We all need to take a deep breath. The amount of emotion circulating in the media is enough to feel overwhelming for even the most rational of investors. We’ve tried to keep this round up rational, to provide some perspective. And this weekend, forget the stock market. Turn it OFF. Go outside! Climb! Bike! Hike! Garden! Anything, just stop worrying about it for the entire weekend!
Talking About Investing: Behavior Gap
Toby at Bite Sized English has a transcribed version of an earlier Behavior Gap audio post if you’d rather read versus listen.
Have We Hit Bottom? Answers Short and Long
“Of course if you believe that the market will never recover, that the Dow industrials will never again reach 8000, you should sell. That requires a complete loss of faith not just in the stock market, but in the productive capacity of all mankind. I suppose it would be the equivalent of a return to the Dark Ages, though in the absence of any economic statistics or any stock markets, it’s hard to know how much progress may actually have been achieved during those centuries. By contrast, since records have been kept, stocks have outperformed every other investment category. This includes the period of the Great Depression, when they lost nearly 90% of their value, as well as the current 50% drop…I don’t know when the market will bottom. But whether it’s this week, this year or next, I’m confident it will.”
Rick Santelli: The Man Who Talked Back
“This may have been Santelli’s most important economic point: “You know, they’re pretty much of the notion that you can’t buy your way into prosperity, and if the multiplier that all of these Washington economists are selling us is over… that we never have to worry about the economy again. The government should spend a trillion dollars an hour because we’ll get 1.5 trillion back.”
Thoughts: Whether you agree with Santelli’s argument about the stimulus package proposed by the government, he makes a valuable point about being unable to buy prosperity.
AmEx Encourages Cardholders to Leave
It used to be that credit-card companies lured customers with cash rewards. Now American Express Co. is paying to get rid of them. The card issuer is offering selected customers a $300 AmEx prepaid gift card if they pay off their balances and close their accounts.
The unusual move underscores how quickly conditions have deteriorated in the credit-card market. The current economic morass was provoked by spiking mortgage defaults. But as the economic crisis widens and unemployment climbs, there is growing concern that credit-card defaults will soar into the stratosphere as well.
Thoughts: Amazing. Some steps are being taken NOW to help avert a potential crisis in the future.
Social Security and Fiscal Policy
When you consider the speech as a whole, Obama is promising the largest and most ambitious attempt at rate of return arbitrage in the history of the human race.
Obama’s speech was very effective but it is mostly about borrowing more money. It is odd that in a time when capital markets and attempted arbitrage have so failed us the solution is to resort to…capital markets and attempted arbitrage.
Thoughts: Even government is susceptible to ignoring the need to course correct and the comfort of sticking with the status quo.
In response to an article by Robert D. Hormats, Goldman Sachs vice chairman, (“Changing economic policies isn’t enough…we also have to readjust core American values. The government needs to stop borrowing, start saving, and beef up socioeconomic programs.”) Umair Haque posted the following:
Translation: you save, so we can make more bad loans.
Should Americans save more? They should invest more. One of the problems is that macroeconomists make a meaningless technical distinction between investment and savings.
So let’s reframe the question. Should the Average Josephine save more when her government is hell-bent on inflating it’s way out of a debt crisis, mirrored by bailing out banks without punishing bankers or bettering regulation and governance?
The answer’s simple: are you kidding? Of course not.
Or at least not until bankers agree to have their bonuses taxed at a marginal 99.9% rate, and until both political and financial governance are made radically more open and transparent.
Until then, calls for savings from massively rich old dudes (especially to a generation who’s watching its future being eviscerated) are nothing short of a 21st century “let them eat cake”.
