Replies to post #41464 on Zeev's Turnips Patch-No Politics (ZEEV)

[Bob Zumbrunnen]

Now that you've been banned from the CFZ, I feel I'm in good company indeed!

[mlsoft]

Zeev...

My take is that we do not get a year end bump and the downturn seen in the second half of the last quarter will continue for some time to come. I look for the Q3 GDP just reported to be revised downward, and the Q4 GDP to come in around 1% or less with a 50/50 shot of the final number being negative. That trend should carry forward well into next year as the consumer continues to weaken and the first victim (and hardest hit) will probably be auto sales, where 0% financing has robbed future sales to maintain current production. The resulting slump in auto sales will hit the bottom line of the auto producers hard, and will be felt throughout the economy.

I continue to question the stimulative effects on the economy of that portion of the rise in the national debt which is attributable to a shortfall in revenues as opposed to a rise in spending. I also feel that some increases in spending have little stimulative effect on our economy, such as military spending overseas (for new and expanded bases, military assistance, etc.) and increased foreign economic assistance such as IMF bailouts in Argentina and Brazil (not to mention PPT "investments"). Finally, M1 has been contracting, rather than expanding, and with energy costs having risen along with state and local taxes (to offset sharply reduced revenue receipts), the total picture is not one to induce expansion, in my opinion.

I fully expect layoffs to mount as the consumer continues to pull in his horns and the overall economy continues to slow down. The downside of globalization will hit internationally and the US slowdown will produce a global recession that will be hard to come out of with Japan and South America in danger of severe economic crises and Europe and the US facing a potentially severe recession. Hopefully it will not come to that, but the potential is certainly there.

Just my opinion, though.

mlsoft

[sarai]

Given the highly inflationary monetary policies of late, the lack of inflation is remarkable, and would tend to indicate significant structural weakness in the macro economy. Wouldn't it?

[jrintl]

Odds on a G&C here? Softie opening up with a bullet..

[RENEEJ]

Did you keep LLL over the weekend?

[pstuartb]

Zeev - thank you for the reply. Your position on this issue has been consistent for many months. My own take, fwiw, is not as optimistic. Several months ago, you made the same argument regarding the bolus (love that word) of federal spending that would provide a bump to the consumer towards the end of this year. We are now nearly at the end of the year, and that federal stimulus has been in the works for at least 6 months or so, but the consumer seems to be getting weaker, not stronger. It seems possible that the federal spending has allowed consumers to levitate a while longer, but I have to doubt that the boost will be enough to induce a cyclical bull. The recent fall in auto sales seems like the biggest tell to me. I believe you view the current consumer weakness as part of the double-dip that was priced in months ago. It's also my understanding that your expectation of a cyclical bull in early 2003 is premised primarily on this federally-induced rise in consumer spending, which in turn may seduce additional business spending. Again, though, if the federal stimulus early this year was powerful enough to induce that kind of spending, I would think we would have seen the positive effects by now. Just my opinion, and yours is more informed than mine, but I've got to place my bets based on my own (g).

Regards,

Paul