Tesla Investor's General Macroeconomic / Market Discussion

[neroden]

I was startled by Alexandria Ocasio-Cortez' opposition to Pilosi's rule about matching revenues or cuts for new programs.

But here is Krugman's argument for skepticism on this as well.

Opinion | Who’s Afraid of the Budget Deficit?

You might also want to read some of Stephanie Kelton's pieces on this.

We Can Pay For A Green New Deal | HuffPost

Opinion | How We Think About the Deficit Is Mostly Wrong

This is *super important*. She's probably the clearest writer on Modern Monetary Theory.

MMT is the theory of how modern money works -- it's not so much the theory that's modern, it's the money that's modern. And it's based on the flat-out facts of how the banking system actually operates. A lot of people are still operating on old theories of money which were accurate under precious-metal coinage and are simply false in our current economy -- they were accurate when the banking system worked very differently, but it just doesn't work that way any more.

The old theories are interesting in "dollarized" countries which both can't print their own currency and where the government is so distrusted and the government's power is so weak that it can't collect taxes reliably, but irrelevant to countries like the US. (At least unless Trump totally destroys people's trust in the ability of the federal government to collect taxes, which still seems unlikely.) This is actually Krugman's major analytical error; he's working from one of the old theories of money.

 

[neroden]

Obviously no one can claim to predict the future but that chart is screaming ~2000 to me as the next major bottom. And yes I sold almost all my equities and am in boring short term treasuries mostly now due to that strong possibility that I see.

I wouldn't be entirely surprised, but I'm a stock picker. I believe oil stocks will lead the way down while correctly picked stocks will ride out the crash. We may end up with the same average we started with but it'll have very different stocks in the lead and very different stocks in the tail. I'm trying to have enough cash to ride out a few years, and sitting on my picks. (I wish my merger arb would cash out already though.)

 

[defc0n]

I wouldn't be entirely surprised, but I'm a stock picker. I believe oil stocks will lead the way down while correctly picked stocks will ride out the crash. We may end up with the same average we started with but it'll have very different stocks in the lead and very different stocks in the tail. I'm trying to have enough cash to ride out a few years, and sitting on my picks. (I wish my merger arb would cash out already though.)

Shorting oil companies is intriguing, but in the near term they very well may rally. Over the long term I struggle envisioning most of their survival.

I question my ability to properly pick equities during a bad market (or during a good market for that matter).

 

[neroden]

The idiotic Trump shutdown of the US government (Trump: “I am proud to shut down the government for border security. I will take the mantle. I will shut it down. I'm not going to blame you for it.”) is causing a recession. Right now.

First transmission mechanism, from shutdown to recession, was government workers not getting their paychecks. Second was hungry people not getting their food stamps. Now it's starting to affect an extremely large sector, the housing market:

Bloomberg on housing market problems

 

[dmunjal]

The idiotic Trump shutdown of the US government (Trump: “I am proud to shut down the government for border security. I will take the mantle. I will shut it down. I'm not going to blame you for it.”) is causing a recession. Right now.

First transmission mechanism, from shutdown to recession, was government workers not getting their paychecks. Second was hungry people not getting their food stamps. Now it's starting to affect an extremely large sector, the housing market:

Bloomberg on housing market problems

The FHA is about 10% of the loans that are originated. The biggest reason the housing market is correcting and has been for months is rising interest rates. That affects 100% of the borrowers, not just the 10% that relies on the FHA.

This was in October. Long before the shutdown.

Housing stocks fall into bear market as interest rates climb to multiyear highs

"It already is affecting housing. Every basis point rate rise already is affecting housing. The run-up in rates over the past year is now weighing increasingly heavily on single-family housing demand, particularly since housing prices have risen so much," said Mark Zandi, chief economist at Moody's Analytics."

 

[neroden]

Apparently Trump literally didn't know what the shutdown would do. Because he's an idiot.

Trump Literally Did Not Understand What a Shutdown Would Do

 

[neroden]

The FHA is about 10% of the loans that are originated. The biggest reason the housing market is correcting and has been for months is rising interest rates. That affects 100% of the borrowers, not just the 10% that relies on the FHA.

You didn't read it, did you?

From your article, which is about speculative price action in homebuilder equities due to interest rates: "But most economists including Zandi so far do not see a major slowing in the housing market and do not expect it to have a big impact on the economy"

The shutdown is actually causing deals to be cancelled.

Here's the lagging chart of existing home sales. Down about 7% from Nov. 2017 to Nov 2018, so yes, an effect there.
Existing Home Sales

(New Home Sales data lags, but it was flat from Sept 2017 to Sep 2018.)

About 20 percent of 2,211 agents surveyed by the group said they had clients who were impacted in some way by the shutdown that began on Dec. 22, the organization said today.

So, 20% affected.

Among those that reported problems, 9 percent said clients who were federal employees had held back from buying, while 25 percent said buyers pulled out simply because of “economic uncertainty,” according to the report. Of those, about half had closings delayed or canceled because customers’ mortgages were backed by the Federal Housing Administration, U.S. Department of Veterans Affairs or the U.S. Department of Agriculture.

About half of the reported problems (10% of surveyed) had problems because loans were backed by FHA, VA, or USDA. About 9% * 20% (1% of all surveyed) had problems because they were goverment employees not getting paid. And about a quarter of problems (5% of all surveyed) were simply buyers pulling out due to "economic uncertainty".

This is on top of any interest rate effects. 5% of deals falling through just due to "economic uncertainty" because Trump is an idiot. Over a very short time frame.

This is a very large effect, much larger than whatever interest rate effect was happening.

 

[mongo]

Second was hungry people not getting their food stamps.

You say "was", my limited understanding is that food stamps are funded at least until February (through February based on yesterday's talk). The articles I've seen regarding not getting food stamps have all been speculative 'what if' scenarios. In which case, this item has not occured, yet.

https://abcnews.go.com/beta-story-c...ry-food-stamp-benefits-usda/story?id=60241034

 

[dmunjal]

You didn't read it, did you?

From your article, which is about speculative price action in homebuilder equities due to interest rates: "But most economists including Zandi so far do not see a major slowing in the housing market and do not expect it to have a big impact on the economy"

The shutdown is actually causing deals to be cancelled.

Here's the lagging chart of existing home sales. Down about 7% from Nov. 2017 to Nov 2018, so yes, an effect there.
Existing Home Sales

(New Home Sales data lags, but it was flat from Sept 2017 to Sep 2018.)


So, 20% affected.



About half of the reported problems (10% of surveyed) had problems because loans were backed by FHA, VA, or USDA. About 9% * 20% (1% of all surveyed) had problems because they were goverment employees not getting paid. And about a quarter of problems (5% of all surveyed) were simply buyers pulling out due to "economic uncertainty".

This is on top of any interest rate effects. 5% of deals falling through just due to "economic uncertainty" because Trump is an idiot. Over a very short time frame.

This is a very large effect, much larger than whatever interest rate effect was happening.

Your entire premise is based on a survey of 2000 real estate agents? There are over a million RE agents in the US.

I'm sure you understand what rising interest rates do to the affordability of housing.

For a $500K loan, a 1% rise in interest rates adds $600 to the monthly payment or a 25% increase. This is more than enough to prevent buyers from even qualifying to buy a home.

How Much Does a 1% Difference in a Mortgage Rate Make? - LiveFrugaLee

For housing, interest rates are everything. Talk to a mortgage loan broker. They only pay attention to the 10 year bond or LIBOR. All the news around the shutdown and tariffs is just noise to them.

I think this should be obvious but it seems you've fallen for the media propaganda.

 

[dmunjal]

Germany might be falling into a recession now.

Recession fears are stalking Germany - CNN

No trade wars, no shutdowns, but they are still being affected.

Why now? Because the ECB has turned off the easy money spigot after 10 years.

Europe’s Central Bank Ends One of the Biggest Money-Printing Programs Ever

We might be seeing a global recession this year if central banks continue their tightening ways.

This proves to me that Keynesianism doesn't work. It's easy to stimulate the economy with fiscal or monetary policy, but it's not sustainable and the economy ends up going back down as soon as the stimulus is removed.

As Seinfeld once said, it's easy to make a reservation but not so easy to hold one.

 

[neroden]

This proves to me that Keynesianism doesn't work.

That's because you're ignorant! What the ECB was doing wasn't Keynesianism, it was monetarism! If you don't know the crucial difference, go learn it!

Hint: Keynes would have recommended *government spending*, not *loans*.

 

[neroden]

For a $500K loan, a 1% rise in interest rates

Sure. But we haven't even had a 1% rise in interest rates yet.

Well, fine, we have if you go way back to August 2017, but housing sales were doing fine for the next 12 months.

The shutdown is what's called a fiscal effect, which substantially affects the amount of money going into the economy through people getting paid. These are always larger than what are called monetary effects, the effects of interest rates.

BTW, this is the difference between Keynesian policy and monetarist policy -- monetarists attempt to do everything with loans, and Keynes says that doesn't work

 

[dmunjal]

Sure. But we haven't even had a 1% rise in interest rates yet.

Well, fine, we have if you go way back to August 2017, but housing sales were doing fine for the next 12 months.

The shutdown is what's called a fiscal effect, which substantially affects the amount of money going into the economy through people getting paid. These are always larger than what are called monetary effects, the effects of interest rates.

BTW, this is the difference between Keynesian policy and monetarist policy -- monetarists attempt to do everything with loans, and Keynes says that doesn't work

Mortgage Rate Tops 5 Percent, Adding to Affordability Pain | Bankrate.com

"Mortgage interest rates reached 5.04 percent this week. While that’s still a good rate by historical standards, Americans had grown accustomed to cheap mortgages in the decade following the financial crisis. The last time the benchmark 30-year fixed mortgage rate hit 5 percent was in April 2011."

We are a credit based economy. Interest rates affect everyone. The shutdown affects 800K people.

The Fed lowered interest rates in 2009 to create a "wealth effect" and it worked.

Now they're debating reversing it.

 

[dmunjal]

That's because you're ignorant! What the ECB was doing wasn't Keynesianism, it was monetarism! If you don't know the crucial difference, go learn it!

Hint: Keynes would have recommended *government spending*, not *loans*.

I mentioned both fiscal and monetary policy. Keynes advocated for extreme monetary policy at the zero lower bound when other policies were insufficient. Which is where we were in 2008. Since we are unable to reverse those policies without tanking the market and the economy, I say the theory doesn't work.

I am officially ending all comments on this forum. I try to be fair and polite with my comments. I know I have a different perspective than the mainstream but you can't even have a conversation without being rude.

Good bye.

 

[neroden]

Goodbye. The rudeness I addressed to you for your arrogant ignorance is totally deserved and you won't be missed.

Estimates are that the unemployment *already caused* by the shutdown is larger than the average increase in unemployment caused by a recession.

Noah Smith at Bloomberg

I.e. in terms of unemployment, the shutdown is a recession. Already. By itself.

 

[neroden]

I mentioned both fiscal and monetary policy. Keynes advocated for extreme monetary policy at the zero lower bound when other policies were insufficient.

No, he didn't, he advocated for fiscal policy at that time. To correct your *false statement* for others who might be reading.

I try to be fair and polite with my comments.

Lying about the views of Lord Keynes is a bad start if you're trying to do that. Again, good riddance, liar.

 

[ricohman]

Germany might be falling into a recession now.

Recession fears are stalking Germany - CNN

No trade wars, no shutdowns, but they are still being affected.

Why now? Because the ECB has turned off the easy money spigot after 10 years.

Europe’s Central Bank Ends One of the Biggest Money-Printing Programs Ever

We might be seeing a global recession this year if central banks continue their tightening ways.

This proves to me that Keynesianism doesn't work. It's easy to stimulate the economy with fiscal or monetary policy, but it's not sustainable and the economy ends up going back down as soon as the stimulus is removed.

As Seinfeld once said, it's easy to make a reservation but not so easy to hold one.

You should tell this to our women groping PM.
Trudeau is spending us into poverty. Or should I say, our children into poverty.

 

[defc0n]

Even when the trade deal comes and the govt shutdown ends, wondering if that is too little, too late? I’m currently still invested like it is.

 

[neroden]

The Great Energy Transition is still a strong, unstoppable source of an economic boom. However, damn near everything else seems to be trying to cause economic collapse.

 

[Sean Wagner]

Germany might be falling into a recession now.

Recession fears are stalking Germany - CNN

No trade wars, no shutdowns, but they are still being affected.

Why now? Because the ECB has turned off the easy money spigot after 10 years.

You are attempting to link two nuggets of information without context [Germany is currently job-applicant limited, and big trade wars affect global business demand] and ignoring the most important extraneous fact - Germany's boom over the last decenny is due in large parts to the rise of China and the extraordinary boost that small specialized companies way up to the global automotive suppliers and manufacturers have thus enjoyed.

The reason VW is now the world's biggest automotive manufacturer is down to its sales in China. While both BMW and Mercedes have boosted their production from the sub-millions by roughly one million cars each.

Only one big industrialized country has lagged spectacularly. My preferred reference:

The world's biggest automotive suppliers, by turnover in 2016

Source Handelsblatt | 14.09.2017
www.handelsblatt.com/my/unternehmen/industrie/probleme-mit-stromoffensive-bosch-wird-zum-getriebenen/20328000.html

Magna from comparatively small and free-trading Canada can compete successfully, but not a single American automotive supplier makes it into the top ten?