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The Neolibertarian NetworkFortune And Its Tellers
The economic news continues on its Bataan Death March theme and it appears that we’re not about to face a Japanese style “Lost Decade” but we’ve just had one. I try, I really do try, to keep a positive outlook but in my particular business it’s hard not to get swept up in the current mood. It seems obvious now that the president doesn’t much care about the capital markets. He’s been busy employing a risky game of economic chicken proposing the absolute choking off of private capital as he prepares to instruct his treasury chief to issue $trillions in new government debt obligations. Of course the general public might not see the long term implications of doing so as is expressed by the sentiment that it’s a good time for the government to borrow becasue interest rates are so low. Well, the reason they’re low is that there’s so much fear in the market that the money is flooding to the safety of Treasuries. As the fear abates, and it will eventually, those bonds will get crushed by demands of higher yields. It’s impossible to say when the Greater Fools will get burned by this action but it’s not a matter of if. It’s only a matter of when.
But to us libertarians there is something much more at stake here than simply the markets current value. It’s a matter of the survival of open markets in general by the crowding out of the capital it takes to make them work. That, more than the general economic news, is what has me more deeply depressed than I can recall ever having been.
I had hoped that people like Chris Buckley would be right in endorsing Barak Obama (although he seems to be suffering some buyer’s remorse.) Given the pedigrees and backgrounds of his economics team there was some cause for optimism insofar as most of them are principled pro-market economists. But that ideology has gone missing from all of them – at least in public. What is happening now makes me think that Joseph Schumpeter was right so long ago. From The Concise Encyclopedia of Economics :
“Can capitalism survive? No. I do not think it can.” Thus opens Schumpeter’s prologue to a section of his 1942 book, Capitalism, Socialism and Democracy. One might think, on the basis of the quote, that Schumpeter was a Marxist. But the analysis that led Schumpeter to his conclusion differed totally from Karl Marx’s. Marx believed that capitalism would be destroyed by its enemies (the proletariat), whom capitalism had purportedly exploited, and he relished the prospect. Schumpeter believed that capitalism would be destroyed by its successes, that it would spawn a large intellectual class that made its living by attacking the very bourgeois system of private property and freedom so necessary for the intellectual class’s existence. And unlike Marx, Schumpeter did not relish the destruction of capitalism. “If a doctor predicts that his patient will die presently,” he wrote, “this does not mean that he desires it.” (emphasis added.)
Let’s hope he turns out to be wrong – but it seems that the “intellectual class” has now turned on capitalism. Especially the Intellectual In Chief.
For me, it seems I need to call my psychiatrist. I’ve forgotten my mantra.
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I like what Louis Rukeyser says here after the 1987 crash, see about :
http://www.youtube.com/watch?v=XFn1G2goDQw
Ultimately, those of us who are less than enthusiastic about the political thuggery coming from both the left and the right are going to have to find other sources of joy in our lives, besides the capital markets or the latest happenings in the Cesspool on the Potomac.
Although perhaps, as you suggest, we can appeal to the former in satisfying our hatred of the latter, by hoarding our obscene profits soon to come from shorting the long bond. I’m just waiting for that one *last* fear-driven spike higher ….
Don’t wait too long, friend. I know you think it’s a crowded trade but if you try to time it too precisely you might find yourself clever by half.
I bought the PST at $53 in January. The 50 day moving average is at 54.17 and I don’t think it will cross that line again. But, hey, I’ve been wrong plenty of times before.
I have a bigger position in the TBT which I bought for 38.75. The 50 day MA is 43.84 right now and, again, I think you’ll find resistance there.
Well Prechter has finally gone bearish on bonds … I guess they reached 99% bulls on the DSI in December, which apparently has never been seen in *any* market *ever* in the history of the indicator! Don’t worry, I’ll be sure not to let this one get away from me, if only so I can someday say “I shorted the U.S. government in 2009.”
“I try, I really do try, to keep a positive outlook … ”
You can get positive about going long puts or, at least, vertical put spreads, huh?
I can only be The Greater Fool for no more than three months. That is because I will not lend the Porkulus-in-Chief any money for longer than that. I mean, do I know this guy? Where the hell is he from, anyway? And what is his FICO score?
As for the oft-proclaimed demise of capitalism, I would not lose any sleep over it if I were you. There is no viable alternative. Socialism is a dependent of capitalism. It is not an economic system per se and therefore cannot produce wealth. Like any parasite, socialism grows or shrinks according to the health of its host.
This is not to say that an uncontained upsurge in socialism cannot seriously debilitate the host. And in that regard I am in agreement with you: We are looking at a really sick nation for years to come. The only consolation people like us will have is that the malaise will primarily affect those who knowingly encouraged the growth of the socialist organism–and their children.
Historically speaking, I would like you to note that this seems to have happened before. In fact, it might be one of those natural economic cycles that has developed with the Industrial Revolution. What I am talking about is long periods of capitalistic prosperity punctuated by short periods of socialistic decline. One could almost say that socialism is not so much a reaction to capitalism, but rather it is the punishment for living too well.
UPDATE on Tellers:
I just read a very interesting article about how personal savings, debt, and company profits interact and are reflected in the major stock market indexes. The article discusses the Levy-Kalecki Formula in some detail.
“How Savers Could Doom the Economy,” by Jon Markman, MSN Money, 03/04/09
http://articles.moneycentral.msn.com/Investing/SuperModels/how-savers-could-doom-the-economy.aspx
As you read the article, keep in mind it was reported last week that the US personal savings rate in January had reached its highest level in 14 years at 5 percent. This puts the savings rate back at 1996 levels. Uncannily, the stock market today is also back at 1996 levels. Now, imagine a savings rate of, say, 10 percent!
Thanks for cheering us up Max.