More Pain to come

[Viva_La_Migra]

Note:

I saw something this weekend that New Jersey's governor Jon Corzine was all up in arms about something like 18,700 job cuts in his state.

That's nothing.

Michigan has lost 315,000 manufacturing jobs since 2000, and continues to bleed jobs.

Let's hope the economy turns around soon- we need laws and leadership that will promote keeping American jobs here.

The days of the United States being a manufacturing giant are gone. As long as corporate taxes are high, regulations continue to be unfriendly to business, and American workers demand high wages, jobs will continue to flow out of the country. The only way to get manufacturing jobs back into the US without lowering taxes, wages, and regulations is to charge tarriffs for importing the goods into the US. If it costs as much or more to import the products into the US than it would to make the products here, then corporations may just decide to make the products here.

For the record, I don't want that and I don't think even our most liberal friends would want that! I'm just saying that is one way to get those lost jobs back.

 

[Silverbird]

Tariffs, yes, we could do that....but then all the other countries that signed onto the same agreements would do the same thing. High tariffs do not work, especially when they are on raw materials. Everyone ends up stabbing everyone else. And there are materials that we do not have in this country: Platinum (used in catalytic converters and natural gas tanks), Tantalum, Bauxite....well, suffice it to say, the holders could just put on a 100% tariff and we would have to eat it to produce what we want.

The problem with low wages and no regulations in answer to competition is then there are incentives to cut corners. Ask the Chinese about this one, they are going through it now. They tried to get around it earlier by strengthening their currency and buying dollars, leaving them holding the bag let's say. Let the buyer beware is the death of free trade - if you don't know what you are getting is what it says it is, there is no trust in buying. I argue for sensible and strong regulations in product quality, backed with neutral and factual data. We are beginning to slide into this one, we have had a couple of domestic food scandals brought on by mistakes and/or bad actors. If US products are seen as junk the Chinese will win, frankly they can produce questionable junk for a lot cheaper than we can, and their brand names will be just as good as ours. And there's no reason to innovate if anyone can sell a knockoff and the buyer can't trust yours is better!

I also argue if your workers cannot afford to buy what they need because their wages rise less than 2% a year, and the highest returns are in playing the housing market, and they are offered low interest rate loans by loan flippers to buy houses in the sky that work as a piggy bank, you get what we have now.

If there was a simple solution, I'd think someone would have found it by now and implemented it, whether us or some other country. So far haven't seen it.

 

[fabijo]

If there was a simple solution, I'd think someone would have found it by now and implemented it, whether us or some other country. So far haven't seen it.

That is assuming that whoever thought of the solution had the power to implement that solution and actually cared enough about everyone else that they'd follow through with it. The "problem" with democracy is that if someone really has the best answer, they need to convince everyone else that it is the best answer.

 

[Silverbird]

That is assuming that whoever thought of the solution had the power to implement that solution and actually cared enough about everyone else that they'd follow through with it. The "problem" with democracy is that if someone really has the best answer, they need to convince everyone else that it is the best answer.

I like democracy, you have to convince people. That's better than I rule, you're stuck (monarchies and oligarchies). I don't think there is an easy solution. It's an artificial system created to facilitate the exchange of goods and services, with everyone getting their piece...or supposed to be that...without endangering or killing people through shoddy crap and rewarding the good stuff. We have to keep adjusting it, keep finding problems to fix, but need to beware that we don't know everything about manufacturing or industry and need to let all those smart guys innovate, those line workers make cares, those air traffic controllers work without crashing planes, let the mine owners get the ore out without leaving piles of junk that make everyone sick or kill their workers....

 

[fabijo]

That's why I put quotes around the word problem.

I don't think there is an easy system either. In fact, all systems fail for some. Maybe a movement will sweep through the hearts of people where we stop trying to strengthen and shape the system, but work towards shaping, strengthening, and encouraging one another.

 

[logdoc]

One of the things we have been so ignorant of as retail investors are the bubbles that other are creating as we go merrily on our way. Who really knew of the Credit-Swap-Default problem with bogus ratings and not transparency or accountability. Who really know of the sub-prime bubble and the bogus securities that were created to sell and resell those mortgage based, in reality, worthless securities.
But staring us right in the face is the the giant debt load of all those living on credit cards and the likely bankruptcy of those folks. If consumerism is 2/3 of the US economy and many many people are about to go under because they can't make the minimum payments any longer cause they loose their jobs in the coming (existing) recession, what the heck is that going to do to these same banks and financial institutions that are holding the credit card debt bag?
Because of this Credit Card Bubble that has driven out consumption, I think we'll be lucky to come out of this in 2010. It could be longer. House values have to bottom. Manufacturing has to bottom. The stock market has to bottom. And the credit card debt bubble has to burst.
Not a rosy picture.

 

[DCguy]

what I dont understand is that the fed interest rate is pretty low and the banks get easy fed loans, but the creditcard and 30 yr mortgage interest rates are still pretty high. ppl lose jobs and houses, and they got no money to pay for food and cloth and so they use credit cards to pay. The govt should at least ask banks to lower interest rates and let ppl with arm refinance to a low fixed mortgage. Once ppl max out credit cards and lose home, there will be another market crash.

 

[Frixxxx]

what I dont understand is that the fed interest rate is pretty low and the banks get easy fed loans, but the creditcard and 30 yr mortgage interest rates are still pretty high. ppl lose jobs and houses, and they got no money to pay for food and cloth and so they use credit cards to pay. The govt should at least ask banks to lower interest rates and let ppl with arm refinance to a low fixed mortgage. Once ppl max out credit cards and lose home, there will be another market crash.

You raise an interesting point, first the ARMs go down the tubes causing the financial issues we're in. Now, we watch as companies can't get loans to do business and the only way to stay afloat is to lay off people. Now here's the ugly truth, less jobs, less income generating households. The people with fixed loans are looking for work but there isn't any out there. Now the foreclosure homes are people who didn't cause the mess in the beginning. TALK ABOUT A VICIOUS CIRCLE!!!!

 

[Bullitt]

Mr. Market wasn't too happy yesterday, and I'm sure today just put this election in the books as the worst two day response to an election ever. Maybe we'll set a weekly record too. Hey, I'm just saying...

 

[alevin]

I discovered John Hussman a few weeks ago and am really starting to like him, was browsing this morning in his archives from 2000-2001, after had already perused Bloomberg's articles for today. Anything sound familiar?

http://www.hussman.net/wmc/upd01b.htm

I have to say that I have never been as uncomfortable about the joint prospects for the market and the economy as I am now. I hope that I am terribly wrong on both counts. Better to be wrong, miss a few percent in gains, and take a constructive position than to see the misery that indications suggest. On the market, I continue to believe that stocks are vulnerable to a crash. On the economy, I believe that the U.S. is in recession - one that threatens to be global in scope, and there is increasing reason to believe that overleveraged, undersaving consumers are about to shift their spending patterns in a fairly profound way. My reasoning will be clear in the upcoming report, but all I can say is that the U.S. trade balance may be about to show a stunning "improvement." And those of you familiar with economics know that that is not good news.

http://www.bloomberg.com/apps/news?pid=20601068&sid=akd8Vd7ZXZN8&refer=economy

A narrowing trade gap is likely to remain one of the few bright spots, even as shrinking economies in Europe and Japan and a rising dollar cause U.S. exports to slump.

 

[Silverbird]

Bloomberg is being disingenuous. The trade balance is narrowing because of less imports, not growing exports. A narrowing trade balance is good IF exports are rising. The only bright spot to this trade balance reduction is there are less excess dollars floating around due to trade. There still are excess dollars floating around, however, with all of our recent borrowing.

 

[alevin]

Bloomberg is being disingenuous. The trade balance is narrowing because of less imports, not growing exports. A narrowing trade balance is good IF exports are rising.

I caught the difference between the 2 articles re import redux vs. export increase. Wondered how the balance was a bright spot in 08. Thanks for being our res. expert.

 

[alevin]

http://www.bloomberg.com/apps/news?pid=20601103&sid=aKNSK0gYlqB0&refer=news

Tobin’s Q ratio compares the market value of companies to the cost of their constituent parts, CLSA Ltd. strategist Russell Napier said.
The ratio, developed in 1969 by Nobel Prize-winning economist James Tobin, indicates the Standard & Poor’s 500 Index is still too expensive relative to the cost of replacing assets, said Napier. The S&P may plunge another 55 percent to a trough of 400 by 2014, the strategist said.

Napier, who teaches at Edinburgh Business School, based his S&P 500 forecast on the Q for U.S. equities as well as the 10- year cyclically adjusted price-to-earnings ratio, another measure of long-term value.
Before the trough in 2014, investors are likely to see a so-called bear market rally for the next two years as central bank actions delay the onset of deflation, he said.

The Q ratio on U.S. equities has dropped to 0.7 from a peak of 2.9 in 1999, and reaching 0.3 has always signaled the end of a bear market, said Napier. The Q ratio for U.S. equities has fluctuated between 0.3 and 3 in the past 130 years.

When the gauge is more than one, it indicates the market is overvaluing company assets, while a Q ratio of less than one signifies shares are undervalued because it is cheaper to buy companies than to build them from the ground up.

At the end of the four largest U.S. bear markets in 1921, 1932, 1949 and 1982, the Q ratio fell to 0.3 or lower, and history is likely to repeat, said Napier.

Quantitative Easing
Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments, which oversees about $190 billion, said for now central bank efforts to fight deflation will push the market higher.

Federal Reserve Chairman Ben S. Bernanke’s indication that he will use “quantitative easing” to prevent deflation points to a stock market rally that may last for the next two years, Napier said. The government’s efforts will eventually fail as ballooning government debt devalues the dollar, causes investors to flee U.S. assets and takes the S&P 500 to its eventual bottom in 2014, Napier said.

I may pile in sometime in the next couple months, and maybe sooner than later, but as Maylyla says "Watch your tail!" and don't get too comfortable. If China devalues the yuan anytime soon, which they've been threatening, (read about that on ticker-forum), we're in for a world of hurt on the trade-balance/treasury/export fronts. :worried: Silverbird may want to weigh in on that one if she has a different perspective.

 

[malyla]

Alevin's post is definately in line with the info on this webpage
http://generationaldynamics.com/cgi-bin/D.PL?d=ww2010.i.djia

I wasn't expecting it to take until 2014 to start another bull market, but after thinking about it, that makes sense in the light of what the government is doing with the bailouts. They are cushioning the devaluation of the stocks back to the trendline instead of letting the system crash. This cushioning effect will extend the timeline of the market recovery unless another bubble can be generated.

Bonds still worry me as I can not understand how the slow deflation of the overvaluation of stocks will translate to the bond market. Just a feeling, but I think everything will lose value.

I will still try to catch the longer bear rallies when I can but will be in safety most of the time until indications show a bull resumption in the market. Good Luck everyone. It's going to be a bumpy ride for awhile.

 

[Birchtree]

If the market truly did hit rock bottom on November 20th, we can expect a genuine economic recovery somewhere between March and June of 2009. The market is anticipating the economy to stabilize and possibly begin its recovery in a matter of months. I've done my buying and now I will take the ride. Remember, the financial markets will always behave in the manner which will benefit the minimum possible number of its participants. The S&P 500 surged 72% in 1932-1933. The last time perma-bear Jeremy Grantham was this optimistic was in the summer of 1982 - and I was there to catch that move.

 

[rawiron1]

The market will rally in early 2009. But when the next bubble pops (read commercial real estate) the market will tank again and stay down for years to come. The commercial real estate market was leveraged out many more times than the housing market was. Plus what do you think is going to happen when that 8 trillion gets back into the market? It's called inflation.

Jason

 

[jon]

Silverbird
"If there was a simple solution, I'd think someone would have found it by now and implemented it, whether us or some other country. So far haven't seen it."[/quote]

This morn on Car Talk(Click& Clack) they discussed benefits of now implementing a $0.50/gal gas tax with gas prices being so low. Sounded reasonable, to be spent on new energy technologies, infrastructure repair and rapid transit in high density corridors.

How did Europe, Japan get their slick rail systems and why do they use smaller high milage vehicles? In fact if you look at their vehicle petrol taxes since at least the 1960's, a 50 cent increase might be a squandered half hearted move for us. I suspect we could afford an 75 cents- $1.00/gal increase. Surely, if smaller, less robust Eurpoean economies can afford $2-$3 gal taxes, so can we. For Obama, to create 2.5 mil new jobs will require some money, not just efficiencies.

 

[alevin]

One more reason to get out from under existing debt quickly and make sure you know what you're buying in the first place....

http://kai03.qwest.com/WindowsLive/...963000O0@news.ap.org&client=landingpage&qid=0

When a car buyer still owes money on a vehicle he is trading in, the dealer promises to pay off the outstanding loan, then resells the vehicle. But as more dealers go out of business, some are sticking consumers with the bill. Lenders can then go after the previous owner who thought the debt was paid, or repossess the car from the new owner who assumed it came with clear title.

"It's devastating for people when it happens because they have two car payments and they can't afford them," said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a Sacramento-based nonprofit that lobbies on behalf of vehicle owners. "Their credit is destroyed for no fault of their own because the dealer defaulted."

Regulators in California and other states, including Florida, Iowa and Washington, are seeing a surge in consumer complaints. They warn the problem is sure to grow this year because of the deepening recession and continued trouble in the auto industry.

About a quarter of all car buyers are vulnerable because they still owe money on their trade-in or lease when they buy another vehicle, according to industry tracker Edmunds.com. It's become more common for a driver to owe money on a trade-in as people stretch their car payments over six or seven years to make them more affordable.

I buy my vehicles and hang onto them for ever it seems, they're paid off long before I let them go. Only owned 3 in my adult life so far. Bought the second new, the third from dealer when it came off a lease.

 

[Silverbird]

As much as I like the Japanese and European model for public transportation, our major cities are quite far apart, except along the Eastern seaboard. You could say it's the price of Manifest Destiny.

I like the idea of a gas tax as long as it's used for the infrastructure for alternatives.

What I'm finding out studying the solar cell and panel industry - if 90% of your sales depends on an upgraded infrastructure (in the case of solar - grid upgrades and powerline right of way) you can make all the solar cells you want but your market won't take your product if it doesn't get funding to help pay for upgrading the power grid (unless you have a product that is so efficient that the cost of energy for the alternative is comparible to that of fossil fuels generation - that's what all the solar cell/panel research and small startup companies are about). By the way, off grid is already profitable, but most people don't put solar panels on their house just to power their house.

I hear it's the same with alternate fuels. If it doen't get to the station or the consumer no sale.

 

[Buster]

Bernanke: Recession may end in '09; Stocks climb

http://news.yahoo.com/s/ap/20090224/ap_on_bi_st_ma_re/wall_street