Daily Investment Interpretations

March 29, 2009

2009-3-29:   It's becoming apparent that there are a lot of bullish expectations out there. Money poured into mutual funds last week, with more than $2 billion invested in emerging markets fund: Emerging-market equity funds receive big inflows. I sense at least a temporary market pullback: Stocks ahead of themselves?. (I will sell tomorrow what little I've recently bought.) After all, the market has risen more than 20% in the past three weeks. Beyond that, there's a shoot-out at the OK corral shaping up. Most economists and financial advisors--at least, those who are accessible to me--are calling for the economy to turn up in the latter part of this year, and are claiming that the March 9th low was the low for this year: Intense job destruction hasn't let up, gripping U.S. economy. (Don't let the title fool you.) Meanwhile some economists and the founder of the nation's largest hedge fund, Bridgewater Associates, are stating that this a huge deflationary event, and that we aren't going back to business as usual in 2010: The Market Mystique..  
    Paul Krugman has published the following articles this weekend:
Permanent Link to What’s our gold standard?
Permanent Link to Golden fetters
Permanent Link to Golden Fetters II
Permanent Link to The magazine cover effect
    The first three of these discuss the hobbling psychological effect that trying to reconcile themselves with the gold standard had on the world's political and economic movers and shakers during the Great Depression. The fourth comment concerns that fact that a picture of some economist--Dr. Krugman?--appears on the front cover of Business Week this week, and that he's always considered appearing on the front cover of Businessweek to be the "kiss of death".
    It might be interesting to consider the magnitude at the total U. S. debt, now  approaching 400% of GDP (compared with 176% of GDP in 1929), now that the Chinese are no longer willing to let us run our tab up any higher, and we have to think about paying down our debt. The U. S. GDP currently stands at $14 trillion. Four times $14 trillion would be $56 trillion. The latest savings figure was 4%. If we could save 4% of GDP each year and if GDP didn't increase over time, it would take us 100 years to pay off a debt that's 400% of GDP. But of course, GDP
does increase over time. By the time it's doubled twice, our indebtedness would drop by a factor of four, bringing our debt-to-GDP percentage down to 100%. A debt-to-GDP percentage of 100% would be perfectly acceptable. However, it will be many years (20 years?) before that can happen.