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Showing posts from 2009

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The U.S. Economy -- 18 months into recession

In my last posting, I made the statement that "fundamental" factors were weak or absent in supporting the theory of an economic recovery ("green shoots). What exactly are the fundatmental factors for us to monitor and consider?

- Unemployment
- Consumer Spending
- Consumer Debt


The US economy appears to be stabilizing, and perhaps it has reached the "half-way point" or the "bottom" of the present recession. What is driving this confidence? Government spending and cheap money are the dominant reasons. Many people commented upon my last post with warnings of "excessive government employment and spending." They may well be right. Our government increased expenditures and direct payments to our citizens by 6 percent last quarter according to the Financial Times of London. Also, the federal reserve is "printing" money by keeping interest rates near ZERO, making the residential and commercial real estate crisis seem less intense. These same…

Am I still optimistic on the economy?

I would say that my outlook is mixed. I believe that the panic has passed for investors. I believe that there is technical momentum in the market. But I am also concerned about the fundamentals of the economy -- commercial and credit card debt default, unemployment and finally, de-leveraging by households and its negative impact upon consumer spending. The financial marketplace has gone way up, but why? Earnings have exceeded expectations. But I worry about the quality of the earnings, and especially the impact of lower demand will have on declining revenues.

With that said, here are some thoughts on why we might want to be more positive:

1. The 2nd quarter of this year was better than the 1st...in every measure save unemployment.
2. All the data is historical, so the real question is whether we have hit bottom. I think the answer is either yes, or we are very close.
3. The stock market is a barometer for economic activity. The cost-cutting has been aggressive and this has led to prof…

A Recovery or a Reflexive Rebound?

April was good for stocks and generally for investors. The markets continue to move higher in early May as we get more information about housing, unemployment and the financial sector.

Are we seeing light at the end of the tunnel? Is it a train? Yes, there are those who argue that this is "going to be ugly for some time." There are arguments to be made supporting their position.

1. Banks may need to write off $4 trillion globally -- bad loans and worse investments. They could earn $400 billion in profit annually and we would still see a 10 year recovery period (source: Financial Times of London).

2. Consumers have radically increased savings by reducing spending and credit usage. When you strip away Medicaid/Medicare and other funny elements of Consumer Spending, you find that true discretionary spending is down 20%. If this lasts then yes, we are in for a prolonged recession or stagnation (no growth) for 3-5 years. At that time, net worth/income to debt ratios will …

Free markets: if this is not the bottom, can we still be positive?

As bad as the news is, should we be optimistic about the future? Yes. When we read about massive job losses, and individual companies deciding to lay off thousands, should we be confident in the future? Yes. Why would I say such a thing? Four reasons:

1. Cut fast and cut deep. The worse thing any company can do in an economic downturn is ignore and put off what must be done. We should hope that the cuts announced are overly aggressive, and that they will not all be needed. We should want the biggest possible cuts to insure that they are not only realistic, but overly pessimistic. Trust me; the investment markets want realism and clarity. Honesty that sales will decline will be better received than false optimism in forecasts. By over-doing it, favorable comparisons of sales, and operations and profits will come sooner, thereafter leading to more employment, investment and growth.

2. Inventories are not a problem. This thing started in 2007. Even the automotive m…

Free markets? Part 2

My friends, we are indeed in a severe recession. But should we call into question all of our beliefs in capitalism? No. The issue we face is one of financial market collapse. The collapse was not caused by the complex but rather by the simple. Many pundits will talk about the “CDO with ABS,” and yes, there was excessive financial engineering. But the real root cause of our troubles rests with institutions which lent money poorly. In my last blog post, I discussed my own observations as a young MBA graduating with a degree in finance from Wharton. We believed we should use advanced mathematics and some of the new learning’s from physics to “measure and eliminate risk.”” As the Financial Times recently noted, we thought we could “complete the markets.”

What would be an example of the “slicing and dicing” of traditional investment vehicles? I have discussed the dismemberment of bonds. The other interesting case study is mortgages. Perhaps it is now self-evident, but for my par…

Free markets? Part 1

I want to connect two seemingly unrelated intellectual points: evolutionism and Nobel Prizes in financial economics. What do they have in common? They both are founded on a belief in reason; a belief that math and science can explain everything.

Let’s start with evolutionism.

In Darwin’s Dangerous Idea, Daniel Dennett takes a philosophical and mathematical journey. This book is not for the faint of heart, but contains a couple of really challenging ideas as they pertain to faith and evolution. To begin, Dennett’s epistemology is Charles Darwin. This is the rail that his train runs upon. Darwin’s theory of natural selection posits that organic life is continually interacting with its environment and adapting to survive. To prove that humans evolved through this process, Dennett makes the following argument:
Life is a near infinite mathematical game of chance. Just as it is possible to produce a winner of a contest to correctly “call heads or tails” 1,000 times, the Homo sapiens is indeed …

Where do blogs fit in the history of social media?

In my opinion, blogging is the first and one of the earliest forms of social media. Blogging is the first phase of “the wisdom of the crowd.”

As I have written before, the first websites were brochure-ware, controlled by Webmasters. After the “Dot Com” bubble burst, the web came back much improved. Some people call it Web 2.0, and some dispute whether it improved that much, but it certainly enabled anyone to participate, and to publish. Participation came with bulletin boards and forums, and participation came with blogs. Blogs let anyone sign up and start publishing. Of course for most blogs, no one knew they existed and did not read them (like mine). But even at their best, blogs are a form of “one to many” publication. Some blogs have "comments" but they are hard to use, hard to follow. They read like the dead sea scrolls...literally.

With Facebook or MySpace, you see the next evolution. Anyone can publish themselves, and others can comment or post or share photos…

The Academy Awards: Who will win an Oscar?

I love movies. Grew up on them. Cannot imagine how many I have seen in my life. For the past few years, we have tried to see all the major nominees for the Oscars prior to the awards show. Last year I predicted No Country for Old Men, Daniel Day-Lewis, Tilda Swinton and Javier Bardem. I completely disagreed with Marion Cotillard.

This year I have seen all 5 films nominated for "best." I believe Slumdog Millionaire is the best of the lot. Frost/Nixon is a close second, and should win Best Director for Ron Howard. Milk was too one-sided in its portrayal of history. The Reader was a very good, but not great film. And Benjamin Button now looks like a novelty compared to the rest. The snub was Gran Torino.

For best actor, I have seen all the nominees performances and think that Mickey Rourke is the best. Some wonderful performances, but Mr. Rourke brings you in, holds you close and plays the most honest and real of all the actors.

For best actress, I go with Anne Hathawa…

Barack Obama’s inauguration speech in full.

My fellow citizens:

I stand here today humbled by the task before us, grateful for the trust you have bestowed, mindful of the sacrifices borne by our ancestors. I thank President Bush for his service to our nation, as well as the generosity and co-operation he has shown throughout this transition.

Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because we, the people, have remained faithful to the ideals of our forbears, and true to our founding documents.
So it has been. So it must be with this generation of Americans.

Serious challenges
That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weake…

The search for happiness Part 2

In our first discussion of happiness, I rooted my argument squarely in Christianity, with the teachings of Jesus Christ and Mother Teresa (See below Part 1). Suffice it to say that the point was that humans are never happy being selfish, and only happy when they give to others.

Now I would like to turn some attention to what some might view as the other extreme -- the legacy of Sigmund Freud and the writings Ernest Becker. As we know, Freud became an atheist during his lifetime. Becker was not an atheist, but attempts reconciliation of some of Freud's concepts on happiness in life.

My good friend, Gerry Zyfers reminded me that in Becker's work we find a similar concept to one of "giving to others leads to happiness." Gerry wrote me, "I think Becker's basic point was that human beings have a mythology about their own independence, but we are radically dependent on others to give us a sense of meaning and even sense of self. To have meaning you need a meanin…