David's Macro Blog

One of the most obvious signs of the market cycle being at its peak is when new people enter the market with no experience and DO WELL.

During the stock market bubble ending in 2007/2008, Lenny Dykstra, a baseball player known for tough play but limited intelligence had become a respected financial anaylst and investment guru (even endoursed by Jim Cramer).

Naturually there was no substance to Dykstra’s investment genius, just the tail wind of a massive credit bubble and rising stock prices.

Watch these 2 segments of the Daily Show below about Dykstra’s rise and fall as an “investment guru”.

Note the spots in the video where Dykstra says that he doesn’t read books because they hurt his head and where Cramer calls him “brilliant.”

It should come as little surprise that Dykstra has now filed for bankruptcy, is multiple millions of dollars in debt, and has dozens of lawsuits filed against him.

As a side note, Lenny Dykstra was endorsed and promoted by Jim Cramer who said Dykstra is “one of the great ones in this business.” That should have been a clue that there was probably no substance. Watch Cramer on video tape admitting to manipulating stock prices: Jim Cramer on The Daily Show.

Calculated Risk also posted about this story in this post – Daily Show: Financial Guru?

What do you think? Comment below and let me know.

Historically we often think of a recession as a sharp drop in economic output followed by a sharp rise. This is called the “V-shaped” recovery. The current “Great Recession” had a sharp downturn but so far no recovery after 18 months, and most talk is of an “L-shaped” or “U-shaped” rebound.

Why is this?

There’s an excellent post on Calculated Risk blog (one of my favorites) about economic growth engines that typically pull us out of recession with a sharp upward swing in activity.

The top two economic growth engines are residential investment and personal consumption expenditures.

Since we’ve had the largest residential real estate bubble in history and massive over-consumption, both due to very loose credit, these two growth engines are NOT poised to restart economic growth anytime soon.

In fact, just the opposite is true. Any recovery will be held in check by the massively overbuilt inventory of residential real estate and the inability of consumers to tap savings and credit to purchase consumer goods at the level needed to “stimulate the economy”.

Thus, while it looks like we avoided the Great Depression II, we’ll probalby remain in the Great Recession I for some time.

What do you think? Whether you agree or disagree, please add your comment below and show me you’re alive!

The following is from Mike Morgan’s blog (12/09/2008). I agree with many of his points.

If you still believe we are at or near the bottom, please consider a few of my Key Points to support the coming Depression:

1 – Housing prices are still falling.

2 – We are nowhere close to resolving the mortgage crisis, and millions of foreclosures are coming. In turn, this means lower housing prices and, in turn, more foreclosures.

3 – Wall Street and the Banking System has still not accepted the consequences of the toxic assets they built, sold, profited from . . . and now they are stuck with. All they have done is covered them up with a thin layer of Magic Dust (taxpayer bailout money).

4 – The housing ATM is closed. And with the closing of the housing ATM, consumers have less money to spend . . . and less money to pay their mortgages with, so there will be more foreclosures.

5 -If you map out the consequences for 1, 2, 3 and 4 you quickly see that less FFM “free-funny money” means less to spend and this means more job losses throughout the system, and this means much more pain to come.

6 – Worldwide we are seeing government responses with nonsensical bailouts and “spending” programs. The sad thing is, the spending programs are not directed at making us better, but just at how we can buy more toys and treats. In fact, governments are repeating the very same mistakes made in the 1930′s. By the way, these are only the big picture issues. I could give you a hundred reasons we are headed to very dark times, but all of it stems from the housing bubble that created the toxic asset crisis, and until we detox, the pain will get worse. This is no different than a drug addict. All we are doing now is feeding the drug addict and making matters worse . . . just like we did in the 1930′s. And just like a drug addict must go through a horrible physical detox, so must the world.

Business/Economy

• Marc Andreessen on Charlie Rose (Possibly the best Charlie Rose interview I have watched! – hat tip Alan Sun)
• Inside the Meltdown on PBS (A clear description of the financial crisis on Wall Street in 2008)
• Geithner Plan I (by Khan Academy)

Dance

• WCS – Jason & Tat (Very interesting soft song; J&J of course)

Misc

• Scuba cat? (American ingenuity or wasted GDP…you decide)
• Even Cuter Kitten Video!
• How to know you are shopping in Texas

Here’s a blog post by Reggie Middleton (one of my favorite bloggers) on BoomBustBlog:
http://boombustblog.com/20090301853/Banking-out-of-Control.html

It is a bit dense but contains a clear description of the problem of an economy that is based on debt, fractional reserve banking, and fiat currency.

Here are my observations:

• The current financial crisis is NOT a liquidity crisis but a solvency crisis.
• The crisis is built into the system; i.e. it was bound to happen at some point due to escalating debt relative to savings.
• The current political leaders are NOT solving the root problems but bailing out their Wall Street friends and donors.

In summary, the system will collapse due to debt that cannot be repaid.

My hope is for serious monetary reform in the U.S. starting with an END to:

• Debt-based money
• The Federal Reserve
• The bubble economy
• “Financial engineering” (as opposed to real productivity) consuming the “best and brightest” minds

Unfortunately, we have just the opposite system. Until the system changes we are slaves to our monetary masters.

President Abraham Lincoln said it best over 200 years ago:

“The Government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the Government and the buying power of consumers.”

“The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity.”

“By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.”