I intentionally gave this post the same name as the one The Big Picture's Barry Ritholtz put up on Saturday November 27, 2010. If a Google search turns up his story, maybe mine will appear as well. Once again, Barry has published his customary optimistic crap. However, my intention is not just to trash Ritholtz, as pleasurable as that is to do, but to also make some important points along the way.
Tom Petruno of the Los Angeles Times published a column Still betting on economic doomsday — and still waiting in which he liberally quoted Ritholtz. Always on the alert for an opportunity for self-promotion, Barry quotes Petruno quoting him—
In today’s LA Times, Tom Petruno looks at the Zombie Bears: Still betting on economic doomsday — and still waiting. (I have a few choice words in it).
Despite the U.S. economy growing (5 Qs in a row), improving data, and a stock market making two-year highs, to some people, things are still bad and getting worse:
“On the Internet, there is an army of people who will immediately and bitterly dispute anything they read suggesting that 1) the U.S. recovery is real or 2) the global financial system has any hope of avoiding another meltdown.
Barry Ritholtz, head of investment research firm Fusion IQ in New York, calls these folks the “zombie bears.”
“They will not admit the economy is getting better, albeit slowly,” Ritholtz wrote this week on his widely read economics and markets blog, The Big Picture. “They insist the recession was a depression; they insist it never ended. These are the bears who cannot be killed. They will stay bearish, regardless of the data that all but insists otherwise.”
That ought to sting coming from Ritholtz because he was a hero to the bear camp heading into the 2008 financial and economic crash. He had predicted a severe comeuppance after the nation’s long debt binge, and we got it.
But by the time the stock market hit its low point in March 2009, “We already had a massive crisis and collapse, so the worst of what came before was already reflected in equity prices and trader psychology,” Ritholtz said. It was time to reassess.
By refusing to believe that a recovery would follow, the zombie bears have sat out a 70% rebound in the Dow Jones industrial average from its 2009 low — and far bigger gains in many foreign markets.
Dave here, your Zombie Bear. Let's get back to reality. First of all, Barry is basically a successful trader who does his own research, so he sees the world through a winning gambler's eyes. Fusion IQ finds tomorrow's market winners today. No doubt Ritholtz is tweaking those who did not trust the phony rally in the phony stock market. The Bears missed the latest now-you-see-it-now-you-don't bubble because of that mistrust. These zombies thought (and still think) that underlying fundamentals in the economy—for example, the household debt mountain—did not justify a big "rally" in the stock market. They obviously lack Barry's considerable trading acumen, which emanates from Barry's considerable Ego.
But Ritholtz's claims do not apply just to the stock market, for he knows the economy is getting better, albeit slowly. We pessimists seem to have missed this obvious trend. Never one to question the official data the government hands him, Barry no doubt missed my post GDP Is Almost Worthless, in which I cited BEA data that shows that without entitlements spending on Medicare and Medicaid and some other BEA phony baloney, spending by American households would still be 0.6% below it pre-recession peak in the 4th quarter of 2007. But let's not forget—the recession is over! My bad.
Beyond Barry's choice words about our inevitable recovery, Tom Petruno did remember to write some other stuff and quote some other people, to wit—
In any other economic recovery, setting a 2 1/2-year low in weekly unemployment claims would have been unequivocally good news.
But in this recovery, many Americans take upbeat data like the latest report on new jobless-benefit filings with a truckload of salt. Or reject it entirely.
After all, they say, how can we believe anything the government tells us?This certainly doesn't feel like a recovery to most people. The U.S. economy has grown for five straight quarters, but a CNN/Opinion Research poll in late September showed that 74% of Americans thought the recession still hadn't ended.
So what if the stock market hit two-year highs this month? Isn't trusting the market only slightly dumber than trusting government statistics?
Well, OK—it's hard to say which is dumber, trusting the phony stock market or trusting phony government statistics. Why in hell would Main Street Americans believe government pronouncements that say things are getting better when their own two eyes tell a different story? And of course most ordinary Americans—so-called retail investors, otherwise known to Wall Street as suckers—had the good sense to get out of the stock market a long time ago.
We should always remember that there are two economies in the United States, the one we live in (aka. the Real Economy) and the one Barry lives in (aka. the Money World, and look at this follow-up). This latter economy, which includes the Wall Street Banks, hedge funds, various trading firms and the like, is doing just fine—thank you very much Mr. Geithner! The Real Economy is still foundering—this certainly doesn't feel like a recovery to most people. In fact, it doesn't feel like a recovery to 74% of the people.
Speaking of two economies, here is Petruno describing the Zombie Bear position—
The psychologically unsatisfying reality is that the Great Recession has further bifurcated the economy. Most people still are working, yet for many it will be a long time before they get another job, if they ever do. Many companies are more efficient than ever and are sitting on mounds of cash, but their success often is overshadowed by stories of other businesses hanging on by a shoestring.
The question, then, is whether the "haves" can offset the "have-nots" to a great enough degree to keep the recovery going.
This is where the zombie bears concede nothing to the economic optimists.
The recovery is a sham, the bears say, because the global economy's dive in 2008 and early 2009 was halted by massive financial intervention by governments and central banks worldwide: unprecedented money-printing and rock-bottom interest rates.
Petruno provides a pretty good summary here, but I would like to emphasize that once it is a question of whether the "haves" can offset the "have-nots" to some great degree to keep the "recovery" going, you "have-nots" should know that you are already toast. If you, like Blanche Dubois in A Streetcar Named Desire, must now always depend upon the kindness of wealthy strangers to feed and clothe your children, you might as well throw in the towel right now, you might as well resign yourself to a lifetime of indentured debt slavery. Yassa' boss! I be taking dat leftover corn-pone! Gonna feeds da chillen.
Of course, Barry Ritholtz doesn't have this problem. He no doubt gets lots of corn-pone, and that's where his opinions come from. Perhaps he would like to share the Good News on the economy with each of the 50 million Americans living in poverty.
Here's Petruno quoting analyst John Hussman, who, unlike Ritholtz, actually knows what he's talking about—
"The worries about things falling apart stem from the sense that we haven't really fixed anything," said John Hussman, an economics PhD who heads the $9-billion Hussman Funds in Maryland.
That's right! I am fond of sending you this message on DOTE: we haven't really fixed anything. And it seems that as the Empire declines, the elites that run this immoral mess we call America are so corrupt that they are perfectly incapable of instigating some healthy, meaningful change. Thus we can expect more and more of the same inequitable stuff that got us to this sad state. As New York Times columnist Bob Herbert said, all we are good at in this country is bulldozing money to the very wealthy.
There is one final point I need to make. Here's Barry talking about his own psychological genius—
I spoke with the reporter about the recency effect, about how people’s views are disproportionately shaped not by long term trends, but by what occurred most recently:
“It’s human nature to see our present situation, and the future, through the prism of our recent experiences. After living through what was (or is) for many people the worst economic nightmare of their lives, it’s not surprising that we’re now constantly looking over our shoulders, fearful that another crisis is imminent.”
Well, let's see—how recent is recent? Ritholtz's view is based on some very recent (albeit phony) data pointing to a "statistical" recovery in the economy he lives in (but not in the one we live in). I'm sure Barry lost some money when the financial system melted down, but now he's feeling no pain. But his real view is based on modern-day historical experience suggesting that economies always seem to fix themselves—it happens automatically, like breathing. Thus there is nothing special about our historical situation. Ritholtz has Faith. Progess is inexorable. Progress is the ultimate Free Lunch. Nothing can change this outcome.
I demolished this naive position in The Law Of Civilization And Decay and Economists—The High Priests Of Progress. Perhaps we should embrace an historical view that isn't measured in decades, but rather a view that encompasses many hundreds (if not thousands) of years. Empires rise, wield their awesome power, and finally they Decline & Fall. America's decline started almost 30 years ago.
But I seriously doubt that Barry Ritholtz has read Edward Gibbon, who regarded history as "little more than the register of the crimes, follies and misfortunes of mankind," or any other historian who documented the life cycle of human civilizations. Needless to say, the United States will not be an exception to the usual rule, despite what Barry Ritholtz believes. You don't learn much about history finding market winners or trading stocks and bonds.
So, yes, I am a Zombie Bear, and proud of it. Am I waiting for the End of the World? Not at all—it's already arrived! I guess you could say that I'm waiting for the End of the End
*****The worries about things falling apart stem from the sense that we haven't really fixed anything******
See, therein lays the rub for me. I don't want to fix this Beast. I don't think it needs mending. I think it is functioning exactly as intended and is achieving its intended purpose and conclusion.
The only way out is to starve the Beast. We have to develop a robust informal economy and sidestep the Beast. Easier said than done, I know, but it's our only chance. Just ask Teodor Shanin:
http://www.mail-archive.com/[email protected]/msg04564.html
"Researchers began to notice that there was no economic
explanation for how the majority of the population survived. They
didn't own land. They didn't seem to have any assets. According to
conventional economics they should have died of hunger long ago,
but they survived. To understand this, researchers looked at how
these people actually lived, rather than at economic models."
"[The peasant's] way of life was completely the opposite of how a
human being in an industrial society survives. They didn't have a
job, pension, steady place to work or regular flow of income...
Their aim was survival rather than the maximisation of profit."
"[In the former S.U.] there are no signs of mass hunger and the
services by and large have not collapsed. Considering the chaos of
the formal economy, this is remarkable. Teachers still go to teach
and scientists go to their laboratories even though they may not
have been paid for six months. Under normal economic rules, there
is no explanation for this. Why would they go? The answer is that
their 'jobs' help maintain social and family networks that allow
them to survive outside the collapsed formal economy. They might
grow vegetables in the institute gardens, use laboratory equipment
or run their own small businesses, run taxi services with company
cars or just trade in skills and goods among their fellow workers.
Sociologists can understand this, economists cannot."
"We find in the former Soviet economies that while officials are
trying to privatise the economy, most people are living in the
informal economy that is neither communist nor capitalist... [T]he
peasants survived not through socialism, but through the informal
economy."
Posted by: Morocco Bama | 11/30/2010 at 07:19 PM