than average. If we based the tax solely on the thinking that smokers "ought to help pay for the cost of health care associated with the product", then smokers should actually be given a rebate, not an extra sin tax.

Why is it automatically assumed that those who consume soda will be a financial burden too? It is not possible to remain permanently healthy no matter what we do. Eventually, we all become less healthy and at some point we will all die. Prolonging it seems to me to be the bigger financial burden on society. Picture what would happen to Social Security and Medicare if we all live to be 100 years old.

I really didn't want to go down this path. I don't enjoy putting a price on human life. However, that's exactly what the government is trying to do with these sin taxes, and in my opinion they've got the math completely backwards.

The true sin is finding new excuses to tax the poor while turning a blind eye to the outsourcing of jobs to China, India, and Mexico. In this respect, I'm completely in favor of sin taxes. Let's tax the sinners.

January 6, 2009
Congress just took a pay raise - Didn't they tell you?

I think it's a mighty fine thing that we taxpayers can afford to give our duly elected representatives a raise in pay. It's a sure sign of how well we are doing as a nation. Never mind the fact that the recent congressional pay raise of $4,700 equals almost 20% of what I earn annually, or equals about 10% of the annual salary of a teacher, fire fighter, or cop. Those hard working legislators deserve every dollar they get -- all $169,300 of them.

The Thoughts of Andy Xie

October 17, 2005
Housing market: America's 'weakest link'

Morgan Stanley economist Andy Xie believes a global housing crash is a serious possibility.

"Either you have a big adjustment like a 20 percent or 30 percent decline, or you have a big recession, or you have a slow decline in property prices or several years of no growth," said Xie, based in Hong Kong.

Hindsight has been very kind.

October 12, 2006
Morgan Stanley Fallout From Andy Xie Costs More Jobs (Update1)

Xie, a Shanghai-born economist who worked at Morgan Stanley for nine years, sent the e-mail to his colleagues after attending the International Monetary Fund and World Bank annual meetings last month in the Southeast Asian island state. The economist questioned why Singapore was chosen to host the conference, and said delegates ``were competing with each other to praise Singapore as the success story of globalization.''

``Actually, Singapore's success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials,'' Xie wrote in the e-mail. ``Indonesia has no money. So Singapore isn't doing well.''

Based on the stock price of Morgan Stanley today, I'm guessing he's not all that upset over losing his job for speaking his mind in what was intended to be an internal e-mail. Call me silly but perhaps the entire "success story of globalization" is being called into question right now.

Apr 30, 2007
Andy Xie warns of China crash

"I think it's going to be bust very soon," Xie said, adding that a combination of excess liquidity, rising inflation and rich valuations would result in a global crash soon.

"People will be surprised. When the end comes, it's going to be pretty bad," Xie added.

I think it is safe to say, using hindsight, that most investors were surprised and it's been pretty bad.

So what's Andy Xie saying now?

October 8, 2008
Obama or McCain: The Dollar Will Weaken

The US property-cum-credit bubble results from a desire to maintain a living standard higher than its fundamentals could support. The bursting of the bubble should have made the US face up to reality. But it is not doing so. The current administration is using the central bank to lend to failing financial institutions to keep them alive. Unless political changes lead to a different approach, the US will likely stagnate, like Japan in the 1990s, and with the added problem of inflation.

Since my blog is named Illusion of Prosperity, it is probably not needing a huge leap of faith to guess where I stand on that prediction.

The policies that both Democrats and Republicans have promised in their campaigns are not really addressing the fundamental problems. One US politician recently asked me what I thought the US should do. I opined that the US should spend less and produce more. With the policy circle talking up another fiscal stimulus package, my idea took him by surprise. But the US got into the current situation by spending too much money – how can spending more solve the problem? Both parties are promising more money for healthcare and education, bailouts for delinquent mortgage borrowers, and tax cuts; exactly the opposite of what’s required.

As stagflation takes hold, the US will become much more defensive with regard to globalization. The Doha Round of free trade talks failed due to opposition from developing countries. The next US government won’t do anything to revive it. Further, it may back away from existing free trade arrangements, such as the North America Free Trade Agreement (NAFTA) between Canada, Mexico, and the US. The direction on free trade is clearly backwards.

Since stagflation is in my name as a seemingly permanent fixture, you can pretty much bet that I believe in that outlook as well.

Regardless of who wins, it will be extremely difficult to turn the economy around. The US has been living in a debt bubble. Greenspan kept interest rates continually low during his 18-year reign at the Fed, didn’t rigorously regulate derivatives, and tolerated the subprime surge. Wall Street concocted complex products with assumed, not real, reduction in risk, and sold them to credulous investors. But this bubble-conducive environment wouldn’t necessarily have led to a bubble unless American households were eager to borrow.

Once again, no big leap of faith needed.

The US economy is facing its biggest crisis since the Great Depression, one that will require considerable sacrifice to solve. But politicians are talking the other way and promising more goodies. The dollar is the fallback plan. Printing money spreads the pain for all dollar holders, and many are foreigners. This is the last tool that the US has to not pay the full cost on. Eventually, foreigners will realize this and run. When the dollar goes into free-fall, America will finally have to wake up to reality.

I suspected the American dream would soon become a nightmare when I started this blog late last summer. Want to bet that I've changed my mind? I'll give you 50 to 1 odds and I'll even allow you to use 30 to 1 leverage to sweeten the deal. I will need to see the money up front though. This is the New America. I don't want to assume any counterparty risk on the off chance you lose.

Krugman Sees No Wage Inflation Spiral

A Return of That ’70s Show? (Paul Krugman)

It’s true that the soaring prices of oil and other raw materials have led to public anguish over the rising cost of living. But this time around there’s no sign whatsoever of the wage-price spiral that, in the 1970s, turned a temporary shock from higher oil prices into a persistently high rate of inflation

There's no sign whatsover of the wage-price spiral? First, and most importantly, the stagflation of the 1970s was not isolated to America. It was a global problem.

China officials hike wages, threatening boost to inflation

If companies are told to pay higher wages, they may have to raise their prices to stay out of the red, the economists argued, warning this could be the beginning vicious cycle.

I bring Chinese wages up because unlike the 1970s, "Made in China" seems a very popular sticker these days. We send China our paper dollars and they send us back actual goods. Their workers now want raises? No problem. We can print more money to appease them in the exact same way we printed more money to appease ourselves (tax rebate checks).

Divided Over Trade (Paul Krugman)

We’re buying a lot more from third-world countries today than we did a dozen years ago, and the largest increases have come in imports from Mexico, where wages are only about 11 percent of the U.S. level, and China, where wages are only 3 percent of the U.S. level. Trade still isn’t the main source of rising economic inequality, but it’s a bigger factor than it was.

We can also print more money to appease Mexico if need be. This would be in addition to the Mexican government's monetary printing press of course.

Mexico's poor get food cash boost

Governments around the world are under pressure to intervene to help the poorest cope with the sharp food price rises.

Bad for the Country (Paul Krugman)

About the trade deficit: These days the United States imports far more than it exports. Last year the trade deficit exceeded $600 billion. The flip side of the trade deficit is a reorientation of our economy away from industries that export or compete with imports, especially manufacturing, to industries that are insulated from foreign competition, such as housing. Since 2000, we've lost about three million jobs in manufacturing, while membership in the National Association of Realtors has risen 50 percent.

Those three million lost jobs in manufacturing led to cheaper goods. I think that deflationary ship has just about run its course. Now we're looking at an iceberg (as seen here).

The trade deficit isn't sustainable. We can run huge deficits for the time being, because foreigners - in particular, foreign governments - are willing to lend us huge sums. But one of these days the easy credit will come to an end, and the United States will have to start paying its way in the world economy.

What are they going to do? Stop selling us goods? It seems far more likely they'll just raise prices. Of course, if they raise prices and we continue to buy anyway (think oil), then the trade deficit doesn't really get all that much better. Does it?

To do that, we'll have to reorient our economy back toward producing things we can export or use to replace imports. And that will mean pulling a lot of workers back into manufacturing. So the rapid downsizing of manufacturing since 2000 - of which G.M.'s job cuts are a symptom - amounts to dismantling a sector we'll just have to rebuild a few years from now.

The "free (lunch)" deflation we imported over the last few decades would be undone? I can't argue but it does sound expensive. I think I'll remain a stagflationist if you don't mind.

Zimbabwe: 'RBZ Money Printer Will Run Overtime'

"Government has slowly been pinching away the nation's savings through very low interest rates, well below inflation," Robertson said.

The Macro Wage Curve and Labor Market Flexibility in Zimbabwe

The main cause of falling real wages in Zimbabwe is reduced economic activity.

Other than the magnitude of the potential problem, how is Zimbabwe's inflationary path all that much different than ours? I doubt very much Zimbabwe's wage-spiral can be blamed when their unemployment is 80%.