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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Re: financial market outlook

Posted by WARREN MOSLER on April 30th, 2009


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>   
>   On Thu, Apr 30, 2009 at 7:01 AM, Joshua wrote:
>   
>   The 82-83 Reagan rally was good for roughly 70% to the upside from trough to
>   peak. I clearly have been too pessimistic.
>   
>   At this point, are you looking for substantial upside in equities from here in light of
>   7% deficit/GDP? My concern has been that the decimation in non-bank lending
>   (roughly 75% of prior total lending) would be more than enough to offset the
>   positive effects of deficit.
>   

That caused the economy to weaken/inventory liquidation to intensify until the deficit got high enough to reverse that effect. And now proactive deficit spending is kicking in.

>   
>   Are Bernanke’s programs really reinvigorating securitization markets? Clearly
>   something is working for them.
>   

It’s mainly the increased deficit spending that’s turning the tide. Yes, the Fed did a few things that helped some, but overlooked what they could have done (and should still do) to ‘normalize banking’.

Also, we can get a V shaped financial market recovery as it was pricing oblivion, while the real economy looks more L shaped.

And we are also always subject to external shocks like swine flu, wars, supply shocks, etc.


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5 Responses to “Re: financial market outlook”

  1. Mike S Says:

    I guess it depends on the time frame. We are entering the May – October period after a gigantic rally, facing huge earnings volatility, a few wars, a complacent investor class, and rising unemployment after a huge rally.

    I think it is a decent time to get out of the market and stay on the sidelines. May-Oct is when the major declines happen. Long in Oct and flat in May is good for 500bp over the market returns over long run. Given the other headwinds and potential for losses, I am getting out of equities tomorrow. I hope it is not too late.

    My initial advice was to sell treasuries the day Obama was inaugurated and buy stocks. Now, go flat equities and bonds, long the euro and yen vs. U.S. dollar. As the markets calm and U.S. deficits soar, we will see vol in equities go up and returns sideways, while treasury marginally increased auctions will add supply but not enough to significantly crack the treasury markets. As people get more calm, they will exit shortdated treasuries and start to place money in european govt. issued bonds as new supply there is much smaller, but they still do not want to risk corporates yet. So looking for a Euro rally because of these forces over the summer months.

    I bet you really wanted to hear the opinion of a random dude off the internet rather than Warren.

    Reply

  2. warren mosler Says:

    sold my s and p futures today.

    obama chrysler talk depressed me. see post tomorrow

    Reply

  3. Captain CraZ Says:

    Senators stop legislation to force cramdowns, how is saving some rich corrupt crony bankers jobs the best thing for public purpose? Why has Obama done so little to stop the bankers and their lobbyists?
    Now they get easier payments on FDIC, hell why pay at all, just get bair to go to congress and get more off the taxpayers backs.

    Warren, obviously bankers have special rights – like they did in Japan, the rest of society will be sacked to keep them afloat – I want to be a banker like you Warren, I want my big superyacht in the marina and some dumb broke fool ask me where are the customer’s yachts. What do I have to do Warren to be a rich protected banker like you?

    http://www.nytimes.com/2009/05/01/business/01credit.html?_r=2&hp

    Reply

  4. zanon Says:

    Hi Warren:

    OK, I’m still slowly wrapping my head around “the paradigm”, and the main thing I have left to understand is how investment -> savings.

    The non-paradigm understanding is that you save, and then that saved money gets put into investment. The paradigm says that this is backwards, and that you need investment to create real savings. I have read “soft currency economics” and that really does not make the mechanism for this clear.

    *If* this is true, that you need investment to create real savings, then we have a mechanism by which savings, and thus deficits, should get systematically larger as an economy grows. That’s a stake through the heart of deficit terrorists. But I simply cannot see if this is the case, or why it should be the case, or what the mechanism is whereby investment creates savings.

    Reply

  5. Captain CraZ Says:

    It works like this Zanon, you build a new university and a new shopping mall and some web authoring tools, that way sada, sole, and mia are occupied with adult daycare and emotional shopping machine trips and keeping up thier myspace (moslereconomics) page, and then you are not annoyed by your daughter and can build cars and trade oil futures. Stop thinking in terms of savings or investments, think in terms of how to get that annoying kid from bugging you – bread and circuses – the DEAL or NO DEAL of modern empire.

    Reply

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