Good News Update: Nouriel Roubini Versus Warren Buffett

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  1

  MarkWolfinger

  11/06/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  1) Productivity did NOT rise at 9.5%. that's the propaganda put out by the reporting agency.
  
  That's the increase in productivity per hour worked. The hours worked declined by plenty. As you know, when the denominator goes down, the calculated number goes up.
  
  

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  2

  larry swedroe

  11/06/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Mark
  That is exactly what productivity means. If hours worked fell and output did not then productivity rose--which is good for profits, good for inflation and bodes well for future hiring---typically productivity a leading indicator.

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  3

  MrRosemary

  11/06/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Is Buffett an optimist or an investor? He's all over CNBC talking about his BNSF purchase like he just bought a billion vaccines and devoted a fortune to crippled children missing their arms.
  
  With railcar freight loadings mucking along the bottom, he's buying low. To make this into some bold statement is a bit silly. Economies do what economies always do -- tend towards growth. He's just playing the odds.

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  4

  larry swedroe

  11/06/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Mr Rosemary
  
  First, if he was not optimistic about the outlook for the economy I would hope we could agree he would not be buying companies now. He would wait until he could buy even cheaper. And to quote directly from my post
  "You are betting on the United States. I can?t think of a surer bet.?
  
  Second, Buffett's advice has always been to ignore all forecasters:
  
  "We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children."
  ?James Altucher, Trade Like Warren Buffett, Wiley (2005), page 196.
  
  And here is another:
  
  "A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting."
  
  
  So the bottom line is Buffett ignores market forecasters and is optimistic about the US economy. So my question is who should you take your advice from Buffett or Roubini? No question in my mind which is the right answer and I think the vast majority of people would agree if you frame the question that way. But people don't do that. They listen to Roubini who is obviously a smart guy who presents intelligent sounding arguments. And that scares them and keeps them from investing. But the evidence shows that while forecasters like Roubini are always confident they are right, the evidence suggest that their ability to forecast is no better than the proverbial chimps throwing darts---as I have written about in my posts before, presenting the evidence.

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  5

  MarkWolfinger

  11/07/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Larry, you are telling me that the more people out of work (fewer hours worked) is a good sign for the economy?
  
  That large increase in productivity you described as a bullish and happy times indications is nothing of the sort. Not when it shows fewer and fewer people working.
  
  

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  6

  larry swedroe

  11/07/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Mark Any economist will tell you that the rise in productivity is a good thing.
  
  First, as I noted it is an excellent sign for corporate profits which have been coming in well ahead of expectations for exactly that reason.
  
  Second, the better than expected corporate profits has helped fuel the stock market rally--and the stock market is a lead indicator of the economy.
  
  Third, the rising stock market is increasing wealth again it is contributing to rising consumer confidence--which in turn leads to increased spending.
  
  Fourth, rising corporate profits gives companies the ability to increase investment.
  
  Fifth, the sharp rise in productivity sets the stage for future job growth since labor probably cannot be squeezed further--so any sales growth will now more likely be met with rising employment.
  
  Note that rising productivity is very typical of the end of recession for the reasons stated above.

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  7

  kevinaom

  11/07/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  I think there are two points which need to be mentioned: 1)
  I do not believe Buffet when he says the BNSF is a bet on
  the US Economy. Indeed, the BNSF network is West - East
  and specifically designed to move goods made in Asia into
  the United States. I was at a BNSF conference where all
  they talked about was the need for billions of dollars of
  GOVERNMENT money to shore up the rail coming out of the
  west coast ports.
  
  So, the BNSF, in my mind, is a bet on the fact that cheap
  imports will continue to flood the US market and destroy
  our manufacturing base.
  
  Second, Roubini is not saying the economy is bad what he is
  saying is that the growth in the economy can almost 100%
  be attributed to Government stimulus. As soon as that
  stimulus is pulled (which it must some day, we are only
  arguing about when) the US economy will go back to
  crumbling as the fundamentals have not changed at all.

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  8

  larry swedroe

  11/07/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Kevin
  The question is really why would you listen to Roubini in terms of investing decisions when all the literature is clear that there are no forecasters who can foresee the future.
  
  If interested in the subject, I suggest you read William Sherden's excellent book The Fortune Sellers and Philip Tetlock's Expert Political Judgment.
  
  Note Buffett's own statement about his optimism about the US economy and also note that if he was pessimistic he would be a net seller of stocks, not a buyer, which he has been doing for the past year.
  
  What truly amazes me is that despite the record showing there are no good forecasters people let their portfolio decision's be driven by who has been annointed by the media as the latest guru. Like MacArthur said about old soldiers, all forecasters fade slowly into the sunset.
  
  

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  9

  MarkWolfinger

  11/08/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Larry,
  referring to reply # 6.
  
  I see that you buy into the official view of economists. I must point out that the vast number of economists saw no trouble ahead prior to last year's massacre.
  
  If they pride themselves on being unable to see trouble brewing, why in the world would anyone accept their predictions that all is well and that the future is bright?
  
  1) If all economists think increased productivity is a 'good' thing when that increase comes as a direct result of increasing unemployment, I believe that tells you all you need to know about the collective wisdom of these economists. And it's not flattering.
  
  2) Corporate profits are increasing. But where are the increasing revenues? These 'profits' come from cutting costs. That cannot continue forever.
  
  3) The 'increasing wealth' statement is true only for the wealthy. The poor are far worse off than ever. The middle class is doing ok - but only when employed. With unemployment increasing steadily, too few are getting wealthier.
  
  4) Unemployed people do not spend money. They do not contribute to the economy and that is apparent when companies report higher earnings on declining revenue.
  
  5) Do you see companies investing their 'profits.' I don't. Do you see banks lending money so business can grow? I don't.
  
  6) I believe the ecomomists see a rising stock market, have no idea why that's happening and thus, tell everyone that prosperity lies ahead.
  
  If the idea is to plant false confidence and to get everyone spending and stop their newly discovered habit of saving - then I understand. But I cannot imagine collusion being that wide-spread.
  
  I am not predicting disaster ahead, but I fear it. Business cannot grow without revenues. Revenues are more important that current profits when it comes to the future.
  
  Good conversation. Thanks
  Mark
  http://blog.mdwoptions.com
  

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  10

  larry swedroe

  11/08/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Mark
  
  Try thinking of it this way. Let's assume that productivity fell (and profits negatively impacted). That would mean companies would have to lay off more workers because they had too many given the level of sales. That is why in the early stages of recessions productivity typically falls--companies cannot predict recessions and they are reluctant to let workers go unless they believe the downturn is a long-term one.
  
  The reverse is true near the end of recessions, at the turning points. Productivity rises as companies have now cut costs faster than sales have fallen----and as sales start to pick up, productivity rises because companies are reluctant to take on more workers until they know the recovery is a lasting one. So the rising productivity is a very good thing, not only for corporate profits but also as a sign that companies likely will have to start to hire more workers as they have now squeezed out all the gains they could.
  
  In addition, there are all the benefits I mentioned that come with rising productivity---like holding inflation down.
  
  So that is why it is rising productivity is a very good thing.
  And the fact that economists cannot predict economic activity says nothing about whether rising productivity is a good thing or not. You should not mix two issues.One has to do with facts, the other with fortune telling.
  
  Your second point on profits is correct. But that also means that the next step is to hire more workers as sales pick up (see above) whereas if productivity had been falling they would not need to hire more workers as they would have excess capacity. My company is good example. Last year we had two rounds of layoffs and now we are hiring again. Our increased productivity helps, but we now have more business than our staff can handle, so we need to hire more people again. The rising productivity allowed us to do so. I hear anecdotal evidence of similar stories from friends all the time.
  
  On the third point, keep in mind that while 10% unemployment is terrible, 90% are employed and most Americans have investments in stocks and the rising stock market is helpful in terms of net worth (and spending) and also confidence.
  
  On the fifth point, companies don't currently need to invest (at least in capacity) as there is excess capacity but they still invest in productivity enhancing activities like computer systems etc. And new orders have been rising. And as sales pick up because of the rising productivity and increased profits they now will have the ability to spend, not just the need.
  
  On the last point, the evidence is clear that there are no good forecasters of the stock market (as much as we would like to think otherwise) and that is because so much of what drives stock price are surprises which by definition are not predictable. But we do know that the stock market is a leading indicator of the economy---not a lagging or coincident indicator. The market tends to go down before recessions and recovers well before they end.
  
  Hope that is helpful
  Best wishes
  Larry

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  11

  MarkWolfinger

  11/09/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Larry,
  
  One question: If productivity rises - and yes, it's a good thing - that means current workers are more efficient.
  
  Why would companies hire more workers when the same work can be done by fewer?
  
  Mark
  
  
  

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  12

  larry swedroe

  11/11/09 | Report as spam

  RE: Good News Update: Nouriel Roubini Versus Warren Buffett

  Mark
  
  Obviously they would not--but the point is that the rising productivity is now so high that workers cannot be "pushed further" so that if demand increases new workers would have to be hired. On other hand had productivity been falling then new demand could be met with the existing workforce who could produce more without hiring new people
  
  That is why rising productivity like we are seeing has historically been indicator that we are coming out of recession
  
  Best
  Larry