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"Step right up and get your tickets for the Middle Ages!" (Character E.K. Hornbeck in "Inherit the Wind", a play by Jerome Lawrence and Robert E. Lee, 1956)
Yeah, from listening to various department heads this will be worse than the Y2K meltdown and probably worse than the EOTWAWKI.
All I can say is rubbish because this is a moderated board. One of them was whining that they'd have to give furlough days to their employees. Duh, I'm from Michigan. I my 30 years as a state worker, I had furlough days on 4 or 5 separate occasions. I'm not sure exactly the number because a couple of these 'budget balancing' moves ran together. Normally, you work 5 days and get paid for 4 or 4.5.
Oh, and we're going to cut those poor defense contractors. That's so sad. Why don't we declare victory and bring the troops home and defend the shores like laid out in the constitution? We've still got 80K troops in Germany and I though Hitler was dead. Saddam is dead. BinLaden dead. We've got military troops on the ground in over 100 countries around the world. Our defense budget is larger than all the other countries combined. Are we insane? You could bring them home, drastically improve training and technology and the overall quality of our nat def AND you could cut the defense budget by $200B per year.
Now, instead of the EOTWAWKI event that they're predicting let's talk about what will most likely happen. Coupled with the payroll tax coming back and rising gas prices and hours being cut due to obamacare, we're probably going to snuff out this brief glimmer of a recovery and continue forward into the economy of No.
I think rono is on track here. I mean, the initial cuts, IF they happen, are such a teeny part of the total expected annual spending as to be silly. And from what I have garnered, not a small part of the "cuts" could simply be a reduction in future growth of expenses. But the way our "crisis du jour" media operate, they will have most people expecting an EOTWAWKI event for sure. But remember they need to sell advertising to stay on the air, and advertisers make their decisions mostly based on viewership. The more the media scare us, the more we want to watch. Bizarre, I know. But that is how the media have handled all of the so-called crises over the last decade.
This makes it darned hard for investors to keep their blinders on and think longer than one week at a time. But that is exactily what we must do to reach our long-term goals.
As former Soros second-in-command (and highly successful fund manager on his own) Stanley Druckenmiller noted the other day on CNBC: "If you normalize interest rates, i'm not talking about a spike, just normalize where they were before QE and took them to 5.7% federal funding costs of the debt, that's $500 billion a year in interest expense that goes out door. We're having a heart attack over an $85 billion sequester when we can lose $500 billion just if you normalize. The way markets work if and when that were to happen, you don't normalize, you keep going because the market figures out that you now have a credit problem which is exactly what's happened in the foreign nations."
Reply to @scott: Hi Scott: Interesting quote. Am trying to fathom if you're expressing a point of view as well. Granted, a rise in rates will increase the cost of financing debt. And the threatened budget cuts would likely slow the expansion. Is it your view then that the sequestration should go foreword in order to supress both (1) federal spending and (2) a more robust economy (which would allow rates to rise.)? Not quarreling - just trying to understand your position - if you're expressing one here. Thanks.
Reply to @hank: Not really expressing a particular point of view, just - I suppose - noting that, for all of the worry over the sequester and the resulting fallout, it is one of many such financial issues and maybe not the largest in terms of scale. I think rates won't be rising for a long time, and I tend to believe that if they did sooner than (much, much) later it would likely be involuntary.
As for worries about budget cuts slowing growth, maybe some/all what is being cut was never sustainable in the first place, who knows. As I've noted before, all I see is a short-term mentality when it comes to government spending - there's no defined goals, there's no defined plans (no ability to agree on anything, really, aside from things like telling Bernanke to "get to work" - because they clearly aren't going to) and as a result, we're nearly five years after 2008 and there's barely been any time during that period where the Fed hasn't had to have QE, ZIRP or something else. If the goal was something sustainable (instead of a series of short-term sugar highs that need more sugar each time), then the goal clearly wasn't met.
The training wheels haven't been taken off and if there's another recession, then what? Or, are we just not going to have a recession again because any recession will be met by more QE? If that's the case, it's remarkable that we think we can avoid the bill of living beyond our means in this country forever by printing money and financial games (the other day: http://www.zerohedge.com/news/2013-02-19/fed-buys-back-30-year-bond-auctioned-last-thursday).
We're still bailing out, still printing money, and yet, no one talks about education, much of the infrastructure is dated and getting older by the day. Bernanke still says "there is no bubble" (which he did the other day) and people listen to his every word like they did when he talked about how "subprime is contained". Legendary investor Seth Klarman wrote the other day, ""(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors."
At least there was a little bit of honesty from Dallas Fed president Fisher, who said the other day that the Fed has artificially sustained markets. Odd that Fisher is also the one who has large holdings in Gold, Platinum and other hard assets (http://www.zerohedge.com/news/goldbug-fed), including farmland.
I'm not saying I'm bearish, either, really - I think people have to continue to be invested and particularly in real, productive assets - because I think that will continue to do well and continue to help stay ahead of inflation and the continually rising cost of everyday things.
Druckenmiller's other quote from the interview: " ... Congress is not getting the market signal we talked about in the article so you can scream all you want about congress and the president being clowns, I can't think of any political system anywhere where they acted without interest rates going up. When did greece act? When the bond market blew up. When did Spain act? When the bond market blew up. What was Clinton's response to Rubin, "you mean the f'ing bond market is in control." Doing what they are doing the politicians have no incentive, but the market is a very fickle and violent thing. The bond market is a funny thing. In Greece the bond market was perfectly fine until February of 2010. Not moving, not doing anything, and then in two weeks it was over."
As for the "market signal" discussed in the article Druckenmiller wrote, "The Federal Reserve's policies reinforce this short-term orientation. To offset weak economic conditions, the Fed's principal policy objectives appear to be twofold: suppress interest rates and raise stock prices. As a result Congress may be missing market signals and failing to see the costs of its spending addiction in time to undertake real reforms. Ultimately, economic fundamentals—not the promises of central banks—will determine the prices of stocks and bonds."
Reply to @scott: Yeah - You generally have a good grasp of all these related issues. Well read or otherwise informed. I concur that the world economy's in deep doo-doo. Sequestration raises question of how much of it we should choose to slog through at the present time.
Comments
Yeah, from listening to various department heads this will be worse than the Y2K meltdown and probably worse than the EOTWAWKI.
All I can say is rubbish because this is a moderated board. One of them was whining that they'd have to give furlough days to their employees. Duh, I'm from Michigan. I my 30 years as a state worker, I had furlough days on 4 or 5 separate occasions. I'm not sure exactly the number because a couple of these 'budget balancing' moves ran together. Normally, you work 5 days and get paid for 4 or 4.5.
Oh, and we're going to cut those poor defense contractors. That's so sad. Why don't we declare victory and bring the troops home and defend the shores like laid out in the constitution? We've still got 80K troops in Germany and I though Hitler was dead. Saddam is dead. BinLaden dead. We've got military troops on the ground in over 100 countries around the world. Our defense budget is larger than all the other countries combined. Are we insane? You could bring them home, drastically improve training and technology and the overall quality of our nat def AND you could cut the defense budget by $200B per year.
Now, instead of the EOTWAWKI event that they're predicting let's talk about what will most likely happen. Coupled with the payroll tax coming back and rising gas prices and hours being cut due to obamacare, we're probably going to snuff out this brief glimmer of a recovery and continue forward into the economy of No.
We'll come out of it in another decade or so.
peace,
rono
This makes it darned hard for investors to keep their blinders on and think longer than one week at a time. But that is exactily what we must do to reach our long-term goals.
As for worries about budget cuts slowing growth, maybe some/all what is being cut was never sustainable in the first place, who knows. As I've noted before, all I see is a short-term mentality when it comes to government spending - there's no defined goals, there's no defined plans (no ability to agree on anything, really, aside from things like telling Bernanke to "get to work" - because they clearly aren't going to) and as a result, we're nearly five years after 2008 and there's barely been any time during that period where the Fed hasn't had to have QE, ZIRP or something else. If the goal was something sustainable (instead of a series of short-term sugar highs that need more sugar each time), then the goal clearly wasn't met.
The training wheels haven't been taken off and if there's another recession, then what? Or, are we just not going to have a recession again because any recession will be met by more QE? If that's the case, it's remarkable that we think we can avoid the bill of living beyond our means in this country forever by printing money and financial games (the other day: http://www.zerohedge.com/news/2013-02-19/fed-buys-back-30-year-bond-auctioned-last-thursday).
We're still bailing out, still printing money, and yet, no one talks about education, much of the infrastructure is dated and getting older by the day. Bernanke still says "there is no bubble" (which he did the other day) and people listen to his every word like they did when he talked about how "subprime is contained". Legendary investor Seth Klarman wrote the other day, ""(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors."
At least there was a little bit of honesty from Dallas Fed president Fisher, who said the other day that the Fed has artificially sustained markets. Odd that Fisher is also the one who has large holdings in Gold, Platinum and other hard assets (http://www.zerohedge.com/news/goldbug-fed), including farmland.
I'm not saying I'm bearish, either, really - I think people have to continue to be invested and particularly in real, productive assets - because I think that will continue to do well and continue to help stay ahead of inflation and the continually rising cost of everyday things.
Druckenmiller's other quote from the interview: "
... Congress is not getting the market signal we talked about in the article so you can scream all you want about congress and the president being clowns, I can't think of any political system anywhere where they acted without interest rates going up. When did greece act? When the bond market blew up. When did Spain act? When the bond market blew up. What was Clinton's response to Rubin, "you mean the f'ing bond market is in control." Doing what they are doing the politicians have no incentive, but the market is a very fickle and violent thing. The bond market is a funny thing. In Greece the bond market was perfectly fine until February of 2010. Not moving, not doing anything, and then in two weeks it was over."
As for the "market signal" discussed in the article Druckenmiller wrote, "The Federal Reserve's policies reinforce this short-term orientation. To offset weak economic conditions, the Fed's principal policy objectives appear to be twofold: suppress interest rates and raise stock prices. As a result Congress may be missing market signals and failing to see the costs of its spending addiction in time to undertake real reforms. Ultimately, economic fundamentals—not the promises of central banks—will determine the prices of stocks and bonds."
http://market-ticker.org/akcs-www?post=217892
Don't always agree with the author, but article offers some projections in terms of spending/interesting graphs and thoughts about the thread subject.