Wednesday, January 20, 2016

Everything’s GREAT!

Did you ever notice, people that wake up with a feeling of gloom seem to spread it to others? Now imagine if the country was in a major depression. Do you think government is going to point out the fact?

Depressions are self-fulfilling. The acceptance of the fact that you are in one, tends to exacerbate it. One tends to save more and spend less in anticipation of bad times that may lie ahead. Most politicians are doing the correct thing by not acknowledging the economic mess, it would only make things worse.

Obama in Detroit today shown in a car plant, said sales were up and things were getting better. Detroit is a city where they are tearing down so many houses that they want to rezone 60 acre portions into farm land. I not sure how true that is, but the Paul Bunyan folklore story tellers are known to be from around there and they tend to stretch the truth a bit.

So, everything is just great. The only problem is that the rest of the world is on life support. And it is getting worse. Europe could barely afford to finance their health care plans for their populations. Now they have 20 million immigrants that have no place to go. The support institutions of Europe will not be able to meet the demands put upon them. And nobody will believe that until it happens.

We have unrest in several Middle Eastern countries and with the price of oil falling out of bed, there is no support for the poor. Farmers can’t plant in war torn areas. People are fleeing to areas where there are so many refugees that there is a guaranteed impossibility of employment.

The only part of the global economy that governments cannot really control is the stock market. This world market has kind of taken on a mind of its own lately. We are not sure of where it is going tomorrow, but it doesn’t look good for the long run. We do know one thing, in 1929 most of the investors were individuals. In today’s market, most of the investors are fund managers. They need to keep in the market, to have a reason to keep their job, as a fund manager. For that reason, I don’t see a panic, just a very continuous steep sell off into oblivion. Plus, your stock fund manager isn't old enough to have ever experienced a bear market. And naturally, there will be one or two spectacular "recoveries" on the way to the bottom. Where to from here? Not sure. We have been here before in history, I’m sure of it. The only trouble is; you can only see the outcome from the rear view mirror.

I think we have time to go back to the snack bar and get a refill on the popcorn, you won't miss much of the movie even if you really wanted to watch it.


Sackerson said...

I think your point about share ownership is cogent. This is why it is no use as an indicator of the economy and the economic/political/social evolution going on.


Governments, like monarchs of the past, lie to their citizenry: it is the only way they can maintain the status quo and stay in power. Eventually there are too many lies, credibility is lost, confidence and trust are lost and there goes the empire. The US Gov can attempt to control things with their interventions and "financial engineering" (as flawed a concept as trying to negate the law of gravity) but they will eventually fail when they are overwhelmed by the forces of nature and human behavior. It takes an empire decades, usually centuries, to fail. The industrialized nations and their central banks will huddle together and continue to force this dysfunctional model forward, at the expense of the citizenry and their progeny, for a long time to come.

dearieme said...

Here's our gift to frugality this year. Until Feb 28 we are re-using our 2010 kitchen calendar, and from March 1st our 2011.

Jim in San Marcos said...

Hi Sack

What ever you just said, sounds very impressive, and suggests that we are thinking in a similar fashion. Can you elucidate a bit on your comment? I will definitely fall asleep with a question mark in my mind tonight :>) awaiting your reply.

Jim in San Marcos said...

Hi dearieme

You give new meaning to "living in the past."

If you are young, your just different. If you are old like me, it means you are losing it.

Take care, and don't show up at your doctor's office for that 2011 appointment you wrote on the calendar.

Jim in San Marcos said...


I agree, I just hope there's at least another 100 years left for this Republic. We don't want to lose our heads over some simple "Bastille Day" type holiday.

Sackerson said...

Hi Jim

I'm slowly assembling some thoughts on the overall picture.

Share ownership has become largely institutional I believe, and because it's tied up with pensions the market won't be allowed to fall too far for too long. In the UK we're moving towards compulsory personal pensions via the "workplace pension" scheme and this will provide support for shares - the money has to go somewhere.

Another reason why the market will be supported is that the people have been led to see it as a thermometer of the state of the country. Only a few years ago to hear about the FTSE on the radio you'd tune in late at night; now it's part of the evening news bulletin. So see what is happening in China, where the authorities are buying shares to keep the prices up. We've done the same here with government bonds, the central bank giving scads of money to broke banks who invest it in Treasuries, which suits the State because it can't balance the books and is so indebted that it is desperate to keep down interest rates and therefore pumping up demand for bonds helps with both problems. Until...

But the domestic share market is now based on multinational companies. Corporations can prosper from foreign earnings while the country they are based in goes to rack and ruin. Under EU law businesses can shop around to domicile themselves in the country that has the most favourable tax regime for them; and they're going even further in finding exotic tax arrangements, to the point where a Welsh town called Crickhowell is imitating them in order to embarrass the taxgatherers - there's a BBC TV programme about that this week.

Wealth and power are concentrating; there is a corporate war on sovereignty and the free flow of money across borders means governments are losing control of the finances. Democracy is becoming a joke, since even if the people can influence the government the government can do less and less - and there are those in the government who are going with the flow, enriching themselves by helping the process. If they serve their masters (like Blair and Mandelson have) they will be part of the new aristocracy.

Anonymous said...

Jim you erroneously characterized the equities market. "84% of All Stock Trades Are By High-Frequency Computers … Only 16% Are Done By Human Traders" - The fund managers don't trade. With no proper skill for successful trading, they are only able to use the computer program for asset allocation. This market is now controlled by the CB trio: Fed,ECB,& BoJ. Institutional participants run specific computer programs tailored to the FOMC/ECB/BoJ decisions.

Jim in San Marcos said...

Hi Anon 4:19

Let’s simplify things a bit. It doesn’t matter how many times one share of stock trades back in forth during the day. 2 cents per share for 1,000 trades, as a trader, you can take it to the bank. So the 84% of trades are pure noise. The stock market is nothing more than a market maker that brings the buyer and seller together. The shares sold represent a company that sold them to the public probably many years ago. They got cash on the IPO and could give a damn about the current stock price. The stock market is a glorified supermarket.

Equity funds, retirement and whatever, convert savers money into investments that provide some sort of return. There are many forms of investment; stocks, bonds, real estate, oil ventures, insurance, etc. And you’re right, these managers don’t need to know much to do their job.

My whole point of the stock market crash of 1929 was related to the fact that most investment was done by individuals. As a group, when the herd moves, so goes the market. In today’s market, converting an investment fund to pure cash when the market looks bad, would be suicide for a fund manager, he is out of a job without assets to manage (if he is sitting in cash). The braking mechanism that is underestimated, is the tax liability of redeeming your IRA or 401 K because of a falling market. You are not going to do it.

The Federal Reserve can control the bond market at considerable cost, by buying all bonds presented for redemption. And they are doing it now and slowly running out of rope. To suggest that governments are controlling the markets, projects a feeling of security for all investors. The trouble is, these governments have no idea of what they are doing (besides paying the bills) and are not sure of the consequences of their present actions.

Greenspan’s words of, “Often wrong, but never in doubt,” gives me room to wonder. Being positive about your course of action doesn’t necessarily make you an expert, but it does instill confidence that may be very unwarranted.