Let's reflect for a sec....

T

Tommy_Dolitte

Recycles dryer sheets
Joined
Jul 20, 2004
Messages
170
History may not repeat itself, but it rhymes. - Twain

Enjoy,
TD
:)

http://www.financialsense.com/editorials/gordon/2004/0907.html

Note:  I am not endorsing the commentary as being entirely factual (or title for you diehard patriots).  Please be objective when reading. I found the perspective interesting. For me, it highlighted the arrogance and natural human bottleneck in our thinking processes.
 
This article may very well be true! - Not because the writer is able to predict the future, just because he's lucky. :D

When and if the next depression hits, the writers that predicted it weeks before, will come forward with "I told you so".

There have always been articles on the next depression around the corner for the last 40 years of my lifetime. However, I don't recall any of them stepping forward with "I was wrong"

The most famous Doom and gloomer that I remember was Ravi Batra - Professor at Princeton, I think. He Convinced many folks of the gloom ahead in 1980. Some of these folks moved to the Mountains, with the cash in their pockets. He was teaching that the Banks would also be going under.

This article looks like it's selling the Elliot Wave theory.
 
I agree Cut-Throat,

...with the plethora of folks that come out and make the claim and then become mute when nothing happens--i.e. Y2K, we cut them slack!   :p

The burning question I have though, is how do we get to the root cause of the results..  Are there limiting conditions that enable the result---known, unknown, tbd?  

My hypothesis would be that there were certain conditions that existed which served as a buffers.

Emperically, it seems, that we are running out of places to shift the bottleneck.  Without all of the details---on a higher level, this is the process system that the big boys get to play around with.  Has to be the coolest...thing.  "Government" has given some clue to what these levers are in how it has structured....

But...I'm just a country-bumpkin that chooses to believe that nothing is complex---and our thinking is usually the biggest constraint---gullable or persuasive....

In fact, the whole game is very simple in a certain form  to me.  There's a point where a magnifying glass loses its practical use.
 
If you think the Elliot Wave guy is smoking crack what do you suppose this guy is on?

http://www.pimco.com/LeftNav/Latest+Publications/2004/Dialynas+Paper.htm

IMHO this guy is a very serious dude at PIMCO. If you have the stamina and patience to wade through his paper he will expand your mind. He has a very somber and bitter message for America. You and I may not agree with him but this is a very fine piece of analysis by a very bright guy.
 
 He has a very somber and bitter message for America.
Click to expand...
I agree with you that this is a careful, heavyweight analysis. It will take me longer to really figure out all that he is saying. I printed out the PDF so I could lie on the couch and read it.

I think this year will offer big opportunities to either lose big or win big in the financial markets. Not a good year for business as usual.

Mikey
 
Finally someone I can relate to....in so many words....we're F&#@...

A country as selfish and quite frankly DUMB as we are deserve this....just look @ our leadership over the past...ummm 50 years....oh yeah...WHAT leadership...

The hypocrisy of our brand..."democracy" will be served to us like salt-filled Taco Bell @ 2 A.M.   lol

And we think we KNOW it all because we can recite outdated logic, debate the existence of a higher being, and have the internet?!?!? lol

Can't pray at school, can't do it at work, can't overlap with state powers...but look in your wallet...."IN GOD WE TRUST".....really?

WAKE UP!
:eek:
 
The PIMCO paper is very well done, and quite frightning. Hopefully everyone here will give it a read, and spark some lively discussion. I can't wait :D
 
Yep, excellent paper. Unfortunately, I got bored and
couldn't "bear" to finish it. But seriously folks, a real
full blown depression wouldn't surprise me a bit.
In fact, I'll be surprised if it doesn't happen at some point.

JG
 
The PIMCO paper is very well done, and quite frightning. Hopefully everyone here will give it a read, and spark some lively discussion. I can't wait   :D
Click to expand...
Marshac, don't expect a lot of discussion of this paper. To long, too dark, and no jokes.

Mikey
 
Hmmm - I'm surprised the JG or somebody else on this forum didn't point out that the countries with the 'freer capital markets' readjusted to the Great Depression rather quickly and that Japan's recent stickiness has govt. help/lack thereof and a lot of cross holding of securities.

We in the U.S.A have entrusted over half our market cap to less than 100 'brillant managements' via mutual funds, insurance and pensions.

Boglehead and sometimes reader of Stephan Roach - heh,heh,heh.
 
"There has to be a pony in here!"  (part 1 of 2)

Gosh, this guy uses more & bigger words than Bill Gross! PIMCO must pay their writers by the word.

The balance of payments may be difficult to understand, but it can be explained with many fewer words. (Warren Buffett has done a magnificent job.) And if the explanation can't be translated into an investment profit, then why the heck is PIMCO paying for this rumination? The fact that this writer can't seem to do so makes me suspect that even if he's dazzling in his brilliance, he's still baffling the average reader and hoping that we'll all succumb to the weight of his wordiness. "If he's so smart, why ain't he rich?" What strategy should be invoked by PIMCO's investors after reading this guy's conclusions? Defense stocks?!

Has anyone read other articles written by Dialynas to establish a professional reputation? Does this guy have any credibility, other than with companies selling laser-printer toner?

Unlike the author, lemme stick to my circle of competence. I'm no economist, but I do know a few things about the military. I'm not expecting Dialynas to be a military expert, but if he can't get these few military-related statements correct then I think his whole article's credibility is suspect. Here's a few claims that seem to lack justification, let alone fact-checking & proofreading:

"During time of war, such as today, full employment must prevail at all times." Not in the experience of those who lived through WWII, Korea, Vietnam, or DESERT STORM. What's the unemployment rate been since we started the war in Iraq and the subsequent economic recovery? Many thousands of Americans were in detention camps (unemployed) during WWII and the economy somehow still managed to muddle through. So I don't get it and the statement doesn't discuss the effects of wartime unemployment. Did I miss the explanation?

"China’s regional military advantage provides it with leverage that other Asian countries, and presumably Japan, cannot match." What leverage are we talking about? The JMSDF would be pretty surprised to hear that their KONGO-class cruisers et al can't handle China's 1960s technology. American submariners were jumping with joy when the HAN deployed last quarter because it's so noisy that it gave free tracking training to dozens of Asian & American warships. I'm not claiming that China doesn't have plenty of platforms & people-- it does-- but it doesn't have the technology or the training. They can barely handle an amphibious invasion of Taiwan, and their logistics of attacking outside their littoral are unsustainable. Now, if China launched a few nuclear weapons, that'd be a different story and other Asian countries would require considerable effort to stuff them back in the box. But I don't think China would attempt to justify that and the author doesn't discuss the nuclear issue. So he's wrong on their conventional power and he doesn't address the nuclear issue. Why did he raise the question in the first place?

"The Asian countries’ currencies are effectively pegged to China’s currency, the reminbi (RMB) and, therefore, by virtue of the RMB/dollar peg, pegged to the dollar. The whole of Asia is hiding behind the mighty shield of China." Again, hunh? Are they intimidated by China's military might or are they protected by China's economic productivity excess? Does anyone believe that there's a correlation between the values of the yen and the dollar that depends on the renminbi? (BTW, Dialynas, most writers spell it with two "n"s.)

"One must wonder why the U.S. spends imponderable sums on military power if the resolve to use this capability is absent." Absent resolve?! Sure, GWB & President Cheney must seem like real wimps when it comes to using the military. Even Clinton authorized multiple Iraq strikes. But doesn't the U.S. spend the money because there's a military base or a military contractor in just about every Congressional district? The military spent years overselling the Soviet threat in order to "close the missile gap" and get our own systems in operation. Legislators & industry cooperated because it's a great way to employ millions of people and to make gazillions of dollars. Actually fighting a war has little or nothing to do with the operations & politics of the military-industrial complex.

"The threat of military engagement by America will be required to re-establish global economic/political balance." Geez, how successful has that been in Iraq? Oh, wait, it made Libya blink. Surely Syria will capitulate any day now. Anyone see the balance scales return to parity yet? And is this economist proposing that WAR is the solution to our problem with the balance of payments?!? Even Rumsfeld & Cheney must be gasping with admiration over this approach. I had a hard time fighting the war on marijuana, and I doubt there's a lot of military rank & file support for a war to preserve the almighty dollar's exchange rate.
 
"There has to be a pony in here!"  (part 2 of 2)

"Thus, an absolute reduction in government spending (as distinguished from a mere change in the distribution of spending) and increased taxation are critical. Moreover, the distribution of government spending must also shift, toward national defense and away from supernumerary social programs." While I don't necessarily disagree with the conclusion (that helps pay my govt pension), I had a tough time getting from the rest of the article to anything following the word "thus". If someone sees a path, kindly elucidate for me.

From a critical-thinking perspective, this article has several examples of sweeping generalizations, necessary vs sufficient statements, question begging, loaded terms, black & white thinking, and inconsistencies. But take a look at this website and decide for yourself. http://www.seercom.com/bcs/resources/criticalthinking/ppf.sweepgen.html

I think there's a good reason why we never heard of this guy before. I'm not sure why we'll ever hear from him again.
 
Hello Nords. Maybe he was intoxicated by the exuberance of his own verbosity?

JG
 
Well, we have a few things going for us.

First, the author first advanced his apocalyptic vision in 1993. Of course that was followed shortly by 1995,1996,1997,1998 and 1999. The greatest 5 year stretch in stock market history. So there is hope! :D

Secondly, his policy prescriptions have zero chance of ever seeing the light of day in our lifetimes.

But I think there are some kernels of insight that I agree with to wit:

Our trade imbalance is unsustainable. Something has got to give sometime.

Currency devaluation will not solve the problem. Our foreign creditors will not let us get away with it forever.

The idea of a creditor cartel is a unique concept. I agree that the avalanche is likely to be started by some little country on the edge of things that decides to jump the gun by sliding out of U.S. debt instruments before everybody else. Makes sense to me.

The idea that our foreign creditors will be bought out by the Fed in a desperate effort to forestall the avalanche also makes sense. The credit risk will be shifted from China/Japan and the cartel to Mr. and Mrs. America through desperate Fed intervention in the debt markets. The Board of Governors will be under tremendous pressure to support the buck in the event of an avalanche. I doubt they have the guts to resist.

I agree that somebody should be working on contingency plans to prevent the flight of capital in the event of a dollar panic.

I agree that the world has changed and that we need to revisit Adam Smith's free trade theories. There are winners and losers. The American consumer may be better off with cheap Chinese shirts. But is America better off?

I agree with Bill Gross who says we are now living on the kindness of strangers. Our fate is no longer in our own hands.

I am not ready for a new Marshall PLan to reorder the global economic architecture. I am not ready for higher taxes, a gutting of social security and other social programs. And good God, how much more can we spend on Defense?

I think we will probably muddle through somehow as we usually do. :)
 
I guess the US has nothing to worry about--heck, we can always resort back to the "boy who cried wolf" analysis to chastise a "warning".

Let's see, we have weather reports, a President that says "all they have to do is be right 1 time, we have to be right 100% of the time"---which category does that fallacious claim for certainty (i.e. security) fall under?

To me, the REAL point is not whether the diagnostic is 100% accurate or not, but if most of the pieces to the puzzle are present.

Heck, a 10,000 piece puzzle missing a few pieces and even with a few "forced" pieces can still display the picture---of course though, there will be observers that will notice that and miss the "point". Remember Goonies? *loved that movie*

I'm a details stickler--but I'm glad I got of the mindset of rationalizing my faith.  And to embrace the logic of our famed President.....someone will be right.  And if we choose to ignore the warning signs---oh well, that's our nature--to be proof seeking.

Some things just make common sense and are based on a higher order thing.   When I played football, coach called it a "gut check".

:-/
 
The idea of a creditor cartel is a unique concept.  I agree that the avalanche is likely to be started by some little country on the edge of things that decides to jump the gun by sliding out of U.S. debt instruments before everybody else.  Makes sense to me.
Click to expand...

Agreed, he pained a highly plausible scenario I think. Other than waking up one monrning and finding the avalanche underway, what would the "canary" be for such an event?

Regarding the "in times of war" part, I think he was saying that there are always jobs available for folks in the military during war... so if during a time of war unemployment is running 5%, then that IS the "full employment" rate.
 
Marshac-- I think you are right about the full employment thing. What he is saying is that full employment is a variable. But I think the point he makes is that whatever level of employment/unemployment you have in a time of war is de facto full employment. Further, Fed actions to reduce the unemployment rate below the actual experienced rate during war times is inflationary and ruinous to the value of your currency. In other words, 5.4% unemployment today is full employment.

As far as the canary in the mine shaft on a dollar panic, I am not sure what that would be. I don't think it is imminent by a long shot. But I think his point is that such an event is inevitable if we continue with present Fed policy goals of a combination of price stability and full employment. My best guess is we would look for the private sector to begin divesting itself of dollar denominated assets (partially underway even in the US see Warren Buffet and Bill Gross). Some countries have linked the value of their own currency to the dollar. If we see some of them break the link with the buck that would be a bad sign. Also, if OPEC starts taking payments in the form of euros or a basket of currencies instead of the dollar that would be a very bad sign the canary is in trouble.
 
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