Mish's Global Economic Trend Analysis |
- Reflections on Complacency, Valuations, Bear Market Troughs, Patience
- Obama to Close "Skills Gap"; Where? How? Why is the Middle Class Shrinking? Living Wages
- Rise of Intelligent Machines Will Open "Pandora's Box" Threatening Human Extinction
Reflections on Complacency, Valuations, Bear Market Troughs, Patience Posted: 27 Nov 2012 11:31 PM PST Inquiring minds are reading John Hussman's article on Overlooking Overvaluation. Our estimates of prospective stock market return/risk, on a blended horizon from 2-weeks to 18-months, remains among the most negative that we've observed in a century of market data.Not Different This Time Hussman's message has been the same for quite some time. I am in the same camp. For now, the market has other ideas. Yet, to bet on a sustained market advance, one has to believe "It's different this time". I do not believe it will be different this time, although (and as we have seen), market valuations can remain in the stratosphere for lengthy periods of time. However, in such instances the market will eventually take back excess gains as it did in 2000-2001 and again in 2008 through the first quarter of 2009. What If? Hussman wrote "If presently rich valuations were to retreat again to undervalued levels that have accompanied the start of secular bull markets, stocks would produce yet another extended period of dismal returns." I've thought about this quite a bit over the past year, and I fail to see a way the stock market does not return to low valuations seen at the end of previous long-term bear markets. Demographics, debt levels, and reversion-to-mean tendencies simply will not support the rosy scenarios of growth most advisors assume. If so, that means a 10-year P/E at or below 10, possibly for a number of years. The impact for boomers and on pension plans will be stunningly negative. No Hiding Places Up to this point, the real loss from stocks could have been compensated by one's allocation to bonds. However, from this point forward, with the 10-year treasury yield at 1.65% and pension plan assumptions at 8%, it's highly likely both stocks and bonds will be a drag on a 50/50 portfolio's real return, and especially on expected (needed) rates-of-return. This reversion-to-the-mean, slow-growth dynamic, as it unfolds, seems likely to usher in the final exodus from "investing" by the boomers. It will also leave a scar on the those in their 20's and 30's today, which will keep them out of the markets for some time. Need For Patience I honestly believe the only investors, even professionals, who will make it through this exodus intact will be those who are able to hold some real assets and cash, and have the patience to wait, with the 'patience' part being the most critical. There will be plenty of opportunities to buy into the stock market for a cyclical rallies, but most investors who try to trade will end up losing money because few have the patience to wait for good opportunities, while others will throw in the towel at precisely the wrong times. That's life in a secular bear market, and few understand bear market dynamics. Fewer still actually realize how stacked the odds are against a sustained advance and why that is precisely so. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com John Hussman is one of the speakers at my "Wine Country" Economic Conference on April 5, 2013. Click on Image to Learn More |
Obama to Close "Skills Gap"; Where? How? Why is the Middle Class Shrinking? Living Wages Posted: 27 Nov 2012 12:55 PM PST President Obama says there is a "skills gap". A quick search says that many misguided souls believe the president. For example Forbes writer Rich Karlgaard says The Skills Gap Exists. Karlgaard believes the "gap is sure to grow as the population ages and industries from health care to manufacturing are altered by technology. Outsourcing to China won't be the answer, either. Its population is aging the fastest of all the major economies." Vicki Needham writing for The Hill says Skills gap is hampering labor market. Needham, citing a report by Deloitte says "job creation in the United States is hampered by a lack of highly skilled and adaptable workers whose talents don't match current job openings". The Atlantic comments on Solving the Manufacturing Skills Gap. Eighty percent of the manufacturing companies in the United States say they cannot find enough workers with the proper skills to fill open positions at their facilities. That's the number President Barack Obama cited, as he announced the Military-to-Civilian Skills Certification Program, in June 2012.Skills Don't Pay the Bills The above columnists express widely believed economic hooey. In contrast, Adam Davidson, in his New York Times column, Skills Don't Pay the Bills, precisely summarizes the problem in four deep thoughts. Deep Thoughts
Davidson visited the engineering technology program at Queensborough Community College in New York City led by instructor Joseph Goldenberg whose manufacturing classroom consisted of "nothing but computers". With that introduction, inquiring minds tune in a bit closer to some snips from Davidson. Nearly six million factory jobs, almost a third of the entire manufacturing industry, have disappeared since 2000. And while many of these jobs were lost to competition with low-wage countries, even more vanished because of computer-driven machinery that can do the work of 10, or in some cases, 100 workers. Those jobs are not coming back, but many believe that the industry's future (and, to some extent, the future of the American economy) lies in training a new generation for highly skilled manufacturing jobs — the ones that require people who know how to run the computer that runs the machine.Situation in a Nutshell
High Cost of Education The problem is actually quite a bit deeper. Given the preposterously high cost of education in the US, students graduate from college with an expectation they need to make more than they can to pay off student debt. The same holds true (and even more so) for those going back to school as well as those attending for profit colleges such as the University of Phoenix. Here are a few eye openers: Education Bubble: Student Loan Debt Passes Credit Card Debt, Expected to Hit $1 Trillion Debt for Diploma Schemes: Debt for Diploma Schemes and the Cookie Monster Principle Off-Balance-Sheet Budget Fraud: Budget Deficit Accounting Fraud and the Off-Balance-Sheet Student Loan Scam; Time to Scrap Entire Student Loan Program Pell Grant Debt Zombies: For Profit Schools Turn Students Into Debt Zombies; It's Time To Kill The Entire Pell Grant Program Buried in Debt: Subprime Goes to College; Students Buried in Debt; Who is to Blame? Living Wage Nonsense Keynesian and Monetarist clowns conclude that wages are not high enough. The masses lament for "living wages". The problem is not that wages are too low, but rather costs are too high. Ben Bernanke, president Obama, union sympathizers and other misguided fools seek to drive wages up. The results are what any rational person should expect: loss of jobs to Asia, loss of jobs to technology, prices rising faster than wages, and overall debt soaring to the moon. Reflections on Affordable Housing, Education, Medicine There are hundreds of "affordable housing" programs. Every damn one of them drove costs higher by artificially creating demand right up until the pool of greater fools ran out. Then, as soon as housing crashed, government and the Fed made a concerted effort to drive back up prices. In effect, no one really wanted affordable housing. Rather they all wanted "affordable housing slush funds". The same holds true for education and health care. Why is the Middle Class Shrinking? The simple fact of the matter is there is absolutely nothing wrong with falling prices. Indeed the average guy on the street would welcome falling prices. The Fed, however, says no. The first result of Fed policy (coupled of course with Fractional Reserve Lending) is rising prices of essential goods and services coupled with falling real wages. The second result of Fed policy was a real estate and financial asset crash. The third result of Fed policy is reduced demand for credit (which constitutes deflation in my book). Since the Fed never learns, we have seen reckless rounds of QE following reckless rounds of QE hoping to stimulate jobs and lending. Yet, people actually wonder "Why the middle class is shrinking" Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More |
Rise of Intelligent Machines Will Open "Pandora's Box" Threatening Human Extinction Posted: 27 Nov 2012 10:00 AM PST As robots keep replacing human workers in manufacturing and now retail and food servicing, fears have arisen that artificial general intelligence (AGI) machines will threaten mankind when "intelligence escapes the constraints of biology" and machines can design and create their own offspring. If that idea sounds far-fetched, then please consider Cambridge boffins fear 'Pandora's Unboxing' and RISE of the MACHINES. Boffins at Cambridge University want to set up a new centre to determine what humankind will do when ultra-intelligent machines like the Terminator or HAL pose "extinction-level" risks to our species.Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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