Hyde Park Blvd

How do we perceive art?  How do we value art? In case you missed the original, Pulitizer-prize winning article, it’s all here in the Washington Post’s piece by Gene Weingarten.

David Rosenberg, he of Gluskin Sheff, checks in, a bitter wind from the North:

Never in recorded history has growth coming out of a string of declines been as weak as what we just witnessed. Considering all the government efforts to usher in a V-shaped recovery, what we saw unfold in the real economy in Q3 – admittedly quite divorced from the action in financial markets – was, in a word, sad.

Via Clusterflock.

On the WSJ blog, Raghuram Rajan makes sense, which seems increasingly unusual in this difficult period:

The question is how you get the benefits without the excess volatility that’s now in the system. I think that’s what we will tackle over the years. We are going to question whether we need a better safety net, we are going to question whether finance should be as risky as it has been.

We may well want to choose more safety and less risk, but we should go into it with open eyes. We can’t have the dynamism and at the same time expect a lot more security.

David Rosenberg, he of Gluskin Sheff in Toronto, opines on US unemployment and the likelihood that 12% is not impossible, that structural problems may be around for a while:

Think about it. We haven’t yet hit bottom on employment but that will happen at some point. Employment is not going to zero, of that we can assure you. But when we do start to see the economic clouds part in a more decisive fashion, what are employers likely to do first? Well, naturally they will begin to boost the workweek and just getting back to pre-recession levels would be the same as hiring more than two million people. Then there are the record number of people who got furloughed into part-time work and again, they total over nine million, and these folks are not counted as unemployed even if they are working considerably fewer days than they were before the credit crunch began.

So the business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed or the typical 100,000-125,000 new entrants into the labour force when the economy turns the corner. Hence the unemployment rate is going to very likely be making new highs long after the recession is over — perhaps even years.

David Rosenberg of Gluskin Sheff provides an interesting picture of life across the border, and just how much different the economic mess looks from Toronto:

If there is one thing that Canadians are never happy with (in addition to their local hockey team) it is the Canadian dollar. When it was flirting near that record low of 62 cents nearly a decade ago, everyone lamented the future of the Loonie and closer ties to the U.S. were being recommended from various corners of Bay Street. It was too expensive to buy anything that was imported, it was too costly to make that annual trip to Florida, and tickets to a Broadway play were prohibitive. We felt poorer. We must have been doing something wrong.

Fast-forward to today. Canadians are now fretting about a strong currency. After all, it is going to crush our manufacturing sector, kill our export base and undermines our domestic competitiveness. Even the Bank of Canada commented on how the strength in the CAD is dampening our growth prospects, cutting its medium-term GDP growth forecast.

Remember, when currencies move there are going to be winners and losers. In its latest policy statement, the Bank of Canada said that “persistent strength in the Canadian dollar” is going to “slow growth and subdue inflation pressures.” So, in return for softer economic growth coming from a more challenging export outlook, what we get back is lower “inflation pressures.” The winner here is anyone who is seeking to borrow money to buy something because the stronger Loonie will prevent the BoC from taking the interest-rate punchbowl away any time soon.

For Canadian businesses, the silver lining is that it will be easier to attract talent today compared to a decade ago when the Loonie was sinking. Call it the reverse brain drain. Whatever it is, it is a good thing from a productivity standpoint, which is the cornerstone to our standard of living. That is why I think we should embrace this new era of Canadian dollar strength as opposed to resisting it.

For those who remember his dad, Mike, on Boston local news (circa 1970s), Matt Taibbi’s rollicking style is a delight, full of genetic echoes.  His Rolling Stone article on Bear Sterns and Lehman — and the naked short-selling behind their demise — is a good read:

Six months after Bear was eaten by predators, virtually the same scenario repeated itself in the case of Lehman Brothers — another top-five investment bank that in September 2008 was vaporized in an obvious case of market manipulation. From there, the financial crisis was on, and the global economy went into full-blown crater mode.

FT’s Willem Buiter makes good points about how we’ll need to devalue the dollar in order to grow the market.  He skewers Casey Mulligan on the way to his point:

For those who would like to dip their mental toes into the ‘Long Vacation’ tradition, a good place to start is a paper written by Casey Mulligan of the University of Chicago (Casey Mulligan, “What Caused the Recession of 2008? Hints from Labor Productivity”, NBER Working Paper No. 14729, February2009). It pays to have a sense of humour when attempting to wade through this paper, as can be gleaned from the Abstract which starts with the following assertion: “A labor market tautology says that any change in labor usage can be decomposed into a movement along a marginal productivity schedule and a shift of the schedule.”

Nothing like big economic yuks to lighten the mood of bad economic times.

Sorry for bringing more cold water, but David Rosenberg provides a valuable service by preaching caution:

The Chicago Fed’s national activity index, which is arguably the most reliable economic barometer around given its breadth of subcomponents, posted a -0.90 print in August and the key three-month average came in at -1.09, which, to be sure, is much better than the -1.61 figure in July, the -2.15 reading in June and the horrendous -3.63 posting at the turn of the year. However, the Chicago Fed warns that anything at -0.70 or more negative than that still signals an economy that is in contraction mode, though it is certainly not uncommon at all to be seeing a number like we saw in August occur after GDP has had its inflection point.

Our contention is that the equity market priced out the recession six-months ago and is now basically discounting three years worth of economic and profit growth. Indeed, on some valuation metrics, the S&P 500 is now trading at peak, not merely mid-cycle price-book, price-earnings and price-dividend ratios. Remember, the reason why the tortoise won the race in the end was because the hare tired himself out.

Via David Rosenberg at Gluskin Sheff in Toronto.  He’s not convinced, he just reports:

A freshly minted report from the Asian Development Bank forecasting faster-than-expected growth for the region — excluding Japan, growth is seen at 3.9% this year versus the March projection of 3.4%. This is having a fairly significant market impact this morning with credit risk declining, the U.S. dollar under renewed downward pressure (the Euro just crossed 1.48 for the first time in a year), commodities rallying right across the board, resource-based currencies, such as the Loonie and Kiwi (the latter also benefiting from a much lower current account deficit for the year ending June) and global equities, in most jurisdictions, in the green. U.S. equity futures are flying as the buy-the-dips psychology has become tremendously well entrenched — see Optimistic View on Rally on page 25 of the FT. A Barclays survey shows that bears are now capitulating en masse and now fewer than 1 in 5 believe this is a bear market rally ripe for correction.