Financial topics

[John]

First-quarter earnings could derail market's climb

By CHRISTINA REXRODE, AP Business Writer – 2 hours ago

For the stock market, it was a triumphant first quarter. But for
earnings growth, the past three months were just ho-hum.

Analysts are expecting earnings for companies in the Standard & Poor's
500 index to decline 0.1 percent compared to a year ago, according to
FactSet. It's a tiny number but a significant turning point. Earnings
growth was on a winning streak for the previous nine
quarters. Year-over-year earnings growth has been at least 10 percent
for all but the most recent period, when it was 6 percent.

The reasons for the expected slowdown range from global (a weak Europe
hurts everybody) to mathematical (it's hard to top double-digit
quarters). Whatever the cause, the stagnation in earnings growth is a
stark reminder that the economy's problems are far from solved. Just
three months ago, analysts were predicting 3 percent earnings growth
for the first quarter.

http://www.google.com/hostednews/ap/art ... 225445b61b

[aedens]

relink: http://en.wikipedia.org/wiki/Louis_Brandeis
It will not be about the red or blue side since we all have seen to date what they proffer.

[Trevor]

In terms of economics, I'm worried about the United States, yes, but I'm also worried about China's slowdown. Not only do they have the typical problems in their history of being impossible to govern, but it's compounded by their one-child policy, which has resulted in over 100 million more young men than young women. I wouldn't doubt the number may be even higher than that.

I'm just waiting to see what the report for economic growth is for the 1st quarter of 2012. It'll likely be lower than analysts are predicting, as it frequently seems to be.

[OLD1953]

I've never seen Smoot-Hawley as much more than a convienent whipping boy. It certainly wasn't responsible for the Depression, as the Depression started quite a while before SH was passed. I can not see international trade in the light of "everyone wins" as so many do, it simply doesn't seem to be true either in theory or in practice over the long term. There are always losers, and I don't see how there can not be some losers over all, save in the most limited and short term circumstances. The examples given in the economics texts are simply not true to life, they are over simplified and often run contrary to human nature. I'm sure you can set up an ideal government on paper, an ideal economy on paper and an ideal trade situation on paper, and if we were all angels we'd be in heaven and we would not need an economy. In the real world of people trying to get as much as they can for as little as they can, it just doesn't work that way. Especially if you allow monopolies or restrictions in the name of security or patents or what have you. And if I get on that subject I'll be typing here tomorrow, the patent office has rotted from the inside, and that's being kind.

If I produce iron ore and buy automobiles, everyone is supposed to benefit. But processing and so forth require much more than just ore and the situation rapidly becomes chaotic and difficult to predict outcomes if they are predictable at all. Since outcomes are not predictable, everyone begins to manipulate the outcomes to make them more predictable, and you still wind up with countries that have serious trade imbalances. The current situation which has persisted since the abandonment of the Bretton Woods agreement wherein the US would simply take the lumps and be the loser in trade overall has been a good deal for the rest of the world, but I can't say it has been a good deal for the USA, it has encouraged us to simply become wastrels. That's reality, and fantasy accounting doesn't change it.

I don't see how the ideas of China or Europe or Brazil saving the world can last much longer. One more feather on that house of cards and it's all coming down. If not before December, then almost certainly shortly afterwards. Congress has put itself in a position where they'll either cut or get cut more, and any cuts whatsoever will crash the markets. And it matters not a whit who wins the elections - there will certainly be more than enough members who'll resist not cutting to force cuts to go through. I really think the can won't get kicked again.

[John]

From my book (written in 2003):

*** The Great Depression and the Smoot-Hawley Tariff Act

The Great Depression and World War II go together -- it's impossible
to understand one without the other. We're going to be studying the
Great Depression in detail in chapter 6, but for now let's look
at its part in leading to World War II.

Research seems to indicate that a financial crisis and a war crisis
seem to feed on each other and make each other worse: A financial
crisis makes people restless and angry, looking for a scapegoat, for
justice and retribution, making a war crisis worse; and a war crisis
makes people financially risk aversive, less willing to make purchases
and investments, making the financial crisis worse.

There seems to be plenty of evidence that the Great Depression was a
major factor in providing the energy for World War II. When a person
loses his job or his home, he'll get angry with his former boss or
the bank that foreclosed on him.

When a society goes through a recession, the people look to their
own government leaders to blame.

When the recession gets very bad, to the point of a depression, then
jealousy can set in, and the desire for justice and retribution
becomes enormous. A nation might start thinking about how great
things are on the other side of the border. This is the kind of thing
we've already seen in the Civil War: the Panic of 1857 devastated
northern businesses, but hardly had any effect at all on the cotton
farms of the south, especially in view of the free slave labor.

When a financial crisis gets so bad that many people are starving and
homeless, a war becomes much more desirable. If you're starving you
really have nothing to lose by going to war, and becoming a soldier
may be the only way to get food and shelter, and to feed your wife
and children.

Now let's see how the Great Depression was an integral part of the
steps that led to World War II.

Perfectly reasonable acts by one country can be interpreted as
hostile acts by another country. Guns and bombs are not needed to
create an impression of war.

And if one country's innocent act is a shock to another country and
is viewed as hostile by that country, and if the people of that
country are in a mood for retribution rather than compromise, than
they may well look for a way to retaliate.

In that sense, the enactment of the Smoot-Hawley Tariff Act in June
1930, can be viewed as the first of the shocking, provocative acts
that led to World War II.

The Act was opposed by an enormous number of economists as being
harmful to everyone, but it was very popular with the public, because
of the perception that it would save American jobs. Many in
the public believed that the crash had been caused by withdrawal of
investment funds by foreign banks, just as many in the public today
believe that the Nasdaq crash of 2000 was caused by the illegal or
improper actions of CEOs of Enron and other corporations. The public
demanded the Smoot-Hawley Act in retribution, just as the public today
demands the jailing of corporate CEOs.

Interestingly, the Smoot-Hawley Act is still debated by politicians
today, with regard to whether it caused or aggravated the Great
Depression or had no effect, with pro-free trade politicians taking
the first position, and politicians supporting restrictions on free
trade taking the second position.

Those discussions are entirely America-centric because, for the
purposes of this book, it makes no difference whatsoever whether or
not the Act aggravated the American depression. We're interested in
the effect it had on foreign nations.

And the effects were enormous. The bill erected large trade barriers
for numerous products, with the intention of saving American jobs.
How many American jobs it saved, if any, is unknown, but it virtually
shut down product exports to the United States. Both Germany and
Japan were going through the same financial crisis America was going
through, and they were furious that America as a market was closed to
them.

Japan was the hardest hit. The Great Depression was hurting Japan
just as much as it was hurting America but, in addition, Japan's
exports of its biggest cash crop, silk, to America were almost
completely cut off by the Smoot-Hawley Act. Furthermore,
Japan would have been going through a generational change: The country
had undergone a historic revolution some 70+ years earlier,
culminating in a major change of government (the Meiji Restoration) in
1868, and the people who had lived through that revolution would be
dead or retiring by the early 1930s.

[["Japan's exports of its biggest cash crop, silk, to America were
almost completely cut off by the Smoot-Hawley Act.": Jude Wanniski,
referencing his 1977 book, <i>The Way the World Works</i>, in
"Remember Pearl Harbor?" appearing in <i>WorldNetDaily</i>, May 16,
2001,
http://www.worldnetdaily.com/news/artic ... 5fID=22850]]

So one thing led to another, and in September 1931, almost exactly a
year after Smoot-Hawley, Japan invaded Manchuria and later northern
China. Britain and American strongly protested this aggression, and
Roosevelt finally responded with an oil embargo against Japan.

This is the usual pattern of provocative acts on both sides. America
saw Smoot-Hawley as its own business, but to Japan it was a hostile
shock. Japan saw the Manchuria invasion as "Asian business," while
Britain and America saw it as attacking their own Asian interests.
Roosevelt saw an oil embargo as a measured response of containment,
while energy-dependent Japan saw it almost as an act of war,
eventually triggering Japan's attack on Pearl Harbor in 1941.

Japan wasn't the only country affected, of course. England, Germany,
Italy, and many other countries were hit hard by the sudden trade
barriers with America. Just like in Japan, nationalistic and
militaristic feelings were aroused in many countries.

Germany was especially frustrated. The map of Central Europe had
been redrawn some 70 years earlier during a series of wars in the
1860s, culminating in the Franco-Prussian war of 1870, and the
unification of Germany in 1871. The Great War (WW I) had been a
mid-cycle war for Germany, and had been a humiliating defeat,
especially because the American and British led Allies had imposed
harsh conditions -- the loss of some German-speaking territories, and
the payment of reparations. The loss of territories was especially
provocative, since it partially reversed the German unification of
1871.

Germany was reaching the point where it was going to explode anyway,
when the Smoot-Hawley Act was passed. On top of the reparations, the
Act was seen as enormously hostile by the Germans. As in Japan, it
gave rise to militaristic nationalism in the form of the rise of the
Nazis. Germany remilitarized its border with France in 1936, and
then annexed German-speaking parts of Eastern Europe in 1938.

So when did World War II start? It depends on what the word "start"
means, but an argument can be made that America had started the war,
and that the first act of war was the Smoot-Hawley Tariff Act.

[aedens]

http://www.pbs.org/wgbh/commandingheigh ... ation.html
The twentieth century history of facts are the causes of the bloodshed were in large part economic ideologies.

[vincecate]

Many in the public believed that the crash had been caused by withdrawal of investment funds by foreign banks,[...]

The law saying the Fed was limited to 2.5 times as much paper money as it held gold money and foreign banks (and other) taking out gold money did force the Fed to reduce the money supply, which seems to be the main cause of the depression. Bernanke said that Friedman was right, the Fed caused the depression. This may be one of the few things Bernanke is right about.

http://howfiatdies.blogspot.com/2010/11 ... ndard.html

If the Fed caused the Depression and the Depression caused WWII then it seems that the Fed caused WWII. Central banks printing money also seems to have enabled WWI. The Fed came into existence in 1914 at the start of WWI. England, Germany, and others printed lots of money to fund WWI.

Seems a case can be made that printing money was the root of most evil in the last 100 years.

[OLD1953]

I'd not disagree on the emotional impact of Smoot Hawley, but that is related to the economic impact only in so far as it would cause people to boycott US goods. In the run up to a war, everything is seen as a potential act of war. In some ways Smoot Hawley was a nostaglia action, an attempt to return to the past of 30 years earlier when protective tariffs were in place for everything. There's a lot of nostalgia during a crisis.

What I was trying to say about economic models of free trade (like free markets, there is no such thing in reality) is that models never seem to take waste into account nor do they take market corners (rare earth metals anyone? - act of war by China!) nor monopolies into account. Trade is not a zero sum game, but there are strong incentives to keep the excess above zero at home. And total economic impact over long periods are not taken into account either, such as health effects.

http://www.mesothelioma.com/blog/author ... os-use.htm

If that's accurate, and I've no reason to doubt it, then China and India have some huge expenditures coming in future years, even if they simply shot every person affected they would still have the loss of the labor force and the cost of the bullets and graves. It will be a huge drain on them one way or another.

Everything during a crisis has such emotional coloring that nobody does any rational analysis of the overall impact. Take the supreme court discussions of "Obama care" for example, many here have stated the individual mandate will be found to be unconstitutional. Really? The court is not politically independant and never has been, so it's illuminating to look at how many desired items by the politics of the majority on the court would be impossible without individual mandates for a US citizen to buy something in the market. Off the top of my head, there would be closing public schools with a mandate to buy private school for children, shutting down social security and a mandate to buy a private pension, shutting down medicaid/medicare with a mandate to buy insurance - this list of political dreams for "reducing the impact of government" is endless, and at least half of them would require mandates for a citizen to buy something. Of course the majority will uphold the health care act, striking down the idea of individual mandates will knock down almost every one of the "conservative" ideas on "shrinking" government. And nobody can see this because "Obama is a liberal who must go!!!". And the net impact of all these forthcoming mandates is going to be higher costs and less service, and how does that help anything?

Politics is just really irritating me at this time. I am not happy with either side, and the third parties, apart from being powerless, are mostly irrational, even more so than the two majors.

Bit of an afterthought, inflation due to increase in the money supply is often described as an effective tax on the public, and this is true to some extent. It's a painless tax for politicians because it happens with little discussion as long as the excess spending is under control. It is possible that individual mandates will take the place of inflation as a "painless" tax, if prices go up, politicians can simply curse and threaten the people supplying the service we are mandated to buy, or implement price controls. This all has some huge implications for what the future economy might be, if schools, medicine and pensions are all "privatized" but the government mandates price controls, then large blocks of the economy could be frozen in place and unable to progress. All roads lead to Rome.

[Trevor]

Speaking of China, I just saw their economic report. For the first quarter, their economy grew at a rate of 8.1 percent. It really is starting to slow down and that's lower than the 8.9 percent the previous quarter. Hopes that they can bolster the world financial system seem to be overstated.

[aedens]

In summary Everyone who shorted, shorted, bought, bought, then shorted stocks this week can now take the rest of the year off. Everyone else most likely lost money. zh
Exactly how rentier repressionary markets work. As we observed here: It will sum up to calculating the “financial repression tax,” more specifically, the annual “liquidation rate”