Economesst. Vol. II
August 23, 2008

The events of the last year have created a hell of a mess.  A bunch of banks and hedge funds have been dancing around a floor, exercising their educations without any human discretion.  They've been programmed to emotionlessly win at any cost.  Unlike the Chinese Girls Gymnastics Team, the bankers were at the controlling end, up in the rafters–puppeteers of the strings that made the homebuyers dance.  Now the show draws to a slow close.  Instead of being executed, the bankers just get new jobs when they lose.  They do, however, leave a bigger mess 

You can see the mess every week on the newswires.  Fannie, Freddie, Ford and all the banks are dismounting head first into the Attorney General's office door.  When it seems all the news is bad and pessimism dominates sentiment, a bull market is born.    

The US Consumer

...is dying slowly.  Housing is a major problem, but not just because people can't sell their houses.  It's a problem because people feel less rich, and are therefore less likely to tap their home equity lines for spending money.  Housing purchases only account for 3.8% of our GDP and many economists stand on that basis.  I disagree, and believe the psychological impact is much greater.  If you owed more than your house is worth, would you borrow against it?  Some would, but they are the same jerks foreclosing on trailers they plug in to a jack in a park. 

Worsening the problem is our vast system of suburbs, namely peppering the Midwest.  Those working in cities often drive long distances twice a day in the trucks and SUVs they can't sell.  Their paychecks are eaten by their cars and the predicament has no visible remedy.  They can't stomach the loss on the vehicle or the house, but the resulting slow bleed of keeping such assets kills them slowly.  When discipline is scarce, the availability and aggressive marketing of credit will exacerbate the over-leverage of the financially weak.  That is where the remedy hides; camouflaged by a pair of work boots.   It takes work and money to dig out of a hole that only required a signature to fall into. 

Our savings rate is another problem.  Most Americans' idea of "saving" is simply splurging at a cheaper store.  On the other hand, we need the American consumer to spend like usual.  They account for over 50% of our GDP and 20% of world GDP.  So if you work at a diner in Iowa, get your ass to Wal-Mart.  If you work as an artist in Brooklyn, get your ass to American Apparel and buy a latte on your way. 

Weak Money

The dollar sucks.  The rest of the world is taking advantage by buying our assets on the cheap.  My Budweiser was just sold to a gang of Belgian assholes but I still drink Bud Light.  It's the product of the free market economy we maintain; a dose of our own medicine. 

How do we combat the shitty greenback?  We wait.  Eventually, foreign demand for our goods and properties will prop up the buck.  Our monetary policy will curb inflation in the short run when rates are hiked in 2009, but we could have some serious inflationary forces at work in the years to come.  The deflation of assets like our houses, for instance, brings the inflation debate to life, but that's a topic for another paper.

Green Trends

What happened to all the talk about agriculture and solar stocks?  Oil fell.  Therein lays the problem with green investments.  They lose their luster when oil cheapens and only outperform when crude is more expensive than green alternatives.  We either need more oil now or several years of financial pain.  I vote for more oil now.

A major opportunity cost of the financial pain is the Caribou.  Unfortunately for them, they don't top the food chain.  Besides, drilling for oil in ANWR is more likely to help the caribou by warming them up.  They're freezing their asses off right now.  Over the next few hundred years, we might even be smart enough to devise a way to burn caribou for fuel.  For the time being, buy wind and natural gas.  Try to find a way to buy the beneficiaries of carbon credits.  I wish I could buy a piece of T. Boone Pickens' body.  It's too bad his Mesa Energy is private.

Time to Bottom Fish?

Buying into the stock market right now will pay off in the long run.  The problem here is that you have to be willing to stomach some short term losses.  Take financials for instance:  all the investment banks have collectively lost almost $500 Billion in the last year.  That amount of money could buy the fucking moon.  It's not over but there is an upside.  These losses will offset gains in the coming years, thereby eliminating the banks' need to pay taxes here and in Europe.  The question is; when will the banks return to profitability? 

Housing is the prerequisite to economic recovery.  When the housing market stabilizes, the banks will make money again.  When the banks make money again, other sectors will follow.  Until then, invest your money over time in regular dollar amounts.  Real money is made following lousy markets, not following great ones.  This is a lousy market and I'm willing to risk going down with the ship for a little participation.  Losing all your money is better than being executed for winning Bronze.

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