The Bear Facts

From the New York Times article on John P. Murtha (see here)

Even among donors, mainly defense interests, Mr. Murtha’s standing appears to be slumping. His first-quarter campaign contributions were down by half from the same period after his previous re-election — to about $225,000, he reported this month.

This means that his previous re-election had him with about $500,000 in campaign contributions per quarter, so about $2 million annually.

Frontline documentary “Black Money” on foreign bribery mentions that one Saudi Prince received close to $100 million from BAE.  (see videos here)

I’m always amazed at the leverage that lobbyists have over American politicians.  A couple of hundred thousand dollars can get you some of the most lucrative contracts in the world worth tens of billions of dollars.  Besides the simple truth that this type of situation is unethical it seems to me that it should be stopped more for being lame.  A system that drives politicians to such deptsh should be reformed just on principle.

Is what I’m doing.  After taking a look at the economic data on banks balance sheets, and debt levels in different sectors of the economy, I take back what I said in my last post.

The market is being over-optimistic and will likely retrench in the third quarter of this year.  It will start rising again this time next year.

That’s my call.

“I don’t want to go overboard here. Maybe the banks really have swung from deep losses to hefty profits in record time. But skepticism comes naturally in this age of Madoff.”

So says Krugman’s new op-ed, “Green Shoots and Glimmers,” which talks about how although there are signs that things seem to be getting better in the economy, we shouldn’t get too excited. All that is happening is that the rate of decline is slowing in some parts of the country. Krugman argues that although this is moderately encouraging, things can get much worse.
Now, I just have two quick things to say about this. The first is that although skepticism should always be used and the numbers that the street relies on to jump can clearly not be trusted on face value, there is something very important in a general sense of betterness that can mark the beginning of the end. I am not sure you can argue this economically, but psychologically it seems to me that positive signals encourage more positive signals. As Soros and others have said, the economy is not some objective thing that we observe and don’t influence; the economy is shaped by all of our actions and responds to how people think it is doing. This doesn’t mean that the banks numbers might not be cooked. All it means is that positive signs from the bank can eventually lead to good things just by the fact of being positive. People base their hiring and borrowing on future expectations and these are shaped by the very signs they see around them of things to come.

Finally, although we should be “more skeptical in times of Madoff,” it’s important to realize that he was just a criminal. From what I gather, people could have uncovered his schemes through due diligence. That’s not to say that people like Madoff don’t benefit from the lower diligence people have in good times. But it’s one thing to be skeptical in deciding where to invest your money and another in predicting where the economy is going.

The “Green shoots and glimmers” should be seen as a very positive indication of the beginning of the end. Other things can derail it. But all things being equal, I appreciate positive news.