by Diane Wilson
We don't know if we're in a depression, because nobody actually agrees on what a depression is, says The Globe and Mail. Ambiguity has come to characterize the 21st century.
Recent wars are fought not against countries with clearly delineated borders, but against amorphous groups lurking in mountains and caves. Similarly, the economic enemy is hard to pin down.
Clearly, the US and Canada are in recession, but what about depression? According to Professor Peter Morici of the University of Maryland, the US is likely in a depression right now. A depression is defined in many ways -- it can be a downturn of three years with a 10% drop in economic output and unemployment above 10%, or a sustained recession during which people actually hock their assets to make ends meet.
Since the States is only 15 months into this mess and unemployment is not yet 8% and output is only down 6.2%, the Depression parameters don't work. During the Great Depression, a quarter of the economy evaporated by 1933 and a quarter of the workforce lost employment. But, last year's stock market was the worst since 1931. And, this just does not feel like other recessions. Bring in Prof. Morici's other definition of a depression -- a recession that "does not self-correct" because of structural problems like bank credit and trade deficits. Which makes me think of how Uncle Sam has come to the rescue of banks, autos and insurers.
We are getting weary, and we need certainty. What if we assume the worst and call it The Little Depression, a limited recession characterized by structural problems? This way, we know where we are at. During this downturn, people will learn to save and eat at home. Stocks will get cheaper, but not that much cheaper. Companies will shore up their balance sheets, and exploit good opportunities. Baby boomers will learn how and why to buy bonds. But it will end, and as we exit this period, de-levered personal and corporate finances should stand us in good stead.
Perhaps the best news about The Little Depression could be that we do everything much faster now. I know I could be wrong about all of this, but I am beginning to think it will not take as many years to fix the mess. We just need to get out of the way, give President Obama and his team a chance to work their magic, and be patient. And then, boy oh boy, watch the sidelined money return from money market funds and treasuries.
March 1, 2009
Why Some Letters of the Alphabet are Better than Others
Economics, Anger and Politics
by Diane Wilson
Nouriel Roubini, aka Dr. Doom, writes in the New York Times about how the US might proceed through this dreadful recession. He notes that it skipped the usual V and is in the 15th month of a U-shaped recession that will unquestionably be the longest since the Great Depression.
US GDP will not grow more than a muted 1% in 2010, while unemployment will rise to around 10%. What's more, even if the Government throws all necessary stimulative actions at the problem, Roubini does not see growth rising to 2% until 2011, meaning the recession could stick around for three years. That's the good news.
If the collective we do not put policies in place, the U-shaped recession could morph into an L-shaped near-depression or stag-deflation, much like the Japanese experienced in the 1990s.
That will give a lot of angry people more time time to get even angrier. Recently, CNBC's Rick Santelli, an otherwise affable man who reports on bonds, created an on-air diatribe against Obama's mortgage relief program. This vitriol cannot be ignored. The GOP has spent the entire week declaring the Democrats Socialists, while some of their more rational members, like Governor Schwarzenegger, wait eagerly for the postman to deliver the Stimulus money.
Frank Rich notes in his column in The New York Times "the genuine populist rage in the country — aimed at greedy C.E.O.’s, not at the busted homeowners mocked as “losers” by Santelli — cannot be ignored or finessed."
We are probably reaching the end of people's ability to absorb weird letters -- V-shaped, U-shaped and L-shaped recessions -- and frightfully large numbers. Most of us just cannot wrap our minds around $350 billion TARP here, $787 billion stimulus there and a $1.3 trillion deficit.
What to do. Fortunately, economists of all stripes are on board with the President. It is now up to the Democrats to put out a very large welcome mat for the Republicans and allow them to talk -- not yell -- about their differing ideas. There has got to be some consensus on some issues. Start with small initiatives, and gently get everybody going in the same direction, maybe by giving credit and even ownership to Republicans for some of their ideas. Also, it would be helpful to have leadership from the Republicans who are currently working with the President. The current anger is counter-productive. And at times, downright scary.
by Diane Wilson
Nouriel Roubini, aka Dr. Doom, writes in the New York Times about how the US might proceed through this dreadful recession. He notes that it skipped the usual V and is in the 15th month of a U-shaped recession that will unquestionably be the longest since the Great Depression.
US GDP will not grow more than a muted 1% in 2010, while unemployment will rise to around 10%. What's more, even if the Government throws all necessary stimulative actions at the problem, Roubini does not see growth rising to 2% until 2011, meaning the recession could stick around for three years. That's the good news.
If the collective we do not put policies in place, the U-shaped recession could morph into an L-shaped near-depression or stag-deflation, much like the Japanese experienced in the 1990s.
That will give a lot of angry people more time time to get even angrier. Recently, CNBC's Rick Santelli, an otherwise affable man who reports on bonds, created an on-air diatribe against Obama's mortgage relief program. This vitriol cannot be ignored. The GOP has spent the entire week declaring the Democrats Socialists, while some of their more rational members, like Governor Schwarzenegger, wait eagerly for the postman to deliver the Stimulus money.
Frank Rich notes in his column in The New York Times "the genuine populist rage in the country — aimed at greedy C.E.O.’s, not at the busted homeowners mocked as “losers” by Santelli — cannot be ignored or finessed."
We are probably reaching the end of people's ability to absorb weird letters -- V-shaped, U-shaped and L-shaped recessions -- and frightfully large numbers. Most of us just cannot wrap our minds around $350 billion TARP here, $787 billion stimulus there and a $1.3 trillion deficit.
What to do. Fortunately, economists of all stripes are on board with the President. It is now up to the Democrats to put out a very large welcome mat for the Republicans and allow them to talk -- not yell -- about their differing ideas. There has got to be some consensus on some issues. Start with small initiatives, and gently get everybody going in the same direction, maybe by giving credit and even ownership to Republicans for some of their ideas. Also, it would be helpful to have leadership from the Republicans who are currently working with the President. The current anger is counter-productive. And at times, downright scary.
February 28, 2009
An Open Letter to President Obama: You Really Do Need Health Care Reform
Dear Mr. President,
By your own admission, you have arrived at this day of reckoning. In saying this, and budgeting for a newly expanded set of goals and priorities as reported in The Huffington Post, you are confronting some of the most difficult issues, ever. According to Politico, you are now ready to begin work with Kansas Governor Katherine Sebelius heading up Health and Human Services. As one of your northern neighbours, I want you to know that you are doing the right thing by advancing health care reform in the United States.
In 2004, the Canadian Broadcasting Corporation ran a series about the greatest Canadian. The list included hockey great Wayne Gretzky, telephone inventor Alexander Graham Bell, and insulin discover Frederick Banting and two great Canadian prime ministers. Who did the public pick? Tommy Douglas (www.cbc.ca/greatest/) the man who introduced universal public health care to Canada, while Premier of Saskatchewan.
I suspect the debates that lie ahead regarding universal health care will make the Stimulus bill appear like child's play. But debate you must. It is wrong to leave 47 million Americans without health care, without the ability to be healthy, without the ability to be well, without the ability to fully contribute to your society.
My American friends want you to get going on universal health care. I believe you have already heard from my St. Louis friend, who believes the economic recovery will be faster if there is a health care plan. The current system equates good jobs with good health care, and that has proved a burden for too many companies. My friend from Virginia, who has lived in Canada for awhile, had a very serious stroke last fall and was hospitalized for 14 weeks. During that period, I asked her if she was angry. She told me that on the contrary, she is so appreciative of the Canadian health care system. She says she could not have afforded the stroke in the U.S.
Mr. President, I do not wish to mislead you and your country. Our system is far from perfect -- we have a shortage of doctors, long wait times, our nurses are overworked. However, we never think for a minute about cost or insurance coverage when anybody falls ill, or goes to the doctor. Medical costs are covered by taxes.
I believe that you and the House will examine many options, and there will be great argument. I hope that the Canadian government studies your various proposals and learns how to adapt and perfect our system in ways large and small. And I advise everybody to keep track of the people leading the charge for American health care reform. Because, like Tommy Douglas, one day they too could be known as your country's greatest Americans!
Good luck,
Diane Wilson
By your own admission, you have arrived at this day of reckoning. In saying this, and budgeting for a newly expanded set of goals and priorities as reported in The Huffington Post, you are confronting some of the most difficult issues, ever. According to Politico, you are now ready to begin work with Kansas Governor Katherine Sebelius heading up Health and Human Services. As one of your northern neighbours, I want you to know that you are doing the right thing by advancing health care reform in the United States.
In 2004, the Canadian Broadcasting Corporation ran a series about the greatest Canadian. The list included hockey great Wayne Gretzky, telephone inventor Alexander Graham Bell, and insulin discover Frederick Banting and two great Canadian prime ministers. Who did the public pick? Tommy Douglas (www.cbc.ca/greatest/) the man who introduced universal public health care to Canada, while Premier of Saskatchewan.
I suspect the debates that lie ahead regarding universal health care will make the Stimulus bill appear like child's play. But debate you must. It is wrong to leave 47 million Americans without health care, without the ability to be healthy, without the ability to be well, without the ability to fully contribute to your society.
My American friends want you to get going on universal health care. I believe you have already heard from my St. Louis friend, who believes the economic recovery will be faster if there is a health care plan. The current system equates good jobs with good health care, and that has proved a burden for too many companies. My friend from Virginia, who has lived in Canada for awhile, had a very serious stroke last fall and was hospitalized for 14 weeks. During that period, I asked her if she was angry. She told me that on the contrary, she is so appreciative of the Canadian health care system. She says she could not have afforded the stroke in the U.S.
Mr. President, I do not wish to mislead you and your country. Our system is far from perfect -- we have a shortage of doctors, long wait times, our nurses are overworked. However, we never think for a minute about cost or insurance coverage when anybody falls ill, or goes to the doctor. Medical costs are covered by taxes.
I believe that you and the House will examine many options, and there will be great argument. I hope that the Canadian government studies your various proposals and learns how to adapt and perfect our system in ways large and small. And I advise everybody to keep track of the people leading the charge for American health care reform. Because, like Tommy Douglas, one day they too could be known as your country's greatest Americans!
Good luck,
Diane Wilson
The Dow is Cooked for Now
Considering GE slashed its dividend 68% Friday, and Citigroup shares now trade for less than a 12 ounce can of Spam, you would have expected the Dow to fall more than 119 points yesterday. However, The Dow Jones Industrial Average -- the 30 companies that reflect the US economy -- has too many companies on deathwatch. Citigroup, the bank that the US government basically nationalized yesterday, currently has a market cap of US$8 billion. GM sports a cap of US$1.37 billion -- roughly three times Oprah's salary -- and trades at $2.25. By comparison, the Royal Bank of Canada has a market cap of US $32.5 billion, while the BCE takeover that never happened was priced at $51 billion.
Look for a redo of the Dow components later this year. In the meantime, the S & P will provide a better gauge of the market. And investors who used Dogs of the Dow Strategy -- the clever theory that suggests buying the ten Dow stocks whose dividends provide the highest yield -- might want to wait and see. Last year's Dog picks included Citigroup, Pfizer, GM, JP Morgan Chase and General Electric, among others --companies that are either staving off bankruptcy or shoring up balance sheets, while slashing dividends.
Look for a redo of the Dow components later this year. In the meantime, the S & P will provide a better gauge of the market. And investors who used Dogs of the Dow Strategy -- the clever theory that suggests buying the ten Dow stocks whose dividends provide the highest yield -- might want to wait and see. Last year's Dog picks included Citigroup, Pfizer, GM, JP Morgan Chase and General Electric, among others --companies that are either staving off bankruptcy or shoring up balance sheets, while slashing dividends.
February 27, 2009
How to Spot a Depression at 30,000 Feet
Throw out the economics books! Get rid of all the metrics! Forget what you've heard over the years about the Dirty Thirties and dustbowls and all that. This is 2009, and times are tough. How tough? Tough enough that Ryanair is considering charging passengers to use the loo. According to a report in The Globe and Mail , Ryanair boss Michael O'Leary thinks people should pay one British pound for a trip to the washroom, thus creating a new revenue stream. So many questions and concerns come to mind -- what of the passenger who boards without adequate change?
Now for the good news: this low-fare carrier tends to make short haul flights and they are known for very efficient landings!
Now for the good news: this low-fare carrier tends to make short haul flights and they are known for very efficient landings!
Coffee with the Oracle: What lies ahead
by Diane Wilson
On Saturday morning, skip the gym, grab your coffee and settle down at the computer at 8 AM EST to read Warren Buffett's annual letter to shareholders. The letter, which forms part of Berkshire Hathawy's annual report, can be found at www.berkshirehathaway.com. Buffett has been knocked in recent months because Berkshire stock is down severely -- BRK.B shares now trade at $2,408, down drastically from their 52 week high of $4,700, while the A shares go for a measly $75,799, almost half of their 52 week high of $147,000.
Given that Berkshire is heavily exposed to insurance and other ills that plague the market, the stock price is understandable. It is important to know what Mr. Buffett believes of the future and how we arrived at this uncertain point in history. His letter is not your average report to shareholders. It is a well written document that focuses on the state of the market, the price of stocks, and our future.
During the tech boom, Buffett said he did not buy companies that he did not understand and he stayed away. He thought the market was overheated. People frowned. Then the tech boom fell apart and he looked brilliant. Now, with the Dow off 50% from its October, 2007 high, and Citigroup close to nationalized with the US government's 36% stake in the company, it is up to the avuncular Mr. Buffett to cheer us up, and chart a path that makes sense for his shareholders and America.
A notorious value investor, Buffett has been trying to lead by example, purchasing beaten down companies like General Electric and Goldman Sachs. He has substantial holdings in American Express and Wells Fargo. About half of Berkshire's revenues come from insurance while a good deal comes from housing related investments.
You may not agree with the Oracle of Omaha, but you had better know what he is saying and doing. Because the markets just might be trading on Buffett come Monday morning. One more thing: I have always found it curious that the cherry Coke swigging guy who failed to understand tech became best friends with Microsoft founder Bill Gates. Buffett must never, ever be underestimated.
On Saturday morning, skip the gym, grab your coffee and settle down at the computer at 8 AM EST to read Warren Buffett's annual letter to shareholders. The letter, which forms part of Berkshire Hathawy's annual report, can be found at www.berkshirehathaway.com. Buffett has been knocked in recent months because Berkshire stock is down severely -- BRK.B shares now trade at $2,408, down drastically from their 52 week high of $4,700, while the A shares go for a measly $75,799, almost half of their 52 week high of $147,000.
Given that Berkshire is heavily exposed to insurance and other ills that plague the market, the stock price is understandable. It is important to know what Mr. Buffett believes of the future and how we arrived at this uncertain point in history. His letter is not your average report to shareholders. It is a well written document that focuses on the state of the market, the price of stocks, and our future.
During the tech boom, Buffett said he did not buy companies that he did not understand and he stayed away. He thought the market was overheated. People frowned. Then the tech boom fell apart and he looked brilliant. Now, with the Dow off 50% from its October, 2007 high, and Citigroup close to nationalized with the US government's 36% stake in the company, it is up to the avuncular Mr. Buffett to cheer us up, and chart a path that makes sense for his shareholders and America.
A notorious value investor, Buffett has been trying to lead by example, purchasing beaten down companies like General Electric and Goldman Sachs. He has substantial holdings in American Express and Wells Fargo. About half of Berkshire's revenues come from insurance while a good deal comes from housing related investments.
You may not agree with the Oracle of Omaha, but you had better know what he is saying and doing. Because the markets just might be trading on Buffett come Monday morning. One more thing: I have always found it curious that the cherry Coke swigging guy who failed to understand tech became best friends with Microsoft founder Bill Gates. Buffett must never, ever be underestimated.
February 13, 2009
Yeah, I lost my job too: Global Woe
More than 600 job seekers showed up at a Toronto job fair this week, as the ranks of the recently unemployed have begun swelling. According to the The Star job seekers waited in line to meet job counsellors and employers at the fair, held by JVS Toronto. JVS -- a non-profit dedicated to employment -- has been operating for 61 years and has experience placing people during good and bad times.
Canadian employment had been holding up fairly well until recent months. Global job losses from the recession could top 50 million by year's end, The New York Times reports. The figures come from the International Labor Organization, a United Nations agency.
The International Monetary Fund anticipates that global economic growth will reach its lowest point since the Depression by late 2009. According to researchers quoted in the Times, growth has essentially stopped and developed economies are expected to shrink 2 per cent during this year.
The French employment minister noted that this is the worst that his country has seen since 1929. He said globalization makes the unemployment picture much different and more severe.
Canadian employment had been holding up fairly well until recent months. Global job losses from the recession could top 50 million by year's end, The New York Times reports. The figures come from the International Labor Organization, a United Nations agency.
The International Monetary Fund anticipates that global economic growth will reach its lowest point since the Depression by late 2009. According to researchers quoted in the Times, growth has essentially stopped and developed economies are expected to shrink 2 per cent during this year.
The French employment minister noted that this is the worst that his country has seen since 1929. He said globalization makes the unemployment picture much different and more severe.
Subscribe to:
Posts (Atom)