You cant call statements like that "denial" when empirically, they are no false statements. They are predictions.
It is quite likely that, indeed the stock market bottom of late 2002 is behind us for a long time, perhaps forever. Even 9000 is a fairly decent valuation on the dow, wich earnings-ratios well above interest rate levels for may solid companies and with earnings able to accelerate in future years.
"So my point is, ok, what does it take to make the denial analysis work--what makes the stock market go up; keep the real estate bubble from collapsing; and see a general economic recovery? What would you expect to see if the denial argument was going to be correct? And one of the things you would see very early is increasing tax revenues at the state, local, and federal income tax levels. "
Tax revenues are a trailing indicator ... the *LEADING* indicators would be: Investment levels (so the stock market level is a 'temperature reading' on that, so is VC activity); margin improvement (so a tax cut is a *leading indicator* of improved conditions) and margin levels at businesses (ie profitablility, often businesses cut spending until the margins are better, then they start hiring); unit demand (ignore the $ numbers, what about unit demand?).
Some of those numbers are turning around
"Fact we are not seeing those revenues is the most important indicator that those in denial will not be correct." Wrong. as a trailing indicator, tax revenues are only telling you how bad 2001 and 2002 were. you will have to wait for 2005 to find out how 2003 and 2004 stack up. Far better to use *leading* indicators, not trailing ones.
"The country is still generally in denial--"the stock market bottom is in"; "real estate has real value and can't go down"; "recovery in the second half"; denial that the real problem is an imbeded deflation resulting from excess levels of debt."
"You cant [sic] call statements like that "denial" when empirically, they are no [sic] false statements. They are predictions."
In context, the point of that text was not predictive at all--rather to suggest that the investor and personal use real estate owner does not recognize the risk that the "real values" analysis does not protect real estate pricing at current levels nor recognize the fundamental economic proposition that underlies the deflationary trend in pricing of all other durable goods.
We have deflation which is caused by the commitment of an excessive share of periodic liquidity flows to payment of existing debt, precluding new financial commitments in current transactions.
Consumers and stock market investors continue to expect a "recovery in the second half"--my observation was not predictive that one would not occur but rather an observation of the general state of denial of the possibility that it would not.
Under circumstances where there are no facts that imply a second half recovery and many real estate statistics in most real estate markets have topped, I think the characterization as a "state of denial" is reasonable.
Predictive? In fact, there won't be any second half recovery of any character. And the real estate bubble is about to pop, even in California.
" It is quite likely that, indeed the stock market bottom of late 2002 is behind us for a long time, perhaps forever. Even 9000 is a fairly decent valuation on the dow . . . . "
May not have noticed that the Dow is not above 9000 any more. More predictive? I don't know what you would characterize as a "long time"--in the case at hand, sixty days may not be long enough. My own fearless forecast--new lows will be seen well before Thanksgiving.
I don't see tax revenues as leading indicators. However as a guage of current conditions, tax revenues in various categories will give you some idea of what is happening. Given the large share of the overall economy represented by government spending (other than federal), the curtailment resulting from legal prohibitions on deficit spending is signficant as an indicator of future local government activity.
Margins are not better. Direct labor productivity has increased some because a smaller work force is putting out comparable levels of production but prices are going down fast enough that gross margins are also down. Unit demand at lower prices is not positive at all--I would love to have a new Porsche if I could get one for $10,000; I just can't afford one at $108,000.
My real point was not intended so much as predictive, although I have now reached the point where I am prepared to make some predictions but rather to ask the rhetorical question, what conditions would you have to see to believe that in fact there is going to be an economic recovery in the second half of 2003 (or are you giving up on 03 and now looking for 04), and what has to happen to hold real estate prices up.
There is some finite limit on how much current liquidity flow can be committed to debt payment. That limit is not subject to arithmetic calculation. But there is a basic level of minimal economic commitment, food, clothes, gasoline, etc. that will be met before debt service. At the point liquidity flow is fully committed, consumers and real estate buyer will not commit to additional debt to buy the next house or car.
Further, in the real estate market, liquidity flow requirements are going up independent of prices--insurance prices are up; real property taxes are up; utility bills are up significantly; all in a market where jobs are disappearing and incomes are threatened. Very difficult for me to see how prices can remain at current levels.
The issue is, what do you have to believe is happening to believe that stocks will go up; the real estate bubble won't pop; and that there will be a "recovery in the second half (of 2003 that is; or even in the second half of the first decade of the twenty-first century)".
I happen to be in the tax business so I can tell you from direct personal first hand experience that nothing in the Federal tax legislation is any kind of positive indicator of future economic activity--overall tax burden is up not down.
Margins are not improving and neither are profits. New cars are accumulating in every dealer storage facility. The available evidence is not for economic improvement at all--the economy is poised (as is the real estate market and the stock market) at the edge of the cliff.