Yesterday, we sat in front of the fire. Electricity was out in the hotel. All we could do was to keep the fire going and stay close to it. Alas, the firewood was a little green. It absorbed most of the heat rather than projecting it into the room.
In the hotel, we got to know the other refugees. It turned out that many were from Baltimore… and some were friends of our friends. So, the atmosphere was convivial, if not actually warm.
This morning, the power is still off. It’s hard to write because our hands are so cold!
But we continue to report on the markets… however briefly!
The Dow rose yesterday – 64 points. Gold rose to over $1,300 an ounce.
What is amazing about the world improvers is that they never bother to figure out how the world works. It is as though they weren’t interested. Instead, they just want to control it… to force it in one direction or another… and to mold it, as if it were wet mud.
Take David Brooks in the New York Times. He reckons the US isn’t the country it used to be:
[A]mericans have become steadily less mobile. In 1950, 20% of Americans moved in a given year. Now, it’s around 12%. In the 1950s and 1960s, people lived in the same house for an average of five years; now people live in the same house for an average of 8.6 years. When it comes to geographic mobility, we are now at historic lows, no more mobile than people in Denmark or Finland.
Is that a bad thing? Is stability something that needs to be corrected? Brooks thinks so.
[T]oday’s young people are much less mobile than young people from earlier generations. Between the 1980s and the 2000s alone, mobility among young adults dropped by 41%.
[A] big factor here is a loss in self-confidence. It takes faith to move. You are putting yourself through temporary expense and hardship because you have faith that over the long run you will slingshot forward. Many highly educated people, who are still moving in high numbers, have that long-term faith. Less-educated people often do not.
This loss of faith is evident in other areas of life. Fertility rates, a good marker of confidence, are down. Even accounting for cyclical changes, people are less likely to voluntarily vacate a job in search of a better one. Only 46% of white Americans believe they have a good chance of improving their standard of living, the lowest levels in the history of the General Social Survey.
Peter Beinart wrote a fascinating piece for National Journal, arguing that Americans used to have much more faith in capitalism, a classless society, America’s role in the world and organized religion than people from Europe. But now American attitudes resemble European attitudes, and when you just look at young people, American exceptionalism is basically gone.
Now, fewer young Americans believe in capitalism than young Europeans.
Who would have thought?
What is really going on? Are mobility and appreciation for free enterprise parts of the same thing? Or are they different things? Is the loss of mobility really a bad thing?
Brooks doesn’t even ask. Instead, he just comes up with a crackpot solution: Give people vouchers to help them move!
We won’t grace that suggestion with a discussion. It is self-evidently absurd and ridiculous.
Do Markets Face a Freddy Krueger-Like Nightmare?
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
While Bill has been holed up in his hotel in Aiken, South Carolina, our thoughts have turned to places further afield…
Namely the emerging markets, where Bill and I remain bullish despite recent turbulence.
Money has been fleeing emerging market stock and bond markets of late. Currencies have been falling. And the mood has been darkening.
One concern, often articulated by pundits, is that emerging markets are about to see a repeat of the 1997-98 Asian crisis, which started with the cutting of the Thai baht’s peg to the US dollar… and raised fears of a worldwide economic meltdown.
Most vocal is SocGen’s uber-bearish strategist Albert Edwards, who is predicting a global recession… with equity valuations dropping to generational lows as a result. Says Edwards:
The ongoing emerging market debacle will be less contained than subprime ultimately proved to be […] a Freddy Krueger-like nightmare.
We are sympathetic to the bearish argument in general. Global QE has helped revive animal spirits and boost asset prices… and profit margins. Without it, nobody knows how stock prices will react.
But that doesn’t mean Edwards is right about his call of another serious financial contagion emanating from the emerging markets like at the end of the 1990s.
Back then Asian economies had huge fiscal and current account deficits (which causes borrowing in foreign currencies to rise)… insufficient foreign-exchange reserves (to help cope with any crisis that might arise)… and currencies pegged to the US dollar.
But as you can see from the chart above, today the median current account deficit for the emerging markets is 1.1%, compared with 2.9% in 1997-98. Median foreign currency debt is 25% of GDP, as opposed to 40% of GDP in 1997-98. And median foreign exchange reserves are about 50% of total external debt – or about double what they were in 1997-98.
Another telltale sign that Freddy’s nightmare may not be upon us is that there is no big capital flight into the “safe haven” Treasurys. Nor have we seen the bottom fall out of the commodities market – which has actually been strengthening, not weakening, of late.
Keep an eye on valuations in the emerging markets. A repeat of the Asian financial crisis is not impossible (nothing is). But 2013-14 doesn’t look as much like 1997-98 as it appears at first glance.