07-01-2003 21:29									#301
	Support Apolyton or Terrorists Win

quote: Originally posted by HershOstropoler Based on my assumptions the recession is not a masochistic choice, but like the question of going to the dentist or labouring with the toothache.

A very bad analogy. Since you haven't listened to me in the past on "good recessions", read this piece (again if you have read it) by Krugman (who we both respect) on why "good recessions" do not occur. Be warned your darling Hayek (quite fairly) gets a bit of a pasting.

http://www.pkarchive.org/cranks/hangover.html

	07-01-2003 21:30									#302
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It's in the cranks section, just noticed that; how appropriate.

	07-01-2003 21:42									#303
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I know that piece by Krugman. To a smaller extent I disagree with him, but mostly he is attacking a pretty misconstrued opposing view.

If you can get rid of the imbalances without a recession, excellent. But in this case that the price for avoiding it has been to build up more imbalances.

	08-01-2003 02:02									#304
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quote: Originally posted by HershOstropoler If you can answer a question for a change: Are you denying that a central bank, by forcing interest rates below their natural market level, can create a self-reinforcing consumption and invest boom ? Yes or no.

Although I am not a macro-weenie, I beleive that the central bank can influence immediate consumption but not create an immediate stock market jump. The reason being that stocks are valued based on the estimate of long-term cash flows. Easing the money supply for a year or so does not impact the long term prospects for a company. The boom was an internet fable. It was the New Economy booshwa. But people believed it. If I discover oil/seawater transmuation, the market will be justified in jumping. As that will mean cracking of the OPEC cartel. Even if the market THINKS I've discovered it, they are justified in jumping. Let them move around. Just keep CPI under control and don't do much else. That will make me happy.

	08-01-2003 02:16									#305
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quote: Originally posted by GP Although I am not a macro-weenie, I beleive that the central bank can influence immediate consumption but not create an immediate stock market jump. The reason being that stocks are valued based on the estimate of long-term cash flows. Easing the money supply for a year or so does not impact the long term prospects for a company. The boom was an internet fable. It was the New Economy booshwa. But people believed it. If I discover oil/seawater transmuation, the market will be justified in jumping. As that will mean cracking of the OPEC cartel. Even if the market THINKS I've discovered it, they are justified in jumping. Let them move around. Just keep CPI under control and don't do much else. That will make me happy.

I think that there are several examples of markets moving opposite to the way that one would expect from easing/constraining money supply. This is easy to understand with the emphasis on long term results. Also, you can look at the crash of 87 and see that it was not a result of monetary policy.

	08-01-2003 07:58									#306
	Put an end to popups!

Just wanted to say a quick hi to HershOstropoler-Rechtsberater and Manly Non-Macro Weenie GP.

I still have that drinking problem. *belch*

	08-01-2003 08:57									#307
	Just to put my oar in.... Support Apolyton or Terrorists Win

Well according to the OECD there has already been a sharp slowdown in the US's trend rate of growth.

According to the (admitted guesstimate) of the D-P functions, trend growth in the US was 3.6% in during the boom years of 1997-2000 but it's forecasting that this year it will only be 2.9%.

With the US's capital stock growing by only 1.5% a year - a rate that cannot be raised without a very large rise in investment - the US would have to put in fantastic captial productivity figures (I think it's capital productivity, i'm talking about capital stock/gdp here) of around 1.5% to 2% a year.
I don't think that's possible (during 1929-2001 capital productivity averaged 0.5% a year and never averaged more than 1% a year for a decade).

Sorry, but a mild slowdown followed by a recovery that also sees a sharp fall in the potential growth rate (leading to a much worse recession later in the decade) sounds very Japan-like to me.


On the subject of whether the Fed's policy since 2000 is correct the only thing I have to say is that the best description for the situation in 2000 is "don't start from here".

	08-01-2003 09:00									#308
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There's alot of cash on the sidelines though.

	08-01-2003 13:23									#309
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GP:

A CB can't create an immediate stock market jump. It can however create an economic boom and invite them to the easy money table, that's the bait for speculators. Whether they bite or not is another question - this time they did.

"If I discover oil/seawater transmuation, the market will be justified in jumping."

Depends on what your wateroil will cost....


ElF:

"With the US's capital stock growing by only 1.5% a year"

Is that for 2001/2002 ?

"(I think it's capital productivity, i'm talking about capital stock/gdp here)"

gdp/capital stock. Agree that that one won't give much mileage.

	08-01-2003 21:59									#310
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quote: Originally posted by HershOstropoler GP: A CB can't create an immediate stock market jump. It can however create an economic boom and invite them to the easy money table, that's the bait for speculators. Whether they bite or not is another question - this time they did.

Yes, but if markets beleive the boom is destructive over the long term, they will not rise overall. They have no incentive to do so. Plus they are quite capable of being stupid and of oscillating wildly on their own and independent of CB actions. See the studies on volatility, random walk patterns and the like. First chapter of Brealey and Myers is a good start and has references to the academic literaure. I assume that as an academic you either have all those journals on campus or have interlibrary loan. I did as a scummy chem grad student and used it to get journal articles in all fields. Almost always at no cost.

quote: "If I discover oil/seawater transmuation, the market will be justified in jumping." Depends on what your wateroil will cost....

Of course. I discussed that when I gave the example before.

	08-01-2003 22:04									#311
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"Yes, but if markets beleive the boom is destructive over the long term, they will not rise overall."

Which makes the Fed's cheerleading even more bizarre.

"Plus they are quite capable of being stupid and of oscillating wildly on their own and independent of CB actions."

Sure. But with the support of a CB, they can be even more stupid and oscillate more wildly.

	08-01-2003 22:30									#312
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quote: Originally posted by HershOstropoler "Yes, but if markets beleive the boom is destructive over the long term, they will not rise overall." Which makes the Fed's cheerleading even more bizarre.

I have no problem with criticims of the cheerleading. I disagreed with the Internet hype and I also disliked the last administration.

quote: Sure. But with the support of a CB, they can be even more stupid and oscillate more wildly.

But my point is that the markets take a long term view. A volatile long term view, but a long term one. They won't nescesarily dance to a current CB action. Also, what did the CB do that was so extreme? CPI didn't really go crazy as I remember. I know you had a bunch of comments about 2% versus 3% inflation. But I really don't remember any huge CPI craziness like from the 70's.

	08-01-2003 22:39									#313
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"But my point is that the markets take a long term view."

How long term ?

"what did the CB do that was so extreme."

The Fed created a consumption and investment boom.

The Greenspan Fed repeatedly reacted to (simetimes just possible) symptoms of financial stress with generous liquidity, be it the 1987 crash, the early 90s reliquification, LTCM, Y2K.... that pushed the boom further, and it created an impression of reduced risk in financial markets (whether you call it the "Greenspan put" or not).

As for CPI, Japan didn't have a real CPI inflation problem either during its bubble.

	08-01-2003 22:57									#314
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quote: Originally posted by HershOstropoler ElF: "With the US's capital stock growing by only 1.5% a year"

The data is here (on the second sheet).

As you can see after growing by 2.9% in 1981-2000 and 2.7% in 2001 US capital stock growth slows to 1.3% in 2002 0.9% in 2003 and 1.3% in 2004, 1.5% would be the long-term rate from 2005 - that would translate into potential growth of around 2% to 2.5% a year, way below current estimates.

	08-01-2003 23:00									#315
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quote: Originally posted by HershOstropoler "But my point is that the markets take a long term view." How long term ?

Do a DCF and look at the how much value come in different years. More than 80% of a typical stocks value is more than 5 years out. (This is textbook type stuff. Just do the DCF. It's math...not really arguable.) Now of course the market uses current events to predict what it thinks will happen a few years out. But if a CB injects money that will not drive prices up. The market has to think that the rise in value is sustainable. Otherwise there is no incentive for value to rise.

quote: "what did the CB do that was so extreme." The Fed created a consumption and investment boom.

What speciafically? I've already heard you blame the CB broadly. What ACTION?

quote: The Greenspan Fed repeatedly reacted to (simetimes just possible) symptoms of financial stress with generous liquidity, be it the 1987 crash, the early 90s reliquification, LTCM, Y2K.... that pushed the boom further, and it created an impression of reduced risk in financial markets (whether you call it the "Greenspan put" or not).

Ok. Maybe. I think that the moral hazard issue with currency devaluations (specific bailouts....not Fed money levers) is the bigger concern. Also, even if the Fed juices the money supply when there is trouble, the markets still have to beleive that the policy is sustainable.

quote: As for CPI, Japan didn't have a real CPI inflation problem either during its bubble.

Investors are capable of bidding up stocks without one bit of extra money supply. Just by believing the stocks are worth more. For instance because of false expectaions of future earnings.

	08-01-2003 23:04									#316
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Thanx for the link. I'm more pessimistic than that (but that should be no surprise, now should it... ).

Really wonder what the current account adjustment will do to the US economy....

	08-01-2003 23:07									#317
	Avatar Enlargement: We've got the solution

quote: Originally posted by GP What speciafically? I've already heard you blame the CB broadly. What ACTION?

If you wanna pin him down you have to make short posts with just that question in it.

	08-01-2003 23:13									#318
	Remove this text

GP:

"Do a DCF and look at the how much value come in different years."

Tell that to the daytraders or Abby Cohen. Seriously, that's all nice and well, but stock markets can turn into pyramid schemes for a while, and the speculators can take over.

"What speciafically? I've already heard you blame the CB broadly. What ACTION?"

There is an equilibrium interest rate that balances lendings and borrowings. In a fractional reserve system a CB and "its" banking system can force the rate below that, you get a credit bubble and a lot of unsustainable demand.

"I think that the moral hazard issue with currency devaluations (specific bailouts....not Fed money levers) is the bigger concern."

What do you mean ?

"Also, even if the Fed juices the money supply when there is trouble, the markets still have to beleive that the policy is sustainable."

And they overwhelmingly believed into the powers of the Fed.

"Investors are capable of bidding up stocks without one bit of extra money supply. Just by believing the stocks are worth more. For instance because of false expectaions of future earnings."

Well not quite. We've seen higher prices and higher volumes, so there is more transaction money involved. But it does not take a rise in overall money supply, yes. Extra money around just makes it easier.

	08-01-2003 23:18									#319
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"1.5% would be the long-term rate from 2005"

How do you come up with the 1.5% number?

	08-01-2003 23:25									#320
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quote: Originally posted by HershOstropoler GP: "Do a DCF and look at the how much value come in different years." Tell that to the daytraders or Abby Cohen. Seriously, that's all nice and well, but stock markets can turn into pyramid schemes for a while, and the speculators can take over.

Irrelevant. The market has a fair amount of volatiility i it. So what. Sure it can delude itself and go off into a speculation overprice situation. But it corrects fine. And for all the times it goes up like that from mutual daytraders, there are plenty of times when daytraders lose their shirts. Besides do you really think that daytraders drive a 4 year long over-price rise in stocks? Boggles the mind. Much more likley to be from false evaluation of the Internet potential. You also might want to look at the random walk potential for booms and busts. There is a great thought experiment involoving coin flipping in the Brealey and Myers book (orthodox stuff...Roland....read it before dismissing it. You are likley to learn something...at a minimum you will sharpen your views...at a max you will change some.)

"What speciafically? I've already heard you blame the CB broadly. What ACTION?"

quote: There is an equilibrium interest rate that balances lendings and borrowings. In a fractional reserve system a CB and "its" banking system can force the rate below that, you get a credit bubble and a lot of unsustainable demand.

This is a short term effect. To drive the overall index up, the market must believe that sustainable economic improvements are likely. They believed in the internet and the New Economy hype. Let them be silly on their own, Roland. It's a free market.

quote: What do you mean ?

Maybe not directly related to our discussion, but I find moral hazard associated with things like Mexico bailout, etc. more troubling than interest rate tweaking.

quote: And they overwhelmingly believed into the powers of the Fed.

They believed the Internet would have some magical water-transmutation properties.

quote: Well not quite. We've seen higher prices and higher volumes, so there is more transaction money involved. But it does not take a rise in overall money supply, yes. Extra money around just makes it easier.

You can have higher trading volume and higher prices without one cent of extra money supply. Here...lets trade stuff back and forth like Amos and Andy.


(DANSed some comments.)

	08-01-2003 23:42									#321
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"Sure it can delude itself and go off into a speculation overprice situation. But it corrects fine."

Yup. But I still don't know what's your point. You still seem to think I want the CB to target stock prices. It shouldn't. It should care about economic balance. Stock prices going gaga can just be one symptom of a brewing problem.

"Let them be silly on their own, Roland. It's a free market."

Let them. All I ask is the CB not to create bubble economies, and not to subsidise the speculators with bailouts.

"Maybe not directly related to our discussion, but I find moral hazard associated with things like Mexico bailout, etc. more troubling than interest rate tweaking."

It is directly related. Whether it's the Fed, treasury or IMF, their main purpose is to subsidise the players in the financial system.

"They believed the Internet would have some magical water-transmutation properties."

That too. And that Uncle Alan has the Midas touch.

"Here...lets trade stuff back and forth like Amos and Andy."

How would that create higher prices ?

	09-01-2003 00:51									#322
	Predictions '03 Enter the AD-FREE zone

Hey guys, it's a good time for Predictions '03!

My first prediction is US GDP growth and unemployment EOY.: 3.4%, 5.6% respectively.

Germany will experience a double-dip (or another dip) into recession.

The S&P 500 will experience another negative year, marking a not-often-seen 4 years in a row in negative territory. Let's say -5%. But there will be a "bin Laden bounce" after he meets the ultimate undertaker, and some down days after a "minor" (Bali, embassy type stuff) terrorist attack.

Inflation will stay in check worldwide. Fed may not even raise rates this year.

Hershell will still be a bear. (Yeh, I know, but you gotta have at least one gimme! )

	09-01-2003 03:32									#323
	Full PM-box? Change here!

--"How would that create higher prices ?"

I buy from you at 1$, you buy then from me at 2$, I then buy at 3$

Btw, I might be in vienna next mon-wed for the Euromoney CEE issuers&investors conference. Would be cool to have a beer and chat. How long does it take to get to salzburg? Or would you be able to come?

	09-01-2003 03:35									#324
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I'll get back to you later, Roland. Have a hot date. But the main issue is that the markets make their own judgement. They don't gyrate short term except because of CB actions except in a negative sense. The CB is incapable of boosting the stock market at will.

	09-01-2003 06:30									#325
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quote: Originally posted by DanS "1.5% would be the long-term rate from 2005" How do you come up with the 1.5% number?

By assuming gross investment (both public and private) growth of 5% after 2004 and that the growth in capital consumption reverts to it's long-term trend of 1963-2000 (i.e. much slower than during the last two years).

That yields 1.5% growth in the capital stock during 2005-2010.

If investment grows by 7% (the average for 1991-2000) then capital stock growth will be 1.8%, and if capital consumption falls back to the pre-boom trend (rather unlikely in my opinon) then captial stock growth would be 2.2%

That means that, even under the most favourable assumptions, trend growth in 2005-2010 is likely to be 2.8% - with the economy going from below trend (-1.1%) in 2004 to above it (+1.3%) in 2010 that would equate to 3.2% growth in 2005-2010.

That would mean a very poor 2001-2010 growth performance:

Growth:
1971-1980: 3.2%
1981-1990: 3.2%
1990-2000: 3.2%
2001-2010: 2.8% (using the most optimistic assumptions above)
2001-2010: 2.0% (using the most pessimistic assumptions above)

	09-01-2003 07:46									#326
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Roland, can you cite an academic source (say of the quality of Brealey and Myers...and the clarity as well) that proves your thesis that stock markets make short term moves (of a few years or so) because of Fed discount rates? I just don't buy it. It violates common sense and market efficiency. The markets dance a lot regardless of Fed discount rate. They are quite capable of moving up because they beleive the long term outlook is positive irrespective of the discount rate.

I suspect you are still a bit of a market-timer. If so...you should found a hedge fund. Or at least write an article for Journal of Finance which shows a new market innefficiancy with statistically relevance...and than all the hedge funds can trade to eliminate that.

	09-01-2003 08:00									#327
	Remove this text

quote: Originally posted by GP I'll get back to you later, Roland. Have a hot date.

Player.

Make sure you put on the jimmy sack. Double bag it if you have too.

	09-01-2003 08:28									#328
	Support Apolyton, buy Civilization III: Complete

quote: Originally posted by Ted Striker Player. Make sure you put on the jimmy sack. Double bag it if you have too.

Didn't move that fast. BTW Lifestyles is the best. Trojans are a tad too small and tend to snarl and bind when they're being unrolled. I hate that.

	09-01-2003 08:51									#329
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OUCH!

I keep my sub well trimmed like a finely landscaped Austrian lawn, in order to avoid snarls.

	09-01-2003 09:10									#330
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Hey dude, your private mailbox is full, so I can't send to it, must be all dem biatches sending you love mail and ****.