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.