Friday, December 16, 2011

Amid the Gloom, U.S. Economy Quietly Improves

"Despite all the negative news, there are signs the U.S. economy is doing better than at any point since 2007, with moderate growth of about 2 percent, savings and consumer sentiment up, and unemployment still high but stagnant.

Still, insofar as our national conversation of how we are doing is shaped by these statistics, it is striking how at odds they are with the tone. The numbers are OK and getting better. The national discussions is grim and getting grimmer.

It is easy to come up with reasons why the stream of better news about our economic system has failed to dispel the widespread sense that all is not well and getting worse. But more interesting is that in spite of how gloomy we seem to be, the vast majority are simply going about their lives and plugging away at their hopes and dreams with less bitterness and less edge than the frantic tones of the media and the harsh patois of political discussion."

~Zachary Karabell writing in The Daily Beast 

HT: Warren Smith

60 Comments:

At 12/16/2011 9:49 AM, Blogger Jet Beagle said...

The U.S. economy would improve much, much faster if Washington had shut down.

Extending unemployment benefits - paying people to not work - removes all incentive for the unemployed to agressively seek work. How dumb!

If you bleeding heart enablers insist on taking my money to pay the unemployed, at least creat make-work tasks for them to do. Make them go build new trails and public buildings in the wildernes as they were required to do in the 1930s.

 
At 12/16/2011 10:51 AM, Blogger juandos said...

"The U.S. economy would improve much, much faster if Washington had shut down."...

Amen!

 
At 12/16/2011 11:17 AM, Blogger juandos said...

"Extending unemployment benefits - paying people to not work - removes all incentive for the unemployed to agressively seek work. How dumb"...

Hmmm, jet have you read this article from the Atlantic?

The Dark Side of America's Growing Social Safety Net

A University of Chicago professor argues that help for the poor might be worsening unemployment

Still there's Nancy Pelosi out there wanting to use your money to buy votes: Pelosi: Extending Unemployment Benefits Would Create ‘600,000 Jobs

 
At 12/16/2011 11:27 AM, Blogger VangelV said...

...the U.S. economy is doing better than at any point since 2007, with moderate growth of about 2 percent, savings and consumer sentiment up, and unemployment still high but stagnant.

LOL. Growth is negative if the pre-Boskin methodology were used to measure inflation. And if the same method were used to measure unemployment you would find the rate at more than 20%. What kind of an improvement is that?

 
At 12/16/2011 11:51 AM, Blogger bix1951 said...

every night on the network news Brian Williams or somebody else will say
"bad economy" or
"terrible economy"
or some variation on this theme
so of course people believe what they hear on the nightly news
I think they should stop editorializing about the economy
Just stick to facts

 
At 12/16/2011 11:51 AM, Blogger ws4whgfb said...

I think people are worried about
1) The effects of the euro crisis on the US economy.

2) Also there is fear that the financial industry is still not being regulated correctly and is creating a kind of kleptocratic havoc that ordinary people don't understand. Another crisis that no one understands could appear tomorrow for all we know.

3) Also I think a lot of people are afraid of the election and what might happen if we have four more years of the same policy. Government regulation is a big obstacle for business and even if there is a change in administration after the next election will the new administration be able to improve the situation?

There is a lot to worry about.

My feeling about the euro crisis it that the EU is not democratic, its troubles stem from that: individual countries are doing what they want not what unelected bureaucrats are telling them. So it is actually right and proper that the EU fail.

I am really sick about what is going on in the financial industry. No one was punnished for he housing bubble because the government regulators are in bed with the psychopaths running the financal corporations. They are protecting their employment prospects for the time when they leave the regulating agencies and go to work in the financial industry. Nothing has changed so when will the next crisis occur?

China is also another unknown. Their housing market is going bust, their growth numbers were based on construction of ghosts cities. What will happen there and how it will effect the US economy is also a big unknown.

I will feel more optimistic when the stock market starts to break into new territory. Other people will be optimistic when their income starts to go up.

 
At 12/16/2011 1:21 PM, Blogger Benjamin said...

Well, we are 13 percent below trend line GDP....there is some making up to do...The Fed is suffocating the USA.

 
At 12/16/2011 1:57 PM, Blogger Paul said...

And even more good news, Nancy Pelosi just announced extending unemployment benefits will create 600,000 new jobs! Yay!

Perhaps that will partly make up for all those jobs Obama told us were destroyed by ATM's and the internet.

 
At 12/16/2011 3:36 PM, Blogger Larry G said...

Bad Obama - BAD!

 
At 12/16/2011 3:49 PM, Blogger VangelV said...

I think they should stop editorializing about the economy
Just stick to facts


Why not. Let us look at some of the facts.

1. If we use the pre-Boskin methodology the unemployment rate has been over 20% for more than two years.

2. If we use the pre-Boskin methodology the CPI comes out to around 6%

3. If the proper deflator were used GDP has been negative since 2000.

4. The National Association of Realtors has been over-estimating home sales and will have revise sales downward, going back to 2007.

5. Fed governor Richard Fisher points out that "Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent." Add federal employee pension and benefit unfunded liabilities, accrued debt, unfunded military commitments, etc., and you get more than $100 trillion of liabilities in a $16 trillion economy.

6. The federal debt is around 100% of GDP.

7. Most states and municipalities are broke.

You are right. We should stick to the facts.

 
At 12/16/2011 5:10 PM, Blogger James said...

Civilian Labor Force Nov 2010 153,698,000
Civilian Labor Force Nov 2011 153,883,000

Wow! A one year gain of 185,000 jobs! If things keep going this well we put those unemployed workers back to work in only 75 years.

No tariffs no recovery.

 
At 12/16/2011 5:16 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 12/16/2011 6:15 PM, Blogger PeakTrader said...

VangelV says: "Growth is negative if the pre-Boskin methodology were used to measure inflation."

VangeIV won't be satisfied how inflation is measured, until we go back to the abacus.

 
At 12/16/2011 6:55 PM, Blogger Rufus II said...

James, you're mistaking "labor force" (those available for work) with the number of people working

"Employed" = 140,580,000.

 
At 12/16/2011 9:36 PM, Blogger VangelV said...

I think people are worried about
1) The effects of the euro crisis on the US economy.


They should. With the Fed's swap agreement and the debt insurance issued by US banks they could be looking at either a deflationary financial system meltdown or hyperinflation. At best a European crisis should slow down the real economy, cause a drop in financing activity, and create even more unemployment.

2) Also there is fear that the financial industry is still not being regulated correctly and is creating a kind of kleptocratic havoc that ordinary people don't understand. Another crisis that no one understands could appear tomorrow for all we know.

The problem is that there are plenty of regulators. That sends false signals to the players and makes it easy for large scale theft. The MF global management and board should be in jail and have their property confiscated. If the government does not pay off the segregated account holders we could see a major collapse in commodity trading activity that could bring down the entire system.

3) Also I think a lot of people are afraid of the election and what might happen if we have four more years of the same policy. Government regulation is a big obstacle for business and even if there is a change in administration after the next election will the new administration be able to improve the situation?

What should they expect? Newt is no different than Obama just as Obama was no different than Bush.

There is a lot to worry about.

My feeling about the euro crisis it that the EU is not democratic, its troubles stem from that: individual countries are doing what they want not what unelected bureaucrats are telling them. So it is actually right and proper that the EU fail.


For what it is worth I agree.

I am really sick about what is going on in the financial industry. No one was punnished for he housing bubble because the government regulators are in bed with the psychopaths running the financal corporations. They are protecting their employment prospects for the time when they leave the regulating agencies and go to work in the financial industry. Nothing has changed so when will the next crisis occur?

The government and the Fed were the problem. As long as there is no change on both fronts the problem will not go away.

China is also another unknown. Their housing market is going bust, their growth numbers were based on construction of ghosts cities. What will happen there and how it will effect the US economy is also a big unknown.

My mother-in-law was telling me that housing is already down where she lives and the expectation is a 30-50% decline by the spring. That said, she tells me that people are still spending a lot of money and quite busy.

I will feel more optimistic when the stock market starts to break into new territory. Other people will be optimistic when their income starts to go up.

If the central banks intervene as expected they can kick the can down the road. Now that gold is around $1,600 they can take action without too much worry that they will drive up the price to $2,500 within a few days and by doing so send a signal to currency holders that they should get out or begin a bond market rout.

But if stocks do go up there will be a lot of pressure on the oil markets that will show up in a collapse in the real economy. Depletion is still running at around 5 mbpd each year and that is a lot of production to be replaced with expensive wells that average 100 bpd. It may be time to buy uranium stocks again.

 
At 12/16/2011 10:51 PM, Blogger VangelV said...

Vange won't be satisfied about how inflation is measured, until we go back to the abacus.

No. I just want the measure of CPI to include price increases, not to use hedonics and substitution to hide the fact that prices went up. If we are going to compare the situation today to that in 1982 or 1976 we need to use the same methodology .

Note that I am the person who keeps saying that CPI is a crap measure because everyone has their own unique basket. But if we are going to use a common basket we need to measure price changes consistently. Had we used today's methods in 1977 we would have not had much reported inflation or unemployment.

 
At 12/17/2011 3:44 AM, Blogger PeakTrader said...

VangelV says: "If we are going to compare the situation today to that in 1982 or 1976 we need to use the same methodology."

So, any obvious improvement to a methodology should be ignored.

 
At 12/17/2011 10:35 AM, Blogger VangelV said...

So, any obvious improvement to a methodology should be ignored.

Not at all. But if you decide that it is an improvement you have to go back and apply it to the previously reported values. When we do that with the post-Boskin methodology we find that there was supposedly no inflation or employment difficulties in the 1970s. We must have imagined the inflation and hard times of the 1970s because they do not show up in the analysis. All those people who saw their pensions lose value did not have a lower standard of living because they could substitute Alpo for steak.

 
At 12/17/2011 2:15 PM, Blogger Walt G. said...

You can either standardize or normalize the data sets that use different methodologies to compare them. This is a common procedure in quality process control. VangeIV is correct, the two distinct data sets cannot be compared directly otherwise.

 
At 12/17/2011 2:48 PM, Blogger Tom said...

The US economy is being incredibly juiced by the Fed and Congress. Unemployment is not recovering. The national debt continues to soar, by $1.88 trillion in 2009, $1.65 trillion in 20010, and $1.3 trillion in 2011. The stock market is floating on the sea of "juice". We are speeding down the road to Greece.

Europe is a few years ahead of us on the road to big-government-induced doom. Yet Democrats won't agree to any cuts of government spending, taxing, borrowing, or reguation.

 
At 12/17/2011 5:08 PM, Blogger PeakTrader said...

Walt, when the Ford Model T becomes a Ford F-350, after the Information Revolution explodes in 1982, how do you control for quality?

 
At 12/17/2011 5:14 PM, Blogger PeakTrader said...

VangelV doesn't understand there was a "structural break" in 1982 called the "Information Revolution."

The BLS lagged in making the appropriate adjustments to the CPI, and continues to lag, although not as much after making some adjustments.

 
At 12/17/2011 9:50 PM, Blogger PeakTrader said...

After 1982, there was not only disinflation (instead of accelerating inflation), there was also accelerating quality improvements (instead of slow quality improvements).

If you recall, Greenspan in the '90s believed inflation was overstated. So, he allowed more accommodative monetary policy, which resulted in even stronger disinflationary growth.

 
At 12/18/2011 1:02 AM, Blogger Hydra said...

Jet beagle:

Unemployment benefits do not remove all incentive to work or seek work. You are a fool with no imagination if you believe otherwise.

As for make-work, would you rather have those folks building pedestrian trails in the wilderness, or spend that time looking for work?

 
At 12/18/2011 1:05 AM, Blogger Hydra said...

Vange:

What percentage of your investment portfolio is in shorts?

 
At 12/18/2011 1:08 AM, Blogger Hydra said...

When will the next crisis occur? It is already here if Mf global wrecks the futures market, and the result affects agriculture..

 
At 12/18/2011 1:12 AM, Blogger Hydra said...

Government regulation is a big obstacle for business, but the financial sector is still not regulated properly?

 
At 12/18/2011 1:21 AM, Blogger Hydra said...

You are right. We should stick to the facts.

The most successful democracy and richest economy in the world has been an abject failure and nothing can save it except declaring bankruptcy and breaking all our contracts.

 
At 12/18/2011 1:43 AM, Blogger Hydra said...

How do you control for quality?

How about constant dollar cents per ton mile?

Or how about then year cents per ton mile as a ratio to median income?

I'm guessing there are a lot of vanity 150s out there that do less work in a year than my '84 dump body.

Quality don't mean squat when it eats productivity.

I loved the HID headlights on my car until I discovered the bulb costs $150 and you have to take the bumper off to install it. The car gets great mileage, but this lightbulb will cost what the car saves in a year.

I'm tempted to get a couple of pedestal style lights and bolt them to the fender, let the original equipment go obsolete.

 
At 12/18/2011 1:51 AM, Blogger Hydra said...

Speaking of financial regulation, I see Cantor blocked the STOCK legislation.

 
At 12/18/2011 9:29 AM, Blogger juandos said...

"Amid the Gloom, U.S. Economy Quietly Improves"...

Not according to the Fed for what that's worth...

From the FEDERAL RESERVE statistical release

December 8, 2011

Flow of Funds Accounts of the United States Flows and Outstandings Third Quarter 2011

Household net worth—the difference between the value of assets and liabilities—was $57.4 trillion at the end of the third quarter, about $2.4 trillion less than at the end of the previous quarter...

 
At 12/18/2011 9:48 AM, Blogger PeakTrader said...

Hydra, it's difficult to control for quality, because much of it is subjective.

Some quality differences can be quantified (in theory), e.g. between an older and newer truck.

Gas mileage, pollution, time & money saved on maintenance, extended life, etc. can be measured.

However, the sum of owner satisfaction is difficult or impossible to measure.

So, we don't know if a 1984 truck is more expensive or cheaper than a 2010 truck in today's dollars adjusted for quality differences.

 
At 12/18/2011 9:56 AM, Blogger juandos said...

From Jim Powell of the Cato Institute writing in Forbes: Rich Nations That Went Broke By Spending Too Much

Politicians generally want more power which means more money, more laws, regulations and bureaucrats. Historical experience suggests that rulers – whether kings, dictators or elected politicians — have a visceral urge to spend money they don’t have...

 
At 12/18/2011 10:05 AM, Blogger PeakTrader said...

The methodology used to measure inflation in the 1970s was appropriate.

However, after 1982, the methodology became increasingly inappropriate and adjustments had to be made.

The adjustments were late, which increasingly overstated inflation, until (conservative) adjustments were made to reduce the overstatement.

It's inappropriate to use today's methodology to measure inflation in the 1970s, because it's two different economies.

 
At 12/18/2011 10:17 AM, Blogger PeakTrader said...

How do you measure the quality difference between a typewriter and a personal computer? (including the subsequent quality and price improvements of a PC compared to a typewriter).

 
At 12/18/2011 10:28 AM, Blogger juandos said...

"How do you measure the quality difference between a typewriter and a personal computer?"...

The ease and cost of product output...

 
At 12/18/2011 10:43 AM, Blogger PeakTrader said...

In 1985, the original basic price of a Ford F-350 was $12,000.

In 2011, the basic price of a Ford F-350 is $36,000.

Between 1985 and 2010 purchasing power decreased roughly 50% from inflation, while purchasing power increased over 50% from per capita real income growth.

In 1985, $12,000 was equal to $24,000 in today's dollars, while per capita real income rose from $29,000 in 1985 to $44,000 in 2007 (i.e. increased $15,000 after inflation).

So, it's possible, all the quality improvements of a Ford F-350 over the past 25 years was free.

 
At 12/18/2011 10:46 AM, Blogger VangelV said...

VangelV doesn't understand there was a "structural break" in 1982 called the "Information Revolution."

This has nothing to do with what we are talking about.

The BLS lagged in making the appropriate adjustments to the CPI, and continues to lag, although not as much after making some adjustments.

My previous comment counts. If the BLS can do away with the increase in the price of beef by assuming that consumers will switch to cheaper chicken in 1996 they can make exactly the same assumption for the 1970s. You can't assume that people should not be counted as unemployed in 2003 but count them as unemployed in 1983. You can't count the underemployed as unemployed in 1976 but ignore them in 2006.

The whole BLS game is a scam. The BLS is no different than the government agencies in Tito's Yugoslavia or Gorbachev's USSR who said that thing were a lot better than they actually were.

In all cases it helps to pay attention to the details. When the the price of gasoline goes up by 10% because of a mandated additive the BLS ignores the price increase because of the assumed cleaner air that results from the use of the new gasoline. Never mind the fact that the additive is toxic and has to be removed a few years later because it causes cancer.

How about housing? Even though more than 60% of people owned their own homes the BLS used an 'imputed rent' number to keep the price explosion from showing up in the inflation data. Never mind that the false signal kept interest rates lower than they should have and helped the Fed blow its bubble in housing.

When we buy a new dishwasher that it costs 40% more than the old one the BLS ignores it because it assumes that the quality is so much better. The fact that the new washer will not clean our dishes as well or allow them to dry is not taken into account.

I could go on and on but the point is the same. You can't ignore reality by predicting that this time is different.

 
At 12/18/2011 10:51 AM, Blogger VangelV said...

If you recall, Greenspan in the '90s believed inflation was overstated. So, he allowed more accommodative monetary policy, which resulted in even stronger disinflationary growth.

Greenspan blew up a bubble in the NASDAQ by making his phony arguments. When productivity goes up prices are SUPPOSED TO FALL. That decline is not deflation because inflation and deflation are monetary phenomenon. In the case of Greenspan he enabled the formation of huge bubbles in the stock, bond, and housing markets. And the huge growth in the size of government. We are now paying for his sins but instead of condemning him for betraying his principles we still have fools who praise him.

 
At 12/18/2011 11:21 AM, Blogger VangelV said...

What percentage of your investment portfolio is in shorts?

As an optimist I do not believe in shorting stocks. And even if I believe that something is overvalued I am well aware that bubbles can last a lot longer than I can stay solvent.

I do not have a single short in my portfolio. If I want to bet on something going down I buy an asset class that will go up instead. If I want to 'short' shale producers I will look to accumulate cash rich conventional producers with lots of reserves in the ground to take advantage of the much higher prices when the shale bubble bursts. If I want to bet against the USD I will buy gold, silver, or even long dated warrants in producers.

Let us remember that the short sellers got killed in the Japanese markets even though the Nikkei fell from nearly 40,000 to less than 10,000. If shorting is so difficult at the best of times for the activity why would anyone really play that game?

 
At 12/18/2011 12:21 PM, Blogger PeakTrader said...

VangelV, I think, Greenspan gets too much blame or too much credit.

The U.S. had a spectacular structural bull market from 1982-00, and then a spectacular cyclical bull market (in a structural bear market) from 2002-07, resulting in twin asset bubbles, which created enormous real wealth.

Much of the twin bubbles were fueled by record-breaking capital creation of U.S. firms and massive foreign capital inflows (which also lowered interest rates, reducing monthly payments for Americans).

Of course, the asset bubbles were also fueled by demographics, since the 80 million Baby-Boomers (born between 1946-64) began to enter their "prime-age" years in 1982 (35-54, and the 55-64 age group is the second most productive group, based on education, training, and experience).

 
At 12/18/2011 12:36 PM, Blogger PeakTrader said...

And, regardless of what happened in the past, a severe recession could've been avoided in 2008 or a V-shaped recovery could've been achieved in 2009.

 
At 12/18/2011 1:12 PM, Blogger VangelV said...

VangelV, I think, Greenspan gets too much blame or too much credit.

I disagree. He seems to be one of the worst possible of all central bankers and is the primary person responsible for the reversal that took place after Volker.

The U.S. had a spectacular structural bull market from 1982-00, and then a spectacular cyclical bull market (in a structural bear market) from 2002-07, resulting in twin asset bubbles, which created enormous real wealth.

You are missing the big problem with your argument. The increase of productivity should have caused a large decline in nominal prices. But thanks to Greenspan's monetary inflation, all we saw was a decline in the increase in the (price) inflation rate. The bubbles that were created destroyed capital and real wealth.

Much of the twin bubbles were fueled by record-breaking capital creation of U.S. firms and massive foreign capital inflows (which also lowered interest rates, reducing monthly payments for Americans).

No, they were fueled by money printing. The inflows were caused by the huge reversal in US trade outcomes. Foreign governments and companies chose to fund US consumption by recycling their trade revenues back into USTs, corporate bonds, etc. Buying depreciating assets on credit is not a way to wealth.

Of course, the asset bubbles were also fueled by demographics, since the 80 million Baby-Boomers (born between 1946-64) began to enter their "prime-age" years in 1982 (35-54, and the 55-64 age group is the second most productive group, based on education, training, and experience).

Correct. The huge increase in the population of 35-54 year-old consumers helped spawn a consumption bubble that was financed on credit. Now that the credit needs to be paid back many of those consumers find themselves with far more debt that they can handle even as they leave their earning years behind them. I suspect that many more of them will wind up working retail and menial jobs because they cannot afford to retire.

 
At 12/18/2011 1:13 PM, Blogger VangelV said...

And, regardless of what happened in the past, a severe recession could've been avoided in 2008 or a V-shaped recovery could've been achieved in 2009.

Only by kicking the can down the road for a short period of time. When you have malinvestments the solution is the severe recession that liquidates those malinvestments. It isn't the encouragement of more bad thinking and reckless investing.

 
At 12/18/2011 7:29 PM, Blogger PeakTrader said...

VangelV, almost everything you say is contradicted by the data.

And, if you don't believe the data, the huge improvements in U.S. living standards is revealed in 1970s television shows, e.g. Kojak, where you can see how Americans lived and worked in the 1970s compared to today.

In regards to the past few years, idle resources need not remain idle. Those dramatic improvments in living standards can continue indefinitely, although at a somewhat slower rate, since the 1982-07 period was one of the greatest eras of U.S. prosperity.

You can thank Greenspan later.

 
At 12/18/2011 8:59 PM, Blogger Hydra said...

Vange: the reason I asked about shorts is that you seem to be negative on everything.

Now it appears there are some things you are not negative on, like gold. But even then it seems you depend on other things crashing so that your picks do well by comparison.

You are so negative on everything I can hardly believe you call yourself an optimist.

I agree that if the MF account holders are not paid that whole system could collapse. But isn't there an insurance fund, similar to FDIC that insures security holders in case of fraud( not market losses)? If it is like FDIC it is administered by government, but funded by fees on the brokers, no?

But to my original point, you think gdp has been negative since 2000, but you call yourself an optimist.

If You think the entire gdp is down since 2000, what can you possibly invest in that You think will not also be brought down by the collapsing general economy? With your outlook you would have to think that even disruptive technologies will be disrupting a smaller base.

I don't believe everything is as far in the toilet as you do, but I also disagree with PT that the standard of living can increase forever, for everybody. I believe we will continue to eliminate people, one way or another.

 
At 12/18/2011 9:12 PM, Blogger Hydra said...

Hydra, it's difficult to control for quality, because much of it is subjective.

+++++++++++

I don't think so, customer satisfaction is subjective, but you don't measure quality by asking the consumer, who is biased to believe they made a good decision.

My point was that we should stop editorializing and report the facts.

What is the mtbf, and the mean cost to repair?

What is the cradle to grave cost in constant dollars? How does the resale value hold?

Those are not subjective. Maybe some one loves his Ford despite the facts, but that doesn't suggest to me it is a higher quality vehicle.

 
At 12/18/2011 9:17 PM, Blogger Ron H. said...

Peak: "It's inappropriate to use today's methodology to measure inflation in the 1970s, because it's two different economies."

Do you mean inflation is something different now?

 
At 12/18/2011 9:35 PM, Blogger Ron H. said...

Peak: "So, it's possible, all the quality improvements of a Ford F-350 over the past 25 years was free."

The New F350 isn't really the same product as the 1985 F350. It' nearly impossible to compare, just as you can't compare a PC to a typewriter.

I always laughed whan I saw a Chevrolet commercial in which one of the actors says: "Oh, I'm so glad they brought the Impala back", referring to a 1958 Impala. The new models and the old models are NOTHING alike except for having 4 wheels and the same nameplate.

The trouble with using CPI at all, is the silly notion that you can aggregate the buying habits and preferences of 300 million individual economic actors and somehow arrive at a meaningful statistical average.

Aggregating 300 million subjective values of quality, and suggesting that the statistic is anything meaningful is even sillier.

 
At 12/18/2011 9:41 PM, Blogger Ron H. said...

Peak: "And, if you don't believe the data, the huge improvements in U.S. living standards is revealed in 1970s television shows, e.g. Kojak, where you can see how Americans lived and worked in the 1970s compared to today."

I'm disappointed in you! Are you another of those people who gets their knowledge of history from TV and Movies?

If so, you should know that several people who comment here believe John Wayne movies are the best source.

 
At 12/18/2011 10:18 PM, Blogger Ron H. said...

"I don't think so, customer satisfaction is subjective, but you don't measure quality by asking the consumer, who is biased to believe they made a good decision."

Who else is qualified to judge such a thing? Do you think some beancounter at BLS can decide how much we should value the quality of every good we purchase as measured in dollars?

"What is the mtbf, and the mean cost to repair?"

This is a useful statistic only for comparison of goods that have a single limited usage like a computer hard drive. Even then, it's a statistic only, not usually the primary factor in a buying decision, and little comfort when your hard drive craps out a month after you buy it.

For something like cars, you have Consumer Reports, with actual customer experience reported, but people buy cars for so many different reasons and uses, and in so many different climates and conditions, that reliability of one system may be important to some but of no consequence to another.

"What is the cradle to grave cost in constant dollars? How does the resale value hold?"

Unless you are buying a used car, that info may not be available.

Your interest in aggregates and averages may not be helpful, as you seem have unique outlier experiences with almost every good or service you buy.

 
At 12/18/2011 10:46 PM, Blogger Ron H. said...

"Now it appears there are some things you are not negative on, like gold. But even then it seems you depend on other things crashing so that your picks do well by comparison."

I can't speak for VangelV, but as he hasn't gotten right back to you, I'll offer my best guess. I'm sure he will correct me if I'm mistaken.

I believe that you are right that his choices depend on other things crashing, and one of those things is fiat currencies, so anything that has actual value outside of it's currency denominated value will do well in the future by comparison. This means commodities such as grain, oil, coal, gold, some metals, etc.

Those things will be needed and used no matter what happens to the paper money house of cards, so we could find ourselves buying necessities like bread with buckets of paper money, as some other unfortunate countries have done.

In that world someone who owns commodities will be very wealthy.

Those who hold dollar denominated things like dollars, bonds, and some stocks, will lose.

 
At 12/19/2011 11:56 AM, Blogger morganovich said...

"If you recall, Greenspan in the '90s believed inflation was overstated. So, he allowed more accommodative monetary policy, which resulted in even stronger disinflationary growth."

um, no.

this whole argument is circular and flAWED.

greenspan changed the cpi calcualtion so that it would read lower and the dgp deflator so gdp would read higher.

thus, the EXACT SAME world would show more growth and less inflation, but nothing actually changed.

it's just definitional.

his monetary policy was an unmitigated disaster. measured on any kind of consistent basis with the prior period growth dropped, inflation spiked, and we got bubble after bubble driven by ultra loose money.

consumer debt exploded post 2000 because real interest rates were negative and now we are in the terrible leverage mess of today.

greenspan did not create growth or lessen inflation, he just changed their definitions. using his methodology, inflation in the 70's never got over 5%.

this notion of a structural change due to technology is unsupportable.

food, shelter, and energy still make up most of expenses, and they have not changed much.

trying to establish how much "better" a product is every year is a subjective fool's errand. how much better is a 2007 ford 350 vs 2006? 0.5%? 2%? how would you even measure that?

it's made up nonsense and irrelevant as if you can no longer buy a 2006, who cares?

the substitution weighting are even worse. they assume all price is supply side driven. the price of X goes up, so you consume less and the price of Y goes down so you buy more, but this gives you the wrong sign in a demand driven change.

the price of bacon goes up due to the atkins diet, BECAUSE people are consuming more. underweighting it because the price went up gives you dramatically inaccurate results.

boskin was not an attempt to measure inflation more accurately. it was a political smokescreen to reduce the COLA adjustments for SS and medicare/aid.

it's an absurd, utterly subjective methodology whose job is to obscure, not reveal.

 
At 12/19/2011 12:02 PM, Blogger morganovich said...

"If shorting is so difficult at the best of times for the activity why would anyone really play that game?"

as someone who learned the equity markets from a pretty notorious shortseller, i can tell you that there is a ton of money to be made shorting, but that it is a specialized discipline. you cannot short stocks the way you buy them, especially not "story" stocks. you need catalysts and to get the timing right.

there is no question that it is harder than going long, but i think it's an indispensable form of risk management in a portfolio.

in a year like this when sectors have had such high correlation, buying one group to hedge another does not work.

shorting an industry is not really shorting to my mind. it's market timing. real shorting involves a great deal of due diligence on company specific catalysts whose timing can be predicted.

 
At 12/19/2011 5:35 PM, Blogger PeakTrader said...

Morganovich says: "greenspan changed the cpi calcualtion so that it would read lower and the dgp deflator so gdp would read higher... nothing actually changed.
"

Sure, the budget surpluses were just a delusion.

 
At 12/19/2011 9:39 PM, Blogger VangelV said...

as someone who learned the equity markets from a pretty notorious shortseller, i can tell you that there is a ton of money to be made shorting, but that it is a specialized discipline. you cannot short stocks the way you buy them, especially not "story" stocks. you need catalysts and to get the timing right.

James Sinclair, who does use shorts, once pointed out a very appropriate fact to me. He said that if one scoured the investment landscape it is easy to find many men of limited work habits and intellect to match who got very rich by using their own money to buy assets when they were cheap. Those assets earned them a nice income and they got richer and richer. But no matter how hard one tried it is very difficult to find very rich men who got rich by being very active traders with their own funds. And those who were fond of the short side may do well for short periods of time but over the long run most got wiped out by the upside risk.

The point is that shorting is very difficult even for those with the best information and very deep pockets. For your average person the risk is too high to take.

 
At 12/19/2011 9:40 PM, Blogger VangelV said...

Sure, the budget surpluses were just a delusion.

They were an accounting fiction. Congress used the excess SS contributions as revenue without booking the liabilities. The last president who had a real surplus was Ike and he only did it in his last year.

 
At 12/19/2011 10:07 PM, Blogger VangelV said...

VangelV, almost everything you say is contradicted by the data.

That would depend on which data you are looking at or believe.

For example, I have been very skeptical of the real estate data quoted by Mark on previous posts. It seems that my skepticism was well founded. Surprise, surprise; the methodology overstated the actual sales. We have had this argument for years now. Mark would post some figure without looking into the problems with the data. He would show us the statistics published by the National Association of Realtors that include pending sales as if they were actual sales without noting that a large number of transactions were not approved or that some of the figures included double counting. Now we know different.

And, if you don't believe the data, the huge improvements in U.S. living standards is revealed in 1970s television shows, e.g. Kojak, where you can see how Americans lived and worked in the 1970s compared to today.

I have never claimed that people in the US do not live better than they used to. I simply pointed out that much of that standard of living was purchased on credit and by the accumulation of a massive amount of unfunded liabilities that can never be paid off with a currency of the same purchasing power. Which is why I expect that once the anti-Euro trade runs its course the USD may be in for some hard times. I do not claim that the day of reckoning in next week or next month. I simply point out that it can't be kicked down the road for all that much further and that we are either looking at a massive contraction that causes a collapse in the markets, a huge increase in prices being drive by devaluation, or both.

If we get the contraction and price deflation most of the US banks would be insolvent and the vast majority of middle class families will be wiped out. That is not good for their long term standard of living.

If we get a huge increase in prices as the USD is devalued and loses its purchasing power the unfunded liabilities will become a much smaller problem but most people, including the middle class, will see their standard of living fall sharply.

If we get both you would be looking at a terrible time that will bring riots in the street and has those idiots on the left and right resorting to foolish violence that will not help anyone.

 
At 12/19/2011 10:12 PM, Blogger VangelV said...

In regards to the past few years, idle resources need not remain idle. Those dramatic improvments in living standards can continue indefinitely, although at a somewhat slower rate, since the 1982-07 period was one of the greatest eras of U.S. prosperity.

What kind of improvement has 45.8 million of your population needing food stamps? What kind of improvement shows a U-6 rate of 16% and a 22% rate when all the unemployed who have given up are added to the totals? What kind of improvement has 2.4 million people in jail? What kind of improvement has 6% of all homes with mortgages two moths behind? If that is what the good times look like to you what would bad times be like?

 
At 12/19/2011 10:19 PM, Blogger VangelV said...

Now it appears there are some things you are not negative on, like gold. But even then it seems you depend on other things crashing so that your picks do well by comparison.

I am positive on real things. In the case of gold it is money. As the man said, everything else is credit.

You are so negative on everything I can hardly believe you call yourself an optimist.

All libertarians are optimists. They believe in people being capable of looking after their own interests. I am negative today because government has gotten too large and meddles in daily activities. If it were cut down by 80-90% you would have a huge boom in productive activity and many of our problems would be solved after the necessary market liquidation took place.

The pessimists are those that think that government is smarter than the people and that think that it is necessary for it to meddle in their daily lives because without that authority to guide them they would not know what to do.

I agree that if the MF account holders are not paid that whole system could collapse. But isn't there an insurance fund, similar to FDIC that insures security holders in case of fraud( not market losses)? If it is like FDIC it is administered by government, but funded by fees on the brokers, no?

No. It appears that there isn't a fund to handle the problem even though the exchanges were supposed to guarantee losses. So far it looks as if the mechanism is broken.

But to my original point, you think gdp has been negative since 2000, but you call yourself an optimist.

Being an optimist or pessimist should not influence the facts. They are what they are. If we use the pre-Boskin methodology we see a positive GDP only for a few moths from the time the contraction began. That is why the average person on Main Street does not believe the crap coming out of BLS and Wall Street. The reports are not confirmed by personal experience.

 

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