January 21, 2009
U. S stock markets rose today nearly as much as they fell yesterday. The
NASDAQ climbed 66.21
at 1,507. The
to close at 8,228. (The S&P
500 clambered up 35 points
to 840. Oil rebounded to $44.05 a
barrel, and gold lost
to end at
ounce. The VIX parted
to end at 46.42.
It might be helpful to review what it would mean if
last November 20th-21st were the bear market bottom, and is predicting a
recovery in the latter half of this year. The thesis is that the economy
will hit bottom and begin to turn up in about 5-6 months. In two or three
years, consumers would be flocking back to shopping malls, consuming they
way they did in early 2007. Real estate developers would be breaking
ground on new shopping centers for the growing hordes of shoppers. People
would be buying new cars again, and up-scaling to new houses. Only problem
is: they accomplished this over the past decade or two by going deeper and
deeper into debt. How deep? Well, the foreign trade deficit might give
some clue. An annual foreign trade deficit of $640 billion with a
population of 320 million would imply an average annual increase in
indebtedness to overseas suppliers (lenders) of $2,000 per man, woman, and
child in the United States... $8,000 a year for a family of four. That's
awesome! That's an unsustainable existence. In order to return to the
prosperity of 2007, we'd have to revert to large-scale personal deficit
spending. But unemployment peaks after recessions bottom and begin
to turn around, so it would be a while even under the best of
circumstances before we'd spend with reckless abandon again. In the
meantime, we've lost trillions of dollars in housing equity and retirement
savings, and those bubbles won't easily be re-inflated.
I suspect that the stock market is going to hit lows
this year below last November's low-water mark, but I can't be 100% sure.
Right now, I'm cautiously hanging on to my money until we see further
resolution, or reason for encouragement.
This article, Priming the printing presses,
from The Times, Online, gives some idea about what's happening in the UK.
Here are today's articles by Paul Krugman.
In Permanent Link to The vanishing muddle,
he contrasts Keynes blaming The Great Depression on a failure of ideas,
while Obama is blaming the current imbroglio on a failure of will.
In Permanent Link to Give me some men who are half-hearted men …,
he warns that we'd better not address this crisis half-heartedly... we'll
either succeed or we'll fail, with no middle ground.
In Permanent Link to Shared responsibility,
he recounts how Bill Clinton, George W. Bush, and Barack Obama have each
in turn have called for "an era of responsibility"
And in his editorial, Wall Street Voodoo,
he warns that the government may be setting us up for another huge-scale
Todd Harrison reflects on Barack Obama's inauguration:
New dawn,new fears.