Someone just asked me where I stood on the optimism / pessimism spectrum. I thought I’d clarify.

Things I’m optimistic about:

1. Jobs
2. Q4 2009 GDP
3. Q1 2010 GDP

Things I’m pessimistic about:

1. Jobs
2. Stock Market
3. Housing Market
4. State Budgets
5. Treasury Market
6. US Economy
7. Global Economy

Just because I’m pessimistic about something doesn’t mean that I don’t expect partial recoveries on the way, it means that I think the longer term trajectory is still down. Treasuries, for example, still could have a lot of upside at the higher end of the curve, particularly if China’s inflation fighting / bubble popping efforts don’t work out. They still represent a flight to safety. Short them at your own risk (my own father is short Treasuries, but he chalks up my concerns to my “Don’t time the market” philosophy). However, invest in them at your own risk. I don’t see any hope for decent real returns on anything past 3 years. Even PIMCO is treating a big chunk of their Treasuries as trades, not investments. Longer term, I’m pessimistic because I think the idea that US Treasuries are an instrument of safety is changing.

Expecting decent Q1 GDP numbers is new for me. I thought for sure growth would stall in Q4, but as of now, Q1 will require a catastrophe to be derailed. I thought Q1 might be the catastrophe that derailed other recovery factors. I’m willing to switch back to pessimism if the data starts coming in weaker, though.

I put jobs in both categories. The labor market fell apart last year. We may still fall a bit, but things are much more stable than last year. The census hiring, while temporary, may provide a boost to the statistics. Historically, it hasn’t, but this year is between 2x and 3x the hiring of 10 years ago. The quality of applicants is reported to be up. This is a horribly inefficient process (better people, but we need more?), but it’s fairly cheap compared to some of the other attempts to juice the economy. I’m optimistic here.

I’ve been following a not-so-friendly exchange between Squashed and Randy Haddock. Just a quick glance at the numbers tells me these won’t be permanent jobs. In our glorious military industrial complex, $150,000 for a $50,000 a year job is pretty standard. In accounting for that industry, they call that a 3:1 overhead ratio. “But wait!” you say, “Only $100,000 is overhead. Isn’t that a 2:1 ratio?” I said that accounting was important, not that its semantics and jargon made sense (doubly so in defense and aerospace accounting). Once that spending disappears, though, so do the jobs. The overhead does pay for some administrative staff, so it’s not just rent and electricity as overhead, and the jobs numbers get a bit underreported. This is good for the statistics (the admin jobs will show up in the employment reports, but not necessarily the “jobs created by spending program X” reports). However, anyone familiar with government contracting would look at these numbers and think it’s about right for temporary, not permanent, jobs. There’s some hope that the green jobs will be self sustaining after an initial investment. Fortunately, analysts for just about every investment boutique have looked into this. To make a very long story short, the punch-line is “South wins, West loses.” That is, green jobs in California, Oregon, and Washington will not be sustained without additional government spending, but there’s a good chance the investments in manufacturing centers in the South (Tennessee is a favorite) will prove to be good investments. I’m not even that optimistic. Why will manufacturing in Tennessee win out over manufacturing in China? As an aside, I invest my own funds into green stocks every month, so I must not be too pessimistic about this over the long haul. Still, I’d consider myself optimistic in the short run, but pessimistic on a longer time frame. I think my investment optimism is out of risk asymmetry: If a meteor was spotted heading toward the Earth, I’d put all my free cash betting that it didn’t wipe us out. If the meteor hits, the cash wasn’t going to be my main concern. I feel the same way about the green industries. I’m also a peak oil proponent, and the two positions are related (so, discount that stance if you discount peak oil).

Jobs will continue to be lost in construction, retail, and service. There was a bubble in construction, and some big projects started during the bubble have not yet finished. Upon completion, many of those jobs will not come back for a long time. That’s the nature of a bubble. Retail and service jobs will continue to be shed for a while as well, with some seasonal gains here and there. The US is still over-stored. Commercial Real Estate is starting to experience significant problems, and strip-mall jobs will be a casualty of the collapse. I’m pessimistic here because the US economy is still a consumption economy.