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July 08, 2010

Thursday Financial Briefing

Stocks had a huge rally yesterday (on no real news, good or bad). The Dow was up 2.82% to close at 10,018.05 and the S&P 500 rocketed up 3.13% to close at 1,060.24. Optimism about retail sales and improved outlooks on earnings for many firms led the surge. This will also vindicate some analysts who have been claiming that equities have been oversold in recent weeks. I confess, I have no idea what's going on -- the material situation isn't any better than it was last week, nor is the outlook going forward. Just more evidence that this market is entering a highly non-linear realm where trends and histogram analyses might not be of much help. And for those who like their doom with no leavening of good news: just check the 3-month chart for both indexes to put the rally into perspective.

Some deep reading on America's grim employment picture. Pull quote:

I don't think it is a coincidence that the absolute decline in manufacturing accelerated in the wake of the US strong Dollar policy, which provided the freedom for China to pursue an aggressively mercantilist economic strategy, perfecting what Japan's policymakers began in the 1980s. Thus I don't think the pernicious hollowing out of America's industrial base is simply the result of comparative advantage. I grow increasingly convinced that the disappointing economic outcomes of the last decade are the culmination of decades of industrial neglect.
I've always felt that the "service-based" economy idea was kind of a mirage. Yes, IT has turned into a huge industry in the United States; and yes, IT has transformed the world job market. I'm just not sure the transformation is an entirely positive one. If you're smart and willing to sit in a cubicle all day staring at a computer screen, you can do quite well. If your skills are more mechanical or manual in nature, or you like to work outdoors or on a shop-floor...not so much. It's not just a question of being smart enough or not. Are we going to say that people below some arbitrary level of IQ are not essential any more, or are not able to be productive or successful? It's almost like a mirror-image of Harrison Bergeron. Efficiency isn't everything, in markets or anything else. An economy must produce stuff, not just electrons in different patterns that fly back and forth. Less-bright people may have skills that the smarties lack. Many is the theoretical physicist or mathematician or computer whiz who must call a plumber when the toilet backs up.

It's not exactly news that Obama is as anti-business as they come, even for a Democrat, but it's nice to see that more people are realizing it. It's useful to recognize the beast that's killing you.

This is a good overview of why Obama (or any politician, really) can't "create jobs" by hiring in the public sector. Public-sector workers do not add to GDP; they are net consumers of GDP because their paychecks are funded ultimately through taxes and fees. (They are also overpaid by about 12% compared to the private sector, mainly because their jobs are not subject to market pressures.) Public workers are paid via transfer-payments from the private sector. Government workers of any level are overhead. They are part of the cost-center, not the profit-center. You don't hear private sector businessmen crying, "Let's increase our overhead by 100%, boys! It's the only way to save the firm!" There's a reason why they don't say that: it's self-evidently stupid. There is also the fact that economies do not exist to give people jobs -- economies exist to mediate the flow of goods between producers and consumers. Jobs are a side-effect, not the purpose, of an economy.

You want scary charts? Here's some scary charts for you. Granted, it's ZH were every dip in the market is an iron bell tolling DOOM! DOOM! across the landscape, but still.

China pinky-swears not to dump US Treasuries for gold, but observers note that this assurance was completely unsolicited. In other words it smelled rather of, "You know, your house would be completely ruined if I turned a firehose on it! Not that I would do any such thing, of course. I'm just saying."

More evidence that Porkulus didn't do shit to strengthen the real economy. We pumped the balloon back up, but the air almost immediately started to leak back out.

Yeah, baby. I knew my friends would see how great you are. They may scoff, but when they're home alone, they think of you and do dirty, dirty things to themselves. Don't let the haters get you down, baby-doll. You're my kind of gal.

The evil dwarf Lord Krugman stared across the table at Chief Hatzius, leader of a rogue faction of Goldmanites. "Do we have an accord, then?" rumbled Lord Krugman menacingly. Hatzius did not respond for a long moment, studying the Dwarf leader closely. The plan sounded like pure madness to him, but the Dwarves were a clever and industrious race; perhaps they had insight that he lacked. Hatzius knew only that the Goldmanites were staring ruin in the face -- something had to be done. He extended his hand across the table. "We have an accord," he said. And may the Gods help us all, he thought to himself.

The Baltic Dry Index (BDI) is now at a 14-month low. This might not be as bad as it seems; many buyers of commodities stocked up when prices were way down, and may simply be drawing down on their inventories. We'll know for sure in a couple of months when we have some good import/export numbers to look at. My guess? It's bad, and probably means that China is slowing down pretty dramatically as their export markets dry up. (But look 'ere, mate, the BDI don't mean nuffink!. The point -- and a good one -- is that the drop in BDI might be caused by a dearth of ships rather than a lack of commodities to be shipped.)

America: Becoming a more frugal nation? Bah! Frugality is a creed of the weak. I'm going to go out and buy the 1-Gallon Val-U-Rite Supreme Grade vodka rather than the ordinary stuff just to prove you turds wrong.

As Willy Loman in Death of a Salesman might say: He's liked, but he's not well-liked.

Apparently, I am a "pouting pundit of pessimisim". Alliteration: full marks. Optimism: A+, your example is an inspiration to others. Comprehension of subject matter: D-, very poor, please see me after class.

It seems like every decade for the past fifty years or so was going to be the "Latin decade". Then some tinpot dictator stages a coup, Venezuela or Argentina or Mexico defaults, Brazil continues to fail to turn into a global power, and another decade slips by with no progress to speak of. The biggest bets in South America right now are Peru and Chile, mainly becuase they adopted significant democratic and free-market reforms. Even Columbia is doing better now. But anyone who bets on the coming decade being "the Latin decade" is going to be just as disappointed as every other investor who's made that bet since 1970 or so.

And on tonight's fight card, it's the re-match you've all been waiting for! In this corner, weighing in at 170 pounds, the Cambridge Cavalier, the Brick Hit House, the British Bombardier, John Maynard Keynes! And in this corner, weighing in at 165 pounds, the Viennese Valentino, also called the European Dandy, the Free-Market Mauler, I give you Friedrich Hayek! I want a clean fight, gentlemen: no gouging, no grappling, no low blows. Understand? Now...fight!

If Krugman et. al. think that this is a contraction, I shudder to think of what an expansion would be in their universe.

This may be the most dazzling work of fiction you'll read all year.

Peter Orszag pretty much nailed the "fuck up and flee" method, I have to give him that. It's not something they teach in business school; you have to be born a smarmy, backstabbing motherfucker to pull it off with any degree of success.

Spain is like that character in a zombie movie that gets bitten early on, and you know they're going to turn, but the suspense comes from not knowing when it's going to happen. Because they are doomed, man. Doomed!

Today's briefing brought to you by what may be the saddest Dilbert cartoon I've ever read.

Dilbert.com

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posted by Monty at 06:56 AM

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