Stock market investment blog

Interesting article here on the problem facing South Korea. They prefer a weaker won to drive exports but if they fight inflation at home the won gets stronger.

We’ve known this currency war is coming because it has to. An economy that depends on the whole world selling to US consumers, on credit, while taking America’s jobs and industries can not be sustained. Some people are trying to keep it propped up somehow but it can’t really work out that way, can it?

The way this plays out over the next couple of years is going to be pretty fascinating and will have a huge impact on our prosperity. Do you accept Martin Wolf’s assertion that the US will inevitably win the war by inflating internally through QE? If so at what price does this victory come and how do you invade inflation and high interest rates once the recovery comes?

To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world

Get this sequence of logic:

Bernake: The coordinated response of the central banks saved the world from a financial meltdown
Bernake: Now government has to raise taxes and spend less

Ok, here is reality:

He, and his beleif system and many structural assumptions was a huge part of the latest financial meltdown

He did not see any need to be concerned about a sub prime bubble or exotic instruments as per the Open Market Meeting Notes of the time

Six months into the recession and in mid 2008 the Fed offically said their likely would not be a recession

Six months later they said the worst of the unemployment would be 6.1 % in early 2009 and full and rapid recovery would commence at that point

They just absorbed/created as much American debt in the last two years as was created in all the time from the time we started putting in electric lines in some cities until 1995

They did not save anything…they extended and pretended

Yet its time for us to pay higher taxes now that he saved the world from a problem he sponsored or “sheparded” into being and never saw and even after seeing it badly mis called its depth and nature.

Yet he is not challenged on any of this.

We forget that the Fed’s charter is not to help the nation or the citizens of the nation. It is to preserve the banks. That is its actual charter.

So who is in charge around here? And what are they doing?

Here’s an article on corporate debt and the risk that if leveraged companies cannot get access to credit, they default on their maturing bonds and go into bankruptcy. The act of defaulting is deflationary, all other factors held constant.

Fed monetizations are less than the decline in total credit outstanding for now but inflation could accelerate if the Fed panics later this year and starts monetizing at an increasing rate.

Just talked to a friend who had some interesting things to say about the economy, particularly about how we are being misled by the government and Wall Street:

This is the front end of a recession – the tougher back end is in front of us.

Jobs are a lag…not a lead factor. This is not an inflation or inventory driven correction…this is a global credit and banking collapse.

Name a recession with a 17% unemployment rate on the front side since the panic of 1837? The 17% is not the government number of course – Birth death model corrections and other “assumptions” should not be accepted just becasue it convieniences them…the same calaculation basis used in the Great Depression (which was 30-33% at its trough) yields a number roughly north of 17% right now.

Japan is the second largest economy in the world. It dropped 41% in May and 43% in June….name a time when a major nation dropped like that on the front side of a recession?

You know, its a misnomer to call the end of the decline “a recovery” …thats Orwellian. The economy dropped like a stone…and the relief some think they see is the flattening out at an economy much smaller than it used to be…but with out the cash and credit to expand again normally found at the beginning of a true recovery…its not going to get better. Sorry.

What do you think about the economy? Are we flattening out? How long until we see an actual recovery and not just less of a decline?

You’ve probably seen the headlines about how Buffet says the economy is in shambles. If you haven’t already, take a look at the full interview because it doesn’t sound to me that he thinks we’re a hopeless case. He’s basically saying we will recover but there’s a risk of inflation and it may take some time to recover.

Interestingly, until we recover, until consumers start getting more spending power, I don’t see how inflation could be a problem…

Some people are hoping for an economic recovery this year but I am not so sure any respite will last more than a few months because I don’t see evidence that consumer spending will increase.

Due to relatively high unemployment and many workers who are unable to get raises, how greatly can consumer spending increase? If consumer spending doesn’t increase, corporate profits can’t increase much.Neither can government revenue.

So how is the economy supposed to recover?

Some more interesting stuff on Warren Buffet. He talks about insurance, real estate, Moody’s and more.

This article talks about how the new 10% tax incentive (up to $8,000 max) makes it a good time to buy a first home.

That’s from now until Nov. 30 or Dec.1 depending on which newspaper article you believe. In the article linked above, one couple amended their 2008 return and are expecting a check in a few weeks. They say that needs to be done by April 15th so I guess now you’d have to wait till you pay your 2009 taxes.

Anyway, this article says things might be working and real estate may be ready to lead a US economic recovery. It’s possible but I’m not sold that we’re in a recovery right now.

We’re looking for “green shoots” in areas that got us into trouble in the first place – excessive consumption, mis-allocated capital, and a trading mentality. We’re celebrating firms like Goldman and JP Morgan because they made good trading gains while credit to the real economy continues to be cut.

If you believe like the Administration and Wall Street that we’ve got a “confidence” problem, then growing housing starts indicates improvement. If you that we have a structural problem with the economy, then a drop in building over-supplied assets is actually good news.

Lower housing prices can be a good thing because it means that workers can prosper at lower compensation levels, which means that we can start regaining cost advantages relative to our trading partners and taking back industry lost as well as creating new industry. All it would take would be to let the zombies on Wall Street go under.