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Common Sense Party Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Jul-22-08 11:45 PM
Original message
The World Will Not End - Take a Deep Breath
By John Mauldin

Take a Deep Breath

It is easy to find bad news these days, and the torrent that seems to keep coming can ruin a person's summer (or winter, for my southern hemisphere readers). The credit crisis, as noted last week, is nowhere near an end. Housing, as we will see, is actually getting worse. Foreclosures, auctions, government bailouts, higher taxes, inflation, the price of energy and food - the list goes on and on.

I thought, since so many think of me as a rather bearish person, I would show you my more optimistic side. Yes, I am bearish in the short term, for reasons I have documented at length in this letter. But long-term I am a wild-eyed optimist.

With all the negative news thrown at us today, why is the United States not in the midst of a deep recession? How, many of you ask, can I be so sanguine as to suggest a milder recession and a Muddle Through Economy?

First, things are somewhat different now than in the '70s and early '80s. Back then, a great deal of the US and developed world economies and their resulting employment were linked to manufacturing, which was largely geared to domestic sales. Exports were a much smaller part of the economy for most businesses. When the economy and consumption slowed down, manufacturers laid employees off rather rapidly. Unemployment would soar and a V-shaped recession would occur.

Now, the number of people employed in manufacturing is less in percentage terms than it was back then, and more of what is produced in the developed world is bought by a growing developing world. Exports from the US are booming. The number of TEUs (the large containers on ships: Twenty-foot Equivalent Units) moving through the ports of Los Angeles and Long Beach is up 23% in May year over year and up 26% since the beginning of the year. Because of the weak dollar, imports are down by 7% year to date. It is export growth that is keeping the US from sliding into the usual deep recession.

So, not only is manufacturing not down as in usual cycles, it is up quite handsomely for many products, except of course for automobiles, which are not just in a recession but facing a depression. But that growth in exports is keeping unemployment from going to 9%.

But let's take a longer-term outlook. My view has been, and is, that we are in for a period of very tepid growth that will last through at least 2009. We have to work our way through the after effects of the twin bubbles of housing and the credit crisis bursting. There is no magic Fed wand. That simply takes time. No (rational) government or Fed policy is going to change the facts on the ground (although they can make things worse). But, in the fullness of time, we will in fact get through this.

If you look back over the decades, things are getting better. Goldman Sachs estimates about 70 million people a year worldwide are entering the "middle class" and that by 2030 two billion people will be in a far better condition than the poverty they experience today. That will also keep demand steady for all sorts of products and services produced in the developed world, even as our population (except for the US) declines.

The old joke is that a recession is when your neighbor loses his job and a depression is when you lose yours. And a rise in unemployment and lower corporate profits are no laughing matter. But the simple trend is that we will adjust and free markets in America and the world will grow, as they have always done.

My daughter and business partner Tiffani is getting married in three weeks on 08-08-08. Next year there will be 2.3 million weddings in the US, at an average cost of $30,000 (we have helped increase the average this year considerably). That is $72 billion on weddings. And many of those new families start with the need to find a place to live, furnish a home, and build their nest.

Tiffani and her fiance are an example. They have bought a home at a pretty good price in an older neighborhood that is fast becoming trendy, as there are a lot of wonderful restorations and teardowns. They have lived rather simply and find they "need" all sorts of items to make their house a home. Each day sees another delivery of gifts from their registry and a smile on her face.

(Sidebar: When I first got married I seem to remember getting three toasters and not a lot of other things we needed. Now, couples register online for what they need and want, and when an item is bought it is taken off the list. How cool is that?)

Last year a record 4.3 million babies were born in the US. Each of them will need all sorts of "stuff" - food, education, and places to live - in (hopefully) 20-25 years.

Yes, consumers are cutting back, but they are still buying the basics. (See more below.) Manufacturing in the US is starting to make a comeback, with the lower dollar and management driven to compete globally. In free-market economies, every economic slowdown is followed by a period of solid growth driven by innovation. The point is that life goes on. Births, weddings, eating, living and enjoying friends and family. It is all part of the cycle.

The next 20 years are going to see the most powerful wave of technologically driven growth the world has ever seen. The accelerating pace of technological change did not slow down last century through multiple world wars, scores of "minor" wars, a depression, all sorts of natural disasters, and an unbelievable amount of government folly. Why should that trend stop now?

As we add two billion people to the middle class, we are also going to bring the internet to even billions more. The explosion in information and creativity that we have seen in the last 20 years will double and double again. A small percentage of those people are going to invent amazing new technologies, new drugs, and create companies that will make life better for all of us.

That is one reason that technological growth will continue to accelerate. We will simply be throwing more people at an ever wider array of problems, and they will be able to share their discoveries at the speed of light.

We are on the verge of a revolution in biotechnology that is going to truly revolutionize medicine. No one in 20 years will look back on today as the good old days. And it will probably create yet another stock market bubble, but that is a story for another letter.

US diplomats are talking to Iran. Iraq may actually work out. In most places of the world, most people are better off today than they were 20 years ago. There is still a lot of progress to be made, but the point is that we are making it. There is a ton of opportunity for those prepared to look for it. It may not be in the usual places, it may not be where we would like it to be, but it is there. World GDP will have roughly doubled (or more) by the end of the next decade.

Yes, I know there are a lot of problems. Really big scary ones. I write about a lot of them all the time. But go back to any year ending in 8 for the last 100 years. When were there not problems? And in most times and places, the problems were bigger. And in the next ten years? There will be lots of problems. Some will be the same old problems and some will be new. I am not certain why mankind seems to have a need to find new ways to create mischief and lose money when the old ways work so well. But those too will pass.

So, when you read about current problems - and I will point some out in the next few pages - just remember that things will work out. Markets will adjust, and the world will be a better place. Things will work out better for you as an individual if you anticipate the problems and make the proper adjustments, as much as possible, in advance.

The next 20 years are going to be the most exciting time that the human race has experienced. Yes, there will be issues, but we will adjust. That is what we do. And now, let's look at some of the adjustments going on in the markets.

More here: http://www.investorsinsight.com/blogs/thoughts_from_the...
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Rosa Luxemburg Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Jul-22-08 11:50 PM
Response to Original message
1. providing we all don't get Bird Flu or some other thing!
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Common Sense Party Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Jul-22-08 11:58 PM
Response to Reply #1
2. It's always something...if it's not one thing, it's another.
What's all this I hear about Endangered Feces?


/ end Emily Litella
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DCKit Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 07:40 AM
Response to Reply #2
10. Ouch!! That was Roseanne Roseannadanna, I think.
Emily Litella was (nearly) autistic. Roseanne was a motormouth. Gilda Radner was brilliant and I miss her.
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Common Sense Party Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jul-24-08 10:55 PM
Response to Reply #10
14. Oh! That's right.
Never mind.
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Speck Tater Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 12:07 AM
Response to Original message
3. A Bright Future ... IF ...
we can manage to find replacements for fossil fuels, and for petrochemical feed stocks.
If ...
we can find significant new sources of strategic metals.
If ...
we can clean up all the pollution in the ocean before we kill the whole ocean.
If ...
we can clean up the atmosphere before global warming ruins our climate and raises sea level far enough to flood major coastal cities like New York, London, ... etc.

Too many economists just ignore the fact of resource depletion and growing pollution and climate change.

To much is based on historical performance of the economy, which no longer holds true when historical conditions no longer apply and cannot be sustained.
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Mojorabbit Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 12:35 AM
Response to Reply #3
4. My first thought was climate change
and oil. If the population doubles with dwindling resources I don't think his optimistic scenario will play out ....unless the world does an about face which I don't see happening.
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Trillo Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 01:09 AM
Response to Original message
5. This is all I could find on the building-code change
Soaring apartment construction:
online.wsj.com/public/article/SB121629654689661783.html?mod=2_1577_leftbox

An article on drafting the new building codes:
gothamgazette.com/print/2181
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Trajan Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 01:42 AM
Response to Original message
6. We have been adjusting ....
Edited on Wed Jul-23-08 01:46 AM by Trajan
We get less .... they get more ....

It is part of how we got here .....

We see no increase in the Middle Class here .. in fact, we have been under duress for over 30 years now ....

I am not buying the rosy worldview ..... Yes: There will always be the hyenas awaiting when the old lioness stumbles and falls .... with those weary bones unable to flail any longer as the pack tears in for their morsels ....

The hyenas will lick their paws and preen afterwards .... the lioness will be no more ....

Shrugs ..... Even a mild optimist like myself sees dark days ahead, but that doesnt mean Carl Icahn will feel my pain ..... He will be buying my tired carcass to make candles and lampshades to sell to the sycophants of the Chinese politburo .... They will be shipped in those same shipping containers ....

It will be Malaysians making the candles and lampshades ... at 50 cents a day ....

It is a strawman to presume the 'end of the world' is the message of the downtrodden .... It is not the end of the world: But it is the end of the long upturn in the fortunes of common American families that has run it's course since the Great Depression .... That run is over ...

But hey: If you're happy, then what else matters ?
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northernlights Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 05:23 AM
Response to Original message
7. the problem with economists
they see everything in terms of GDP, as if nothing else in life exists, let alone matters.

A few 10s of millions of new "middle class" worldwide. With the world population growing by how many billions?

Earth is not a limitless resource, nor is it a limitless "landfill" for the toxins we spew in increasing amounts every day. Potable water is not a limitless resource. Arable land is not a limitless resource. Breathable air is not a limitless resource. Fish are not a limitless resource.

Earth is overdue for some serious pruning. Just when the rethugs want to make contraception illegal. :eyes:
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Karl_Bonner_1982 Donating Member (701 posts) Send PM | Profile | Ignore Sat Jul-26-08 07:32 AM
Response to Reply #7
20. Not all economists!
There are steady-state theories out there, as well as a measure called the Net Green Product, in which resource depletion and pollution are counted as liabilities in the output accounts.
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ixion Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 06:52 AM
Response to Original message
8. I find it difficult to share his optimism
and the whole "yeah, it's bad, but not that bad" mantra is a Panglossian ideal and thus very dangerous. To write what is now coming down the pike as just another bump in the road is to greatly underestimate the issues at hand. The money that our government has borrowed (and continues to borrow) has put each and every citizen in debt for around half-a-million bucks. That's right off the top.

Will we get through this? Chances are, yes, we will. Is it going to be pretty or even mild? In my opinion, no, it is not. We're in uncharted territory in the midst of a raging torrent. Where we'll wind up is anybody's guess.

Personally, I prepare for the worst and hope for the best.
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sendero Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 07:01 AM
Response to Original message
9. For a solid year now..
Edited on Wed Jul-23-08 07:08 AM by sendero
... I've read article after article like this, talking about how the dangers are overblown, how everything is fundamentally sound, etc, etc, etc.

These people were wrong then and they are wrong now. The banking system is currently operating on BORROWED RESERVES. That's right, the "fraction" in their fractional reserve is NEGATIVE.

Thousands of banks are still seriously exposed to the housing debacle. It's not just mortgages, its HELOCS that will be absolutely valueless and uncollectible as "second" mortgages when there is not even enough equity in the house to pay off the first.

They are exposed to credit card debt, as more and more people use their credit cards to survive and then simply cannot pay them off.

The housing crash hasn't even bottomed yet. Foreclosures are up, prices are down. Some rosy scenario.

I suppose on some level some "journalists" see it as their job to try to calm panic and reassure the proles. Funny that none of them see a high minded duty to point out that the country is about to engage in a pointless, expensive, and intractible war.

But make no mistake, the financial sector in this country is hanging by a thread. And the happy/sad thing about it is that when it falls off the cliff, We The Taxpayers are going to pick up the tab for the fraud, malfeasance and stupidity that has made these same banks and their jackass execs billions upon billions of now spent dollars.


More things to consider on edit:

The FDIC has 35 billion dollars to make their insurance good. Should just a few more banks fail, that will be used up. Treasury will have to create the money from that day forward, because pretty much everyone agrees that the guarantee of $100K etc must be maintained.

Yesterday, the CBO announced that it would only take $25 billion to backstop Fannie Mae and Freddie Mac. Most folks whose opinion I value laugh out loud at that number, saying it could easily be 10 or even 20 times that. This is more "camel's nose in the tent" bullshit, they will allocate 25 billion, and then 25 billion more and so on, as if cutting off your fingers one at a time is somehow better than cutting them off all at once.

Congress how no clue what to do, but you can bet that there will be lots and lots of bailouts and that you will pay the bill. Bon appetit.
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lib2DaBone Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 11:30 PM
Response to Original message
11. Quotes from 1929....
September 1929
"There is no cause to worry. The high tide of prosperity will continue." Andrew W. Mellon, Secretary of the Treasury.

October 14, 1929
"Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board." New York Times

December 5, 1929
"The Government's business is in sound condition." Andrew W. Mellon, Secretary of the Treasury

December 28, 1929
"Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression." Associated Press dispatch.

January 13, 1930
"Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today." - News item.

January 21, 1930
"Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction." - News dispatch from Washington.

January 24, 1930
"Trade recovery now complete President told. Business survey conference reports industry has progressed by own power. No Stimulants Needed! Progress in all lines by the early spring forecast." - New York Herald Tribune.

March 8, 1930
"President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days." - Washington Dispatch.

May 1, 1930
"While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity." - President Hoover

June 29, 1930
"The worst is over without a doubt." - James J. Davis, Secretary of Labor.

August 29, 1930
"American labor may now look to the future with confidence." - James J. Davis, Secretary of Labor.

September 12, 1930
"We have hit bottom and are on the upswing." - James J. Davis, Secretary of Labor.

October 16, 1930
"Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment." - Charles M. Schwab.

October 20, 1930
"President Hoover today designated Robert W. Lamont, Secretary of Commerce, as chairman of the President's special committee on unemployment." - Washington dispatch.

October 21, 1930
"President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter." - Washington Dispatch

November 1930
"I see no reason why 1931 should not be an extremely good year." - Alfred P. Sloan, Jr., General Motors Co.

January 20, 1931
"The country is not in good condition." - Calvin Coolidge.

June 9, 1931
"The depression has ended." - Dr. Julius Klein, Assistant Secretary of Commerce.

http://www.safehaven.com/article-7107.htm
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whatchamacallit Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jul-23-08 11:50 PM
Response to Reply #11
12. Wow, Deja Vu all over again (nt)
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MullenBank Donating Member (141 posts) Send PM | Profile | Ignore Thu Jul-24-08 06:59 AM
Response to Original message
13. well stated.
Shit I remember looking for work during the Carter and Reagan (well the first one anyway) administrations. Way tougher then. I remember being a kid when the population bomb came out-- how off was that guy..

Anyway, point being is there is tremendous opportunity out there both to do good works and/or make an assload of money. I'm not ready to pull over and wait for death.


Gotta go-- money/ fun /adventure/ school/ career/ struggle/ calling. Don't wanna miss a minute.
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sendero Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Jul-25-08 07:24 AM
Response to Reply #13
15. Facing and preparing for...
... reality has nothing to do with pulling over and waiting for death.

Denial is not just a river in Egypt, it's the state people go in to when they cannot face reality.

In the second quarter of this year foreclosures MORE THAN DOUBLED year over year.

Yeah, everything is coming up roses.
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MullenBank Donating Member (141 posts) Send PM | Profile | Ignore Fri Jul-25-08 07:32 PM
Response to Reply #15
16. I thank you
for replying. We see things differently, I think. Perhaps not. I observe people succeeding despite adversity. In fact it appears to me that many more are doing well than not-- remember that I am old enough to have endured Jimmy Carter-- and that there are ample opportunities to do well or reinvent yourself and then do well. In the meantime I cultivate a sense of humor and console myself with the knowledge that I can always sleep when I'm dead. Thank you for reading. Chin up.
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whatchamacallit Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-26-08 12:07 AM
Response to Reply #16
17. "not old enough to have *endured* Jimmy Carter"?
Hm... somehow that doesn't seem like something a progressive would ever say. Have a pleasant stay.
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MullenBank Donating Member (141 posts) Send PM | Profile | Ignore Sat Jul-26-08 07:09 AM
Response to Reply #17
18. Ya Know
I love ppl who WERENT THERE.

I got nothing against Mr. Carter-- Naval Academy grad, nuclear engineer on a missile boat, public servant... and he has done good work for HfH. It's noble. Fact is tho if you were a recent grad (or about to be, like me back then) that was a terrible time to be entering the workforce. Unemployment at 8%, mtg interest rates above 15% and a generally shitty funk had settled over the nation.

I'm a liberal, WTF is a progressive? Is that newspeak for liberal? Then use liberal. Or is progressive some subspecies of liberal--- like an uber liberal.



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Karl_Bonner_1982 Donating Member (701 posts) Send PM | Profile | Ignore Sat Jul-26-08 07:29 AM
Response to Original message
19. If we solve our sustainability and inequality problems, then I tend to agree
The key is the above two things. If middle class incomes continue to stagnate then we're in trouble. If we continue to deplete oil without developing new energy we're screwed. And if we don't take an aggressive move to curb climate change....I don't think I want to think about that outcome.
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