Friday, April 04, 2003
Bullish Musings-It's a Friday afternoon. Classes are done for the week. Just after my Micro class, one of my students complemented me on doing essay exams (they make the student tell what they know rather than pick at existing answers) even while nit-picking my scoring. On the way back from getting a big glass of pop from the cafeteria (fringe benefit-faculty and staff get to raid the beverages for free if we bring our own containers) I got momentarily included in a kick-the-soccer-ball session with three students in the quad and had a perky coed from last semester's Personal Finance class greet me. My folks are coming to town and we're heading up to their timeshare in Kissimmee for the weekend, doing the Mouse tomorrow and taking them to our church on Sunday. I'm in a good mood and it's not just from the "Doctor B!" salutations hollered by the basketball players. This is a good place to live; walking in shirtsleeves in early April and being a bit warm (low 80s, I'm guessing) is nice, but the US is a nice place to live in general, as Patrick Crozier comments over at Samizdata. We're on the verge of winning the war in Iraq.Terrorists have yet to rear their heads in solidarity with Saddam. This should mean that the economy should recover. The Iraqi win will take a lot of burdens off the economy. Oil prices will return to normal once things are finally settled. The lack of terrorism over the win should allow markets to breathe a sigh of relief. Krugman is making SARS to be a growth-killer, but I don't see it being a major factor in the US economy at this point.
Optimists now place their faith in the supposed salutary effects of victory in Iraq. The theory is that businesses have been postponing investments until uncertainty over the war is resolved, and that once that happens there will be a great surge of pent-up demand. I'm skeptical: I think the main barriers to an investment revival are excess capacity, corporate debt and fear of accounting scandals. (The revelations about HealthSouth suggest that there is still plenty of undiscovered corporate malfeasance.) I also wonder whether victory in Iraq will mark the end of uncertainty, or the beginning of even more uncertainty. Are we on the road to Damascus (or Tehran, or Yongbyon)?" The excess capacity he whines about is primarily in the computer and telecom industries. While Enron was a tragic crash-and-burn, there doesn't seem to be any more accounting chicanery today than there's been in the past and investors will regain confidence in financial statements. Yes, there's plenty of undiscovered corporate malfeasance, but you could use that phrase at anytime in the last half-century. You have to take accounting statements with a grain of salt, but I don't think the required dose of NaCl has changed much since I started following finance two decades ago. Will Pax Americana continue to march? Probably not as much as he'd like us to think. Syria seems safe, unless they are actively hiding some of Saddam's goodies; a few targeted strikes at terrorists or WMD stashes might be called for, but an all out road trip to Damascus seems unlikely. Iran will most likely be allowed to stew in its own natural democratic juices. I had to Google the Yongbyon reference, that's the main North Korean nuke plant. That might be the one most likely to be raided. However, North Korea hasn't used any WMD in its existence, so containment might work better in their case. Iraq has oil money to buy the bad stuff with, but the North Koreans don't have much besides weaponry to sell. Unless war breaks out in East Asia, the markets seem secure. I'm looking at a fairly full glass. Lower oil prices and reduced threat of terrorist attack should give the markets confidence. SARS doesn't appear to be a big enough problem to affect GPD and the next war seems a ways off. I majored in PoliSci, not Pollyanna, but I don't see the downsides that the naysayers bring up slowing things down that much.
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