Keith, rather than not finding "the next big thing", the problem may be
lifting the pervasive mood of fear and uncertainty based on too many code
oranges, continuous reminders of vulnerability to terror, and the real
threat of job and income loss without adequate social security. It's
difficult to see how Americans can have much faith in either their economy
or their personal situation right now. The best strategy would appear to be
to stay liquid, or, if stocks move up, ride them for a little while but
don't stay in them. Last time round, many investors didn't know they were
part of a bubble. This time they probably do.
Ed Weick
----- Original Message -----
From: "Keith Hudson" <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>
Sent: Saturday, June 21, 2003 3:44 AM
Subject: [Futurework] What's the next thing?
> I think that Paul Krugman is quite right in yesterday's Op-Ed. The recent
> flurry in the stock market will not last. There are too many other adverse
> economic circumstances for any sensible person to have any sort of
> optimism. Krugman's problem is, however, that he doesn't have any clear
> idea of what the solution might be. What I want to know from him -- or,
> indeed, any other prominent economist -- is what is going to be the
> consumer product attractive enough for consumers to start spending their
> money again (that is, if they have any to spare for a year or two while
> they pay off their credit card debts)?
>
> In private correspondence, one FWer has pointed me to Karl Polanyi
> recently. I haven't read his big work yet --- "The Great
Transformation" --
> but I gather from other commentators that one of Polanyi's main ideas is
> that "Humans are motivated primarily by a quest for social standing, and
> not material gain." Unlikely though that seems at first sight, I think
that
> Polanyi is quite right. The consumer goods which are significant enough
> (relative to regular spending) to produce powerful surges of economic
> growth are mainly status symbols. They show that someone has "arrived".
> Some of the young thrusting businessmen along our road are now buying SUVs
> as their main family car. They're quite unnecessary, but they are a superb
> method of showing off their 'superior' status.
>
> Although SUVs saved the American automobile industry last year, they
> certainly won't be the saviour of the American economy as a whole because
> foreign-owned competitors already able to make vehicles in large
quantities
> are coming on the scene very rapidly, profit margins will decline to
> vanishing point very quickly (they're almost zero now in the American
> firms!) and there'll be little surplus for re-investment. As an item, the
> SUV simply isn't large or novel enough to get spending started again in a
> sufficiently powerful way that will lead to genuinely new products and a
> resumption of growth.
>
> We are probably doing a repeat now of something similar to the Great
> Depression of the 30s. In that period there was a succession of new
> consumer products (albeit small items -- mainly electrical goods), but
> spending and unemployment didn't lift properly until the economy was
> artificially stimulated by WWII -- the price ultimately being paid in the
> 60s and 70s by rampant inflation. By then, the automobile industry was
> producing cars which were cheap enough for widescale ownership by the
> non-middle-class and there were enough new products to start a powerful
> wave of spending and economic growth which lasted until about two years
ago.
>
> A desperate attempt was made by the IT sector in the last ten years but
> ended in disaster, the only significant result being that millions of
> people in America and England no longer have adequate pensions because
> their pension fund trustees and co-conspirators, the stock-brokers, were
> churning their stock market investments so much that they're now worth
only
> a fraction of what they should be.
>
> So what is the new mass product likely to be? It isn't going to be the
SUV,
> 'cos it's not really new and is only a fashion embellishment on an
existing
> product. The mobile phone still certainly has a growing future, but that's
> too small an item financially to have any sort of significant effect on
the
> economy. PC sales haved now stabilised and, although, a useful innovation
> in some sectors (including my own recent business I'm pleased to say),
it's
> not going to transform the scene.
>
> The only consumer item I can think of that would be an orthodox
> extrapolation of the sort of goods that people in the developed countries
> have been buying during the last century is the small private family
> aeroplane. This could be made for, perhaps, only two or three times the
> cost of a car. It would be affordable by enough people to stimulate a mass
> market and it would be a sufficiently major item to lift the economy
again.
> But the family aeroplane has problems. You can't park it in front of your
> house, so you can't show it off as a status symbol. There is not enough
> convenient airport space, nor airspace, for it to be used for daily
> commuting. So although tens of millions of Americans and English people
> could already afford to buy a private aeroplane its prospects are
> permanently dashed both for practical reasons and lack of opportunity for
> impressing your peers.
>
> There's nothing else I can think of. Can you? I think Japan, Europe and
> America (and the white ex-British Empire Dominions) are in for a long,
long
> haul of Japanese-type no-growth or, worse, deflation of Great Depression
> proportions. (Most of the rest of the world will be far, far worse, of
> course, 'cos the Americans will have snaffled most of the oil supplies
even
> while in economic stasis.) Meanwhile, China will catch up to our levels of
> consumer spending ('cos they haven't yet sampled all the consumer goodies
> we are now saturated with) and then what? Maybe by then, the next
genuinely
> new, practical consumer product that will re-engage economic growth will
> have been perfected (one of which, I've little doubt, will be unrejectable
> organ transplants) but, by then, we'll be into a entirely different
> ballgame -- and long after FWers are pushing up the daisies.
>
> Keith Hudson
>
>
> --------
> STILL BLOWING BUBBLES
> Paul Krugman
>
> The big rise in the stock market is definitely telling us something. Bulls
> think it says the economy is about to take off. But I think it's a sign
> that America is still blowing bubbles -- that a three-year bear market and
> the biggest corporate scandals in history haven't cured investors of
> irrational exuberance yet.
>
> Or, to put it another way: it's hard to find any real news to justify the
> market's leap. Instead, investors seem to be buying stocks because they
are
> rising -- which is pretty much the definition of a bubble.
>
> Before the Iraq war, optimists attributed the economy's weakness to prewar
> jitters. They predicted a great postwar economic surge: oil prices would
> plunge, reassured consumers would open their wallets and businesses would
> start investing again.
>
> We're still waiting. Oil prices are off their prewar highs, but they're
> still higher than they were last fall. Consumers seem to be spending a bit
> more, but we're talking about fractions of a percent. And businesses are
> still more interested in cutting costs and laying off workers than buying
> new capital goods.
>
> There have been some pieces of good news -- a not-too-bad manufacturing
> survey here, a pretty good housing-starts number there. But there has also
> been bad news, especially regarding employment. Payrolls are still
> contracting; since the U.S. economy has to create 80,000 jobs a month just
> to keep up with a growing working-age population, the already miserable
job
> market continues to get worse.
>
> Don't tax cuts and low interest rates create the conditions for an
economic
> rebound? Well, interest rates have been low for a while. And everything
> that has happened since 2001 suggests that Bush-style tax cuts -- which,
> because they are targeted on the very affluent, basically give people with
> plenty of cash to spare even more cash to spare -- provide very little
> employment bang per deficit buck. Meanwhile, desperate state and local
> governments are continuing to slash services and, in a growing number of
> cases, raising taxes, undoing much or all of the stimulus from the federal
> government.
>
> Does the collective wisdom of the investor class perceive an imminent,
> vigorous recovery that is invisible in the data? The market isn't always
> right. It wasn't right when it sent the Nasdaq to 5000; it wasn't right in
> the fall of 2001, the summer of 2002 or the late fall of 2002 -- three
> would-be bull markets that fizzled. And selling by corporate insiders hit
a
> two-year high in May.
>
> Meanwhile, the average stock is selling at 31 times earnings, twice the
> historical norm. And if you take into account pension liabilities and the
> cost of stock options, that number goes above 40.
>
> A few months ago, some analysts began to argue that because interest rates
> were so low, even today's very expensive stocks were a good buy. I don't
> agree, but that's a long discussion. What's clear, however, is that
> investors' big move back into the market has been driven not by careful
> comparison of returns, but by the fact that stocks are rising -- and the
> fear that if you don't buy stocks, you'll miss out on a good thing. The
new
> bull market isn't forecasting anything; it's just feeding on itself.
>
> Could the story I'm telling be wrong? Of course. Maybe a vigorous, though
> still invisible, economic recovery will deliver the sustained,
double-digit
> earnings growth that analysts -- apparently not chastened at all by recent
> history -- are once again predicting.
>
> But even if that happy scenario comes to pass, it's hard to justify
current
> stock prices -- because if the economy booms, the low interest rates that
> might conceivably make stocks worth buying at 30 times earnings will soon
> go away. If and when businesses start borrowing again, they'll have to
> compete for funds with the federal government, which will be running
> $400-billion-plus deficits as far as the eye can see. Meanwhile,
foreigners
> won't keep lending us $500 billion each year; in fact, private investment
> inflows into the United States have already dried up.
>
> Oh, and the banana-republic policies now being followed in Washington
won't
> just drive up interest rates; they'll probably generate a full-blown
fiscal
> crisis one of these years. That can't be good for equity prices.
> In short, the current surge in stocks looks like another bubble, one that
> will eventually burst.
>
> New York Times 20 June 2003
>
>
> Keith Hudson, 6 Upper Camden Place, Bath, England
>
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