Bonddad versus Bonddad

(9 am. – promoted by ek hornbeck)

  Last week Bonddad posted a diatribe against the entire economic blogosphere.

 Reading blogs that in any way write about economics has generally become an exercise in utter futility. According to most good news is either propagated by corporate whores who are blind to the realities around them or presented without considering “all” the facts. All government statistics and all economists are wrong — unless they support or present a bearish viewpoint.

 Normally I wouldn’t notice, but someone pointed it out to me and it got me thinking. How did we arrive at this point, where the bullish and bearish are drawn up against one another in much the same way that Democrats and Republicans in Congress are?

  It occurred to me that perspective has everything to do with it.

The Case for the Green Shooters

 I’m going to use Bonddad as my example of a Green Shooter. Bonddad’s diatribe, by virtue of lumping together everyone that disagrees with him, and his large following, has put himself into that spot.

  How Bonddad sees the economy can be seen quite easily by his recent essays. To see some examples: here, here, and here.

   The essays are full of charts that shout one word: trend.

 When Bonddad isn’t actually using the word “trend” he is implying it.

 What Bonddad is doing is called technical analysis or chart analysis. There is a multi-million dollar industry behind it on Wall Street.

  And do you know what? Bonddad is right. Based on a technical analysis, Bonddad is reading the charts correctly. I have no disagreement with his bullish interpretation of the charts, and I doubt that many other people do.

 And yet I am still a bearish doom-and-gloomer. How can that be?

 Because technical analysis has its limits. Those limits involve time.

Technical analysis has a short half-life. The further out you try to predict the more inaccurate the analysis becomes. Predictions of more than a quarter or two are almost useless. (For an example, see this report by the Federal Reserve which predicted an economic rebound in the 2nd half of 2008.)

 So what do doom-and-gloomers use to predict the future economy if not for technical analysis? We use fundamentals.

The Case for the Doom-and-Gloomers

 I will use Bobswern (without his permission) as an example of a Doom-and-Gloomer, mostly because of his public conflict with Bonddad.

 Good examples of Bobswern’s essays are here, here, and here.

  If you look at these articles you will notice three things: 1) lots of links, 2) lots of numbers, 3) a complete lack of charts.

 Bobswern, and most of the Doom-and-Gloomers, aren’t all that interested in short-term economic movements. Their horizon is further out.

  That’s why they aren’t trying to do technical analysis, which is only good on a short timeline.  The fundamentals are looking 6 months, a year, or several years down the road. Completely unlike technical analysis, fundamentals are useless in the near-term, but are increasingly more useful the further out you go.

So who’s right?

   It’s because of this basic difference in perspective that Bonddad’s essays and Bobswern’s essays come to radically different conclusions. Both are probably correct in using their methodology, but both are going to come to different conclusions because they are looking at different periods of time.

  Any obvious mistakes would be using fundamental analysis to predict short-term trends, or technical analysis to predict long-term trends. This is where Bonddad makes his mistake.

 Bonddad likes to overlay current charts and compare them to charts from previous recessions as proof of what the future will be like. In doing so he makes two major mistakes, both of which he should know better than to make.

1) “Past performance may not be indicative of future results” is the oldest saying on Wall Street. What has happened in the past means exactly zilch compared to what is going to happen in the future. Sure you can still make the comparisons, but that doesn’t mean they actually mean anything.

2) The economy of late 2009 is not the same economy of 2001, 1991, or any other recession year.

   Unemployment and poverty is more chronic, and debt levels are far higher at every sector of the economy. Any fundamental analysis would show this. In fact, Bonddad’s own fundamental analysis show this.

  Before Bonddad became a Green Shooter he used to write about the fundamentals of the economy, such as the problems with chronic government deficits.

we’re creating a situation that is rife with possible future problems.  And some of these problems are serious — as in they could lead to the financial system freezing from a random world event.

 I completely agree with Bonddad the fundamental analysis. The question I have to ask is why do these deficits no longer matter, especially when they are massively larger now?

  Before Bonddad became a Green Shooter he used to write about the fundamentals of the economy, such as the problems with economic growth based on massive borrowing.

 On paper, the economy has grown.  Economists can point to the raw data and say “we grew”.  That is not the question.  The question is “how did we achieve that growth”?  It wasn’t from the growth in incomes.  Instead it is from a ton of borrowing.  And considering the credit melt-down we’ve had over the last year from excessively easy credit, maybe we need to ask ourselves if this is the best way to grow a country.

I completely agree with Bonddad the fundamental analysis. The question I have to ask is why this debt no longer matters, especially when encouraging private borrowing in an already debt saturated society seems to be the only trick the government knows?

  When Bonddad said that the country is collapsing under the weight of debt he was right. His statement is still right, even though he no longer appears to believe it.

  When Bonddad said that Obama’s plan for spending our way out of economic trouble is unworkable he was right. His statement is still right, even though he no longer appears to believe it.

 I understand the message when people say that we can’t worry about deficits and debt levels in middle of an economic crisis, I just think that people are missing the most important idea here: massive amounts of debt are the cause of this economic mess, so why would even larger amounts of debt be the solution?

  Bonddad the fundamental analysis is right. We need to address this problem and soon, otherwise the economy is going to crash. Bonddad the Green Shooter is right that the trend has turned up in the short-term.

  Bonddad the taunting, “I know better than all these bearish people” is wrong, he doesn’t know the future any better than the rest of us.

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    • gjohnsit on December 9, 2009 at 12:34 am
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    • dkmich on December 9, 2009 at 1:03 am

    Bondad, eh…jubilant or gloomy.

  1. Nice guy, but he called me chicken little when I was saying that the housing mortgage fiasco was going to bring down heaven and earth and crush little baby jesus in the cradle.

    Of course, I had no idea China would loan us another cool 2 or so trillion so wall street bankers wouldn’t have to go to jail for securities fraud.

    I was also right about the housing surplus!

    Ha, let’s see here. Was also right about the Flash HFT platform, global derivatives and even called what would become the TARP program.

    Some of us can see into the future, and we blogged it.

    Glad to see Bonddad kicking it still, though he was smart he’d build a historical cycle neural network like I did.

    Dances with monkeys, forbiddenly.  

  2. was when bonddad did the GBCW at dailykos because people were being mean to him.  Why was this funny?  Because bonddad’s tagline:

    “You think you can intimidate me? Screw you. Choose your Weapon.” Eliot Spitzer

    The bonddad following at dailykos built up, I think, primarily from bonddad’s fundamentals discussions, although he also used charts in his analyses of the bush/republican disasters.  Another thing that amused me was the number of “i’m reccing this but i don’t understand these graphs at all” comments.

    I too remain very wary of technical analysis.  The tools applied therein are way too crude and purely empirical.  Any model that is going to predict the economy would have to be a behavioral economics-based model, and i don’t see any on the horizon close even to qualitative accuracy.

  3. I think it has more to do with either:

    1. Obama-bots and apologists.

    2. Trickle Down economists. Those few remaining people who really believe that giving everything to Goldman, etc will eventually help the rest of us.

    3. Militarists, who think that wars stimulate growth.  And giving everything to Lockheed Martin will eventually trickle down (see #2)  

  4. While IANAE, and I can’t really understand the impressive and colorful charts most of the time, I read things like:   Feinberg Said to Lift $500,000 Cap on AIG Executives while at the same time seeing things like this:   FDIC: Failed Bank List (note the number of failed banks in 2009 ?!) and I begin to get the feeling that even those PTB (powers that be) don’t seem to be a lot more savvy about what’s really going on either.  (Wonder if those bank executives will get Christmas bonuses too, for all their talent in running the banks into the ground, and leaving the taxpayer on the hook for the FDIC payouts for their customers?)

    Also, I can’t help but wonder who in the devil is doing what in the devil with the “official” statistics and reports (upon which the lovely charts are based) when I hear the Labor Dept. just reported that Unemployment is down at the same time hearing that several more people (friends of friends or neighbors) had just been laid off or seeing the recent college graduate sons of a neighbor being unable to find jobs in their field, though they are working part time at minimum wage jobs.  

    As I’ve commented recently, this report make it kind of hard to believe that good times are here again just yet:  (12/2/09) Goldman Forecast: Unemployment to peak in 2011. Meanwhile, Goldman Sachs staff seem to believe that the public isn’t experiencing much personal “trickle down” from the bailouts & TARP at this point and that instead they are starting to get really, really angry about seeing the green shoots on Wall St. while noting the lunar landscape in their own neck of the woods.

     

  5. What Recovery? Most See Recession.

    Economists are in broad agreement that the Great Recession is over. The American public strongly disagrees.

    In a poll of more than 1,000 Americans conducted late last week by CNN/Opinion Research Corporation, 84% of those surveyed believe that the economy is still in recession.

    That’s a slight improvement from the 87% who believed there was still a recession in the September survey, but it is almost the opposite view of the nation’s economists.

    I wonder why the sharp perceptual difference between the economists and the public?  Maybe it’s as simple as the fact that the economists and the people they know personally are employed and doing well, while at least 84% of the public is either personally adversely affected by the economic meltdown and/or knows people who are–and no amount of lovely charts can prove that they aren’t experiencing what they are experiencing.

     

    • ANKOSS on December 9, 2009 at 4:25 am

    I confess to taking a perverse pleasure in watching Bonddad’s increasingly strained campaign to persuade the world that the economy is going to be the same as it ever was. He focuses on data points that support his charts and ignores those that undercut his position. Combine this tunnel vision with a mean streak and a short fuse and you have the Rush Limbaugh of economic forecasting.

    Bonddad’s “recovery” is never going to materialize, as the new normal of persistent economic misery in kleptocratic America settles in. I don’t expect him to acknowledge error; he will probably just shut down his blog to concentrate on servicing his wealthy clients.

    • robodd on December 9, 2009 at 5:03 am

    trouble.  But the problem with our plan is it is devoted to reinflating the bubble, not changing fundamentals, like actually funding businesses that actually make things, like training people for good jobs, like investing in education.  

  6. You give an interesting analysis and generous interpretation of motive behind the economic forecasts. Bonddad is too rigid and partisan for my tastes.

    Bonddad tells the story of formerly being a Republican who supported Reagan, and now has come over to the side of reality. I see his story differently. He is a political and economic conservative by nature, but not right wing. As the Republicans and their economic advisers (e.g., Greenspan) moved further to the right and supply side economics, Bonddad didn’t budge from his original beliefs. After a while the Democrats shifted to the right, too, until their views matched well with the old moderate Republicans and Bonddad. We had Clinton and we now have Obama, who in the realm of economics are both center-right. Bonddad is not going to criticize Obama much because Obama holds the same economic philosophy that Bonddad does. Hence, Bonddad is now bullish and doesn’t focus as much on debt.

    Now let me take issue with one of your conclusions.

    I just think that people are missing the most important idea here: massive amounts of debt are the cause of this economic mess, so why would even larger amounts of debt be the solution?

    Debt is a symptom, or in the case of Greenspan’s plan, an objective. The main problem is not debt, but that wages have not kept pace with productivity. Since wages and debt are the main sources of demand, the economy had to be supported by increasing the debt to maintain the equivalence of supply and demand.

    If you fix the debt problem without addressing wages (or productivity) then something has to go, like the standard of living. That’s why it is important for the US to start making things and to protect the American worker as well as the American manufacturer. The multinationals and the off shorers can go fug themselves. Plus the wealthy have to give back what they’ve accumulated in the last 30 yrs.

  7. Day after day, he gives an excellent chart-based, technical analysis of the current markets.

    And as you say, his methodologies are solid. So whether or not you or anyone else agrees with his conclusions is kinda beside the point if you asked me.

    • banger on December 9, 2009 at 5:23 pm

    That is it. Technical analysis has some long-term things going for it that are mainly psychological. Good charts mean optimism for MBA types who are trained on charts. Charts look good then good. So a positive charts will, by their very existence, produce some bullish long-term planning by companies. But you point out that these are not normal times at all. We are entering entirely uncharted ground economically.

    How can sustainable economic growth occur if the fundamentals are shot to hell? Other than creating another series of bubbles, which seems unlikely, there seems to be no where to go at the moment at least domestically other than a rather drastic reduction in the value of the dollar. And that is not possible if the Chinese insist on propping up the dollar, which they do and they will for awhile yet (they will give ample warning before they change that policy). So sustained economic growth of the kind America is use to just is not in the cards.

    But it is also possible that these unique times will bring a unique solution — perhaps a major re-tooling of our energy economy toward sustainable energy and other green economic ventures. But, politically, I don’t see that anyway. But should the political balance change then there’s still hope to avoid the worst of the gloom and doom.

    Oh, before I forget — there is one source of growth we should not discount — an drastic increase in “defense” spending and more wars — that should heat up the economy and intimidate countries to keep giving us protection money. Check out the work of Dr. Michael Hudson on this and other matters.

  8. isn’t whether the are bears or bulls and what their charts do or don’t predict its with what they are measuring. It is completely unhinged from the real economy. The real economy is where we live and how we live. Its surreal to get all tweaked about market’s that main purpose seems to be gambling on the worlds misery for profit that isn’t even real. The financial/investment industries seem to be built on nothing but useless charts and graphs that measure nothing but the  growth of their own scam. Recovery is just around the corner, under the shifting peanut shells that really are just husks with no peanuts at all cause they ate them all. But hey we have got the audacity of weatherization and that will keep those jobs coming in, so we can all pay the vig for the extortionists funny money profits, that don’t increase the deficit.                

    • jamess on December 10, 2009 at 4:23 am

    Structural Change?

    “them Jobs, have gone away,

    and they ain’t coming back …”

    Or the camp of Fractal, Disruptive Technologies?

    spurring, innovation and fortunes, in ways,

    unimaginable, even a year earlier …

    nice “compare and contrast” gjohnsit

    but I would maintain that an Economy,

    isn’t as simple as either Bonddad or Bobswern paints it.

    Economies, are living, breathing Eco-Systems,

    where passions rule, an rationality wanes.

    The Question is, are there any “Undiscovered Countries” out there,

    for the hordes to pour into, next?

    Any Resources untapped and unlimited,

    or tapped out, and diminishing?

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