The Next Round?

It appears that Aaron may well have been spot on in his fine post concerning predictions for 2010. I have been bearish for a number of years, but I have a very hard time spotting exactly when the corners will be turned. The stock market rally that began in March was to be expected, but its timing, magnitude, and duration caught me completely by surprise. I have learned my lesson and try to keep my predictions relatively broad. But a fair number of indicators appear to be pointing to mid-2010 as a very trying time for the economy, more akin to 2008 than 2009. Some of these indicators I mentioned last time. The accumulation of copper inventories puts the lie to positive manufacturing data, but a substantial fall in prices will be needed to confirm this suspicion. Prices continue to rise in the face of building inventories, a strange phenomenon that should heap doubt on the nonsense about recovery and more than hint at the real source of what we see. But possibly the biggest threat is to the financial sector, and, once again, the mortgage market. In case you haven’t yet encountered it, here is one of those semi-famous graphs that has the finance commentariat in a tizzy:

(click to enlarge)

Notice the lull in mortgage resets through 2009. A “mortgage reset” is a contractually specified time point at which the up-front “teaser rates” for an adjustable rate mortgage expire and higher rates set in, rendering payments higher. For whatever reason, fewer resets for 2009 were written into contracts, so there has been a reprieve in foreclosure activity for about a year. But we sit on the very cusp of a return to 2008-level conditions. Expect foreclosure activity to pick up again in 2010, with consequent strain on the financial system. This time around, though, we’ll already have 10+% unemployment, Washington will have much lower tax revenues to work with, housing prices will already have taken a hit, and our financial system will already be against the ropes. It appears that Barney Frank and the rest of our keepers on Capitol Hill are prepared. They have authorized up to $4 trillion in additional bailouts (ht. Vox Day) from the FED “just in case” there is another incident as we experienced in 2008, which tells me they fully expect another financial emergency and don’t want to be caught with their pants down this time. I guess they’d rather it was our pants. What will be the outcome of all of this? I’m leery about predicting too much, because so much is simply arbitrary, being as it is in the hands of our democratically elected overlords to determine. I suspect we will see another round of dollar strength, as, once again, people can’t pay their bills and cash becomes king. I repeat: that is a very different proposition from actual deflation, as I have no doubt that the FED will have the money spigots wide open. But we’re talking supply and demand here, and when everyone is desperately selling off their assets to acquire the cash to pay bills, cash is what’s in demand. Which is one of the reasons politicians want to print it in the first place. I expect that this will be the case until debt levels are substantially reduced, a state which I expect will largely be achieved almost exclusively through default, both outright and through money counterfeiting, not legitimate savings and paydown of debt. One needs cash to pay bills, but one needs property to escape inflation. Safe, secure property, not paper. As long as present money printing is marginally less than present demand for paying bills, the CPI will be relatively tame. But once we get to the stage that the primacy of security against the bill collector has yielded to security against Bernanke’s printing press, the inflation will finally be revealed to all and sundry. Only some of us will have known the real causes and that the die was cast far sooner. But I don’t expect we’ll get there in 2010. I certainly hope we don’t. However, I could easily be wrong. I’m only an amateur. So, my prediction: going forward, deficits will not fall as predicted. They will climb. I think Aaron's guidance for 2010 is pretty good. I'm going with a round $2+ trillion.

Obama Will Win Big....Probably

electoral-vote.com has it at 375 Obama to 157 McCain, Politico shows 364, 174, and most mainstream maps point to an Obama landslide as well.  Intrade prediction markets stand at 84.3 Obama, 15.8 McCain.  Things don’t seem to be going well for McCain.  This week and last there were reports of rebellion from Palin, finger-pointing in his own camp, and various conservatives and Republicans endorsing Obama.  All this signals a ship that is on it’s way down, and the McCain campaign is grasping for air in this last week.

 

My prediction:  Obama will win big…with one huge caveat. 

 

As long as something does not surface this week that scares voters into voting for McCain.  McCain’s whole campaign has been based on fear; fear that Obama is a (black) Muslim, terrorist, elitist, Anti-American, socialist, Marxist, tax-raiser/distributor, Anti-Christ, etc.  Sadly, I think this strategy is working.  Some polls are already beginning to narrow.  And even sadder, it's all McCain has to run on. 

 

It is reported that the LA Times has a damaging tape of Obama at some sort of Palestinian meeting or rally.  And Palin is now trying to link Obama to the PLO.  Rush Limbaugh pounced on this story faster than you can say ditto.  If the tape or any other surprise go mainstream in time, and more importantly stick in the minds of voters, mix in a little Bradley effect, and McCain could stage a huge upset.  

Otherwise, it will be an Obama landslide.

Election Predictions!

Realclearpolitics has Obama winning in a landslide:

Obama/Biden 306

255 Solid 51 Leaning

McCain/Palin 157

127 Solid 30 Leaning

Toss Up 75

75 Toss Up

Looks like even if McCain gets all the tossup states, he still loses. I'm no McCain fan, but I have several reasons to suspect these polls are inaccurate. To enumerate:

• The polltakers tend to be MSM folks, who are biased towards the left
• The political climate has become so heated that conservatives in large part avoid pollsters altogether, avoid talk of politics, and flat out lie when the question is forced as to their political leanings
• "Operatives" of the left systematically try to skew the results by seeking out pollsters, making the election of their candidate look like a foregone conclusion

Anecdotal evidence supports the first two of my contentions, and for a specific (if unverified) example of the latter, check here (courtesy of Fran at Eternity Road). The poll tinkering has been going on for years, and I can specifically remember a flabbergasted Michael Barone on FoxNews during the last presidential election calling for criminal investigations of horribly skewed exit polling showing Kerry winning Ohio handily. If you'll remember, he actually lost in a vote that was not really all that close. I haven't been following the election much since the end of the Republican primary, mostly becase I simply don't care who wins at this point. National politics has also lost its appeal to me, as it no longer matters much who wins and who loses. We end up with the same policies either way, it seems. At any rate, were I following the election closely, I would not take polling too seriously, as it seems to get less and less accurate with each passing election. Which brings me to my specific prediction: McCain wins in a "surprise" upset, in an election which really isn't all that close, despite rampant voter fraud on the part of ACORN and the poll rigging already discussed. Thanks to the illusion of a sure Obama victory created by their own dishonest tactics, the broader left once again feels disenfranchised and robbed by the electoral process. While a conservative would be shamed by the notion that he couldn't even win by cheating, this will only enfuriate the left and somehow further legitimize their belief that they are shut out by an electoral process which is inherently unfair. (Yes, I am aware that the previous sentence makes absolutely no sense. Nobody ever accused a lefty of being rational.) In short, I predict a McCain victory, followed by "civil unrest" in the predictable locales. Furthermore, I expect subsequent elections to get progressively dirtier as the state expands and the stakes get ever higher for the winners and losers. Once again, yet another argument for libertarianism. Can't we all just agree to leave eachother alone and try to get along? But I could be completely wrong. Thoughts, anyone?