Man, what annoying graphs. They really could do without all those red arrows (like the reader needs to be told what direction down is) and that orange seasonally ajusted line.

I suppose all that garbage is supposed to help make Captain Capitalism's case, but I want information, not manipulation.

Watch commodity prices, especialy the base metals, for a downturn. Their prices turning south would be further advance warning of a recession.

"politically motivated media whores and crazy people currently driving the news cycle."

Al Gore and Mo Strong's Carbon Emissions Trading markets may hold the key to prevent a worldwide recession.

Politically motivated media whores eh?

Canadian Press, CBC, CTV-Globemedia , CanWest Global, Toronto Star - CPAC

I wonder if food prices are reflecting the upturn in the price of corn due to the artifical ethanol bubble?

More like brain dead, politically motivated media whores. What else does one call CBC, CTV Torstar, etc. Right on Kate.

The USA is in big trouble on the economic front. The country is swimming in debt and the Fed's printing presses are running white hot creating billions of new dollars out of thin air every day.
Inflation is just starting and will be the same or worse as in the late 1970's. There is just too much paper money chasing tangible goods. The more there is of anything the less value it has and paper money can become worthless if there is too much of it. Witness what happened in Germany in the 1920's when a packsack of marks was required to buy a loaf of bread. Google "Weimar republic" or hyperinflation for more info.

IMF and other reliable global monetary leverging institutions had told the US to watch it's currency issueing habits 2 years ago...apparently the mint presses were going 24/7 for months printing new currency slated for release into the consumer economy.

No one knows these days what backs a newly minted Fed reserve dollar and they ain't sayin' do don't ask....but I suppose wary players in the economy who can't fall back on fed reserve subsidy in a contraction, are playing the free cash dog like it was inflated...prices up on most items...housing stalled and resale prices down, forclosure at record highs mostly due to over pricing...the realestate bubble has burst even with the availability of cheap money and high risk credit....prices are too high (inflated) for consumers to see fair gain in a realestate investment

The US was warned to start a money supply contraction 16 months ago....they didn't....inflation is now resulting at a time the economic engines are slowing...bad place to be.

Now if Bush wanted to really leave a legacy he would make the Fed Reserve less secretive, more accountable to congress and make its processes more visible to consumers and business alike....then again maybe we don't want to know what's really going on there.....that could be why Washington has not been curious enough to demand the audits the Fed has refused the last 2 times.

To maintain confidence in all the greenbacks sloshing around the globe rumours are most of the gold in Fort Knox has been loaned out and sold to keep pressure on the price of gold. Governments of the world can't have citizens lose faith in paper dollars which is still the world's only reserve currency. Shows the powers that be are becoming desperate and what can they do except keep printing more money. Bernanke has stated he could always drop money out of helicopters if he needed to keep the game afloat.
Talk about caught between a rock and another rock.

"Watch commodity prices, especially the base metals, for a downturn. Their prices turning south would be further advance warning of a recession."

Demand in Asia, particularly China, has kept prices high and will likely do so whether the US goes into recession or not.

"The USA is in big trouble on the economic front. The country is swimming in debt and the Fed's printing presses are running white hot creating billions of new dollars out of thin air every day."

Actually, the US budget deficit is shrinking rapidly and at this rate should be in balance within a few years. As a ratio to GDP, the US debt and deficit picture is much better than most countries in the developed world.

Captain Capitalism's graph shows U.S. housing starts and U.S. economic activity, unless I'm mistaken. So it's not as relevant to a Canadian audience as it is to an American one.

But according to the latest stats from CMHC (pdf), our own housing starts are down 17% year-over-year from Mar 2006 to Mar 2007.

I'm no economist, so I'm going to avoid drawing any conclusions from that, and let others weigh in.

Thinking of Saskatoon and Saskatchewan, for that matter, it will be a while before we see housing prices fall too far.

Our province has enough room for easily 5 - 8 million people (comfortably), we currently have under 1 million. We have a huge amount of resources and a low cost manufacturing base. I think it's going to be a looooong time before we see a big drop in housing prices.

Of course, I could be wrong.

"Actually, the US budget deficit is shrinking rapidly and at this rate should be in balance within a few years. As a ratio to GDP, the US debt and deficit picture is much better than most countries in the developed world."

Chip, you are dead wrong. Why do you think the greenback has been dropping like a stone against the euro, pound, krone, loonie and most of the other currencies of the world and poised to go even lower. The US government is now preparing to raise their debt ceiling another trillion dollars. Every single working day the US needs to import 3 Billion dollars from the rest of the world to balance their current account deficit. Although I don't like to say it because I like America and GWB the USA is not in good shape my friend, and it will even be in worse shape if Democrats take control. I blame Alan Greenspan for most of the mess and I'm sure he will go down in history as the worst Fed governor of all time.

Well kate not paying down your home is a folly, mine is close but if I lose my job I can run up my house get a bank loan on equity or whatever. If i'm maxed out i'm screwed.

one time when the royal bank flubbed payroll one of my coworkers said "my credit cards are maxed out what do I do now," duh they are for emergencies. Liberals,

Some people figure they should have a mtg til they are 75 yrs old, then when a recession comes they get nailed. Like duh, you need to pay down debts and save for the bad days,

It's like climate there are always wild natural variations.

POSTSCRIPT Saskatchewan has room for tens of millions but that is irrelavent since the 30's the number has been falling.

Between the CWB and the NDP thats no surprise.

Prognosticators of imminent doom are most often incorrect in their assertions. Witness the "Goracle".

The obverse of a managed decline in the greenback is that the goods and services provided by Uncle Sam become that much cheaper to the rest of world.

Ergo more will be buying their goods and services as the pricing keeps getting better. The US is still ~40% of the worlds GDP. It will take something a little more substantial to take this economic supertanker off course.

With an economy this large it just takes a few years just to turn a supertanker around due to 'economic inertia'. The speculation that the US is suddenly turning into Weimar Germany is woefully misplaced.

I remember my grandmother telling me stories of buying a loaf of bread for $4 billion marks back in 1929. Such comparisons are simply quite off the mark, and completely ignore US manufacturing expertise and a knowledge based economy. While the US is not immune to human and domestic problems, the proposition that they can't weather the storm is countered by the strong performance in the wake of severe financial scandals such as Enron, Adelphia, WorldCom, etc. The SEC is not playing with kid gloves, because when the pension fund managers get hurt, everybody takes it on the chin.

Ralph Goodale's handling of the income trust file was hardly helpful, when the market gets information telegraphed to it prior to decision making. After all the stupid stuff that went on in the US, that move was really bone headed.

In short, the proposition that the US is falling on its sword is misplaced.

Wait a second. Wait a second.

Did I miss the talking points memo?

I thought George W. Bush's tax cuts had created the greatest economic growth and miracle since the second world war? I thought they needed to be made permanent to ensure the continued growth? I thought talk of dark economic clouds on the horizon was a liberal media anti-Bush creation?

Clearly, I'm not on the right mailing list.

Ted
Cerberus

prospector

Everything I said was a supported fact. The US deficit in 2006 was 248 billion; the estimate for this year is 172 billion and for next year it is 98 billion.

This is despite the US fighting two wars.

The country's debt to GDP ratio compares well to most other developed countries.

No Ted, they didn't. The fuelled an already rampant consumerist economy, maybe unnecessarily, who knows.

I have been bearish on US stocks for years, just my opinion, preferring high quality Cdn dividend stocks. Maybe you don't make a killing on oil, but nearly double your money in four years is OK with me.

Going forward here, real estate could be in early correction, not bubble, like US. Mortgages today are outrageous, but people should assume interest rates going up longterm.

Watch out with those 30 year plus and variable rates, kids, though. Canada still looks good to me, in spite of kyotocultists, and a safe harbour for your money.

When folks refer to US manufacturing it's hard not to smile because US manufacturing is mostly a thing of the past. Manufacturing has moved to China and India and other developing countries and it's not coming back anytime soon. The US is now a service economy and that makes things even worse. Increases exports can't bail out the country as they could previously.

I wonder how much effect both the 'economic tectonic shifts' of globalization and the gradual transition from an oil based to other energy sources economy is having.

By the former, I mean the entrance of China and India into the industrial capitalist market. After all, ten years ago, they were both almost non-entities in this global market; the West dominated industrialism.

Now, we are seeing a shift in economic relations occuring as these two enormous populations enter the market both as capitalist producers and consumers.

This doesn't mean a recession; it doesn't mean inflation; it means a restructuring to open markets to accomodate these new agents.

By the latter, I mean the shift in economic resources and capital from an oil-based industrial mode to other energy sources. The ignorant hysteria over global warming is the populist expression of a deeper technological change. This is the change from oil to..and we haven't decided what will be the new energy source; scientific research is still exploring new energy sources..from nuclear to helium to hydrogen to whatever.

But, it's an enormous shift (ignore the global warming cult; the energy source on earth is the real issue) - and will move us away from a reliance on the ME. That also means that the ME will lose their singular 'cash cow' to maintain their tribalism; they'll be forced to move into diverse industrialism and set up a middle class.

prospector:

Just because a company has its head office in the US doesn't mean it doesn't have its operations worldwide. IE Global multinational enterprises are nominally US companies; but actual operations are global in nature. The wonders of outsourcing, robotics, computerization, etc...

Inflation is always a monetary phenomenon...

The scarier piece is if the world stops lending the US the money....then rates go up up up to attract the capital.

Tight money is always in relation to the inflation rate.....if inflation has crested 3% then rates need to be at least 6% and higher.

If the fed has been printing money then we will see inflation unless they tighten and remove.

The deficit is coming down, what investors will look at is this drop sustainable or have revenues peaked and the deficit will widen again.....

US housing market was out of whack...Canadian one was never as bad but it is getting crazy based on my local prices.....Houses up 100% in 6 years.

Rabbit,

You're joking right? Adjusting for seasonality is not manipulation. Clearly you've never taken a stats class. The arrows are redundant but hardly leading and the original, non-adjusted line is there if you prefer it. Your point is invalid on every level. You must be a liberal.

Ted,

The business cycle lives on. Too many times have the media and "elite" investors given ulogies to the business cycle.

The idea of tax efficiency and the Laffer curve have nothing to do with the business cycle. They business cycle will exist regardless.

It is fair to say that even though tax rates in the US have gone down, tax revenue has increased. Now if only they can get their spending under control...

There has been calls for a recession for two years. One good thing that will come from a recession is that the public's love affair with Kyoto will end and the public will go back home to their old lady (the economy and their job.)

"Of course, that's easy for me to say - my home is paid for."

Mine too. And the four acres of land it sits on. Plenty of space for a garden. Plenty of firewood. I get to kick back in front of a nice warm fire and watch a bunch of over-leveraged urban yuppies self-immolate.

Life is good.

"A natural downturn in the economy may be the best hope we have to wrestle the fate of our long term economic fortunes from the politically motivated media whores and crazy people currently driving the news cycle."

Caustic clarity Kate...and infinately quotable ;-)

The crazed, partisan, prostituting editorial leadership in the Kanuki MSM is now deeply aligned with the most extreme, detached, obsessed political forces ever seen in federal opposition politics.... we indeed must have providential intervention to end this dangerous marriage of a quite deranged Canadian 2nd and 4th estates.

Not in my personal experience have I seen so many puerile swindles, malicious insinuation and civilly regressive ideas sold as "wisdom" by such a profane political-media alliance.

The last 6 months have seen medi absolutely obsessed with one-dimensional, one sided neurotic crusading. The open manipulative agenda has become so unbearable in the volume and frequency of debased idealism propagandizing in our Canadian corprate media clique, that I have literally stopped accessing it and have gone completely to alternate media and direct sources for information.

I have to agree completely with you on this one Kate...we really do need some sort of social-economic cataclysm to wake up the media-hypnotized masses as to how badly they have been conditioned/manipulated. Hopefully the backlash will purge our society of this debased media "prostituted advocacy" malignancy.

News media dysfunction is as bad as I've ever seen it.

Warwick:

I actually think a recession would have the opposite effect.

With conservative big spending leaders in charge in Washington and Ottawa, and elections coming up soon in both, if we head into a recession, the campaign becomes a comparison of Clinton-Chretien/Martin prosperty, deficit slaying/debt reduction and growth vs. Bush/Republican-Harper spending, deficit-creating, recession-inducing.

I'm not saying that is right, but voters tend to ignore the natural business cycles and pin the blame on whoever happens to be in government at the time. In my experience, it takes a whole lot of government interference to really put any kind of significant dent or upswing in the deep and robust North American economy.

So recession comes, Democrats and Liberals ride the wave of resentment to whoever is in charge, then get to put in their environmental plans.

meanwhile, unlike in past "pre-bubble" situations, the system is awash in money, the highest levels of liquidity ever seen.

China's year over year expansion rate is staggering - good for Canada as the really, really need our raw materials.

better description than a bubble is the highwater mark has been reached and some corrections are due.

http://www.mises.org/store/Panic-of-1819-Reactions-and-Policies-P388C1.aspx

The sheer glibness of the "Street" writer is enough to raise the hackles on the back of my neck. But here's a good cold shower you can throw on your local prophet of doom the next time he comes squawking noisily down your street in his Chicken Little suit:

http://financial.nationalreview.com/

Scroll down a bit to Jerry Bowyer's "Dow 13000."

Warwick:

The "manipulation" part were the red arrows. At the least, CC (or whoever built the chart) could have kept the arrows well above the data, so one can read the chart without being distracted by the arrows.

Showing both seasonally adjusted and unadjusted values is unnecessary. They show virtually the same thing. Giving both just creates a lot of clutter. I would have gone just with the green line (seasonally adjusted?) since it shows more detail and doesn't look smoothed.

I spend a lot of time creating technical displays in an attempt to make complicated situation clear. CC's graphs are a mess.

Rabbit,

Yes they're a mess but adjusting for seasonality allows a comparison of different periods. Without adjustment, you couldn't compare one season with another as the comparison would be invalid.

As for the arrows, they're redundant and ungly but they aren't manipulative.

Ted,

A recession might be bad for Harper but it would prioritize Canadians. Kyoto would be dead.

There's a reason that even Buzz (who I am loath to have on my side even for a moment) has applauded Harper's initiatives and McWimpy has been virtually silent. Jobs matter and everyone but the federal opposition parties know it.

So will Buzz vote CPC next election?

The part that freaks me out the most is the comments from Grantham.

Those are the kind of things that keep you up at night.

Is this housing starts or global warming hockey stick?

with global warming shouldnt housing starts go down. who needs a house with this heat??

or maybe we can bunk in with Al Gore.

I'd be worried if I were Harper. Buzz doesn't exactly have a history of picking winners now does he?

Warwick:

Wrongo. Any time you overlay your intepretation directly over the data you are biasing the viewer's perception of it.

It's okay to do that, so long as you first show the data without your interpretation, so that the viewer may judge for him or herself whether the interpretation is warranted.

And I never said the seasonally adjusted graph was wrong. I said it was unnecessary to show both adjusted and unadjusted, since they showed essentially the same patterns. Choose one or the other so as not to create a mess.

Ted said:

"With conservative big spending leaders in charge in Washington and Ottawa, and elections coming up soon in both, if we head into a recession, the campaign becomes a comparison of Clinton-Chretien/Martin prosperty, deficit slaying/debt reduction and growth vs. Bush/Republican-Harper spending, deficit-creating, recession-inducing.

I'm not saying that is right, but voters tend to ignore the natural business cycles and pin the blame on whoever happens to be in government at the time. In my experience, it takes a whole lot of government interference to really put any kind of significant dent or upswing in the deep and robust North American economy."

So Ted, are you saying that the prosperity, deficit slaying/debt reduction and growth that Clinton/Chretien/Martin enjoyed were a result of the business cycle effects injected by Reagan/Bush/Mulrooney (ie NAFTA, GST, Reaganomics) and likewise the tech bubble, a lack of a plan to defend America from terrorist and as a result catapulting America into 2 costly wars around the globe as well as the other security blankets it must now provide (remember after 9/11 the economy took a hugh hit) also lack of planning to increase the levies and dykes at New Orleans during Clinton's tenure left them unprepared for Katrina resulting in a significant hit the the North American economy and thus Harper and Bush 2 and we in the economy today are seeing the handy work of the Liberal injectionists Clinton/Gore/Chretien/Martin into the business cycle.

Is this how it works Ted?

"

What you will have to watch out for is the Euro with it priced at 1.3625 to the US buck and China sitting on 2 Trillion in cash thats going to need a home it makes US assets look very cheap.

We have been here before the Japanese Yen was very strong against the US currency and they came in and bought everything flooding the US with cash and driving asset prices very high. When the cash was spent asset prices dropped but the action pulled the US out of a mild recession in 1994.

Larry KUDLOW (a nationally syndicated columnist and a former Reagan economic advisor)....

Here's another one for the record books. Get this: US tax nonwithheld receipts from individuals hit a record one day $48.7 billion increase on April 24h. The prior record was a year ago at $36.4 billion. This reflects, almost always, capital gains tax receipts from the bullish market at the record low 15 percent marginal tax rate on investment. Did someone say Laffer curve?

This is big stuff. It's been playing at the top of the Drudge Report all day. $48.7 billion dollars for the April 24th tax date. That is the largest in history, Arthur, the largest in history. It's almost all from cap gains, nonwithheld.

I did a little math, Art. Since the Bush tax cuts of mid-'03, the fiscal years '04, '05, '06 and we're almost halfway through '07, nonwithheld tax receipts up $144 billion, or 59 percent. Now, Art, I know you take a lot of flak in government accounting circles. They say lower tax rates lose revenues. This says lower tax rates increase revenues. Could you comment for us? Could you teach us something here?

Arthur LAFFER (the Laffer curve) :

Well, I just love these numbers, Larry. And, frankly, the one area where you can really expect to see this type of response is in capital gains, in the nonwithheld areas. I mean, the size of this one day receipt is so much larger than the next largest day's receipt, it's amazing. If you look all around this country, I don't see how people can think that you really should let these tax cuts expire. We're almost in balanced budget right now. It's coming very close. Just let this thing keep going. Don't stop it. I don't know why these people ( Nancy ,Harry) want to stop it, Larry.

Glenn: "Is this how it works Ted?"

Um, no.

glenn - are you seriously stating that the emergence and rise of Islamic fascism is due to the US's 'lack of a plan to defend America from terrorism'?????

That's quite the (il)logical feat - to claim that the result is due to the cause.

Or are you saying that this is Ted's 'thinking'?

WL Mackenzie Redux

Regardingf the Fed it is independent and has longer term appoints of the Chair to help make it so. There is a bill floating around congress to give congress control of the fed. You really want the likes of Maxine Waters one of the sponsors of the bill Harry Reid, Nancy Pelosi, and all the other Tax and spend liberals in control of the Money supply, Interest rates and the budget. They can't put a budget bill through without a couple billion in earmarks attached to it. Those earmarks usually have nothing to do with the spending bill under consideration.

For my money I will keep the Greenspans and the Bernanckes running the show they actually now what they are doing are have no axe to grind or backchannel manipulating to do like the Maxine Waters of Congress. Giving that woman control of the Fed terrifies me.

The fact DOW is hitting all time record over 13,000 is another result of too much paper money in the system. Money has to go somewhere hence the many bubbles. The question is do earnings reflect the increased share prices and on a historically level the answer is not. What happens when earnings decline because of reduced economic activity. Stagflation? I copied the following from jsmineset.com

Jim’s Formula:
September 1, 2006

First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
The formula economically is inherent in #2 which is lower economic activity equals lower profits.
Lower profits leads to lower Federal Tax revenues.
Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

The graph shows housing 'starts' have dropped.

Less new supply may mean steady or higher existing house prices. Who knows !!??

IMO, the housing price bubble was brought on by Freddy Mac. Alan Greenspan lowered the fed-rate to unimaginable levels. 1%, I beleive. Why ?? To save the stock market bubble (it didn't)of the late 90s. Also to save Billy's ass cause he couldn't keep his hands off others.

All western govmits play the deficit game. Ever since the days of Trudeau, Reagan, Thatcher. Why leave the house in strong financial order if your "enemy" is going to reap (rape) the rewards after the next election. A form of burning the bridges in a retreat. Dangerous game for western democracies to play.

As mentioned earlier, I also think the most important, earth shaking even, event today was Buzz Hargrove's statements.

Buzz, and the labour left, (not the latte-left) are on side with PM Harper and John Baird. They see the common enemy very clearly now. The Gore-Suzuki-Dion-Strong axis.

Can you imagine the significance of PM harper picking up Ontario's industrial heartland vote !!??

Looks like one of Al Gore's graphs

As for printing dollars it has the same effect as oil in your car too much will blow the gaskets not enough will blow out your block. Same with printing money.

The problem with a gold standard it is not responsive enough to what are reletively fast changes in the economy. Thats why M3 is a indicator that is now minor in the calculation. Interest rates and not money supply are used to influence the growth in the econonmy. Weak economy low interest high growth they push up the rates.

With the sub prime housing market collapsing in the US they are shaking out the weak hands. Folks that should not be in the house they bought they couldn't afford it.It is thought that if the fed perceives danger to the economy a half point cut in interest rates should staunch the flow of defaults and support those folks that did qualify for their new homes and didn't get into the housing market via the liar loan program. Liar loan program thats kind of a joke although there are lots of liar loans out there soooo liar loan program. Ugh oh well.

KKR Kolberg Kravis and Roberts are the Largest merger specialists in the world this year they are involved in 100 billion plus mergers and trust me they aint using there own money. These guys are very very good. The consolidation of big US assets is because they are undervalued and there is room for their value to continue to increase. Think higher prices in the stock market.
Thats where support for the US economy will come. Higher value for all those shareholders could replace the cash that the homeowners where spending. So a move from consumer spending from equity in homes to consumer spending from Capital gains in equities.

No one is in any hurry to make any drastic moves until this currency shift plays out.

Although oil is expensive it is not at record highs and because and the economy so far has been able to absorb it but everyone has one eye out for inflation because of Oil although so far its not really showing up. Parts of the US economy are thought to be undervalued the US Markets might undergo a mild correction although we did recently see a small correction. They sheer power supporting the markets is remarkable. I wouldn't be in to big a hurry to start shorting the US just yet you may find it a excrutiatingly painful expeirience.

Ted, I agree sitting government blamed for downturn. Assuming downturn happens near election,I feel Harper will still defeat Dion, though majority would be in jeopardy.

Fred, I thought excess liquidity on market risk factor of overbidding on stocks, like pre Y2K scare, especially tech?

Can't get too excited about China, if they are in capital markets, their immature bank system risks imploding, as happened to Japan, where investors losing money out ten years. Ouch.

Europe OK I guess, though concerned about statist economies, Kyoto, immigration and ethnic dislocation.

Prefer Canada still, with smattering of healthcare (only US market I would touch right now), high tech energy research (like ET said, to get off oil, not Kyoto tulips), maybe even selective telecom.

Lots of good opportunities for right situations. Life is good if you get some competent health and control your taxation.

a) Chip is right. Federal receipts are at record highs and they're approaching the break even point.

b) Ted, that wasn't worthy of you. The fact that the US under the Bush admin has performed as well as the Clinton economy, despite inheriting a recession, the dot com crash, a threadbare military, 9/11 and facing a far more difficult geopolitical situation is a fact you should be aware of - and you're generally fair enough to admit. A currently robust economy (outperforming our own consistently) and record low levels of unemployment doesn't preclude a downward turn into recession, however. But I don't need to tell you that, either.

where are those tax cuts cpc promised? or i'm blind?

P/E ratios that is the how many years will the dividend paid {its actually just the earnings but for understanding purposes I will say dividend} take to pay off the price you paid for the stock you bought. At current levels it is historically about where is should be. The S&P's p/e is about 17. With growth being what it is and demand at such high levels a p/e of 22 is comfortable.

The cash coming into the market in the US is not because the fed is printing. It is because the US dollar and the trade deficit have been respectively too high. We are now seeing a correction. All that money that left the US to purchase goods and services overseas is coming home by rail car full. You have to keep in mind that by the begging of 2002 it was the fear of every money manager on the planet that we were going into deflation. Translation depression al la 1930's. So to get out of one of those is near impossible the measures need to to re inflate are draconian to say the least. WW@ came along to get us out of the last one because the end was no where in sight. Once pricing power is lost that would be the ability to raise prices at a moderate pace then you are in deep doo doo. You can't grow the economy.

President Bush in the follow up to the Dot Com bubble basically saved the world from a 1930s depression.

Don't believe me go read what folks like Alan Greenspan, Bill Gross among others had to say at the time. Bill Gross controls a mind numbingly large amount of assets {more than anyone else a number so big it would be meaningless to print it here in the Bond market. The bonds are where the rubber meets the road for economies of the world.

Kate:

The comment was more directed at your overly-devoted followers who, reading your post, immediately launched into a sky is falling routine with the economy, forgetting what they (or at least many) have said before.

There is no question that the US and Canadian economies are resilient and currently robust. I do maintain that it is an enormous stretch to credit this on Bush's tax cuts. The tax cuts were not deep enough and spending doesn't fall into line that quickly, inflation, etc. etc. to have such a big effect as claimed for those cuts. The tax cuts certainly help the economy as does a borrowing spree to fund a military economy.

I thought it was a little surprising to see a post with such doom and gloom though. Such big economic problems, and imminent recession. Friendly poke, though, not a tirade. Maybe I should have added a wink.

A recession will be the result of a big slow down in consumer spending which is why the Feds are so closely monitoring the housing market. Too many Americans, one of my own kids included, were using their homes as ATM machines, cashing in on their appreciation by refinancing and buying stuff which is why China could take a hit too. How bad this bubble is, I don't know. I don't think anyone can say yet. With unemployment as low as it is now, hopefully more people can salvage and hold on to their homes. Right now the bubble is working its way through the sub-prime market where the default is lower than you would think at around 13%.

The Feds can't tighten interest rates with housing unraveling. It is why they are playing down inflation for now.

Hey, Ted, if those Dem/Lib environmental plans include heavy spending and increased taxes, and they would, in the midst of a recession or spiraling fuel price inflation, voters aren't going to buy into it. In fact, this whole stupid environmental hysteria is going to take a big hit in a recession or with further spiraling fuel prices. It is now. Congress has approved drilling offshore and in Alaska where it was restricted before.

“Can you imagine the significance of PM Harper picking up Ontario's industrial heartland vote !!??”

Agree Ron, that’s what is happening in Canada, the middle class is now being recognized as the engine of the economy, not the interventionism of Ottawa to build us a Day Care system run by CUPE.

Our middle class in not yet participating in the stock market to the extent that is happening in the US (where 60% are invested) but we’re getting there.

As Jeff Cosford says “Think higher prices in the stock market”. Because today Bloomberg reports “Manufacturing in the U.S. grew in April at the fastest pace in almost a year as orders jumped and production improved, an industry report showed.”

Bloomberg also reports:
``On the housing side, it's bottomed out,'' Liveris , CEO of Dow, said in An April 26 interview. ``It won't get any worse and it's got an opportunity as the year goes by to get better.''
The same is true of U.S. auto production, he said.
``I see more trend positive than trend negative'' in the U.S. economy, he said.

We’re in a Global economy. The strength of that is: we no longer have to depend entirely on the USA to be the catalyst for the world’s economy. Provided Sarko in France can overcome the SDS ( Sarko Derangement Syndrome) we might even see Europe cut corporate taxes and make it easier for Harper to do the same here even with 70% of our Parliamentary seats full of pinkos.

ET

What you were talking about regarding a shift in the type of energy being used to power economies I have been wondering if that is not moral suasion coming out to slow the growth Oil consumption. After the Oil shocks of the 1970s it was consumer driven folks had to line up to buy a gallon of gas and the price was so draconian that it moved North America to much smaller cars for almost 2 decades. Oil comsumption in US went flat for almost 20 years.

I don't believe it is a shift in the type of energy use although solar may have enough economies of scale to offset some oil and coal consumption but technology and public perception may do significantly more to slow the growth of oil consumption.

Its the players that is throwing me off.

Penny said:

were using their homes as ATM machines, cashing in on their appreciation by refinancing and buying stuff

What an absolutely perfect description. Penny that is what I call word smithing. It is a magnificent descripition.

Hah. maybe one day I will slow down enough to actually spell some of the words correctly.

As Mark Twain commented upon reading his obituary, we might apply to the US economy:

"The reports of my demise are greatly exaggerated!"

The tax cuts were not deep enough and spending doesn't fall into line that quickly, inflation, etc. etc. to have such a big effect as claimed for those cuts.

Ted, the tax cuts followed Reagans seismic cuts, followed by a Clinton who couldn't raise taxes with a Republican congress. Bush has been a bigger spender. Corporate tax rates went from 39% in 2000 to 15% in 2007. And....

Despite the charges of critics that the tax cuts enacted in 2001, 2003 and 2004 favored the “rich,” these cuts actually reduced the tax burden of low- and middle-income taxpayers and shifted the tax burden onto wealthier taxpayers. Tax Foundation economists estimate that for tax year 2004, a record 42.5 million Americans who filed a tax return (one-third of the 131 million returns filed last year) had no tax liability after they took advantage of their credits and deductions. Millions more paid next to nothing.

www.taxfoundation.org/news/show/542.html

Weren't deep enough, Ted? Google is your friend too, if you'd use it.

When you unshackle people and business, economies are robust. The lesson never learned by lefties.

ET:

I am saying that is Ted's thinking by the comment he left above.

ET: O/T a year or so you posted a ruling with regards to NL/Quebec boundary (map) dispute over at the Shotgun Blog that I have been searching for ever since and can't find. Would you happen to know what I am talking about and do you still have that link? Would help me in a bunch of lingering debates I have with some NL nationalists. Thanks in advance.

Glenn

The tax cuts certainly help the economy as does a borrowing spree to fund a military economy.

One more comment to Ted. Borrowing spree? We aren't a military economy by any measure of our GDP. It's 4%. How is it borrowing if the revenues are there?

Ted, again, Google could be your friend and save you a lot of wasted effort if you would use it before you speak.

glenn - sorry, I did use to post over at The Shotgun, before it was effectively taken over by McGuire and his Epoch Times, but no longer.

I don't recall the Quebec/NL boundary map; certainly, Quebec has always been unhappy about Labrador, considering it 'theirs'.

By the way - with regard to my comment way above, I meant 'result becoming the cause'...oh well.

Penny:

The US under Bush borrowed incredibly large amounts from the Chinese, mostly, and other foreign lenders. While the fiscal budget deficit that Bush created is shrinking, it is still a huge deficit and that means they have to borrow to fund their spending [FYI: "De-fi-cit" (dĕf'ĭ-sĭt) n. The amount by which a sum of money falls short of the required or expected amount; a shortage]. That means the debt increases. That is pretty simple math. [FYI: "Debt" (dĕt) n. An obligation or liability to pay or render something to someone else] That also doesn't even begin to account for the still enormous trade deficit, mostly in China's favour. (Word of warning to political and economic observers: we all know America's economic supremacy was do in no small part to Europe's credit needs; notice any parallels?)

And yes, penny, thanks for the slanted history lesson. Reagan cut taxes then raised them. Bush Sr raised taxes (did you forget about him?). Clinton cut taxes (did you forget about that?). Bush Jr. cut taxes. In a multi-trillion dollar economy and staggered tax cuts, yes, his tax cuts don't have the degree of effect that you claim. They help, sure, a bit, but no where near enough to explain this economy. Like I said, in economies the size of the US and Canada, it takes a lot more to have that kind of impact, positive or negative. (Besides, your "stat" - record number didn't pay taxes - doesn't prove anything without knowing how many didn't pay last year. Did the increase outpace the growth in population? Did the spread between rich and too-poor-to-pay taxes grow? You really need to take your partisan blinders off if you are going to get into the economic analysis business, penny. That's the problem with the far right and far left: even data becomes a partisan tool to the exclusion of other data.)

Google can indeed be your friend, penny. Unfortunately, too many just use it to find information that supports their existing beliefs and far far too many Google addicts make the mistake of equating information with knowledge and understanding.

It is so gratifying to see such high quality comments on sda.

The topics on sda are many and varied. All very good, pertinet and relavent.

Periodicaly, a topic such as this is presented and very, very knowledgable people are 'up and running'. Instantly. It is as if they are 'idling' in the back ground until the proper moment comes along. And then they write with such knowledge that one's head spins.

And commenters are just a very small % of the people who are reading sda. Daily.

And, in the meantime, what is our beloved Canadian Media doing ?? Dunbing it down to a tabloid level.

No wonder the NYT, G&M et al are losing readership every year.

Ted, tax cuts or raises have some effects on economy, but do not themselves determine bust, boom, recession, bubble or depression. One of the great conceits of governments, left and right, is that they can manage the economy.

Governments can facilitate growth, or negatively distort economic activity, depending on what they do. But there are a host of other factors, far too dynamic for government to control, that ultimately determine economic trends;fiscal and monetary policy are given far too much credit or blame. People should educate themselves on this stuff, even at an intro level, because not to do so can be costly, both in terms of lost money and/or opportunity.

Shamrock: Exactly!

Ted, facts don't lie. 4% expediture on military of GDP, that's not a military economy, your words. The personal income/corporate tax rates have been historically low to the point that 42.5 million Americans paid no federal taxes, and that is overrepresented with lower income people. Or do I have to Google that one for you too? It's splitting hairs and irrelevant as to how we got there. And, what's population increase got to do with anything? They are identified and accounted for by revenue or not every tax year. Citizens must file tax returns.

You can trace the trajectory of the stockmarket, homeownership, and tax cuts pretty easily and draw your own conclusions. Life with lower taxes has been pretty good for the vast majority of Americans.

No offense, Ted, but I don't think you have a clue about economics.

ET "I wonder how much effect both the 'economic tectonic shifts' of globalization and the gradual transition from an oil based to other energy sources economy is having."

I don't imagine the latter is having any effect. Right now we're just talking about it, the only people cashing in are agribusiness which are perpetuating a big con job with biofuels.

I'm not big on economics (which strikes me as one of the more unreliable of sciences) but there's one thing that I haven't heard mentioned that bears mentioning. We're experiencing rapidly accelerating technological development. I suspect that might be more important than the nuances between one kind of political administration vs. another.

Shamrock,
I agree with your assesment regarding trends; however, I was around for NEP1. Now maybe there were additional factors at play as well (global recession?) I don't know. I was too young and to busy trying to live off of 6 billable hours a month to give a rat's...

"Governments can facilitate growth, or negatively distort economic activity, depending on what they do."

Because of my history, that to me is an understatement.

As for tax cuts, the laffer curve is just that - a curve. The effect of a tax cut/increase is entirely dependant on where you are currently. If you're out past the top peak on the curve, you increase gov't receipts by lowing taxes. The curve in effect states that (starting at tax rate zero) you increase your overall tax revenue by raising taxes up to a point. After you reach that point, the negative effect on the economy of the tax outweighs the extra tax revenue per dollar of income being taxed.

Why point this out? Cause the idea that tax cuts help the economy is based on the idea that the tax rates we have now are on the bottom right area of the curve - past the efficient maximum level. Lower taxes and you go up and to the left towards the peak. In other words, although you are taking less per dollar of national income, you are increasing the number of those dollars to the point where receipts are up. The ONLY part of the curve we should be operating on is from the peak left. This is the efficient area of the curve. Everything to the right is inefficient.

Tax cuts alone are not responsible for the current economy. But they helped. Demand and growth in the BRIC countries for raw materials have turned Canada's economy on full (too bad the gov't has hoovered up every penny of the additional income over the last two decades.)

The idea we are in a bubble is dubious at best. Prices on equities are not out of line (especially given commodity demand from the BRIC countries.) Housing is declining in the US and will hopefully garner a soft landing (and the whole system has a stake in it given the consequences of sub-prime lending and high-ratio mortgages.)

Bonds may be headed lower - especially on the long end (I believe someone mentioned Bill Gross of PIMCO. Add Don Coxe and Arnott to the list of bears on the bond side.) The curve will most likely steepen on the long end (rather than the short) and quality spreads have to increase. As for short rates, China's bankrolling of the dual trade deficits have kept the US economy rolling (and thus the rest of the world's) and has kept the US dollar artificially high and the short rates artificially low. Treasuries are discount notes that are auctioned. With China such a big buyer, they have bid up the price of treasuries (thus lowering the yields thus effecting the short rates.) The low real rates in the US have had the effect of devaluing the US dollar which should reduce the trade deficits if it continues. I also believe that the US gov't is not trying to stop the dollar devaluation to drive up US competitiveness.

Inflation is the key factor that will have to be watched. Inflation is now higher than the upper-band of the fed's target zone. If it stays there, you may get further tightening. It's creeping up here in Canada too.

That's not advice though. Only a fool trades on the words of some crank who posts on the internet. Listening to what people have to say will often cause you to lose all your money. That's especially true on the internet.

Jose,

Yes, economics is an unreliable science that uses barely understood variables studies by hacks on computers trying desperately to model the relationships between variables using computer models of dubious validity to try to predict the future and failing miserably at it.

Much like climate science.

Warwick: good points, well written.

I knew conservatives have it in them to be intelligent about the economy.

Penny: read and learn.

I can't believe you called David Suzuki a media whore.

What does that make you?