Greece's former prime minister says there are preparations in the works for a Euro exodus, just in case - and U.S. stocks rapidly give up the day's gains... Isn't that interesting? Every economist with no skin in the game has been predicting Greece's ultimate ouster for at least the past couple of years... So wouldn't ya think Greece might attempt to batten down the hatches, just in case? Should we therefore be alarmed? Really?
But here's the problem; the market's (traders') tolerance for pain is exceedingly low these days... All evidence as to what the hell happened points to over-spending, over-borrowing, and over-governing, and traders couldn't give a rip... All they know is thatif Greece exits the Euro, all hell "might" break loose... So any measure (printing) that would keep that from occurring is a buy stock-worthy proposition...Forget about bubbles, forget about the long-run; like Keynes always said, "in the long run we're all dead"...
Clearly, common sense to you and me (the notion that when you party too hard you suffer, learn, and [for survival's sake] change) is utter taboo to traders, to too many economists, and to the monetary policymakers of virtually every developed nation... In the trader's, and academic's, view of the world; you party hard, you suffer, you stop spending, the economy suffers, politicians suffer, central bank officials panic, they print, you go back to partying, the economy heals (itself, by the grace of amazingly resilient entrepreneurs) and begins to turn the corner (albeit at a substantially slower than a free-market pace) - and policymakers will believe they made it happen...
Or, in the words of Nassim Nicholas Taleb:
"Just as one day some primitive tribesman scratched his nose, saw rain falling, and developed an elaborate method of scratching his nose to bring on the much-needed rain, we link economic prosperity to some rate cut by the Federal Reserve Board."
As for Greek [fiscal] culture; in the words of David Letterman:
"Facebook is worth $100 billion. Today it was friended by Greece."
Tuesday, May 22, 2012
Monday, May 21, 2012
Sunday, May 20, 2012
Your Future Looks Quite Bright to Me...
If your personal stock market experience began twenty years ago (assuming you're the diversify, buy and hold type), you lived through four notable declines; '94, '98, '00-'03 and '08 (the latter two being [historically] extreme) - and yet you have cause to feel pretty okay about your venture... The Dow (I use the Dow because it's the media's benchmark) sat at 3,379 on May 21, 1992... Last Friday it closed at 12,369... A near quadrupling over twenty years ain't that bad - all things considered...
But if your foray into stocks wasn't until late spring 2002, you've suffered the worst of the tech-burst and all of the Great Recession - in the span of a single decade... Thus you're not nearly as inspired by the market as the bloke who got in ten years earlier... The Dow, on May 21, 2002, closed at 10,106... A mere 20% gain isn't at all what you had in mind all those years ago...
Let's go back forty years and play this out a decade at a time - (around) means I had to take the number from a graph:
2002-2012: 10,106 - 12,369
1992-2002: 3,379 - 10,106
1982-1992: (around) 870 - 3,379
1972-1982: (around) 925 - (around) 870
(Consider this a snapshot... A thorough analysis [an utter waste of time that is] would include all thirty decades ['73-'83, '74-'84, '75-'85, and so on, with the last being '02-'12])
As you can see, the market was a nice place to spend a decade if you began in '92 or '82... But no picnic had you started in '72 or '02... And while 2 decade experiences have tended to validate equity investing(look at '72-'92, '82-'02 (meteoric) and '92-'12), 20 years is a friggin long time, particularly if you began in '72 (abysmal first 10 years) or '02 (uninspiring first 10 years)...
So what does all this mean for you? Unless your last name is McFly and you drive a DeLorean, absolutely nothing... Hindsight (regardless of what the "expert" or the historian might have us believe) tells us to never rely on hindsight... I.e., while pros [like yours truly] are notorious for using charts to keep their clients engaged, at the end of the day we have to get back to the future, and literally (well, let's say virtually) forget about the past...
Not that there aren't any heedable lessons from the markets of old, but those worth heeding (like never buy a tech stock that's never made a dime, or real estate when everyone you know has three adjustable-rate home equity loans) simply don't come from price charts...
The future will have little to do with yesteryear, and everything to do with the [global] state of entrepreneurship... And when we look beyond the present failure of the policies of those who lead 15% of the world's people - and look to where the other 85% live (emerging countries); to their demographics, to their needs for infrastructure and technology (Caterpillar and GM are #1 in their respective industries in China - Apple can't keep up with iPhone demand in Asia - 82% of Intel's earnings come from emerging markets - India is taking over as Facebook's #1 country), to their growing thirst for the things only capitalism can quench - well, let's just say I'm now covered with goosebumps...
In other words: "Your future looks quite bright to me"
But if your foray into stocks wasn't until late spring 2002, you've suffered the worst of the tech-burst and all of the Great Recession - in the span of a single decade... Thus you're not nearly as inspired by the market as the bloke who got in ten years earlier... The Dow, on May 21, 2002, closed at 10,106... A mere 20% gain isn't at all what you had in mind all those years ago...
Let's go back forty years and play this out a decade at a time - (around) means I had to take the number from a graph:
2002-2012: 10,106 - 12,369
1992-2002: 3,379 - 10,106
1982-1992: (around) 870 - 3,379
1972-1982: (around) 925 - (around) 870
(Consider this a snapshot... A thorough analysis [an utter waste of time that is] would include all thirty decades ['73-'83, '74-'84, '75-'85, and so on, with the last being '02-'12])
As you can see, the market was a nice place to spend a decade if you began in '92 or '82... But no picnic had you started in '72 or '02... And while 2 decade experiences have tended to validate equity investing(look at '72-'92, '82-'02 (meteoric) and '92-'12), 20 years is a friggin long time, particularly if you began in '72 (abysmal first 10 years) or '02 (uninspiring first 10 years)...
So what does all this mean for you? Unless your last name is McFly and you drive a DeLorean, absolutely nothing... Hindsight (regardless of what the "expert" or the historian might have us believe) tells us to never rely on hindsight... I.e., while pros [like yours truly] are notorious for using charts to keep their clients engaged, at the end of the day we have to get back to the future, and literally (well, let's say virtually) forget about the past...
Not that there aren't any heedable lessons from the markets of old, but those worth heeding (like never buy a tech stock that's never made a dime, or real estate when everyone you know has three adjustable-rate home equity loans) simply don't come from price charts...
The future will have little to do with yesteryear, and everything to do with the [global] state of entrepreneurship... And when we look beyond the present failure of the policies of those who lead 15% of the world's people - and look to where the other 85% live (emerging countries); to their demographics, to their needs for infrastructure and technology (Caterpillar and GM are #1 in their respective industries in China - Apple can't keep up with iPhone demand in Asia - 82% of Intel's earnings come from emerging markets - India is taking over as Facebook's #1 country), to their growing thirst for the things only capitalism can quench - well, let's just say I'm now covered with goosebumps...
In other words: "Your future looks quite bright to me"
Friday, May 18, 2012
How to Create a Job (video)
Next time you're stopped by the portly gentleman holding the orange 'stop' sign, while heavy equipment feasts on the asphalt remnants of a road that was, be sure to properly observe the sign to your right; the one reminding you that your taxes are indeed doing some good, that government does create a job now and again... And pay no mind to what those tax dollars might have created in the private sector... Perhaps something innovative, something other than mere consumption...
Here's Professor Ben Powell of Suffolk University on the subject:
Here's Professor Ben Powell of Suffolk University on the subject:
Thursday, May 17, 2012
Ingrate Emigrant or True Patriot??
I have to vent, just real quick... A client just left my office... This man spent his entire working life here in California... He amassed a great sum of money in his tax-deferred retirement plan and will be taking a sizable monthly distribution beginning next month, after he relocates to Texas... Texas!! Where there's no state income tax!!
He made a ton of money right here in California, and that's the thanks we get!! The ingrate is emigrating to Texas!!
I wonder how many x-Californians are enjoying richer lives in no-tax states, and who are yet appalled by Mr. Saverin's move to Singapore? I'd bet quite a few... And I wonder how many still-Californians would condemn Mr. Saverin's move, but would totally condone my client's? I'd bet quite a few...
Note: My client loves to play golf and will have substantially more net income to spend on his Callaway (a California employer) supplies... But better yet, and more certain, Mr. Saverin will have 600 million more claims against U.S. products and services... I.e., the money will indeed find its way back to the U.S. private sector (or, alas, I guess it could buy U.S. treasury bonds), it has to...
Ironically, therefore, Mr. Saverin turns out to be a true benefactor to the U.S. economy; not only by his contribution to Facebook, but by the 600 million U.S. dollars that will ultimately find their way home (let's hope to the private sector)...
He made a ton of money right here in California, and that's the thanks we get!! The ingrate is emigrating to Texas!!
I wonder how many x-Californians are enjoying richer lives in no-tax states, and who are yet appalled by Mr. Saverin's move to Singapore? I'd bet quite a few... And I wonder how many still-Californians would condemn Mr. Saverin's move, but would totally condone my client's? I'd bet quite a few...
Note: My client loves to play golf and will have substantially more net income to spend on his Callaway (a California employer) supplies... But better yet, and more certain, Mr. Saverin will have 600 million more claims against U.S. products and services... I.e., the money will indeed find its way back to the U.S. private sector (or, alas, I guess it could buy U.S. treasury bonds), it has to...
Ironically, therefore, Mr. Saverin turns out to be a true benefactor to the U.S. economy; not only by his contribution to Facebook, but by the 600 million U.S. dollars that will ultimately find their way home (let's hope to the private sector)...
Wednesday, May 16, 2012
Intervention; works for Japan...
Demand-side economists, aka Keynesians, believe it's all about aggregate demand... Get consumers in a demanding mood, get them more spendable cash, and you'll see the economy take off, or so goes the narrative... And sure enough, as we speak, the great nation of Japan is living proof that Keynes was right...
Japan's Economy Rebounds in First Quarter on Consumption, reads the headline that caught my eye while browsing CNBC Online a few minutes ago... The following sentence (quoting Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute) is music to the Keynesian ear;
"Consumer spending and public investment are what drove the economy, with auto demand stirred by government subsidies and investment helped by extra budgets after the earthquake."
"Demand stirred by government subsidies" says it all... The way you get an economy moving is you take a bunch of money from the taxpayer, then give it right back to him - but only if he spends it precisely where government directs... In Japan's case, a fuel-efficient automobile... Then, when it's time to report auto sales, voila!, the economy's growing! Never mind where that money would have gone; the industries that will take the hit...
It's like magic, and think of all the ancillary benefits for the politician... You know, get behind an industry that'll get behind your campaign(like say, I don't know, Solar maybe... Or, think back a few years, maybe Ethanol), then direct a government handout (taxpayer dollars) right back at them... You take from the taxpayer then goose whatever industry you like... Yyyyep... It happens...
"But dang!" says the frustrated Keynesian, Mr. Maruyama isn't quite drinking the Kool Aid - per his next statement;
"So, with government polices behind the quarterly growth, we can't say this is a reflection of real strength in the Japanese economy."
Nope, we can't say that at all... Although the politician sure can...
Japan's Economy Rebounds in First Quarter on Consumption, reads the headline that caught my eye while browsing CNBC Online a few minutes ago... The following sentence (quoting Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute) is music to the Keynesian ear;
"Consumer spending and public investment are what drove the economy, with auto demand stirred by government subsidies and investment helped by extra budgets after the earthquake."
"Demand stirred by government subsidies" says it all... The way you get an economy moving is you take a bunch of money from the taxpayer, then give it right back to him - but only if he spends it precisely where government directs... In Japan's case, a fuel-efficient automobile... Then, when it's time to report auto sales, voila!, the economy's growing! Never mind where that money would have gone; the industries that will take the hit...
It's like magic, and think of all the ancillary benefits for the politician... You know, get behind an industry that'll get behind your campaign(like say, I don't know, Solar maybe... Or, think back a few years, maybe Ethanol), then direct a government handout (taxpayer dollars) right back at them... You take from the taxpayer then goose whatever industry you like... Yyyyep... It happens...
"But dang!" says the frustrated Keynesian, Mr. Maruyama isn't quite drinking the Kool Aid - per his next statement;
"So, with government polices behind the quarterly growth, we can't say this is a reflection of real strength in the Japanese economy."
Nope, we can't say that at all... Although the politician sure can...
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