Drug-induced optimism? Botox sales up. Consumer confidence down. It just doesn't make sense.

We note in the paper this morning that Allergan has reported good profits, thanks partly to higher sales of Botox (+10%) and Restasis (+18%). I guess the increase in Botox sales means the consumer is doing better; she has money to spend, and is ceasing to behave like the Madwoman of Chaillot, becoming more mindful of her appearance. Consequently, since it is hard to express emotion while under the influence of Botox, said consumer can neither cry nor laugh, pushing up Restasis dry-eye treatment sales.

What does this say about mass psychology following the Great Recession? We are clearly past denial, and maybe mostly through anger, but what about the other stages of grief? My bet is that ever more people are between depression and acceptance.

Should this trend continue, there will be fewer angry people to attend Trump and Sanders rallies as the folks start going about their business in a more normal way; GDP growth is likely to pick up.

At the same time, we learn this morning that consumer confidence has unexpectedly declined. Fed take note: More Botox is needed. (How about the Fed printing Botox certificates that are tradable and redeemable? A certain amount of economic activity would directly result; in addition, the Botox treatments would greatly increase confidence. It's time for the Fed to try something different, something that might work.)

Unfortunately, Allergan is already an expensive stock and its shareholders are smiling only slightly, which is probably the best they can do, under the circumstances.

El-Erian fears doom, but hopes for the good enough

Mohammed El-Erian has just published a book, The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse. He says the world economy is on a road heading for a "T junction," to use a British phrase. We must soon choose between the two roads. One leads to total destruction (depression, social disorder) and the other to some sort of survival. He assigns a 50% likelihood to each outcome. To achieve the latter somewhat better outcome, far-sighted, enlightened and public-spirited actions are required from our leaders. (It is unclear how he gets a 50% likelihood that this will happen. It's rather like Samuel Johnson's definition of a second marriage, "the triumph of hope over experience.")

As for the central banks, we have reached the point where a continuation of extraordinary measures (ZIRP, QE) is counterproductive, and even destructive. He goes so far as to say that apart from the emergency measures during the crisis, the central bank monetary manipulation experiment has not worked.

Yesterday my wife listened to El-Erian's hour-long interview on Tom Ashbrook's show "On Point" in the morning. She insisted I hear the replay in the evening, but I resisted as I was reading a book. I did, however, subsequently download and listen to the podcast. It is well worth hearing. It is anything but the party line.

The link: http://onpoint.wbur.org/2016/02/16/economic-market-crash-prediction


Yours truly,
Lincoln