Stock market whipsaw

[REDWAVE]

Well, well. After surging back to recover most of its recent losses-- a recovery sparked largely by short sellers buying to cover their positions-- the stock market has lately resumed its inexorable slide into the toilet, falling by about 200 points a day for the last 3 trading days or so. It closed at just over 8,000-- down a third from its peak. Economic fundamentals remain horrendous: business investment has collapsed and shows no sign of recovering any time soon. Foreign investors have cut way back, which means the dollar is likely to collapse soon. Can you say "double dip"? I knew you could!

If (as appears inevitable) Bush attacks Iraq, the impact on the U.S. economy will probably be devastating, as a recent NYT article indicated. The markets will tank, and the price of oil will skyrocket. Opening up the Strategic Petroleum Reserve (SPR) may well keep oil prices stable, but only for a few months, even if the whole reserve is used. And of course, using up our entire SPR is not a particularly good idea. It leaves us totally vulnerable to cutoffs of oil production and/or distribution.

 

[binkley]

Economic fundamentals remain horrendous: business investment has collapsed and shows no sign of recovering any time soon.

Most of what you're saying I can go along with, but this pair is simply contrafactual. We're presently in the early stages of a recovery. It's difficult to characterize that as a collapse. And economic fundamentals are quite good; unemployment never rose much (which is bad, actually), inflation is nicely reasonable (but could be lower), interest rates are ok, the "misery" index is looking quite good. More importantly, however, businesses are pulling back from the excesses of the last boom, while those economic sectors which are growing continue to do so quite nicely.

Great time to buy stocks!

 

[REDWAVE]

Hey, bink, how are ya?

Good to hear from you, binkley. With that kind of attitude, you oughtta be a stockbroker. No matter what the market conditions are, they can come up with a plausible sounding reason to buy!

But please explain one thing to me, bink, old buddy. Why is it bad that unemployment never rose much? Hmmm?

 

[Sandia]

I'd be willing to bet there'll be no attack on Iraq; the news stories, I think, are "trial balloons," combined with some wishful thinking on the part of members of the military-industrial complex and various "strategic advisors."

Of course American imperialists would like to see an attack on Iraq. But the case for attacking them is horrendous, and most Americans just plain don't give a damn. It's an expensive and stupid waste of life. Americans are more worried about their 401(k) plans and their jobs. As they should be.

 

[binkley]

Re: Hey, bink, how are ya?

No matter what the market conditions are, they can come up with a plausible sounding reason to buy!

Never be a market timer unless you are a schmuck. Just buy when you should hold stocks; switch to bonds when you shouldn't. I don't play to sell for 20 or more years, so I should be almost completely in stock no matter what the market is doing. Simple advice, I know.

But please explain one thing to me, bink, old buddy. Why is it bad that unemployment never rose much? Hmmm?

Because it we never got the disinflationary pressure unemployment brings. Retirees especially feel the ravages of inflation; the young don't since they make it up in inflated earnings. Plus inflation distorts the real value of money. (True, in the case of the US, the effect is very small, but look at S. America for a real example.)

Also, unemployment is the means by which human capital is shifted between economic sectors quickly. Given that the technology and services sectors drive our economy these days, I suppose it isn't surprising that there's no pressing need to reallign employment. Not like the transition from an industrial to non-industrial economy like we went through in the 70s and 80s where high unemployment freed up labor to be more productive elsewhere.

But I'll suppose you think I'm smoking capitalist crack over here, nyet tovarich?

 

[Sandia]

Did you see the Dilbert today on "human capital?" It was a riot.

 

[binkley]

Sandia!

Another delightful cartoon avatar! I'm really enjoying all these displays of taste and long memories.

 

[REDWAVE]

Crack? No. Euphemisms? Yes

I would never accuse you of smoking crack, bink, capitalist or otherwise. (BTW, I wonder what socialist crack would be like?) For a defender of capitalism, at least you're fair and open-minded. But I find the euphemisms you used in discussing this subject extremely revealing. Allow me to translate them into "realspeak."

You speak of the "disinflationary pressure unemployment brings." Translated into realspeak, what that means is this. When people lose their jobs, they suffer a major (if they are "lucky" enough to be able to collect unemployment) or total (if they aren't-- and eligibility restrictions have been tightened so much most aren't) reduction in income. Consumer spending as a whole falls, causing vendors to lower their prices to try to attract more buyers.

I love this line: "unemployment is the means by which human capital is shifted between economic sectors quickly." "Human capital"? You mean people? Now even people have become a form of "capital"! This reflects the total domination by capital of all aspects of society! And all this time I thought I was a human being! Now I find I'm just "human capital." What a bringdown! Do you think I'd be able to get much for myself on the market? Probably not-- I'm old and in poor health, and (from the employers' point of view) I have a lousy attitude.

Anyway, to translate that last statement into realspeak, being thrown out of work makes people so desperate they'll gladly take any shitty job their capitalist masters want to herd them into.

The transition from an industrial to a non-industrial economy was in effect the destruction of the U.S. economy, bink. An economy without an industrial base is fundamentally unsound.

You close with a real howler: "high unemployment freed up labor to be more productive elsewhere." Yes, labor was "freed," all right. They were freed from their jobs, their only source of livelihood. Many were freed from their residences, as they couldn't afford to pay their rent or mortgage, and they got evicted. Many were freed from their marriages or relationships. Losing a job and having no money puts a definite strain on your relationship with your SO, and causes many relationships to break up. But hey, all this human suffering was totally worthwhile, because labor became "more productive." Translation: employers were able to gouge even greater profits out of the hides of the workers than before, and the filthy rich became even filthier!

 

[binkley]

Re: Crack? No. Euphemisms? Yes

You speak of the "disinflationary pressure unemployment brings." Translated into realspeak, what that means is this. When people lose their jobs, they suffer a major (if they are "lucky" enough to be able to collect unemployment) or total (if they aren't-- and eliegibility restrictions have been tightened so much most aren't) reduction in income. Consumer spending as a whole falls, causing vendors to lower their prices to try to attract more buyers.

This is completely and totally accurate. But you overlook that in lightly regulated economies, such as the US, the loss of income is normally short-lived, and most people have adequate savings to cover the period. Plus we do have unimployment insurance. I'm not claiming it's a gold mine, but neither is it the destitution your tone seems to lead towards.

"Human capital"? You mean people? Now even people have become a form of "capital"!

Do you have a differerent term? As you yourself is quick to note, capital is horded and treasured in capitalist societies. Service and technology economies depend dramatically on human capital, not financial capital, to succeed. In "realspeak", Socialism is coming to pass just as predicted by Marx, but not in any form expected by him. Welcome to the future, comrade.

Anyway, to translate that last statement into realspeak, being thrown out of work makes people so desperate they'll gladly take any shitty job their capitalist masters want to herd them into.

As opposed to what, no job at all as in the socialist economies?

The transition from an industrial to a non-industrial economy was in effect the destruction of the U.S. economy, bink. An economy without an industrial base is fundamentally unsound.

This is the worst, most wrong-headed statement I have ever seen you make in earnest, REDWAVE. Just as agricultural economies--where land was worth more than people--passed from their misery to the lessened misery of industrial economies; so to are industrial economies--where money is worth more than people--passing into post-industrial modes of production, modes where people are the highest form of capital.

Celebrate, you won already!

Can I pop the cork now?

 

[REDWAVE]

If this is socialism, then I'm a gorgeous young babe!

That had to be the funniest post you've done yet, binkley. You were pullin' my leg, right?


The transition from agricultural to industrial economy was an advance, since it involved a tremendous expansion of productive capacity. But I don't buy the idea that the move from an industrial to a "post-industrial" economy was an advance. I think it was a step backwards. And if "people are the highest form of capital" now, as you assert, answer me this. Why is it that in the old, industrial economy, most people had secure, good-paying, unionized jobs, often with the guarantee of lifetime employment if they worked hard and kept their noses clean, whereas most people now have highly insecure, low-paying, non-union, often even part-time or temporary jobs? A lot of good jobs have been destroyed, and replaced with crappy jobs.

I don't know what crowd you hang out with, bink, but most people I know DON'T have savings. They live from paycheck to paycheck, and barely get by. And yes, most people find a new job eventually (usually not that quickly, especially in the employment market now, which is horrible), but usually at a lower rate of pay than they were making before. The reduction in their income is permament.

Better hold off on popping that cork.

 

[Sandia]

Re: Sandia!

Another delightful cartoon avatar! I'm really enjoying all these displays of taste and long memories.

WHOOOOOOOOOSSSSHHHHHH.............

(Sorry, Binkley, that one went right over my head...)

 

[binkley]

Re: If this is socialism, then I'm a gorgeous young babe!

And if "people are the highest form of capital" now, as you assert, answer me this. Why is it that in the old, industrial economy, most people had secure, good-paying, unionized jobs, often with the guarantee of lifetime employment if they worked hard and kept their noses clean, whereas most people now have highly insecure, low-paying, non-union, often even part-time or temporary jobs?

If I may...

"Most" is a horrible characterization of present jobs since the average income has gone steadly up, not down, during the transition away from a brown economy.

Jobs were secure in the old economy precisely because people were interchangeable tools, not valuable. You don't throw your tools away, do you? But they remain tools. In the new economy, work is so short-lived not because employers discard you, but because you discard your employer and move to a better or more flexible job. Contrast rigid work rules with flex time, if you will. Do you not agree that most workers would prefer flex time?

Finally, the huge growth in productivity from green to brown economies you so rightly point out, is mirrored in the great expansion from brown to ??? (I lack a vivid color word to describe post-industrial economies. Suggestions?) economies.

Ask East Asia why they are trying to move out of manufacturing and into programming, graphics, research, biotech, or any numerable other post-industrial endeavors.

Valuing the brain over brawn is one of the most liberating things modern economies do.

 

[REDWAVE]

Real wages are declining

Not true, binkley old boy. Average real wages (i.e., adjusted for inflation) have declined steadily since about 1970-- the begining of the transition you're talking about, which may also be characterized as the transition from imperialism to neo-imperialism (the highest form of imperialism). (There was one short exception from 1993 to 1997, when real wages actually rose a little.) True, average wages have gone up-- but prices, on the average, have gone up more, making the apparent gains in income illusory.

Again, I don't know what social strata you're moving in (sounds pretty upscale), but most people I know have changed jobs because they were fired or laid off. Most of them eventually found another job, at lower pay. And they went through hell in the meantime! Can I get any witnesses here?

Flextime is just a ploy by the employers to screw their workers out of overtime pay.

As for a vivid color word to describe the current economy, how about black? Black as night! Black as the depths of hell!

 

[Sandia]

There's some debate about whether incomes have really gone up in the US.

Conservatives say it has, because average family incomes have gone up; liberals say no, because average hourly wages have stayed flat (or declined slightly).

Household incomes have increased because more people are working, and they're working longer hours, and having fewer children. But they're not getting paid more on an hourly basis than they were thirty years ago.

 

[REDWAVE]

binkley 1,000

BTW, binkley, I notice you're approaching 1,000 posts. Congratulations! What are you going to choose for your tagline?

 

[binkley]

Re: binkley 1,000

BTW, binkley, I notice you're approaching 1,000 posts. Congratulations! What are you going to choose for your tagline?

Would you belive... binkley?

 

[Sandia]

Re: Re: binkley 1,000

Would you belive... binkley?

That's a good one...
...you'd prolly get pissed if I used it first, huh?

 

[REDWAVE]

True, Sandia

Right you are, Sandia. In many households today, both parents have to work, to make the same income that formerly could be earned by one breadwinner (usually the male, but not always) alone. As a result, the parents have much less time to spend with the children, with the result that the children are neglected, and often develop personality problems as a result, maybe turn to drinking or drugs at an early age . . .

Capitalist child abuse, I call it.

 

[PumpkinSmasher]

Tell me about it my 401k today went from $5.6 million dollars to -3 yen!

 

[Sandia]

I shoulda restated that... per capita incomes have been increasing because people are having fewer children... not household incomes.

 

[Sandia]

Tell me about it my 401k today went from $5.6 million dollars to -3 yen!

Pumpkin... that really really sucks...

I wish I had -3 yen...

(Ok, it seemed funnier when I first thought of it...)

 

[binkley]

Re: Real wages are declining

Not true, binkley old boy. Average real wages (i.e., adjusted for inflation) have declined steadily since about 1970-- the begining of the transition you're talking about, which may also be characterized as the transition from imperialism to neo-imperialism (the highest form of imperialism). (There was one short exception from 1993 to 1997, when real wages actually rose a little.) True, average wages have gone up-- but prices, on the average, have gone up more, making the apparent gains in income illusory.

You are right. I just found this at the DOL:
http://www.dol.gov/asp/programs/history/herman/reports/futurework/report/chapter2/main.htm
However, wages are on the rise again, unemployment is significantly lower now that it was during the 70s and 80s (and that one I can back up) meaning more workers see those rising wages, and PPP for the US continues to outstrip almost all comers. So for the money we have, you can buy more and better goods and services resulting in a rising living standard for the same wages.

Just a quick example: would you prefer a TV made this year or one from 12 years ago? I'm not even talking about digital TV, just an average color TV. Quality is rising dramatically in a broad range of goods with either the price remaining constant for inflation, or actually dropping.

Flextime is just a ploy by the employers to screw their workers out of overtime pay.

I take strong exception to this. Ask working mothers what they thing of flex-time.

 

[Spinaroonie]

The odds of a double dip are verrrrrry slim. Do you just go to an ultra pessimistic version of Bloomberg with skewed facts? Odds are the market will dip a little bit more and then begin to steady. Looks like some PEG ratios are coming back into wack, with a few even undervalued.

 

[PumpkinSmasher]

Pumpkin... that really really sucks...

I wish I had -3 yen...

(Ok, it seemed funnier when I first thought of it...)

My dry humor is made up for with the wet spot in my boxers.

 

[Sandia]

The odds of a double dip are verrrrrry slim. Do you just go to an ultra pessimistic version of Bloomberg with skewed facts? Odds are the market will dip a little bit more and then begin to steady. Looks like some PEG ratios are coming back into wack, with a few even undervalued.

Spin,
The stockmarket is still overvalued: PE ratios in the S&P are more than fifty percent above the historical average... assuming you can trust the numbers.

And as far as dividend yields... did you know stocks used to pay dividends?