Michael Mussa is a no-nonsense economist. It’s always good to hear him.
Mussa offers some insights of why he thinks US economy will have a rapid recovery. He expects annual growth rate to be 4.5% and accumulative growth rate from now to the end of 2010 to be 6.8%, both substantially higher than the blue-chip forecast.
Mussa’s forecast largely based on the observation that the sharper the economy falls, the steeper the economy will come back. This statistical behavior of business cycle is shown in the following graph and also documented in my previous post.
Mussa’s forecast still left many questions unanswered: Should we simply rely on a historical statistical pattern to make our economic forecast? We know every recession is different; What if this Great Recession is so different that it will break this historical pattern.
Now I give you Michael Mussa (Source: PIIE, about 30 mins)
Following my last post that looks at the current market rally in historical perspective, here is another update from FT.
Just admit it: most institutional managers simply missed the rally since March. Now in order to keep their jobs or get higher compensation, they have every incentive to get into the market even when the market is already overpriced.
This is one of the main reasons why we had bubbles in the first place: investment managers compete for portfolio performance with their peers — as long as the party is on, they will have to keep dancing.
I am afraid we are likely to head into another asset bubble.
(click to watch; source: FT)
Nicholas Lardy and Morris Goldstein, of Peterson Institute of International Economics, talk about the evolution of China’s exchange rate policy and the future.
Starts to watch from 3’30”.