Since hitting bottom in June 2009, US manufacturing production has risen at a 7.4% annual rate, and has now recovered about half the ground that was lost to the 2008-2009 recession. That still leaves a lot of room for improvement, but there is as yet no sign that the pace of growth has diminished. At the current rate, manufacturing production will have made a full recovery within the next 18 months.
As this next chart shows, U.S. industrial production has been growing at about the same robust pace as Eurozone industrial production since the end of the recession, with both up at about a 5% annual pace in the past six months. The recovery is proceeding at a decent pace almost everywhere, and there is no reason at this point to doubt that this will continue. To be sure, the level of industrial and manufacturing activity remains depressed relative to previous highs, but it is the change on the margin (which is proceeding at an above-average rate) that is the important thing to focus on. Things are getting better at a decent clip, and will likely continue to do so. There are lots of good things to look forward to.
Boy, those are sickening plunges in 2008-9. No wonder equity investors are chary.
ReplyDeleteI would like to see, with clarity, a system not prone to near-complete financial collapse.
I have not heard anyone call for a free-market solution--that is, wipe out not only Fannie and Freddie, but the FDIC.
That leaves us at least with government umbrella or regulatory solution. Not enticing. But if we have government involved in finance, what should government do to prevent the next Long Term Capital Management or AIG?
Charlie Munger says get rid of financial derivatives, and Buffett doesn't use any (to may knowledge).
Hard call.
Buffet referred to derivatives as “financial weapons of mass destruction” because of Berkshire's 4 years struggle to untangle itself of General REs $400 Billion notional value of contracts. They lost $100 Million getting out of them. But Buffet has personally authorized put options on equity market indexes. See the following from the NYTs, 29 April 2010 . The link is below.
ReplyDelete"For someone who once called these instruments “financial weapons of mass destruction,” the Oracle of Omaha has accumulated quite a portfolio. He has sold “put” options on various equity indexes and some credit default protection too, with an exposure of up to $63 billion. Realistically, the market value of Berkshire’s derivatives liabilities stood at around $9 billion at the end of last year.
http://www.nytimes.com/2010/04/30/business/30views.html
William--
ReplyDeleteInteresting. I think what worries me is heavy, heavy leverage (100-to-1, ala Long-Term Capital management) married to complicated financial derivatives.
We also have the problem of investors not knowing what a complicated security is worth--ala CMBS, or CDOs--during periods of financial tumult, and that (when married to leverage and derivatives) also seems to lead to systemic collapse.
Our financial system collapsed--that is the reality. Equity investors cannot be asked to simply forget that (at least or a few more years--then all is forgotten).
I assume Buffett was doing rather straightforward hedging. (At least the public image of Buffett is a fellow who likes clarity).
I say clarity and transparency is good. Especially on Wall Street.