Daily Investment Interpretations
November 16, 2008
2008-11-16:
Something else has just occurred to me: it may be a long time before the economy
gets back to "normal". Apparently, for the past few years, the economy
has been funded by going deeper and deeper in debt. Consequently, the new norm,
when we gradually reach it, may be more subdued than what we've known for the
past few years.
A counter-argument to what I've just argued is what occurred
during the 1990's. The level of indebtedness soared during the Reagan-Bush, Sr.
years, and fell during the Clinton years, and yet, the economy certainly boomed
during the Clinton years even as the national debt fell (see below). We had the
dot.com bubble, but the money was there to fuel it.
My Sunday invitation to subscribe to the Weiss newsletter has
just pointed out that Friday was the last day for hedge fund investors to submit
their requests for redemptions. The hedge funds have until the end of the year
to sell enough stocks to finance their redemptions. The newsletter editors are
suggesting that this could exert downward pressure on equity prices starting as
early as tomorrow.
One bright spot in this otherwise dark and dreary sky: the
fall in gasoline prices, and a possible retrenchment in food prices will give us
consumers more money to spend on Christmas presents. The flip side to this is
that this energy price collapse merely removes the added insult of stagflation
from our economic outlook, compared to last spring when rising energy prices
were piling insult upon injury as we stared into the looming recession that is
now upon us. Still, people will have more jingle in their pockets this Christmas
season than was evident even six months ago. We'll probably know better after
the Thanksgiving weekend how much of Christmas the Grinch can steal.
Here are Paul Krugman's latest: Fannie Freddie Phony;
and Cars.