In the Financial Times (click through on title; FT has asked us not to repost):
This time will never be different
Review by Martin Wolf
Published: September 28 2009 03:18 | Last updated: September 28 2009 03:18
This Time Is Different: Eight Centuries of Financial Folly
By Carmen Reinhart and Kenneth Rogoff
First-rate video journalism. China has seen 20 million migrant workers from the countryside lose their jobs in the past year and slip away back into the countryside. Factory owners seem typically to run away leaving only a paper notice that the business has closed. Stratfor has opined that disparities between city and countryside are the Achilles heel of the Chinese polity, and this video confirms that social unrest may be rising in the form of greater demands for “human rights.” Workers from the countryside are alleged to “forfeit their civil rights” when they migrate to the cities. As with America, the problem of collapse of effective demand is distributional in the near term. How is Chinese capitalism any different from the American variant, and why should the tendency toward neo-feudalism be any less--if not pronouncedly greater? This is the problem posed by “the end of history,” or the “triumph” of neo-liberal-conservative sometimes “democratic” capitalism.
Growth theory tells us that a dollar or Yuan saved is not necessarily lost to final demand—it may be spent on capital formation. The Chinese need only to use their savings internally instead of loaning them to us to achieve massive amounts of capital formation. The government is firing up big infrastructure programs to do just that, while blowing some of its other bucks on energy and resource deals worldwide while the greenback is still worth anything.
I taught in Taiwan about a dozen years ago in an executive MBA program. The buzz in that part of the world then was incredible. I was surprised at the attitude of the Taiwanese toward the mainland, which at that time was beating up on Taiwan verbally pretty badly, with all kinds of threats of taking them over.
“We are all Chinese,” they said.
While industrial production has turned up, and by NBER standards the recession may be over (they’ll decide well after the fact), industrial production will probably remain depressed for several years. Given the debt drag on the economy, the collapse of consumption and investment, industrial production isn’t likely to achieve 110+ levels for many years if my forecast of another round of deflationary collapse in about four years is correct.
Looking at percent changes from a year earlier for industrial production, real consumption spending, and real private fixed investment spending it is tempting to look for an accelerator-type pickup. Real consumption spending has been far more stable than either of the other series. But real consumption spending is taking a beating from increased saving, slow-to-no wage growth, and yet-increasing unemployment, and real estate investment spending on construction isn’t coming back soon, so any accelerator effect (derived demand for investment spending) is likely to be muted.
Data to August 2009 except for investment which is quarterly to 2009Q2.
Via: Huffington Post This is amazing. The AMA doesn’t even represent the doctors! Who the hell can you believe anymore?
The Obama presidency is failing. If the President doesn’t take this study in his hand and demand a public option he is even more of a wimp than he appears. For a few weeks last fall, I suspended disbelief and gave him time to prove that his political instincts were better than mine, that he was going to clean up Wall Street and get health reform by waiting for the parade before jumping in front of it. But now it is clear that he is simply cowed, afraid to go up against the oligarchs in finance and health insurance. Any and all opposition to Beltway business-as-usual is being painted as lunatic fringe (and I wonder how much of it is staged by fifth column agents). The body politic is very cagily being quartered, using the same old fake polarities of “Republican” and “Democrat,” “liberal” and “conservative,” when the real party in power, the Money Party, is pulling the strings and the people are still dancing to Ronnie Reagan’s Hollywood dream-song, thinking that they will be the ones to win the lottery, and that government is always their enemy…. The American people let this government happen, the American people will have to unseat it.
Majority Of Doctors Back Public Option: New England Journal Of Medicine Study
A new study finds that a majority of physicians support the creation of a public health care option.
A Robert Wood Johnson Foundation (RWJF) study published in Monday's New England Journal of Medicine shows that 63 percent of physicians support a health reform proposal that includes both a public option and traditional private insurance. If the additional 10 percent of doctors who support an entirely public health system are included, then approximately three out of four physicians nationwide support inclusion of a public option. Only 27 percent support a private-only reform that would provide subsidies for low-income individuals to purchase private insurance.
Surveying a nationally representative sample of 2,130 physicians across America, researchers Salomeh Keyhani, M.D., M.P.H., and Alex Federman, M.D., M.P.H., from Mount Sinai School of Medicine in New York City queried physicians about a range of options for expanding health insurance coverage.
"There should be no confusion about where doctors stand in the debate over expanding health insurance coverage: they want reform," said Risa Lavizzo-Mourey, president and CEO of the Robert Wood Johnson Foundation. "This survey reveals important information about the perspective of physicians on issues central to the health reform debate. Policy makers should listen to their doctors."
"We found that no matter how you sliced the data, physicians demonstrated majority support for a public health insurance option, regardless of their type of practice or where they live," said Keyhani.
Among those physicians who identified themselves as members of the American Medical Association, 62.2 percent favored both the public and private options. The AMA has opposed a public option, saying that it "threatens to restrict patient choice by driving out private insurers."
A majority of physicians surveyed (58 percent) also supported expanding Medicare eligibility to those between the ages of 55 and 64.
"These results give voice to individual physicians in the national discussion about health reform," said Federman. "Most often we hear the opinions of special interest groups rather than doctors themselves, but we know that Americans want to hear the opinions of doctors like those who treat them. This study lets us hear the unfiltered views of physicians on key elements of health reform and should be useful for lawmakers."
Read more at: http://www.huffingtonpost.com/2009/09/14/majority-of-doctors-back_n_286352.html?view=print
Tim Duy offers some dyspeptic comments on confidence and consumption similar to my own a few days ago. However, he (and the rest of mainstream economics) continue to ignore research (however obscure) indicating the adaptation level theoretic foundations of confidence determination (reference). Duy’s nice graph of year-over-year real consumption spending against the University of Michigan sentiment series inspired a similar effort with the “animal spirits” indicator that shows that real consumption spending is about to enter a growth phase. The contemporaneous correlation of YOY real C and “animal spirits” is about 0.63; the regression with constant has an adjusted R^2 of about 0.33. But the “animal spirits” indicator has proven extremely sensitive to turning points and trends, more so than the Michigan series.
This is consistent with my general view that the U.S. economy is entering a relatively brief “anti-deflationary” reflationary bubble that will resemble an ordinary business cycle except for the elephant in the room, namely, a growing national debt-to-GDP ratio coming on top of record levels of the ratio. If I had to bet on whether private sector deleveraging will outrun public sector leveraging, I would bet not. Not enough private debt is being written off. The U.S. has more debt than it can service now (see Comstock’s piece). In 1933 we were the world’s greatest creditor and could borrow easily. Today our currency is at risk of substantial depreciation. Our social contract is broken, with extreme inequality in incomes and wealth and a general self-defeating distrust of government by the disenfranchised. Our deflationary collapse has only stalled. The tragedy is that the rising “animal spirits” of the next several years will probably guarantee that no meaningful reform takes place—of the financial sector, of the government’s priorities and budget, perhaps even of health care. In this environment both fiscal stimulus and quantitative easing are fool’s games. The government should provide health care and livable workfare to the unemployed and limit any increase in spending. America is a basket case but the government won’t admit it.
Real consumption should grow 2.0-2.5 percent over the coming year, and may accelerate to about 5 percent YOY growth over the next four years, before the next downturn. Here’s the chart:
Forecasted “animal spirits” in blue, real YOY consumption percentage in red.
Via: www.nuwireinvestor.com h/t www.orlingrabbe.com
What Happens If The Yuan Replaces The Dollar As The Main Reserve Currency
Published on:
Wednesday, September 09, 2009
Written by:
Keith Fitz-Gerald
The chance that the dollar will be replaced by the Chinese yuan seems to be growing, as is China's determination to make it happen. With China's banking system holding 25 times the reserves of the US Federal Reserve, and the US adding trillions more to their debt, the days of the dollar's dominance may be nearing an end.
[snip]
The list of potential implications is very long, and includes several scenarios that are almost apocalyptic. But most of the outcomes raise as many questions as they answer.
Let’s consider the Top Five:
- Global Gloom Leads to U.S. Doom: The U.S. dollar goes into freefall for the simple reason that if no country has to hold dollars any longer, they won’t. Instead – thanks to the ragged state of the U.S. government’s finances – many countries will dump greenbacks fast as they can, which will only put additional pressure on an already-strained U.S. financial system, which in turn will further damage our economy.
- Inflation Inflates: Inflation will strike here with a vengeance, as anything bought, sold or priced in dollars will instantly rise in price to offset this fall.
- Repatriation Risk: With the dollar serving as the world’s de facto currency, U.S. companies bear very little exchange rate risk when the time comes to repatriate assets or make currency-related adjustments. That would change overnight and prices throughout the value chains would rise sharply to compensate.
- Money Costs More: The cost of money itself would rise. If the dollar falls, not only will there be massive selling pressure against it, but the cost of borrowing it will rise dramatically as lenders raise rates to cope with the increased risk of dollar-based transactions.
- Death By Debt: And finally, if there is another reserve currency, other countries will no longer have to buy our debt, and you can guess where that will leave us – especially given the fact that we’ve taken on trillions in new debt to help finance our way out of our current mess.
My best guess is that we won’t see any one of these things in isolation, but will instead experience a blending of several or all of them. To the extent that China continues to absorb our inflationary influences, buy our debt in measured doses and maintain its reserves, we’ll probably have a measured decline in the value of the dollar – but not the catastrophic fall many in the doom, gloom and boom crowd are predicting. At the same time, I also see the IMF change course in the next few years to reflect China’s increasingly substantial influence and monetary power.[…]
Via: CNNMoney
Insiders sell like there's no tomorrow
Corporate officers and directors were buying stock when the market hit bottom. What does it say that they're selling now?
By Colin Barr, senior writer
Last Updated: September 11, 2009: 7:27 AM ET
NEW YORK (Fortune) -- Can hundreds of stock-selling insiders be wrong?
The stock market has mounted an historic rally since it hit a low in March. The S&P 500 is up 55%, as U.S. job losses have slowed and credit markets have stabilized.
But against that improving backdrop, one indicator has turned distinctly bearish: Corporate officers and directors have been selling shares at a pace last seen just before the onset of the subprime malaise two years ago.
While a wave of insider selling doesn't necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don't believe current stock prices are justified by economic fundamentals.
"It's not a very complicated story," said Charles Biderman, who runs market research firm Trim Tabs. "Insiders know better than you and me. If prices are too high, they sell."
Biderman, who says there were $31 worth of insider stock sales in August for every $1 of insider buys, isn't the only one who has taken note. Ben Silverman, director of research at the InsiderScore.com web site that tracks trading action, said insiders are selling at their most aggressive clip since the summer of 2007.
Silverman said the "orgy of selling" is noteworthy because corporate insiders were aggressive buyers of the market's spring dip. The S&P 500 dropped as low as 666 in early March before the recent rally took it back above 1,000.
"That was a great call," Silverman said. "They were buying when prices were low, so it makes sense to look at what they're doing now that prices are higher."
Straightforward trading
In the case of firms such as discount broker TD Ameritrade (AMTD), they are selling with abandon. Chairman Joe Moglia has netted more than $10 million in profits from stock sales since April, by selling shares on each of the last 106 business days, according to Securities and Exchange Commission filings.
A TD Ameritrade spokeswoman said Moglia's sales are being made under a pre-arranged selling plan he filed with the SEC last August. Under that plan, his brokers exercise some options he got eight years ago and sell the underlying shares every day the company's stock price is above a certain level.
Moglia's not the only insider selling at TD Ameritrade. The company's founder and former chairman, Joe Ricketts, and his wife Marlene last month sold 5.7 million shares to help fund the family's purchase of the Chicago Cubs baseball team. They owned 16% of the company's stock at last count.
Silverman said the TD Ameritrade insider sales don't particularly raise concerns about the company's health, because "special circumstances" -- the Cubs deal and the pending expiration of Moglia's options -- are evident.
He said it's potentially more worrisome when insiders suddenly make big sales without obvious motivating factors.
Fossil (FOSL) CEO Tom Kartsotis has sold $25 million of the watchmaker's stock over the past month. Shares of Fossil have more than doubled since early March. Fossil didn't immediately return a call seeking comment.
At video game maker Activision Blizzard (ATVI), CEO Robert Kotick and director Brian Kelly each made more than $10 million last month by selling shares after exercisingstock options.
While some of Kotick's options were due to expire next year, others weren't due to expire until 2014 in his case and 2012 in Kelly's. The stock sales took place at prices that were about 50% above their 52-week low. Activision didn't respond to a request for comment.
Adding to the flurry of stock sales, companies are selling stock to the public at a brisk clip while buybacks have tailed off. All told, U.S. corporations have been net sellers of $105 billion of stock over the past four months, Biderman said.
Insiders have managed to cash in on some of those offerings. Healthcare payment administrator Emdeon (EM), for instance, last month raised $155 million in an initial public offering. At the same time, selling shareholders led by private equity investor General Atlantic Partners raised $188 million.
Though the wave of selling by insiders doesn't necessarily predict a pullback in their stocks or the market as a whole, it's hard to put a happy spin on the recent trends.
"The disparity between buyers and sellers right now is vast," said Silverman. "That's the beauty of following insider trading -- these guys are talking with their checkbooks."
