Hi rrufff,
<<We're not necessarily in a bull market.>>
Point well taken, even if it is a bit tongue-in-cheek! My only meaning there was this:
139.142.147.218
But, to put the above into perspective, note the long-term monthly chart with the same regression channel limits, and you'll see why my long-term outlook is that the indexes have decades before they can expect to see the highs of 2000 again:
139.142.147.218
<<The macro picture is very difficult to predict. Inter-action of currency rates, political flows of money, make traditional predictions for interest rates and economic growth even less reliable than they were 10 years ago.>>
Yes, the macro picture is difficult to predict. As for the rest, I disagree. Fluctuations in interest rates and exchange rates are highly hedged and therefore risk-managed these days with the widespread use of numerous derivatives that have developed such as swaptions, quantos, and the like. So risk from volatilities in interest rates and currency exhange rates is not nearly as much a concern as it once was.
I think we have evolved an artificial and temporary interest rate environment, and that piece sums up some major reasons. First, interest rates have in recent years reached historic and unsustainable lows. The obvious prediction is a regression back to normal (i.e., mean) values. That has not happened, because the credit markets have been unduly influenced on the supply side. That is, interest rates in treasuries have been held down because of excessive supply that has even outpaced rising demand. The excessive supply, in turn, is a direct function of fiduciary policy, i.e., excessive spending on a financed basis. In short, we are printing unusually heavy amounts of loans for ourselves in the form of treasuries. Whatever one thinks about the war in Iraq, it is certainly crushingly expensive, and has almost entirely not been paid for. Instead, it has been financed, at a cost of course.
This is but one example of a general policy that in my view can be considered responsible only in the short term; it is unsustainable. You cannot borrow indefinitely, just as your credit card limits and lines of credit have some finite maximum. As you approach that maximum, your own creditworthiness becomes suspect, because it is obvious you have painted yourself into a financial corner. Unless there is compelling reasons making it clear that there will soon be some quantum leap in your financial situation, further extension of credit will become increasingly difficult and increasingly expensive.
In other words, in my view yes, you can spend like there's no tomorrow, and run up a tab like you're Bill Gate$. The only problem arises if there is a tomorrow. If so, then you can bet your situation tomorrow will hardly be as rosy as today's. The only exception to this rule is where borrowing is used to finance things that can produce an economic return that is greater than their cost; for example, investing in infrastructure, or development of people, both of which are resources that can greatly add to the GDP and its growth rate.
Rhetoric aside, there is zero real incentive to cut government spending; the "cuts" in most government spending really amount to a shifting of spending, creative bookkeeping if you will. To me, cutting government spending is like the old adage, "everybody talks about the weather, but nobody does anything about it". I don't think there's been a single administration ever that has not talked about cutting spending. The only ones who actually have cut spending are those who have been forced to because of economic downturns, recessions, depressions, and the like which have sharply curbed government income. And even there, excessive spending can and often is maintained via the credit markets.
I don't think any administration will willingly cut spending significantly. They spend as much as they can, although it is accompanied by differing rhetoric and the money is spent in different ways. That problem can only be "solved" not by any internal discipline (this will never be sufficient), but by external forces dictating economic change.
The only hope is for adoption of responsible limits on borrowing; we can never hope to find the Fountain of Youth or for responsible limits on spending because every administration knows it need only consider the short-term. So the definition of "responsible" only extends 4 to 8 years.
T |
