People will blame cartels and “Big Oil” for the rise
in oil prices. Somehow thinking that evil
corporations are conspiring against them. In the same
line, people will also wonder how is it the price of
oil keeps going up when the world’s largest economy
has stalled in terms of economic growth, which logic
would dictate would cause oil prices to go down. The
two are not unrelated.
The key thing is that in terms of the US dollar the
price of oil has skyrocketed. Compared to other
currencies the price of oil has not (and compared to
gold – remember that currency – oil has not even
changed in price in the past 4 years) This is proof
that the price of oil is going up not because of evil
oil companies or even is cartelling against us,
but rather the value of the dollar has been dropping,
losing its purchasing power and thus buying less oil.
The question of who to blame for high oil prices is
not “who is controlling the oil” but “who is
destroying the dollar.” And the answer is three;
1. Greedy, dumb, spoiled Americans that spent
themselves into oblivion by taking out home equity
loans with no ability to pay it back. If people don’t
pay back their debts, the currency will suffer. Just
like the debt defaults of , , ,
and so forth, when the people of these
countries (actually their governments) defaulted on
their debts, what was the value then of their
currency? The same applies here. You don’t pay back
your debts, nobody wants to invest in your country,
and so the value of your currency will plummet
relative to countries where people have more fiscal
2.The specter of recession directly affects the value
of the dollar in that the only thing that gives a
dollar value is the stuff you can buy with it. An
economy is not about how much money you make (the
government can print off money all it wants). An
economy is about how much stuff it can produce. Cars,
food, movies, cake, video games, planes, etc. In a
recession an economy “contracts” meaning it produces
less stuff. So with less stuff, but the same amount
of money (more when you consider the monetary moves
the Fed is making) your money becomes worth less.
3. And the final culprit to blame are those that blame
big oil, namely leftists ;P For what do they produce?
They protest. They campaign. They “bring awareness”
to the issues, but what do hard core activists really
produce? The answer is nothing. This wasted labor
does nothing to produce any goods or services that
have value. Taylor the American protesting Big Oil
(or CAFTA, or what have you) majoring in “peace
studies” is not going to produce anywhere near the
amount that Punjab or Khan is going to produce
programming code or developing a new computer. And in
doing so, does nothing to help contribute to the
purchasing power of the dollar.
So if you’re sick of high oil prices, how about you do
1. Pay off your debts. I had an ingenious idea about
making extra principal payments tax deductible.
2. Find a job and produce something of worth.
3. Quit protesting stuff you don't understand, drop
your major in philosophy, and get a degree in
accounting and start producing something of worth.
See? This economics stuff ain’t so hard.
Friday, February 29, 2008
Thursday, February 28, 2008
I always fathomed in the back of my mind kind of a "Museum of Economics" where various artifacts of different economic lore would be stored.
It needs a healthy host to parasite off of. If the government gets too big and the tax base (economy) shrinks, then it doesn't matter what your tax rates are because there's nothing to tax. Which is why I get a kick of how the left wants to "raise taxes" by raising the tax rates. It as the opposite effect. If they really want to "raise tax revenue" then they should lower taxes to attract more commerce.
Wednesday, February 27, 2008
Tuesday, February 26, 2008
Are you a hard working individual that deposited your hard earned money at a bank?
Are you slaving away at a job and paying taxes to make sure the government has enough money to go around?
Were you one of those idiots that actually was responsible and paid your bills and mortgage on time?
Well then, see the latest group to parasite off of you as the FDIC bails out your local neighborhood bank that made crappy real estate loans!
Yes, just click on the link below to the FDIC's financial institution directory and type in a bank of your choosing to see just how bad their financial statements look!
Even if the bank is privately held, it's insured by tax paying suckers like you and therefore they have to make their financial statements public. Why, just today I looked up my previous employer and shucks howdy, their write offs went from $1 million in 2006, to $15 million in 2007 and they don't have enough reserves to cover their potential losses! If only they had a non-conforming independent thinker on staff to warn them about this!
So don't delay! Look up your friendly neighborhood banks today!
Of course if they spoke the truth, they wouldn't get elected. Thus, we're going to get;
"This country is in a health care crisis and unless we do something about it, we will have no hope and we're blaming Bush."
Monday, February 25, 2008
Saturday, February 23, 2008
Friday, February 22, 2008
later. Or so I like to tell my students. Of course
at the time I was running a little behind schedule and
was speeding to make up for lost time. I knew I had
to get gas and food before I started teaching class
and was doing pretty good until I got to the gas
station. And there one of the most reviled people
held me up for a precious three minutes in the gas
station as she;
1. Sat there and pondered which cigarettes shouldwould buy
2. Sat there and pondered which lottery tickets shewould buy
3. And then proceeded to pay with nothing other than
As this person was no doubt a communist plant sent
here to grind our production of GDP to a halt, it got
me thinking of a concept or “world” I had thought of
called “Efficient World.”
The whole idea is what if we got rid of that 20% that
was holding up the remaining 80% of us? I mean if we
took out all the stops, the bottlenecks and the
slowpokes, what would happen to our labor productivity
and efficiency and thus standards of living if we just
got rid of them. We wouldn’t “dispose”
of them, as much as pay them off to go live on an
island somewhere and get out of our way. What would
The most obvious effect I think would occur in our
transportation system. There would be no “gawker”
effect as efficient people would not have such boring
lives that a common car crash would constitute
entertainment. The left lanes would be free and clear
for those who are passing to pass, not to soak up the
left lane in their Buick Regal. The speed limit could
effectively be raised to 90 MPH because we could
handle it and know how to drive. Roads would have 5
lanes on each side because we would refuse to tolerate
a rush hour. And five lanes may not be necessary as
most of us in Efficient World would drive cars and not
ride buses or drive mini-vans or SUV’s, thus damming
up the roads. Arguably there would be no rush hour as
in Efficient World people would (foreign concept) LIVE
NEAR WHERE THEY WORK! And even that might be too much
of a commute, because more citizens of Efficient World
would work from home because there’s really no reason
in corporate America today to have an office.
The price of oil would plummet because we’d use so
little of it.
I also forecast there would be no grocery stores, only
convenience stores as most people in EW would
subscribe to the highest level to Adam Smith’s law of
specialization and never cook their own food.
Refrigerator sales would plummet as we’d eat out all
the time, because it would not only be cheaper over
the long run, but probably better for us. And as
other areas of labor became so specialized, many
chores and tasks we do ourselves would be outsourced
And lines, the elimination of lines. I wouldn’t have
to wait for Tilly with her 50 items in the 10 item
only “express lane” as her children grab random
tooth-rotting goodies from the check out lane
increasing her grocery count to 76. And when I want a
beer, I don’t have to wait for Brandi McSuburbangirl
to sit there at a packed bar debating with herself,
“Gee, what do I want…let me see…” only to order the
inevitable cosmopolitan 2 hours later. People in EW
know what they want before they get in line thereby
avoiding holding the rest of us up.
And kids. There would be no kids. Kids are
inefficient. If you had a kid you would be taken out
of EW and moved to KIW (Kid Infested World), where you
can fly on planes with screaming babies, disease
infested adolescents, and you could bear the full cost
of educating your children as only those with children
would be paying for the schools. Thus, by default
meaning there would be no schools in EW. Only
colleges. And all the colleges would be for the hard
sciences. None of the sociology or philosophy stuff.
Hard core, efficient stuff like accounting and
engineering and computer programming. Heck, economics
would be considered the “weaker” of the studies. Oh
it would be amazing.
And the government budget alone would be a fraction of
what it is now. With no schools, a booming economy,
skyrocketing labor productivity, an efficient
transportation grid, all math, science, engineering
and accounting majors, the tax base alone would put
the US to shame. GDP would reach $40 trillion in
three years, income per capita would be about $4.7
million per person, and without schools, social
security, medicare and Medicaid, I think government
revenues would account for about .4% of GDP,
contrasted with nearly 34% here in the US today (and
contrasted with 60% in Sweden).
Anyway, long story short, I often opine and dream of
world of such efficiency. Of course it will never be
realized, but at minimum, for the rest of us that
dream of an EW world, could you smokers whose
retirement plan consists of lottery tickets AT LEAST
UPGRADE TO A DEBIT CARD????
Thursday, February 21, 2008
However, until my book comes out this is more or less a power point, abbreviated version of what you can expect.
Still, a sign that it's high time to move out of the US is that the most popular theory is that 9-11 was an inside job.
Tuesday, February 19, 2008
Monday, February 18, 2008
Sunday, February 17, 2008
Then there's Big Tobacco.
And there's always Big Business.
But a new villain has emerged to terrorize and impoverish the poor and middle class;
Yes, Big Food!
Obviously a conspiracy of all the Farmer Joe's out there, forming cartels to jack up the price of food! And all just so the "man" can keep us down! Thus I say we start a congressional investigation and slap a multi-billion dollar lawsuit on those bastards! And then price caps! And then Hillary can make sure Big Food doesn't enjoy any of these windfall profits that they so obviously conspired to create when we create a special tax!
DOWN WITH BIG FOOD!!!
DOWN WITH BIG FOOD!!!
Saturday, February 16, 2008
Here's me finishing up busy season, it had been a rough year, taxes started, had to revamp my classes to reflect any changes in the tax code for 2008, plus dance classes were starting in a week. I needed to relax and take a vacation;
So I hopped on a plane embarking for Pheonix, Arizona. Rumor had it there were lot's of fossils of varying kinds out in the state, but more importantly there was some serious hiking to do. Additionally I had a friend I could crash with and not pay for a hotel (though I sleep in my car most of the time when on vacation). For some reason a red line was following the plane all the way there;
Anyway, I got there and as luck would have it another friend of mine who lives in Pheonix proper was taking off for North Carolina. She said if I house sat the dogs I could just crash there, thus providing me a central location to launch my adventures from. These are the dogs.
I then went for a hike with my buddy, Le. We climbed Skull Mesa which was a formidable hike. Le had to go to the bathroom every 15 minutes and this was pretty much the most common site on the hike. Thus I took a picture of it because this literally was what you would see the most.
This is me with my new favorite shirt I got for Christmas
This is Skull Mesa in the background and Le in the foreground. I didn't take this picture for the mesa, but because this is one of the rare times Le wasn't peeing.
This is Le after the hike...and maybe some whiskey.
I also hiked Sabino Canyon out in Tucson. Rain had come in, but the sun was setting allowing for this kind of contrasting picture.
And while I was not able to find any fossils, I did find a freaking sweet ghost town near a crossroads called "Two Guns." It was weird, lot's of buildings, these are just a couple, but there must have been some sort of commerce going on back then in that area.
There was a lot more to the trip, saw the Petrified Forest, Painted Desert, found some petraglyphs, saw the airplane graveyard outside Tucson and lot's of cacti. Lot's of cacti.
Friday, February 15, 2008
"It's Zone Patrol
Yeah, zone patrol
Fetch me a scotch and a kaiser roll.
Protect the campus while you take a stroll.
Listen to guys talk of Robert Dole
Just let me outta here, I'll sell ya my soul
Cause it's zone patrol
Yeah, zone patrol."
Other such toe tappin' ditties like "Wilson Gate" "Williams, Nothing More than Williams" and "Check Out Time" were created by many a men on many a patrols. They never went platinum, but they were still popular with the kids.
Regardless, I think it's time for a new song given this latest Jim Dandy chart;
Yeah, recession time
Hey, fetch me a scotch with lemon and lime
Buy me a beer with a quarter and a dime
Listen to dat kid make dem stupid rhymes
Now don't you bitch and don't you wine
Cause it's recession time,
Yeah recession time."
(This was a heavily plagiarized version of the song "Check Out Time")
Anyway, the people that go on crusades to impose their moral view on the rest of the world is not just relegated to religious folk, the anti-smoking Nazi's are also a perfect example, and the psychology of these people is what intrigues me. Since when did somebody else have the moral authority to tell me what to do and what is right or wrong. I've thus concluded folks that lecture other people about what they should or should not do have nothing better going on in their lives and somehow derive a sense of worth or purpose on going on these crusades. Again their desire to inflate their egos and makes themselves feel better by going on a crusade supercedes the cause.
Alas, why I was just laughing my ass off when I saw this picture from The Economist;
So, for all you anti-smoking nazi's and truth.org people, you won in America with your lawsuit, now you just must carry the crusade overseas and deal with the remaining 5.7 billion people and 175 other nations on the planet.
Ain't globalization grand?
Thursday, February 14, 2008
Also wanted to see In the Name of the King. Never got around to that one either.
And it occurred to me that it is becoming an increasingly rare instance that I go see a movie and would surmise the same of Gen X men. The reason being two fold and thus I tender my theories for commentary;
1. Gen X has no "manly man" heroes in the cinema. The Baby Boomers had Schwartzenegger, Sly Stallone, Charles Bronson, Bruce Willis.
What have we got?
Carrot Top and Adam Sandler.
Even "our" heroes of today are aging boomer heroes;
The closest thing we have to a "he-man" hero is Jason Bourne and you don't see him carrying heavy machine guns around. I'll grant Jason Statham some credit as well, but again, he hasn't achieved the cult status of his boomer predecessors.
So aside from "Live Free or Die Hard" or "Rambo" there really isn't a lot of movies compelling me and my Gen-X male colleagues to go sit through a movie.
2. That whole "sit through the movie" thing. I'm finding it increasingly difficult to drive to a megaplex in a mall, spend hours looking for parking, only to fork over $9 for something I can inevitably get on Netflix or buy from Wal-Mart for much cheaper and watch on a big screen TV or LCD projector.
Additionally it is in the comfort AND SILENCE of my own home. No little kids with their mothers trying and failing to discipline them. Nobody talking in the theater. Just me, my martini bar, my humidor and maybe the occasional female lieutenant of capitalism.
Regardless, I sense a trend. With home theater entertainment having the technical capacity to outdo a movie theater (because you are sitting that much closer to the screen) not to mention Gen-X men are aging and we no longer have the testosterone to go out all the time and are finding the comforts of home, comforting, you are going to see less and less of them going out to the movies.
Tuesday, February 12, 2008
Valentine's Day as we know is merely a wealth transfer created by corporate America. But sadly one cannot even consider it a genuine "wealth" transfer in that technically no wealth is being transfered. For the most common items purchased for our beloveds do not maintain their value.
Roses, for example. Dead in three days. Sure some crafty florists will give you the packet of chemicals you're supposed to put in the water that might make them last four days, but in the end they're dead.
Chocolates. Need I say more? They don't last one day.
Romantic dinner? Last's one hour.
Alas, what is the good economist to do on Valentine's Day? Never fear, the Captain is here and has all the answers to make your Valentine's Day not only romantic, but economic too!
First off, jewelry is a GREAT Valentine's Day gift that is both economic AND romantic.
Now you might say, "But Captain, jewelry has no functional value whatsoever. It has no utility. It is a lousy gift and it's way too expensive."
Ahhh, but that is where you're wrong young Padawan. For jewelry is primarily consisted of gold and gold is a commodity that you can invest in in case the economy melts down. So not only do you have a hedge against a collapsing dollar, but in case of economic Armageddon you have an emergency currency to buy your way out of the country.
So certainly feel free to buy your loved one jewelry and lots of it. Just make sure she understands that if the economy collapses or gold breaks $2,000 an ounce she'll have to hock it and melt it down. (Don't worry, she'll find the fact you're hedging against potential calamity in the economic future sexy!)
Secondly, booze. Specifically cognac or other high end liquor. Again, you'll be showing your loved one that you care more than the average guy, because in case there is hyperinflation, bottles of liquor have the traits that make it a good substitute currency;
Everybody wants it and accepts it has value.
Stores well and maintains its value.
Of course she won't be able to drink it, but she will be so enamored with the care and thought you put into it that she won't even think about that as she's ripping off your clothes.
And finally, poetry. Ah yes, poetry.
For if you were to look into the box of keepsakes women keep, they do not keep the jewelry or the car you bought them. They keep things that are made by little children. Like drawings and pictures made of crayon. Silly things that are not expensive. Thus, why not make a silly thing that is free with your own hands and will ultimately be kept longer than the flowers or the chocolates? And poetry is just the thing.
The poetry does not have to be good. Matter of fact the worse the better. You do not have to spend too much time on it, it can be as bad;
"My darling babe my heart goes oozy
Your beauty makes me all woozy."
and so forth and so on.
Of course you can make a more refined poem, but it is unlikely to be any more successful than the schmaltzy one.
Therefore fellow aspiring, junior, deputy, official or otherwise economists of the male persuasion, make your Valentine's Day not just a romantic one, but an economic one!
Sunday, February 10, 2008
I also thought that Hugo might like a vocabulary lesson. Today's word is called "fungible."
Meaning, "If you don't want to sell us your oil. Fine. We'll just buy it from somebody else. And we'll probably not pay any more for it since by you supplying a different country really doesn't lower the global supply of oil and thus has no real effect on supply and thus price."
Of course you really could affect the price of oil by not selling oil at all. That would increase prices. But then half of the Venezuelan budget would go unfunded.
And then how would Hugo bribe the masses then?
OK, just a little bit of help here for you coffee shops and cafés out there.
If you advertise free internet access, then make it free.
Don’t make people spend the time to park their car, find a space, walk into your place, buy some stuff, sit down, fire up the laptop and then;
- Have your internet access down.
- Make us jump through 8 hoops “registering” to use your internet access.
- Require us to sign up with T-Mobile or some other phone provider.
By requiring customers to jump over all these hurdles you essentially are making them pay for your internet access with their time and summarily pissing them off.
For example I go to Caribou Coffee and fully endorse them. It’s easy, I go in, turn on the laptop, plug in and I’m on the internet. Pretty much every other place you will have to go through trials and tribulations just to get maybe 15 minutes of “free” internet access.
Additionally, view it this way. Internet access is an amenity, like your furniture. Yet you don’t make us register or have a T-Mobile account to sit on the couch. You don’t make me register if I have to use the bathroom. So if you want us to have a pleasurable experience at your venue, how about you cut it with the 6th grade games and make your internet access genuinely free.
Friday, February 08, 2008
Thursday, February 07, 2008
But, even though HR and their bureaucratic minions may seem to bode ill for you, me, and pretty much anybody else who took and passed calculus in high school, there are ways to circumvent HR because they are, after all, some of the dumbest people on earth.
Here is a GREAT tutorial on how to handle all those stupid HR questions. You know, questions like,
"Where do you see yourself in 5 years?"
Answer - "Not here because corporate America is so unreliable in terms of long term employment I presume I shall be working for your competitors or collecting welfare because you've made it impossible to work anywhere and maintain sanity."
"Have you ever had a disagreement with your boss, how did you resolve it?"
Answer - "Yes, I had another baby boomer boss ask me to put together a MS Excel spreadsheet because he "Didn't have time to learn Excel."" I said, "OK, pay me all the social security I've given you and we'll talk."
THere are others, but you get the idea. If a "profession" has to resort to this as their primary means of qualifying labor, you know it isn't a "profession."
Of course, there is a revolutionary idea I had and I actually do follow. I don't know why more people don't do this, but I surmise it's because we've all been brainwashed to think the labor market is a one sided coin.
Refuse to be interviewed by HR.
You see, no matter what the unemployment rate is, companies and corporations still need employees. No matter how bad it gets, they still need us as much as we need jobs. Most people don't realize this and go in and totally short sell themselves, looking at a 9% unemployment rate.
But what if,
just what if,
people were fed up enough with the pretentious, arrogant, morons in the HR department and simply refused to interview with HR?
What if there was a general groundswell movement wherein youth, graduates, employment seekers, the future life-blood of all corporations, all of the sudden got an ounce of self-respect and said,
"You know something, I no longer am interviewing with HR. If you want to consider me for a genuine position within your company, then you have me talk to the hiring manager or boss. Not some idiotic 23 year old HR ditz who graduated 2 weeks ago from some worthless HR program and doesn't know jack about my job, let alone my industry."
You mock me, but consider this;
"Have you ever gotten a job through HR?"
And now you see there is really no downside to refusing to interview with HR.
Nobody gets a job through HR. They offer NOTHING to the potential candidate, the potential talent, the potential future leader and innovator a means to get into the company. It's like having some super popular "prom queen" chick in high school threaten she'll never go out with you - she would never go out with you in the first place, ergo the threat is hallow.
And so, I hope with this little post, that it may start a trend, or at least instill some self-respect to job-seekers, to refuse to deal with HR. Not just for something as noble as "principle" but something as simple as practicality, because, well, exactly what has HR done for prospective candidates except waste their time?
Yes I do!
Yes I do!
I like charts!
How 'bout you?
How 'bout you?
Yes, remember, globalization is bad for America. Even if a cheap dollar makes our exports all that much more affordable to foreign nations and might be the only thing that will lessen the blow of a recession.
And if you wanted to see how relatively "fake" the housing wealth was in the US, you needn't look further than the above chart. My favorite is the RGDP vs consumer spending. It directly explains the third chart. If you don't work, you borrow to pay for what you consume.
Maybe you have a kid that doesn't want to listen to their economics professor, but they might listen to Arnold. Not exactly advance economics, but still a good basic for everybody to watch.
Tuesday, February 05, 2008
SWPL exposes the fake, shallow tastes of either faux intellectually elitists or the brain-dead, automotonic herds and delivers to them the mockery and insult they so richly deserve.
For example - "Grad School." HOW GREAT IS THAT? You have some idiot that chose an undergrad degree that was so worthless, they go back for MORE of the same. In reality they are an idiot, BUT, because they have a masters in "fillintheblankhere" they think they're smart.
Or for the "brain-dead herd of lemmings" crowd - Professional sports. Again, how great is that? You have some idiot whose entire LIFE'S WORTH is based on whether or not one group of big guys throws the ball better than another group of big guys, discernible only through the color of the jerseys they wear. But, ohhhhhh wrath upon thee that dare insult the team that these morons have vested so much emotion, psychology and (foolishly) cash into simply because they wear the blue jersey!
But the ultimate kicker for SWPL is that these people are COMPLETELY oblivious to their idiocy. They don't realize they're being made fun of and most of them even think they're smarter than the average person (ever go to a "wine and cheese party?") They just plain don't get the fact that they are the butt of the joke.
Of course there's a problem. SWPL's are not some small group of people. They're the majority of people! And because this is a democracy and a relatively free market we genuinely intelligent people must suffer their idiocy.
For example television.
Um, please somebody explain to me why there are GLEE PARTIES?????
You want TV shows to throw parties over? Try Firefly. Try Cowboy Bebop. Try Venture Brothers. Try classical Bugs Bunny. Try Hogan's Heroes. Try Family Guy.
Another example - the movie industry.
Why am I relegated to marginally good movies starring Jason Statham and cartoons like Despicable Me? Why is it for every "Saving Private Ryan" there's a score of "Eat PRay Love" or "Sex in the City 14" movies?
Going green anyone? Great, I get to pay higher gas prices, higher heating bills, higher electric costs all because it's fashionable to hate fossil fuels.
Even voting patterns.
Why do I have to face a 9+% unemployment rate and a doubling of the national debt?
Because Obama and socialism is just the latest SWPL craze.
Now I could go on, but hopefully I've managed to do two things;
1. Entertain the regular and genuinely intelligent readers that visit the ole Capposphere and
2. Anger and insult SWPL types to the point you might actually be listening now BECAUSE
I am going to lay down some super economic genius that is going to benefit EVERYBODY.
401k's are SWPL.
Yes, sorry to say, 401k's, 403b's, IRA's and whatever other retirement plan you've put together for yourself is SWPL.
Now, this is not to say saving for retirement is foolish, it's not. BUt what we have here is the "brain-dead herd SWPL" members flooding a market to the point purchasing stocks in the US just plain ain't worth it. Specifically, since the government gives tax breaks to invest in (primarily) stocks, what has happened is by default the government has ordained stocks as the defacto retirement vehicle.
Now I've pointed this out before and to great lengths. I also pointed it out probably 5 years ago and the article, though pure genius, went nowhere (because it wasn't SWPL). But now MAYBE, JUST MAYBE, people will listen to me.
This recent run up in the stock market from a DJIA of 7,000 to 12,000 has people very happy and excited. The problem is that the reason you buy stocks is NOT because you will sell them for more in the future. You buy them because of the profits they will (hopefully generate)
To measure this ratio of the price you pay to the profits you'll make, there is a thing called the P/E ratio. It takes the price of a stock and divides it by the earnings per share, showing you essentially how much you are paying in stock price for $1 in earnings. The higher, the worst the deal, the lower, the better.
Now the average has been since 1880 a ratio of roughly 15. Meaning you paid $15 in stock price for $1 in earnings. However during the peak of the Dotcom Bubble the P/E peaked at 45. That bubble burst, bringing the ratio down to 22, STILL NOT A GOOD DEAL.
But, ANOTHER SWPL fad came in - home ownership and condos and mcmansions!
THis drove the P/E ratio up again to 28, only until we found out the SWPL fad of buying a house you can't afford was not a sustainable economic behavior.
The Dow Jones dropped to 7,000 and with it the P/E ratio reached 14!
HURRAY!!!! LOOK AT THAT!!! THE STOCK MARKET IS ACCURATELY VALUED!!!!
And so what do people do with stocks that are neither a steal nor overpriced, but just sanely valued?
A buying frenzy.
They drive the Dow Jones back up to 12,000 because SWPL's like to pay high stock prices for low earnings resulting in a P/E that is now around 24, implying a 30-40% overvaluation (denoted by the latest quick jump at the end of the chart).
Now Professor Robert Shiller, who is a real intellectual, not only provided this information, but logically concluded stocks are now overvalued again.
But ohhhhhh, my goodness! The SWPL's don't like that! They want stock bubbles! They want happy fuzzies for everyone! They want unicorn 401k's where you never have to work and solely rely on forever increasing asset prices to pay for your retirement. And they go out of their way to find a rationale or reason to continue living in SWPL Land.
Well, there's just one more problem with that guys.
See, while arguments can be made about whether you use earnings, EBIT, EBITDA and other things that aren't the bottom line, ultimate what drives stock prices are DIVIDENDS.
Because (and here's the economic lesson of the day), it is the only real cash flow a stock generates.
Oh, sure, you may sell the stock to another person generating a capital gain. But that didn't come from the stock. It came from another person. And the only reason that person paid you money for that stock is why?
Because the only thing a stock really generates is dividends.
And it is here, the only one TRUE cash flow that makes it to the stock holder and the only one TRUE cash flow that provides a stock with value that the situation is dire.
Below is the "dividend yield" for the S&P 500. This mathematically is the dividend per share divided by the price per share. In other words the rate of return you can expect from dividends.
And while the history of the dividend yield shows a rough average of about 5%, notice the general trend downward?
It reached a low back in the Dotcom bubble of 1.8%. Wow, that's a GREAT return! Let me get my checkbook out!
Of course there was a dose of sanity when the stock market collapsed this last time around, driving the dividend yield up to a whopping 3%.
But oh no. We can't have that! That's not SWPL! SWPL's like over valued stocks! We don't want any of those icky yuck gross dividends! And so with the reinflation of the stock market bubble the Dow Jones magically doubled in 2 1/2 years with no real economic growth, no real improvement in our economic future, sending the dividend yield back to 2%.
Now economists can go ahead and pull out their hair (like I did) about why the American public just plain doesn't get it and keeps on investing in overvalued markets. They can rack their brains asking, "did these people NOT just go through two massive bubbles??? Did they not learn their lesson? How did they DOUBLE the value of the stock market when the economy is in such dire shape and there's really no economic hope for the future?" But they will simply increase their blood pressure.
For there is no "logical" or "sane" reason these bubbles persistently and constantly form. It's much simpler. It's the same thing that causes people to make "going green" a hobby. It's the same thing that sends millions of people to fork over $10 a ticket to see mediocre movies. It's the same thing that makes people listen to something as boring as public radio.
Enjoy the decline!
Monday, February 04, 2008
Spoke with a recruiter who was one of the few that took a look at my resume and had the cajones to be forthright with me and say, "Captain, you scare people. You have too many things going on in your life and the fact you put in your resume that you predicted the housing crash scares people even more because you're not a team player."
Which threw me off a bit, because I was thinking that ESPECIALLY in this market, banks and other financial service firms would LOVE to hire somebody who could have predicted this. You know, that if you spent all of $100,000 on me say, 4 years ago at Citigroup I could have saved them $14,000,000,000 (not to mention the egregious severance package their former CEO got). That's a pretty good ROI. But ahhh, that is where you go thinking again.
For there are times that I sit here in the US and often wonder how is it that our economy is any more efficient than North Korea's. How, with the Pointy Haired Bosses of the World the US manages to eek out an additional 3.2% RGDP per year every year, when it has practically been every US employee's universal experience to see a train wreck like the housing crash coming, they futilely sound the whistles and alarms only to have the Point Haired Boss Conductor of the train SPEED UP.
And the only way I can rationalize this is that American society has become so obsessed with not insulting people, not making anybody feel the slightest bit on edge, than we put being NICE ahead of being RIGHT.
I'm sure there are anecdotes and stories abound (which I'd love you to post about and e-mail in) where being nice is put above being right. The housing debacle is just one such example. Approve everybody, borrowers or builders, regardless of their ability to pay and regardless of their ability to sell the properties. Or where I see wait staff tolerate people's crap who whine a gripe about their food not cooked to their anal retentive demands.
Regardless, I've always kind of had this theory in the back of my head, but I hadn't recently thought about it until I saw this book consistently on the top of the NYT's best seller list; The Secret. (and yes, I know it is under the Advice Column, but I couldn't find the Economist chart with it that showed it #2 for the overall list).
The whole idea of this book is, very simply, if you wish it to happen and think nice little fluffy bunny rabbit thoughts of ice cream and flowers, it will come true. And not only that, they contest that it's a "secret" that has given all the power to all the power brokers in the world and made millionaires and billionaires who they are. No, Bill Gates didn't think or answer the demand of an economy, he just thought happy thoughts and poof Microsoft was formed. The only reason I know of this stupid book is because my buddy Chico is hooked on it. And sadly he has yet to make his millions (but don't worry, he keeps wishing it will happen...AND IT WILL, BECAUSE HE KNOWS THE SECRET!)
Regardless, the fact this book is on the top of the NYT's best seller list only confirms what I fear; The US population would rather be lied to and believe in a fairy tale instead of face the harsh realities of life and make real progress. And that kind of thinking is dangerous because putting what's NICE ahead of what's RIGHT is that it ignores reality.
Yes, it would be nice to think there isn't a housing bubble (you'd be amazed how many bankers think the recovery is "just around the corner.")
Yes it would be nice to think Beanie Babies and Tulip Bulbs and Dotcoms can perpetually go up in value forever.
Yes it would be nice to think that the Minnesota Vikings would win a Super Bowl.
And it would be very nice to think that Social Security and Medicare are not going to crush this nation's economy in about 10 years.
Yes that would be nice.
But try to point out those "nasty realities" at a party and you are summarily shunned or asked to leave.
Try to point out the Vikings do indeed suck, and you will be kicked out of any Minneapolis bar.
And try to point out that a person can't afford a loan, and you'll be lectured about not being a team player.
Of course this puts the American worker in a paradox. Do you do what's right, or what's nice? And unfortunately for most Americans, they don't have the option. They're not independently wealthy and can't tell the Pointy Haired Boss to shove it. They don't have rich parents and can therefore afford the freedom of speech at work or just not work at all. They have to put food on the table and make ends meet, so rather than point out the emperor has no clothes, they realize if they want clothes themselves, they better say they see a fully dressed emperor. Naturally there is a price to pay for such ignorance and idealism about being nice vs. right. And that is the recession we're about to go into.
But don't worry, if we all think really hard and wish it doesn't happen and master "The Secret" then I'm sure it will go away.
Friday, February 01, 2008
As in the context, "Hey, Kid, what's going on?"
Or as in "Good to see ya, Kid."
She said it was degrading to women.
And the only reason I feel compelled to write about this is because literally about a decade ago the same thing happened to me when I was a young 22 year old.
So here's my advice women, particularly the younger uncultured ones.
"Kid" is not a degrading term.
It is a term of endearment.
And if you had any culture about you, you would realize its origins come from Casablanca.