Monday, June 08, 2009

Reports of Krugman's Capitulation Premature

We at TILB are fans of BTIG's Mike O'Rourke. While we often disagree with his views or conclusions, we respect that he represents the thoughtful voice of The Trader. He provides a nice intersection between technicals and the trading interpretation of the news of the day.

Well, today Mike did a little more digging on the Krugman piece widely cited by the blogosphere as proof that Paul capitulated on his non-green shoots stance. Mike found that the content of Krugman's speech in fact continued to promote Krugman's view that a Japan outcome is an upside scenario for The U.S.

O'Rourke's words follow (excerpted from his nightly Bedtime with BTIG distribution):

It was astounding to see the headlines and comment from Nobel Laureate Paul Krugman at the London School of Economics, “I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer.” This is the same economist who, three months ago, was an ardent proponent of a $1.4 Trillion stimulus and co-head of the group in favor of nationalizing the banking system. He was at the extreme end of the spectrum with respect to the size of the stimulus, and while he had ample company in the nationalization camp, that is not a stance one should take lightly. Did he really have a radical change of heart? Not likely. We found it hard to believe that he would reverse positions and be even more optimistic than we are so we watched the lecture in its entirety. What was widely missed across all of the headlines and reporting was Krugman’s following statement a few lines later, “There is a lot of reason to think that this is going to go, that the world economy is going to stay depressed for an extended period. In fact, as I said at the beginning, the Japanese lost decade is actually starting to look good in terms of depth right now, it was not nearly as deep as what we are going through and I am actually worried that it will start to look good in terms of duration as well.” Krugman is speaking again in the next few days so do not expect those headlines to be quite so positive. Evidently, he had to acknowledge that some aspects of the economic data are better than expected, but he is still clearly in the mindset of “Depression Economics."