Monday August 9, 2010
Yesterday we chronicled the re emergence of Glitz at what appears to be the top of Wave Two. The mood is the polar opposite of March 9, 2009, the bottom of Wave One. We even noted the emergence of the It Shopping bag, a discretely designed leather bag with the appearance of a plain brown shopping bag. It of course does not carry the stigma of low price for those 'in the fashion know.'
This past week we discussed accounting for stock options in my college class. One adult student noted that her stock options at over three times the current price of her company would probably never be worth anything to her. And then it hit me, here we have another example of the change in attitude. Things do not always go up forever, the public is getting it!
Mish Shedlock reflects the same attitude in his column today.
Watkins missed when the regime change occurred and possibly what the regime change even is (changing social attitudes on housing, consumption, risk taking, and debt, by consumers and banks alike).
The "attitude change" was the game-changer, NOT the event (the collapse of Lehman).
Nonetheless, Watkins is light-years ahead of most economists and economic cheerleaders in understanding that we did have had a massive regime change, that the regime change is lasting, and that stimulus efforts to date have done nothing to fix the structural problems at hand.
This weekend we also mentioned that the worry is not just that the US has become Rome, but that it has become Japan, consider this graph from Mish in 2005, also in his column today.
Those recent to the investing game missed the story of the Rising Sun in the 1980s. Over thirty US Governors trooped to Japan begging them to build plants in their states. Japan ran up housing prices in Hawaii to absurd levels. An exchange to trade country club memberships to play golf appeared in Japan. The Japanese were big players at gambling casinos. The Nikkei went parabolic and then....it has been downhilll ever since. The reason as even Greenspan noted is the reluctance to write off bad loans and really re start. The US is now undergoing the same thing. Bad loans and bad business models, like public employee unions, are being continued. Just yesterday the President was rambling on about keeping teachers in classrooms, this is hardly the issue. Demands from those employees exceed the city and state ability to pay, just that simple.
With an unlimited supply of the world's reserve currency and a larger economy, the US has been able to juggle the balls in the air for quite a while, ten years and counting now. But we are still jsut half way through the inevitable period of 18 years of stagnation. As we said yesterday, zero respondents blame the business cycle but all blame Bush or Obama. One can change Presidents but one cannot repeal the Business Cycle.
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