The politically incorrect economist speaks

April 30, 2009

#CSIA #PAuto

Beaulieu says, "I'm going to say some things that are politically correct. I am going to say 'swine flu' but I don't mean to insult pigs. I'm going to talk about 'terrorists' and capitalism, and I still think capitalism is good."

#CSIA #PAuto

Beaulieu says, "I'm going to say some things that are politically correct. I am going to say 'swine flu' but I don't mean to insult pigs. I'm going to talk about 'terrorists' and capitalism, and I still think capitalism is good."

"GDP and Industrial production are down. Industrial production has descended to the lowest level in 30 years. We are a good 6 months away from a cyclical turn into a very mild ("Are you sure this is a recovery?") recovery. 2011 will be the next good year. This is going to go down in history as "The Great Recession." Every 10 years we have a recession. It is pretty straightforward. We could do that without massive government spending."

I use 12 month moving totals to forecast.

There are three positive indicators. When five out of 8 turn positive, we will have a recovery. We will not be returning to growth in the US until after 2013, just recovering. We cannot expect to go back to 2006 and 2007 anytime soon. We will not be going backward. There is a new reality for the next four years. If you are a business owner, either wait until 2011 and 2012 or sell it now for cash to someone you don't like.

Oil prices are not acting as a brake on the economy. Energy prices will move up some, and in 2010 they will move up some more. 60 or so dollars/bbl. Global supply will get tight in 2011 and energy prices will also rise.

Inflation is a non-issue and will be a non-issue for a while. We are not going to go through a decade of deflation-- mild inflation will start in 2010. Inflation will increase interest rates in 2012. Inflationary pressures are impossible to head off at this point.

Unemployment rate is a lagging indicator and people will continue to lose jobs for the next year.

Interest rates couldn't be better, but there's not any money to borrow.

Debt level for the US is 11.2 trillion. The GDP is about 13.4 trillion. Over 80% debt to income and the US is now the 17th worst debtor nation in the world.

This constrains highly leveraged businesses, so it happens to highly leveraged countries. Debt payment will go to beyond 10% of GDP in the near term. In fiscal 2010, we will have debt equal to our GDP. How are we going to pay this back?

Government will cut spending. Not. Inflation will take care of the problem. We pay back people with cheaper dollars. China is very concerned about being paid back with cheap dollars. "We are worried about the value of our investment." They want a global reserve currency to replace the dollar.

We could pay off the debt. We're going to raise taxes on the wealthy! We'll take the money from the rich and give it to the poor. Think of it as a swimming pool with a deep end and a shallow end and you take a bucket of water from the deep end and pour it into the shallow end and you expect that the water level will rise.

So if you want to create less growth, you take money away from the people who invest in businesses and give it to people who don't.

"I sincerely believe...that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." --Thomas Jefferson, 1816

Are you ready for some good news? I just saved a bunch of money on my car insurance.

They are pushing out money and Dr. Bernanke is telling us that we won't have inflation. You've got to be kidding!

Because of who's in charge, we aren't going to see what has happened in every country that has ever done this.

We need to hedge against inflation. Watch the trends. What the media is saying is meaningless.

Somehow it is comforting to know that Japan is worse off than we are.. China IS in a recession. It is not going to be until 2011 that the US goes into recovery that the world will also go into recovery. Ours will be mild, but in other places of the world there may be better recovery than in the US.

USA, India, Indonesia and Australia have winning demographics. China, Europe, Japan and Russia have losing demographics. We will have strong demographics until at least 2050. Russia will shrink for example from 140 million people to 90 million people by 2050. This is startling and dangerous.

The US is the number 1 exporting nation. Germany, China, Japan, UK, France, Italy and Canada are next in line. The US is not dying as a manufacturing economy. We have the best labor force, we are doing more manufacturing with less people. We are vibrant. People come here because of that.

Major issues stalking China's Future haven't changed since last year, and have gotten worse. Banking system, legal system and government interference and control are serious dangers. Environmental issues, health issues, negative demographics, competition for cheap resources and labor is negative. The possibility of civil unrest...etc.

Chrysler will not survive. GM will, but in a different form. It will be smaller, leaner.

The printing industry won't recover until 2011. The plastics industry will have a mild recovery in 2010, better in 2011. Pulp and paper very mild recovery in 2010... Food industry will recover sooner than most cyclicals. Medical equipment and supplies is an industry that has real potential for the next ten years. Semi and IT follow the rest of the economy.

The recovery is going to start in 3rd quarter this year, and will be very slow.

Beginning in December of 2009, industrial production will start to rise.

Investments will not rise to the level of December 2007 until 2025.

Buy Caterpillar, buy medical stocks, buy solar, wind, nuclear power, clean coal, natural gas

The US is now the largest producer of energy from wind power. That happened when we put a turbine outside Barney Frank's office.

The economy is moving up...this must be like a frozen corpse getting to room temperature.

Retail sales will very slowly begin to improve. The consumer is not ready to spend. Our saving rate is now 5%, which is great for the US. The rates of change are too negative for the recovery to begin in 2009 for consumers.

Until the government decides how to deal with the toxic assets issue, we will continue to see foreclosures, bad housing market. After they decide what they are going to do, we will see a recovery.

There are four phases of expansion and contraction, and by looking at leading indicators and managing your cash, you will be able to ride the phases and grow.

Egalitarian pay cuts are stupid. You will make your A players hate you and you will lose them. Make the hard decisions and get rid of the C players instead.

Operate now as a Phase D - Recession company. But get ready to move and get more agressive with marketing and advertising in late 2009 and early 2010. (editor's note: YES!!!)

In early 2010, we will be in Early Phase A-- early recovery. Act accordingly.

"It is always the adventurers who do great things, not the sovereigns of great empires." - Montesquieu

The future really is up to us.

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