CapitalistMarks

trust wallstreet?

Posted on 22. Apr, 2010 by scott.

Today Obama spoke quite eloquently (he nearly always does — so be careful and think about what he says) about the need to reform and regulate Wall Street.

I liked what he had to say and heard a few Wall Street regulars on the preceding talk shows also agree.  But is that enough?

Bottom line?

We can’t trust the folks on Wall Street (the investment capital of Earth) any more than we can throw them . . .  and some of those dudes are very rich and very heavy types.  Why should we expect?  Wall Street is the most sublime exhibit for Capitalism at work.

If there are no rules to follow you can (and they do) just about   anything to make money.

The key problem has been the use of scary, misunderstood, largely unregulated derivatives.

No one, including the salesmen who pumped them, understood entirely what derivatives were all about, except that they were a grand scheme to make a lot of money at the expense of naive investors.

These things (derivatives) are fancifully names financial instruments like CDS’s (credit default swaps) which are kinda like insurance for debt (you pay a fee or premium to a big financial institution to guarantee you will get paid the debt you owe and if there is a default the company — like AIG — will pay the debt).  This can also include sovereign debt (countries debt).

Then there are CDO’s or consolidated debt obligations.  These are a bit simpler but just as deadly.  A bunch (in the hundreds of millions of $$ and more) of mortgages are bundled together and sold.  And the seller does the bundling. Since there are hundreds or thousands of mortgages the seller sort of takes the ‘bundled’ debt on a leap of faith.  This is what Goldman Sucks Sachs is being sued by the SEC for and that has been in the news all week.

Problem is CDS’s and CDO and the like  are no small financial ‘instruments’, they can represent hundreds of billions of $$ and if there are a bunch of defaults all at once then there isn’t enought money to pay the debt.  Then  companies — Like AIG — reneg on the debt.  Whabang!  All of a sudden (like in 2008) companies fail (unless they are ‘too big to fail’ and the government steps in and guarantees them with taxpayer $$) and there is a terrible financial crises followed by a recession.

All of this fancy financial dealing is further endangered (to you and I particularly) because there is no regulation, no markets to trade them in so that they are monitored, and no rules to manage them.

This is a very bad place to be . . . one that in fact exacerbated an already scary recession.  And, it can’t be allowed to happen again.

What to do?

Write some regulations that will manage this threat and stop the secrecy perpetrated by large financial institutions, like JPMORGAN, MORGAN STANLEY, AIG, CITI BANK, BANK OF AMERICA and others.

I hope this brief lesson clarified the problem.

It was, and continues to be a big one.

Since I endeavor to make these posts short and to the point, and have failed miserably at this in the past, I am going to stop now and let you mull this over.

Ohh, the suspense!

Remember, as it stands now, we CAN”T trust Wall Street.  Investors lack confidence and with good reason.

Our definitively leftward-leaning President proposed today what he wants to do.

My next post will consider his proposal, and evaluate my estimate of its effective handling of such problems in the future.

I hope you are on the edge of your seats by now.

Tune in Tomorrow, or soon, for the conclusion:  Obama Takes on Wall Street.

thanks to flickr’s rosino for the photo

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Dubai, a potential economic reality show.

Posted on 30. Nov, 2009 by scott.

Yet another bubble has dominated the world-wide financial news for the last week.  This time it is half a world away and no way can the Chinese and Russians point fingers at American financial  structure.

Thank heavens for that.  The news of pending default, or at least failure to meet interest payments, on around $80 billion of commercial debt centered in the desert coasts of Dubai first hit the wires last Wednesday.  CNBC was all over it then and gave it the attention it deserved . . . moderate to be frank.  Then, when U.S. markets were closed for the Thanksgiving holiday, Asian markets tanked and European markets followed suit as they worried while we partied.  Drops of 3% were the norm and when American markets opened on Friday further carnage was expected but did not happen (1% or so in typical in recent market swings).

Yet the news still resounds with talking heads and financial analysts who want to force markets down.

The truth of this story in Dubai is all about greed, pride and stupidity.  Sounds familiar but we really haven’t seen anything recently on the scale of witless investors in the desert.  Consider.   Dubai is soon to be home to the tallest building in the world (I caught a glimpse of it while watching my favorite reality show ‘Amazing Race’ recently . . . and it is awesome).  Dubai is already the home of shopping mall overkill with a mall that houses an entire indoor ski resort where the idle rich can ride a lift to the top of a man-made hill and ski down man-made snow in freezing temperatures while it is 120 degrees outside (also on the show).  Not far off shore are a number of man-made islands( ‘designer’  types) where lots are selling for multi-millions of $$ (the operative word here is selling not sold).

This pending default shows how stupid people can be.  Why would anyone want to even visit a place where the temperatures can be in the 120’s in the shade?  Let alone invest hundreds of billions of $$ to create a Disney Land environment that no masses will ever have any interest in let alone see?

Sure, oil was trading over $100 a barrel when much of this insanity took place, but that is no excuse.

The average Joe is gonna want to vacation somewhere they can breathe without having a heart attack . . . Hawaii sounds about right.  The rich folk couldn’t care less.  So who were the Dubai-ees (?) going to market all that insanity  to?  Iraqis wanting to escape a war zone?  Saudis wanting to get away from a dry (as in alcohol) place to wile away the summer hours?  Maybe but not even that makes sense in the world today.

So, in a month when the DOW and S&P were up over 5% the Dubai crisis proved to be a very localized and mostly uninteresting bubble.  A study in bubble economics that won’t burst to the harm of anyone with an ounce of brains on this side of the pond.

Rather than worry about how the sheiks are going to make their payments (the total potential default is less than 10% if America’s total debt service next year)  we should be focusing on black-weekend retail sales that were up nearly 1% and with on-line sales up over 10% for the same period.

Americans are starting to spend again and we should join each other in the fun of the next three weeks of Christmas shopping insanity.  If you really want to be cool you might think about helping those that are less fortunate (like the unemployed for example) and spend some money to help their families have a good season.

Sit back and relax.

The only thing to worry about right now is how President Obama will handle the Afghanistan strategy during his talk to the nation tomorrow.

Stay tuned.  This could be fun!

Thanks to flickr’s larsploughmann for the photo

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Stock market volatility is increasing. Huh?

Posted on 02. Nov, 2009 by scott.

Lately the volatility of  markets is increasing.  This includes the equities markets as well as the primary energy markets (oil and gas).  Sadly we have become so used to hearing about this that is just goes in one ear and out the other.

I think we need to make sense of of this most recent trend in volatility and I will try to help you with this.

First of all what does volatility mean?  The easiest answer is that it refers to the wild (big) swings, both up and down, of the markets on a daily basis.  As an example, it is clear that in the last few days the DOW has been quite volatile.  Last Thursday the DOW was down well over 100  points in a pretty smooth chart that headed down from the opening bell but with sharp upturns followed by new lows all day.  Then on Friday the DOW headed up from the opening bell and kept on going until it closed up more than 200 points (2%+) from the prior days close.  Today the market was up more than 140 points in the first hour or so before heading steadily down until it was negative with two hours of trading left.  On not much news, the chart headed higher until it closed up more than 70 points.

These are the kind of markets that day-traders love.  If they are geniuses (and there really aren’t many of those relatively speaking) they can make multiple trades every day and come out ahead. But this volatility frightens the average individual investor.

So, for most of us there is a bigger story to tell from this volatility.  CNBC has found this topic so interesting that they now show the volatility on the real-time tickers that scrolls across their often confusing screens all day.  For stocks it is called the VIX (volatility index).  I have been watching and paying attention to CNBC for years and the first time I noticed the VIX identified on the screen was last fall when I was showing the channel to an economics class I was teaching. By the way, now it shows up every day.

Since it is with us so much now, it got me thinking . . . does volatility have any relevance to predicting market direction or anything else?

Here is my conclusion:

When the VIX (volatility of major indices — whether up or down) is high . . . meaning lots of volatility such as we have seen in the last few days it means that investors just can’t make up their minds.  In other words, taken as a whole, the sum of all investors inclination to buy or sell has no general trend and the slightest change in markets can cause a huge shift as nervous investors jump on the real-time ‘band-wagon’ causing the markets to experience sharp  movements (up or down).  This continues until some ‘news’ or similar things starts things going in the other direction. Then it starts over again . . . with no real trend.

All this seems pretty intuitive so far, doesn’t it.  Of course.  However, here is what you need to take away from the high volatility recently:

The prevailing trend (up around 60% since the March lows) has lost its convincing optimism (at least for the time being) and no one knows if it can or should continue.

Recognizing that the markets are forward looking indicators of 6-12 months (depending on who you believe — and I think 6 months is about right) the market volatility is warning of some negativity  in the broader economy starting next spring (more or less).

If you ‘play’ the markets you can take what you want out of this important revelation, but if you are living on Main Street it means that you should tighten the belt and hang on until things stabilize.

As always the key indicator is unemployment and the October employment statistics will be disclosed this Friday.  I would not bet on them being very good.  We should expect 10% unemployment for the first time in decades.  If this proves to be the case, volatility will probably stabilize and markets could respond with a decline that will  justify your belt tightening and, hopefully,  wake up President Obama and his democratic crew to the real crisis: 25,000,000 Americans without jobs or with part-time or inadequate jobs.

FRIDAY!

Can’t wait.

thanks to flickr’s woodleywonderworks for the photo

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GDP at 3.5%!

Posted on 29. Oct, 2009 by scott.

Aha!  GDP was reported up 3.5% for the third quarter, even better than then 3.3% that economists had expected.  Sounds pretty awesome.

It is too.  But, you would expect the markets to be up 3.5% as well.  Yet, they are reacting with a rather muted rally right now of about 1%.

I am watching a ‘lively’ debate on CNBC right now and while larry Ludlow is effusive with his optimism the ’smartest’ guy on the show, Rick Santelli,  is more reserved in his estimate of the positive influence this news might bring.  Their economist, Steve Liesman (often a voice of reason) is sorta positive but like most economists he hedges his position.  It all leaves me kinda cold.

If the bulls are right we will see a further sharp upturn in economic indicators and super-duper follow-on in the markets.  If the bears are right this news will be digested by investors with some skepticism since the #’s were so heavily influenced by the ‘cash for clunkers’ and ‘1st time homebuyers $8,000 incentives’ and the markets will drop.

Watch the markets for the next week or so.  If the rally continues then there should be opportunities for short-term investment (at least until the Christmas sales #’s are revealed).  If the rally fizzles then I would expect a further significant decline into the Christmas season.

As to the economy?  Unemployment still reigns supreme when considering the future.

Don’t get me wrong, I think a 3.5% GDP growth number is wonderful and I really do hope there is positive follow-on.  However, I am one of the skeptics and am not ready to jump into the markets or start a new business until I see more ‘proof’ that this can continue.

thanks to flikr’s ocean yamaha for the photo

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The DOW blows past 10,000! Now what?

Posted on 28. Oct, 2009 by scott.

All I have heard lately is about how strong the stock market is and why it will keep on making new highs (some contrarians disagree but they are a minority).

Everyone wants to know where it will go from here with the great earnings reports of the last few weeks.

The real question is what do reports from companies that are subject to consumer whims tell us.  Not what the net income is but what gross revenues and future forecasts tell us.

The answer to these questions provide a good map of the market’s direction in the next month or so and those answers are not good.  Forecasts are cautions at best and worrisome to the bulls, though they talk around them.

On top of this, add the recent consumer confidence number put out by the University of Michigan (90 or above indicates growth).  At 47.7  (for early October) this was significantly lower than the 53.4 number in September, showing a real decline in confidence, and lower than economists had expected.

Wow!  Economists got this wrong?

And another part of the puzzle fits right in.  More bad news.

All of the above tells us that the retailers all important Christmas season is not going to turn out as positive as many hope.

Another huge negative.

Does this mean that the 10,100 plus that was reached on the DOW is not just a step up in the continuing steep incline?  Is it possible that the market has it wrong too?

The DOW is down 3-4% from its intraday high of a week ago and down 1% today as I write.

All of this bad news is undoubtedly driven by the high unemployment that folks are finally realizing is critical to our country’s health.

What with 15 million unemployed and another 10 million or more that have quit looking for non-existent jobs (or taken low paying part-time jobs), it is no wonder that confidence in our economy is beginning to decline once again.  Furthermore, this does not feel like just a ‘blip’ on the overly optimistic upward charge.

How could it be with nearly 20% or 1 in 5 of our citizens out of work or underemployed?

Barring real government action this feels like a substantial decline is in the works.

Are they (the government) on top of this?

Not really.

I read today that the government will release figures this week to show that the economy is out of depression and will show a GDP that is growing at a 2-3% rate for the third quarter.  The White House and Congress focus only on this positive and don’t seem to be forward looking.  A real danger.

GDP may be positive for the third quarter but if so it is probably the ‘blip’ I talked about earlier.  I don’t think GDP growth is sustainable unless something concrete is done about unemployment.

I wrote months ago that I expected the DOW to hit 10,000 by early summer and then take a big dip before continuing on to 13,000 by early 2010.  So I was a few months ahead of things.  This scenario is still possible but just doesn’t feel right.

Too much bad news is going to push the market down.

A 20% drop in the markets could well reflect the sentiment on the street and might be necessary to force Obama and his economic crew to focus primarily on unemployment rather than the other  ‘optional’ legislation they are pursuing now (you know, the kind of things that have no IMMEDIATE impact on this long and drawn out recession — the worst since WWII).

It would be a good thing if Obama and the Dems pick up on this but if not done right away it could prove too late to help.  Unless Unemployment is addressed very soon and directly we could see this recession turn into a “W’ with a double-dip back down to recession level GDP #’s and with the DOW dropping back to the 7000 range.  Worse, this might cause further contraction by consumers and  really lengthen the recession.

Not very good news but the prospects are real unless addressed tomorrow!

What are the chances with this President who seems so reluctant to make important decisions that might affect his popularity?  Or a Congress that is consumed with maintaining a democratic majority?

You figure that out (and once again think about term limits).

As for me?  I sure hope our ‘celebrity’ President figures this out right away and that he gets Harry Reid and Nancy Pelosi on the employment train!

You had better hope so too.

Thanks to flickr’s doctor who for the photo

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Is the Stock Market too high?

Posted on 12. Oct, 2009 by scott.

Today the DOW hit a new intra-day high for the year.  Coming closer to the benchmark 10,000 level that TV analysts have been touting for months (I predicted it for early summer).

However, the levels of the DOW, NASDAQ, and S&P 500 all seem too high right now.  Consider that optimism is often a contrary indicator and it is pretty darn high for the conditions we currently see in the Macro-Econ0mic environment.

Sure, corporate profits have been higher than expected . . . and certainly higher that the prior quarter.  And sure, more money is pouring into funds and equities as year-end approaches . . . no one wants to miss the boat on this run-up.  But is it justified?

Problem is that while profits are increasing revenues are not.  Consumers just aren’t spending like they used to.  So why the profits?

Companies have cut back on labor costs, benefit packages, technology upgrades and many other ‘line items’ to cut costs.  This has led to the higher profits in spite of lower renenues. . . as it should though probably only for a short time.  However, the higher profits come at the expense of higher unemployment, less responsive customer service, slower order times for new products and so on.  How long can this continue?

Not for long I think.

Soon investors are going to start realizing that too.  They will start taking profits, as I did over the last few months (admittedly early though I feel comfortable sitting on the resulting cash).  Then what?

Three months or more out is the concern.

The Christmas season will probably be good because confidence is higher right now.  The all-important consumers will buy lots of stuff.  But, whoops, those #’s are already in the system.  I know, because I’ve been on that train with my own business in the past.  Retailers placed their Christmas orders months ago and most have taken delivery so they can start playing the ’sale’ game early.  This means that the impact of the holiday season for manufacturers and distributors and most of the rest of the economy is already accounted for.

Only retailers are going to benefit from now through the end of December.

Hence, while profits may be up this quarter (not revenues, remember) and the lagging Christmas retail #’s may be good, beginning in January things may start to look bleak once again.  Sales will decline, orders too.  Unemployment may take a few months of even worse levels.  You know the drill.  We have been living it for nearly two years.

Oh, yeah what about the market?

The stock market  is a leading indicator . . . reflecting the views of investors out six months or so.  We’ve already had some good numbers for the 3rd quarter and Intel — a bell weather tech stock — is expected to show positive numbers tomorrow.

But the economy just doesn’t seem strong enough to followup despite all the optimism (one key here is that stock analysts are notoriously slow in picking up a change in sentiment).  If the numbers don’t keep picking up then the market will start reflecting that well in advance (and the new year is ONLY three months out!).

Which means any time after this week (i.e. after the good numbers that are expected this week are digested and reality sets in) the crap could hit the proverbial fan.

My opinion?

I think there is going to be a pull back of around 20% or more. A lot worse than the 5% or so that CNBC’s Cramer is hyping.

My cash may be golden in a few weeks or months and then I won’t feel so bad about missing out on theimpressive run-up since the March 9 low.

Buy low, sell high.  That is a LOT harder than it sounds!

Let me know what you think.  What the heck do I (we) do with cash in the next pull-back?

Ah, boy, ain’t life great.

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Listen to the banks. Danger ahead.

Posted on 17. Aug, 2009 by scott.

I haven’t felt completely comfortable with the pace of the recent ‘recovery.’  Particularly with regards to some of the developing markets.  The Chinese markets had been up 100% since the first of the year (in $$ terms), India up 70%, Brazil over 90% and (go figure) Russia up 73%.  None of this has been justified by anything related to real-life.

Today’s market drops (pretty much across the board) has been a wakeup call.

The recession is NOT over.  Not by a long shot.

Obama and his posse still have to get a handle on unemployment and use stimulus $$ where they are needed most (foreclosures, jobs, infrastructure, energy . . .).  This has all been ignored recently in the flood of news about the ‘health care initiative’ that is driving both Washington and Main Street.  Is everyone stupid??

Let’s remember where this all started.  The financial sector, dummy.

And despite recent run-ups and streaking stock prices, this sector is NOT feeling good.  They are suffering from the Swine Phluu.  A bunch of swine are running the banks and financial institutions and their cronies in D.C. are greasing the pan with OUR $$$$.  The same old story:  high risks (guaranteed by taxpayers) and high rewards (at least for the executives at the financial institutions.

But the bad news just doesn’t stop.  Over the weekend the FDIC closed 5 banks.  Including Colonial BancGroup which is expected to cost the FDIC (from their deposit insurance fund) mearly $3 billion.

And the band just keeps playing as the ‘Titantic’ failure of our financial system just keeps going down.  So far this year 77 banks have failed.  Last year there were 25 failures.  In 2007 there were only 3 failures.  Are you starting to see a trend here?

Here is the real kicker Colonial BancGroup is the biggest bank failure this year and it was a heavy real estate lender.  Think about that.

The real estate crisis is the gift (to incompetent executives and lowlife, longtern Congressmen) that just keeps giving.

To you and I?  Not so much!

Homes just keep getting foreclosed.  Jobs are being lost.  Congress is on vacation and the President is visiting Yellowstone Park with his family. I have family and friends that are wondering how to pay the utility bills.  Know anyone like this yourself?

It is only August for crying out loud (and I do quite often lately).  How many banks are going to fail in the next four and a half months? Are we going to hit a hundred this year?  Scratching at the bank failure bench mark set in the Great Depression?  Looks like it.

Thanks Obama and Congress.  Thanks for jumping the gun.  Thanks for taking August off while the country goes to heck in a hand-basket.  Thanks for spending Trillions to line the pockets of your buddies in industry and their greedy lobbyist cohorts.  Thanks for running up the debt (the national debt in July alone was bigger than most years in the history!!).  Thanks for setting us up for big tax increases, for giving yourselves raises when there are 15 million unemployed.  Thanks for fostering a system that practically guarantees you will get relected.  Thanks for nuttin’ chumps.

Term limits are needed more every day.  Stick that in you ‘craw’ and chew it all you  Senators and Congressmen who have been asleep at the wheel for 20, 30 and 40 years or more.

CHANGE!!  NOT JUST TALK!!

thanks for the photo to flickrk’s thetruthabout

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The dog days of summer. 2nd qtr GDP -1.0%.

Posted on 31. Jul, 2009 by scott.

The old saying “sell in May and go away” would have led to disaster for investors in U.S. markets this summer.  Depending on what happens today this month might be the July with the biggest increase in overall market values since 1989.

Typically these are the ‘dog days of summer’ — hot days filled with vacations and generally with little interest in markets.  Not this year.  The money managers have stayed home to work . . . and a good thing too!

News this am was good, better than expected.  The second qtr GDP was  -1% which is better than estimates (-1.5%) and substantially better than the revised 1st qtr of -6.5%.

A long time ago I predicted DOW 10,000 by June-July, clearly this isn’t going to happen but that 10,000 is less than 10% away.  Closer than my critics would have thought.  What about the DOW 13,000 I predicted for the end of the year?  Still possible and I am sticking with it and would include a 12,000 mark as a hit.

However, as I pointed out last week this is going to be a roller-coaster ride and not a steep climb up Mt. Rainer.  If you are a trader you are going to have at least one good chance to sell and buy at better prices (10% or so).  But you had better be good at your timing and few are.  If you are a long term investor just make sure you own good companies and go along for the ride.

Sadly, unemployment will continue to climb and the Democratic controlled government will continue the move leftward.  This means higher taxes and inevitable inflation down the road.  Further, and even more sadly, the Prez. and his posse are doing almost nothing about solving our long term energy import problems.  Consequently oil prices are going to rise with the improving economy (minus employment of course since this will be a pure democratic jobless recovery).

Bottom line:  enjoy the rest of summer with relatively low gas prices and improving markets.

Can I suggest a trip to Utah?  Sure it is hotter than Hades here in July, but by tomorrow (August) the temps will be on their way down and you could spends weeks checking out our mountains, valleys, rivers, lakes and GOLF COURSES!!

Just in passing, the third qtr GDP should be positive and by the fourth qtr the recession will be declared dead.  It has been longer than most post-war recessions already and it was especially ugly for those that lost jobs.

For those fortunate to still have jobs when it is over times will be good.  For the unemployed I can only suggest you contact your Congressmen and the President to find out why their stimulus package did almost nothing for YOU!!  Ask them what they are going to do for you TODAY!

thanks for the picture to flickr’s e0000

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America’s giant companies need a lesson in Micro-economics.

Posted on 28. Jul, 2009 by scott.

Back in the ‘day’ at University many case studies in graduate business school were about widgets–something made, something played, something grade(d).  No one ever knew what they were but they were ubiquitous.  They helped with lessons learned and professors referred to them relentlessly.

How is it then that America’s best and brightest haven’t learned the lessons they were taught about those widgets?

I’m not often going to write about micro-economic issues but lately several things have jumped out at me from the news and all of us can ‘relearn’ important micro lessons about competition, and elasticity of demand-supply (you know, that basic stuff that caused you to get the solitary ‘C’ your freshman year).

Seems our largest corporations are led by chaps (or ladies) with no economic education or no memory of the simple things taught in those Micro-Econ 102 class rooms.

How is it that GM went downhill for a decade without ever recognizing that market share was dropping and then without making an attempt to stop the bleeding.  Toyota had it right and you think that the CEO at GM might have thought to put somebody on the trail of Toyota’s success.  But no!  GM just kept making huge cars that drank gas like the proverbial elephant at a watering hole.  I mean these were big honkers, you could haul lawnmowers, golfcarts and a dozen children in some of ‘em.  Toyota on the other hand made cars adequate for a couple of people and maybe a kid or two . . . but hey, they got 35 MPG.

Now the government (you and I ostensibly) own GM and guess what?  Yep, our new team is going to continue with only a few brands and one of them is Cadillac (uhuh, the brand with flipping big boats that old folks drive so that if they have a collision with a semi the semi will loose–and to heck with the 15 MPG it takes to feel safe).

Oh well.

Then there is the recent news from two of the biggest and least competitive companies in the world.  Microsoft and Google.  They don’t get it either.  Microsoft is jealous of Google’s position in search, which by the way Google does MUC H better than anyone else.  But Microsoft diverts resources to create ‘BING’ their new and improved entry to knock Google off it’s ‘high-horse.’  Except that ‘BING’ sucks!  It not only doesn’t help make decisions it doesn’t help much at all.

Google’s response?  Jealous of Microsoft’s control of the market for operating systems, they divert resources to make their own operating system from some ‘Chrome’ project.  Resources that should have been used to update Google Search based on a bunch of new search engines that are more responsive to the ‘right now’ on the internet.

Competition is great for consumers if it drives prices down,  but competition for the sake of competition is stupid.  Too many of our giant corporations are so fixated on their perceived competition that they don’t tend to their primary business like they should. They need to find their niche and stick to it until they get it right (and few if any have).

The lesson from that Micro 102 class?  Do what you do well and do it better all the time.  Don’t try to grow by taking something that someone else does well and try to do it better when they have a huge lead.

Instead (if you’ve already peaked) come up with some new ideas and start with that.  Innovation is ALWAYS better than copying.  Spend time, money and resources on trying to make things better, with product reliability and real quality controls.

Sell us something we really need and don’t just copy.  There is always a market for a better widget mousetrap.

Hybrid cars?  Heck no, give us Hydrogen cars with no pollution and unlimited fuel supplies.

Another entry into the search market?  Heck no, fix your operating system so that my computer doesn’t get viruses and won’t shut down every time I accidentally hit the ‘Cap lock’ and ‘Ctrl’ at the same time.

Another operating system?  Heck no, fix your search engine so that when I want an articulate blog on religious diversity I don’t get some Russian guys crud about Putin’s immortality.

CEO’s of America . . . send you subordinates back to business school and focus on the basics (oh, and why don’t you audit a few classes yourselves!).

This lesson is free.  They next one you will have to pay tuition for (probably in terms of paying more for less — seems to be the new American way).

thanks to kurtthomashunt at flickr for the photo

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Economists in retreat!

Posted on 23. Jul, 2009 by scott.

I defy anyone to find me one, just one, economist whose predictions have been accurate through more than one business cycle.

Sure, occasionally a few will get lucky and forecast  a bubble or something like that (remember ‘irrational exuberance’?).  But once they get lucky they hang on to their ‘model’ for too long and they miss the next leg up or down (the economy and not necessarily the markets).  We all suffer but they keep their big six-digit salary and bonuses!

Why?

Economics is art as much as science.  A few decades ago economists thought it would be cool to use complex mathematics (econometrics) to create models and forecast all sorts of things . . . stock markets, trade, employment, interest rates or whatever.  The fact is there are so many models now that someone, somewhere is bound to be right at any particular moment in economic history.  Then, as soon as the press, Congress, banks and investors are patting the lucky few on the back, something odd happens.  The science turns to art and the whole picture as ‘they’ see it blurs and some bubble bursts.

Ouch, there we go again.  Whammy, a few million jobs are lost, trillions are spent by governments and central banks go bottom fishing with interest rates that we all wish would translate to our credit card accounts.  Naturally taxes go up, government grows and the middle-class gets smaller — yes, the rich to get richer and the poor get poorer in just about any economic scenario since WWII.

I’m tired of this cycle of idiocy.  Furthermore I I have a solution.

We need a Supreme Court of Economists.  Nine of them.  Each with ten years experience (at least) and preferably (but not necessarily) an advanced degree in the field.  Oh wait, at least two of the nine have to be in industry or private practice and MUST have no academic credentials (i.e. they have NOT been resident economists at ANY institution of higher learning AND have NEVER worked for ANY government agency).

These nine economic jurists must be from at least five different ’schools’ of economic thought (one Keynesian, one Smithian, one Galbraithian, one supply sider or whatever) and there can be no more than two with similar takes on economics (based on actual evidence from the past).

This Supreme Economic Court must meet monthly and issue a ‘State of the Union’ paper each month.  This paper must show a consensus (majority) and be written so that any high-school graduate can understand it (now that is going to be tricky for any economist).  If there are alternative views by two or more dissenters these must also be provided.

Now comes the good part.  EVERY banker, Congressman, and financial analyst or advisor MUST read the monthly report.  The President too.  Then each of the above must sign a statement (monthly remember) that they agree with the paper or document why not.  These statements must be notarized and filed with some central agency (the economic police!).

All of the above must be made available to EVERY citizen to read and comment on if they want.  No legislation can be even drafted that is contrary to the consensus without a public majority vote.  By the way, we can have bunches of these courts in states, counties or bigger cities.

Furthermore, NO decisions can be made by any government entity or individual UNLESS such decisions are approved, in the majority, by the Supreme Economic Court.  Again, subject only to a public referendum.

All of the above can be tweaked as time goes on, but I am willing to bet dollars to donuts that if we followed this process we would avoid any prolonged economic downturn in the future.

Oh, by the way, the leader of this ‘court’ is appointed for life and . . . I get to be that guy.  Why not?  Take it or leave it.

Thank you for your attention and cast your vote for the above as soon as the ‘credit card debt’ bubble hits in about 3 to 6 months.

I’m not retreating.

A bunch of other, more wrong than right, economists should.

thanks to flickr’s dennis defrayne for the photo

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