Tuesday, December 09, 2008

More on the Pessimism Bottom

This is from a[nother] reader of Agora Financial's Five-Minute Forecast. As you know, I like to make obvious points seem more credible by having someone else repeat them.
“Barton Biggs is no doubt a great moneyman,” writes a reader in response to a Biggs essay we published last Tuesday . “His assertion... ‘We must be pretty close to maximum bearishness’ sound[s] like... cheerleading, to me.”
“We’ve hit the point of maximum pessimism? The point of maximum pessimism can only be known in hindsight. People will get more and more pessimistic as their personal conditions/news get worse. If you are saying it’s not possible for people to be more pessimistic than they are now, I disagree. Whether or not they do become more pessimistic is another argument and will depend on what happens to them. (I have a couple of friends who left Liberia at the start of the civil war. They were really pessimistic then. In fact, I was so concerned, I recommended counseling, but they still felt they would be back in Monrovia before Christmas. Ha. Somewhere over the next five years, they hit their point of maximum pessimism.)


nephos said...

I've also read that "Things are never as bad as they seem or as good as we hope"

There probably is some truth to this - there is an amplitude to cycles as negative feedbacks are inherent in system behaviour - but I think this only applies insofar as the system definition continues to hold. Making all the successful white farmers in Zimbabwe landless was probably one of those system redefining moments that contributed to utter and continuing collapse.

So insofar as the US economy is concerned, it's not clear to me that anything totally fundamental has changed yet, has it? I mean we're running out of oil, but surely that's a gradual process.

Anonymous said...

There's been one big change, and that's that the expansionary policies of Rubin, Greenspan, et al, have suddenly lost currency. I think the idea of simply inventing wealth -- bubble economics -- is starting to be unwound. Since we've been living on credit more and more over the last 15 years, this is going to take some structural adjustment.

nephos said...

"structural adjustment"

Arkadeyevitchizing America has got to be harder with those sorts of 50 cent expressions.

Okay, beating up productive landowners seems like structural "adjustment" - it's quite real, especially to them. But I'm not clear where that applies to the dissolution of illusion. Those over-valued homes weren't actually doing any long-term real productivity. Taking away their value merely seems like a more appropriately gauged view of the current state of affairs.