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Monday, January 28, 2008

Recession? Uh-Uh

Finally. Someone saying exactly what I keep telling people, except backing it up with numbers! :)

A great piece in today's Wall Street Journal discussing why the chances of a recession are extremely low, and showing just how well the economy is actually doing. Excerpts:
With housing so weak, the recent softness in production and durable goods orders is understandable. But housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing. ...

Models based on recent monetary and tax policy suggest real GDP will grow at a 3% to 3.5% rate in 2008, while the probability of recession this year is 10%. This was true before recent rate cuts and stimulus packages. Now that the Fed has cut interest rates by 175 basis points, the odds of a huge surge in growth later in 2008 have grown. The biggest threat to the economy is still inflation, not recession.
I also like how he ends with "Warren Buffett is buying."

9 comments:

  1. Unless...y'know...he's wrong

    ;^)

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  2. Warren Buffett is never wrong, you blasphemer!

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  3. Sorry ezzie but even the Oracle of Omaha has been known to have a bad day. Would I bet with him though? Yes, because he has far fewer bad days then the rest of us do.

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  4. The-Land-of-Thinner-PeaceJanuary 28, 2008 at 12:18 PM

    Ezzie,

    I finally managed to produce my new blog.. all by myself! (so proud :D)
    Took me all day, but hey, I'm not Jameel ;)

    ~Dini

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  5. oh - and the link is
    www.thelandofthinnerpeace.blogspot.com
    It's not comment enabled, but have a look anyway!

    D

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  6. If Daas Torah tells us left is right, we must believe it. If the RY posts a letter with grammatical errors, then the errors are correct!

    Or in other words.... if Buffet buys and the market goes down, it really went up but we're just not great enough to understand.

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  7. So Ezzie, if in a year or two it becomes obvious that we are in a recession, do you promise to give up the WSJ? :-)

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  8. Warren Buffett can afford it!

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  9. First of all, recessions are often based on a relatively minor economic move that RIPPLES and, even more important, CHANGES CONSUMER CONFIDENCE.

    The housing _industry_ is not in and of itself that big a deal. But when it's harder for people to get home-equity loans, they spend less. When they're nervous from foreclosures, they cut back on big ticket and luxury purchases. Those ripples affect wider industries, which increase people's reactions, paring back and switching to more safe purchases and less risky investments.

    That's why often a seemingly minuscule stimulus effort starts ripples the other way and actually starts a recovery.

    The WSJ is technically correct but practically wrong. Housing equity is gone or significantly reduced, the market has fallen significantly. Many people FEEL poorer (even if it was only value on paper) and at more risk. The negative ripples are expanding, and few positive ones are reversing that.

    The drop in the value of the dollar will increase US exports, foreign tourism to the US, and foreign investment and purchases of US property. BUT those haven't spun up to significant levels yet (actually, the tourism one has built up pretty quick).

    Of course it's time to buy when the market is down. If you're in a cash position to do so.

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