Mish's Global Economic Trend Analysis

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Hike the Deficit or Take the recession Says "Aftershock" Author; Recession Proof Your Portfolio: Buy Gold, Reduce Exposure to Stocks; Mild Recession? Posted: 17 Oct 2012 12:30 PM PDT Inquiring minds are playing an interesting video on Yahoo!Finance with  Robert Wiedemer, managing director at Absolute Investment Management and the co-author of the book The Aftershock Investor. Wiedemer says there are only two choices Hike the Deficit or Hit Another Recession. What I like in his message is he fully understands that hiking the deficit is not the answer because it will make problems down the road even bigger. Moreover, "down the road" is closer than anyone thinks. Wiedemer advocates lightening up on stocks and buying gold, the latter because of QE. This has been my position as well. Here are a few snips from the article ... "I think recession is (inevitable), but you can avoid it," Wiedemer says in the attached video. "The way to avoid a recession now is to increase that deficit, just like we did before. If we take that deficit from $1 trillion to $2 trillion you'd find we would be out of the recession" and everything would get turned around, including the housing and job markets. As Wiedemer points out, there are already signs of QE3 fatigue, brought on in part by a "700% increase in government borrowing since 2007" in an economy that's already starting to slow down on its own. Add in headwinds from the global slowdown and he says it's clear, "we're facing a lot of problems down the road." To be fair, he does not see a washout type recession but rather a more mild one, helped (temporarily) by QE3, but that's not without concern. ''When you start telling everybody that you're going to print money forever, I think it gets people worried that we really will get inflation," he warns. As for avoiding a dip into the fiscal red sea, that will take an act of Congress. And failing that, Wiedemer says, investors would be wise to reduce exposure to stocks and hang on to a little gold. Mild Recession? I think the recession has already started, but in terms of job losses I believe like Wiedemer that it could be mild. My reasons, not discussed in the article or video, are three-fold. Corporations are already running pretty lean and may not be able or willing to fire as many workers as necessary to maintain profit forecasts Corporations are already turning away from full-time employment to part-time employment so there is likely to be a reduction in hours rather than mass layoffs, especially in retail jobs Housing starts and new home sales are bottoming and will likely be a positive contribution to GDP For a discussion of point number 2, please see ... Is Obamacare Responsible for the Surge in Part-Time Jobs? What About Obama's Defense Layoff Suspensions?   Prepping for Obamacare, Olive Garden and Red Lobster Cut Workers' Hours; Are Other Companies Doing the same? Tip Sharing Lowers Minimum Wage; Like One, Like All? In regards to point number one, the impact of corporations not firing a lot of full-time employees coupled with reduced consumer purchases means that corporate profits are likely to take a huge hit, and the stock market right with it. Bernanke's reaction of course is more of the same thing (QE) already proven not to work. The beneficiary is likely to be gold. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

President of France Wants to Ban Homework Because It's "Not Fair" to Disadvantaged Posted: 17 Oct 2012 09:33 AM PDT I wish I was making this up, and it certainly sounds like it's something straight out of The Onion, yet here it is, on a Washington Post headline: French president pushing homework ban as part of ed reforms. Reason for the homework ban? Francois Hollande doesn't think it is fair that some kids get homework help from their parents while children who come from disadvantaged families don't. Instead, Hollande wants to hire more teachers without saying where the money will come from (but you know the answer is tax hikes). He also wants to increase the length of the school week from four days to four-and-a-half days. Note that school days in France start at 8:30 a.m. and end at 4:30 p.m. Socialist Nutcase If you were looking for further proof that Hollande was a socialist nutcase you have it. Rather than focusing on the problem (parents not spending enough time with their kids), Hollande wants government to address the system, which in the mind of any socialist means more government intervention and spending to make sure nothing is "unfair". Other Unfair Things Here are some other things that are as least as "unfair" for the exact same reason that Hollande used in his proposal to ban homework. Hiring tutors Music lessons Computers Educational games like Scrabble Why stop there? All kinds of things in life might be considered "unfair". Do the poor eat T-bone steaks? Go to movies as often? Should we ban those too? Does everyone have an air conditioner who arguably needs one? If not, is the solution to ban them? Nah. Hollande just wants to raise taxes so that everyone has the exact same stuff, same teachers, same cars, same food, same clothes, same movies. That is the socialist definition of "fair". Government spending is already 54% of French GDP. Clearly that is not too much in the eyes of Hollande. For comparison purposes, please see US Government Spending as Percentage of GDP. Expect more nonsensical socialist solutions from Hollande, because they are coming. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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