Comments on: State Of The Economy – Mid 2010 Edition http://weakonomics.com/2010/07/07/state-of-the-economy-%e2%80%93-mid-2010-edition/ Everything That's Wrong With You And Your Money Wed, 23 May 2012 01:09:00 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: I Know When Jobs Will Return | Weakonomi¢s http://weakonomics.com/2010/07/07/state-of-the-economy-%e2%80%93-mid-2010-edition/comment-page-1/#comment-4365 I Know When Jobs Will Return | Weakonomi¢s Thu, 08 Jul 2010 14:43:29 +0000 http://weakonomics.com/?p=4561#comment-4365 [...] will get them interested?  Increased spending.  This week I’ve said that I’m more worried about the economy and questioned what it is in that chicken and egg argument that will get the economy moving [...] [...] will get them interested?  Increased spending.  This week I’ve said that I’m more worried about the economy and questioned what it is in that chicken and egg argument that will get the economy moving [...]

]]> By: shadox http://weakonomics.com/2010/07/07/state-of-the-economy-%e2%80%93-mid-2010-edition/comment-page-1/#comment-4361 shadox Thu, 08 Jul 2010 04:50:54 +0000 http://weakonomics.com/?p=4561#comment-4361 As a business executive, I am pretty optimistic (not necessarily about the fate of my own company, but about the economy as a whole). I am seeing an uptick in demand, and much more economic activity these days. Business customers are definitely spending more than they did a while back. Yes - there are some nasty counter-indicators, but I am feeling solid about our economic prospects for the short and mid terms. Jobs is definitely a concern. We'll see. As a business executive, I am pretty optimistic (not necessarily about the fate of my own company, but about the economy as a whole).

I am seeing an uptick in demand, and much more economic activity these days.

Business customers are definitely spending more than they did a while back.

Yes – there are some nasty counter-indicators, but I am feeling solid about our economic prospects for the short and mid terms.

Jobs is definitely a concern. We’ll see.

]]> By: Rob Bennett http://weakonomics.com/2010/07/07/state-of-the-economy-%e2%80%93-mid-2010-edition/comment-page-1/#comment-4358 Rob Bennett Wed, 07 Jul 2010 16:16:14 +0000 http://weakonomics.com/?p=4561#comment-4358 I have a very different take. There have been four economic crises in the United States from 1900 through today. There is one factor that all have in common. In each case, stock prices had gone to two times fair value a little before the onset of the economic crisis. There has never been a time when stock prices went to two times fair value and we did not have an economic crisis and there has never been a time when we had an economic crisis and stocks had not gone to two times fair value. The correlation is perfect. What's going on? Consider the amount of overvaluation this time. Stocks were overvalued by $12 trillion in January 2000. Stock prices always return to fair value over time. So we knew (if we cared to) that we were going to see $12 trillion of wealth disappear from our consumer economy over the next 10 years or so. No economy is so strong that it can withstand a $12 trillion hit. That sort of hit does not just set people back for six months or a year. When we lose $12 trillion of wealth, all investors are losing about one-half of their life savings. That causes panic. Panic causes stock prices to drop to one-half fair value. On each of the three earlier occasions, we have seen stock prices fall to one-half fair value. We have a long, long ways to fall if this time is going to be anything at all like what we have seen on all other occasions when stocks became insanely overvalued. I will believe that the rebuilding process has begun when people are talking openly about the dangers of overvaluation everywhere on the internet. We cannot begin to solve problems until we work up the courage to talk about them frankly. We are not there today. I'll end on an encouraging note. We have done such damage to ourselves this time that I believe that we will be able to develop a model for understanding stock investing that will prevent stocks from ever again becoming insanely overvalued. If we make it to the other side, I believe that we are standing on the threshold of the greatest period of economic growth in our history. We need to work up some courage, get to work, keep our spirits up, and hang in there through some very tough stuff to get to some very wonderful stuff on the other side of the big black mountain. Or so Rob Bennett believes, in any event. Rob I have a very different take.

There have been four economic crises in the United States from 1900 through today. There is one factor that all have in common. In each case, stock prices had gone to two times fair value a little before the onset of the economic crisis. There has never been a time when stock prices went to two times fair value and we did not have an economic crisis and there has never been a time when we had an economic crisis and stocks had not gone to two times fair value. The correlation is perfect.

What’s going on?

Consider the amount of overvaluation this time. Stocks were overvalued by $12 trillion in January 2000. Stock prices always return to fair value over time. So we knew (if we cared to) that we were going to see $12 trillion of wealth disappear from our consumer economy over the next 10 years or so. No economy is so strong that it can withstand a $12 trillion hit.

That sort of hit does not just set people back for six months or a year. When we lose $12 trillion of wealth, all investors are losing about one-half of their life savings. That causes panic. Panic causes stock prices to drop to one-half fair value. On each of the three earlier occasions, we have seen stock prices fall to one-half fair value. We have a long, long ways to fall if this time is going to be anything at all like what we have seen on all other occasions when stocks became insanely overvalued.

I will believe that the rebuilding process has begun when people are talking openly about the dangers of overvaluation everywhere on the internet. We cannot begin to solve problems until we work up the courage to talk about them frankly. We are not there today.

I’ll end on an encouraging note. We have done such damage to ourselves this time that I believe that we will be able to develop a model for understanding stock investing that will prevent stocks from ever again becoming insanely overvalued. If we make it to the other side, I believe that we are standing on the threshold of the greatest period of economic growth in our history. We need to work up some courage, get to work, keep our spirits up, and hang in there through some very tough stuff to get to some very wonderful stuff on the other side of the big black mountain.

Or so Rob Bennett believes, in any event.

Rob

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