[QUOTE=ewmayer;312109]A commentator from Down Under makes a bullish "climbing a wall of worry" case for equities:

[URL="http://www.smh.com.au/business/dont-look-a-gift-rally-in-the-mouth-20120918-2639l.html"]Sydney Morning Herald | Business Day | Don't look a gift rally in the mouth[/URL]

[/QUOTE]Hmmm...
[quote=Michael Feller]As economic prognosticators, it's our job to be the miserable permabears, not yours.[/quote]Maybe I owe you more respect, Ernst.

The effects of QE3 have to be taken into consideration carefully to understand how and where investments will be impacted.

1. Since QE3 is directly targeted toward mortgages, interest rates will be pushed lower. We might get down to 3% on a 30 year fixed vs todays @3.5%.

2. Housing prices will trend upward but only so long as the free bubble up keeps flowing.

3. Stock Markets will trend up because of the goose effect. Don't know the goose effect? If you shove money up a goose's rear, the goose will squawk and flap its wings and make a ruckus.

4. The guaranteed result over the long term will be inflation. Dollars have been created out of thin air and that effectively reduces the buying power of the dollars that were already in existence. At this time, inflation is mild to non-existent with the exception of food prices which are in a major trend upward.

5. Unemployment will remain high but may ease a tiny bit as construction workers benefit.

6. Other economic weaknesses will be magnified. This includes "the cliff" which is set for early 2013. Bush tax cuts, payroll tax cut, and alternative minimum tax are components of "the cliff". Look for major economic breath holding in January.

7. Fiscal/moral hazard will increase. This is a measure of the market risk especially in financial businesses. FiMo was at an all time high in 2007 with high levels of leverage and extremely high levels of mortgage related chicanery. The Fed's promise of a limitless supply of free bubble up will set the stage for some future bankruptcies and market interventions comparable to tarp.

8. QE3 does not in any way impact the long term fiscal outhouse we are in because the U.S. is still spending $trillions per year of borrowed money.

DarJones

[QUOTE=Fusion_power;312241]1. Since QE3 is directly targeted toward mortgages, interest rates will be pushed lower. We might get down to 3% on a 30 year fixed vs todays @3.5%.[/QUOTE]

Well, considering the [URL="http://www.fedprimerate.com/"]current US of A's Prime Rate is 3.25%[/URL], that's not too surprising.

What is in my mind interesting is that credit card companies charge their customers [URL="http://www.bankrate.com/credit-cards.aspx"]between 11% and 20.9%[/URL] on outstanding balances.

There was a time when this would be defined as "usury" -- an illegal practice.

Now it's just business as usual....

[url=www.reuters.com/article/2012/09/20/us-usa-economy-states-idUSBRE88J05720120920?feedType=RSS&feedName=domesticNews]Fewer U.S. states show income drop, Vermont's up: Census[/url]: [i](Reuters) - Median household income dropped in fewer U.S. states last year than in 2010, with 18 registering a fall and one state - Vermont - notching an increase, the Census Bureau said on Thursday.[/i]
[quote]Vermont's 4 percent rise in median household income last year was the first shown by a state since 2009, the Census Bureau said in its 2011 American Community Survey (ACS) breakdown of income, poverty and insurance.

The biggest decline in median household income was a 6 percent downturn in Nevada, one of the states hardest hit by the collapse in housing prices.

Household income had dropped in 35 states in the 2010 ACS.

Among states whose electoral votes could decide the November presidential election, four - Nevada, Ohio, North Carolina and Florida - showed declines in household income.[/quote]


[url=www.reuters.com/article/2012/09/20/us-financial-regulation-pawlenty-idUSBRE88J0LL20120920?feedType=RSS&feedName=domesticNews]Pawlenty quits Romney campaign to head bank lobby group[/url]: [i](Reuters) - Former Minnesota governor Tim Pawlenty quit his position in the campaign of Republican presidential candidate Mitt Romney on Thursday to become a leading Washington lobbyist for Wall Street banks. He said he continued to support Romney.[/i]
[quote]As a top lobbyist, Pawlenty will play a major role in the industry's efforts to make the new Dodd-Frank rules, which Congress passed in 2010 in response to the 2007-2009 financial crisis, more favorable for Wall Street as regulators implement the law.[/quote]
Contrast with what he was saying on the campaign trail:
[quote]While Pawlenty is generally regarded as a pro-business conservative, he has made comments critical of Wall Street.
[u]
"I went to Wall Street and told them to get their snouts out of the trough because they are some of the worst offenders when it comes to bailouts and carve-outs and special deals," Pawlenty said in June, 2011[/u] at a Faith and Freedom Coalition Conference in Washington DC.[/quote]
Sounds more like he asked them to clear a space at the trough for him. Bloody hypocrite.

As for the kinds of lobbying he will be doing, [url=http://www.rollingstone.com/politics/blogs/taibblog/wall-street-rolling-back-another-key-piece-of-financial-reform-20120920#ixzz272DtszYl]this recent piece by Matt Taibbi gives a pretty good preview[/url].

[QUOTE=ewmayer;312245][url=www.reuters.com/article/2012/09/20/us-usa-economy-states-idUSBRE88J05720120920?feedType=RSS&feedName=domesticNews]Fewer U.S. states show income drop, Vermont's up: Census[/url]: [i](Reuters) - Median household income dropped in fewer U.S. states last year than in 2010, with 18 registering a fall and one state - Vermont - notching an increase, the Census Bureau said on Thursday.[/i][/QUOTE]

Let us "cut to the chase", shall we?

We live in an effectively closed system. There are only so much raw resources available for us to consume. And consuming them may have repercussions.

The word "deflation" will have to be used (and meant) at some point.

And all the ramifications that word means....

[QUOTE=chalsall;312250]Let us "cut to the chase", shall we?

We live in an effectively closed system. There are only so much raw resources available for us to consume. And consuming them may have repercussions.

The word "deflation" will have to be used (and meant) at some point.

And all the ramifications that word means....[/QUOTE]
Not so sure I agree with your first premise: economic wealth is generally tied so closely to raw materials mainly in crude-goods sectors. Developed economies can produce wealth in many more ways, with much (if not most) of the value-add occurring in the processing of some original raw (or partially finished) materials. Compare the value-add which occurs in smelting to produce a ton of steel, with that which occurs in turning the steel into a fine Swiss watch. And what are the resource limitations on (say) software development?

Deflation *does* definitely need to occur to restore some semblance of balance to overindebted economies, but that has more to do with folks (and governments) having consumed beyond the aggregate productive value of their own labors, more than with input-supply constraints. Of course to a central banker - especially one affiliated with a debtor government - the inflationary phase of an economic bubble is all good (it magically shrinks the relative size of the debt and boosts tax revenues), but the deflation which is a necessary rebalancer is a malignant evil to be avoided at all costs.

[QUOTE=ewmayer;312262]And what are the resource limitations on (say) software development?[/QUOTE]Not sure whether that question was meant to be rhetorical, but here goes.

1) Educating people to the point where they are capable of producing economically useful software. Education costs, both directly and indirectly, in physical resources as well as non-physical resources.

2) Appropriate access to computational and communication resources for the software to be developed and subsequently delivered and used.

3) Protective mechanisms, both physical and non-physical, to prevent (at best) or mitigate (at least) damage which other parties may wish to cause for their own reasons.

There are doubtless many others.

[QUOTE=ewmayer;311487]So Herr Direktor Hofrat Univ. Prof. Dr. Dr. Mag. Dipl-Ing. Arch. OMedR BergR h.c. Baron von Bernankenstein did not disappoint the financial markets today - intraday DJIA chart appended to this message, see if you can guess what time today Bennie von B. started talking. (Tough one, I know.)

Between that and the ECB committing to unlimited distressed-member-states-bond-buying (yeah, I know, the German High Court made some noises about capping the amount, but if you believe that is in the remotest degree enforceable, I got a bridge in Brooklyn I want to sell you to you, even if your name is [URL="http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100019976/german-constitutional-court-tightens-the-noose-yet-further/"]Ambrose Evans-Pritchard[/URL]), it would not surprise me to see the markets challenge their late-2007 bubble-highs by year's end.

Mish describes Bernanke's latest bout of massive monetary incontinence (in the sense that it goes beyond Ctrl-P'ing into the realm of "uncontrolled P'ing") as [URL="http://globaleconomicanalysis.blogspot.com/2012/09/fed-to-increase-mbs-at-pace-of-40.html"]an act of desperation[/URL], but I wonder if such language is even applicable to a leverage-addicted central-banker, accountable to no one but his fellow bankers, whose power and influence are tied directly to his ability and willingness to money-print on a massive scale, and who has made clear that he views the economy entirely through the lens of the financial markets. "Desperation" connotes last-gasp efforts to avoid a very unpleasant outcome, but for folks like BB who are almost entirely insulated from the real-economic consequences of their actions and who may even be [URL="http://www.latimes.com/business/money/la-fi-mo-bernanke-refinance-disclosure-20120906,0,7661977.story"]benefiting from them[/URL], any attendant "unpleasantness" is sufficiently remote as to not signify.[/QUOTE]A different interpretation:

"Here’s why everyone is so excited about what the Fed did yesterday"

[URL]http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/09/14/heres-why-everyone-is-so-excited-about-what-the-fed-did-yesterday/[/URL]

[quote]. . .

But the other part of the plan, and this part is really important, is that Bernanke just sent a signal to businesses and investors and the market and everyone else that the Fed is going to use its powers in a big, unusual way to get the economy moving. That’s a hugely important statement to make.

Imagine a business trying to decide whether it should hire more workers. The basic question it needs to answer is whether people will be buying a lot more stuff next year than they’re buying this year. If business owners don’t see any good reason to think the economy will improve, then the answer is probably, “No, people aren’t going to be buying more stuff next year,” so there’s no need to hire more workers.

But if they think the recovery is going to come, if they think people will be buying more stuff, then they need the workers. They don’t want to be caught without enough product — then their competitors would get those sales.

The Fed is trying to influence that decision. Fed officials are saying: “We’re going to use all our power to make sure there are people out there buying your stuff. So go hire. Do it now. We’re behind you.”

Or you can think of it this way. The Federal Reserve is kind of like the economy’s tough, older brother. If the economy is having problems with some kids at school, and the tough, older brother seems distant, or uninterested, then the economy’s in trouble.

But if the tough, older brother makes it clear that he’ll be there to back up the economy, come what may, and even says that he’s going to go have a talk with some of these kids tomorrow, then the economy is going to be a lot more confident walking to school from now on. And right now, what the economy needs, more than anything, is confidence.

Now, as some of us learned when we were young, tough, older brothers aren’t invincible. And few economists believe that the Fed can solve our ongoing economic problems on its own. But it can do more to help then it’s doing now, and with the housing market beginning to come back and Europe appearing to stabilize, there’s a mounting argument that the conditions for a recovery are beginning to look pretty good. If there’s a policy dark spot here, it’s that Congress is still a mess, and there’s no clarity as to how they’ll bridge the fiscal cliff, or even if they’ll bridge the fiscal cliff. And then, of course, there’s the fundamental fact of the economy right now, which is that consumers are still digging out of debt and businesses remain skittish. Sometimes, even a big older brother isn’t enough to make you feel better.

. . .[/quote]

[QUOTE=xilman;312282]Not sure whether that question was meant to be rhetorical, but here goes.[/QUOTE]

Not at all - as you note there are indeed resource inputs of various kinds - now the key thing is to compare the resulting value-add to the cost of the inputs, especially the nonrenewable ones (or better, the not-renewable-on-human-timescales ones).

Even that value-add estimation gets to be quite interesting and nontrivial - popular video games obviously provide a net benefit to their makers, but does their production, sale and consumption actually represent net wealth creation in a broad economic sense? One could argue that legions of game addicts spending most of their waking hours toggling, clicking and zapping virtual enemies represents wealth creation capacity subtracted from the economy. OTOH, people have always demanded their entertainments, so as long as gaming does not crowd out productivity-enhancing software development and usage, the software sector as a whole should still represent a form of wealth creation.

And while raw materials are required to produce software and the equipment it is developed and run on, this is one example of long-term price deflation (as embodied by Moore's law and PC price trends) where the mere fact of the long-term price deflation is quite telling in at least 2 respects:

o It says that in tech, the long-term trend has always been "more for less";

o It says that the raw materials needed to produce a given amount of computing (either hardware or software) capability also have been steadily decreasing.

Thus, I propose that tech is a shining example of wealth creation on a large scale, and in ever-greater proportion relative to its raw materials inputs.

Let the debate rage...

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[b]Friday Funnies:[/b]

Political catoonist Mike Luckovich of the Atlanta Journal-Constitution suggests true Wall Street Reform may finally be at hand, [url=http://blogs.ajc.com/mike-luckovich/files/2012/09/mike091412.jpg]from an unexpected quarter[/url].

[url=http://www.zerohedge.com/news/apple-creates-new-job-category-professional-line-waiters]Apple Creates New Job Category: Professional Line-Waiters[/url]

In interesting-aphorism news (I know Paul will like this one): [url=http://en.wikipedia.org/wiki/Illegitimi_non_carborundum]Illegitimi non carborundum[/url]

[QUOTE=ewmayer;312304]Deflation *does* definitely need to occur to restore some semblance of balance to overindebted economies, but that has more to do with folks (and governments) having consumed beyond the aggregate productive value of their own labors, more than with input-supply constraints. Of course to a central banker - especially one affiliated with a debtor government - the inflationary phase of an economic bubble is all good (it magically shrinks the relative size of the debt and boosts tax revenues), but the deflation which is a necessary rebalancer is a malignant evil to be avoided at all costs.[/QUOTE]

But, I would argue that the input-supply constraints cannot be ignored, even though they often are.

And I agree with you that "...the deflation which is a necessary rebalancer is a malignant evil to be avoided at all costs" is a lie perpetrated by those who don't want to be the one (or the political party) left holding the bag. Much better to fob it off on the next guy -- the truth can only be held off for a while.

[QUOTE=ewmayer;312304]Even that value-add estimation gets to be quite interesting and nontrivial - popular video games obviously provide a net benefit to their makers, but does their production, sale and consumption actually represent net wealth creation in a broad economic sense? One could argue that legions of game addicts spending most of their waking hours toggling, clicking and zapping virtual enemies represents wealth creation capacity subtracted from the economy. OTOH, people have always demanded their entertainments, so as long as gaming does not crowd out productivity-enhancing software development and usage, the software sector as a whole should still represent a form of wealth creation.[/QUOTE]

Indeed. And it goes beyond video games. Another good example is Facebook. A while back I was the outside ICT adviser for a large call center here in Barbados. We had to install specific rules on the firewall to block access to Facebook during business hours, as some employees were doing little more than checking their friends' status throughout the day.

Interestingly, some simply reverted to using their cell-phones to do the same thing. Once their performance numbers were identified as being poor, they were let go.

[QUOTE=ewmayer;312304]Let the debate rage...[/QUOTE]

Indeed. I've always appreciated the saying "There are three sides to every argument: your side, my side, and the truth."

[url=http://www.zerohedge.com/news/2012-09-25/decling-economic-freedom-united-states]The Declining Economic Freedom Of The United States[/url]
[quote]The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a remarkable plunge in economic freedom during the past decade. From 1980 to 2000, the US was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. The ranking of the US has fallen precipitously; from second in 2000 to eighth in 2005 and 19th in 2010. By 2009, the United States had fallen behind Switzerland, Canada, Australia, Chile, and Mauritius, countries that chose not to follow the path of massive growth in government financed by borrowing that is now the most prominent characteristic of US fiscal policy. By 2010, the United States had also fallen behind Finland and Denmark, two European welfare states. Moreover, it now trails Bahrain, the United Arab Emirates, Estonia, Taiwan, and Qatar. The Fraser Institute's massive volume on the Economic Freedom Of The World - [u]based on the following five factors: Size of Government, Legal System & Property Rights, Sound Money, Freedom to Trade Internationally, and Regulation[/u] - covers 42 variables with the goal of quantifying the key ingredients of economic freedom.[/quote]
It is a useful exercise to ask yourself about the evolution over the past several decades and the current status of the five factors mentioned above. I find the following category clarifiers helpful:

1. Size of Government: Consider not just recent much-belated downsizing efforts, but government share of GDP since WW2;

2. Legal System & Property Rights: The 2 major watershed events here in my lifetime have been 9/11 (and the broader "war on terror") and the housing bubble and resulting global financial crisis. With regard to the latter, it is illuminating to compare levels of (documented and/or imputed) financial-sector fraud between the S&L crisis and the current (or recent, if you're a raving optimistic) one, together with stats on resulting prosecutions and criminal convictions.

3. Sound Money: That must be in the category of "historical arcana".

4. Freedom to Trade Internationally: Should multinational corporations be rewarded for effectively engaging in environmental and labor-law arbitrage? Do lower-paid overseas laborers in fact benefit from such offshoring even if they are paid woeful wages (and have woeful levels of workers' rights) by developed-nation standards? (Interestingly, some very notable economists such as [url=http://globaleconomicanalysis.blogspot.com/2012/09/fair-trade-is-unfair-in-praise-of-cheap.html]the fellow quoted here[/url] have flip-flopped on this question). Is attempting to "export" one's own labor & environmental standards a fool's errand?

5. Regulation: Make sure to distinguish between existence and effectiveness thereof. For a naturally criminogenic sector such as Big Finance, do we need lots of regulation, or a small amount of economic-interest-aligning regulation which is actually (and consistently, and visibly) enforced? To what extent should governments be willing to suffer short-term economic pain (e.g. by letting huge insolvent financial firms fail) in order to not make mock of their own laws and to not encourage moral hazard?