Wednesday, September 30, 2009

Ben's bluff might work?

For several generations now, we've been gathering a pile of prosperity here in the richest country in the world. And most everybody has gotten at least some piece of the action. How many decades in a row now has it been that Americans have been steadily purchasing cars and washing machines, TVs and microwaves, air freshener and deodorant and movie tickets with popcorn? We're a pretty fat n' happy bunch. What we have here in the USA is a high standard of living, probably the highest in the history of the world.

I mean, how many people do you know who don't have indoor plumbing? How many in your circle of friends don't have a car or a TV? We are rich, I tell ya. Even the folks whose incomes hover around the poverty level all this stuff.

In the developing nations of the world, folks don't have all this booty yet.

In the formerly-third-world places--India, Brazil, South Africa, and even in China, the streets and malls and markets are teeming with millions of people who have yet to acquire the wealth-multiplying trappings of middle-class comfort. These are great, teeming markets yearning to be full. They're the next wave of aspiring consumers, like your kids in the supermarket with miniature shopping carts and little flags that read "shopper in training." So many of these minions have yet to buy that first washing machine, that first microwave, that first automobile.

But they will eventually, as their collective economic tides swell and their proverbial boats rise. Then the enterprisers among them will form companies and employ neighbors and friends to manufacture goods to meet the escalating demands of prosperity. But it's not likely their new acquisitions will originate in Dayton or Birmingham or Oxnard where the costs of affluent American labor render finished prices prohibitive.

We've got a high standard of living in this country that has propelled us, for lo these many decades, ahead of the the thundering herd. But now our opulent baggage has landed us in the dust as the pack passes by. We've priced ourselves out of the world market. But don't go blaming our politicians or our business leaders. This is just the way things work in a world where energetic workers and smart managers are free to make a better affordable mousetrap. It had to happen sooner or later; it's been a long time coming. We had an incredibly long ride on that post-wwtwo wave while it lasted; now it's time for us to paddle out and catch the next set.

Here's what needs to happen: find a way to pump some of the hot air out of our expansive, expensive American standard of living. Position us, once again, as lean and mean, efficiently productive contenders in the world marketplace. We've already, you know, burst one bubble. Can't we puncture another one? Dean Baker opined yesterday that economists should have identified our "over-valued dollar as a main cause of imbalances in the US economy."

As it turns out though, the reserved Fed has issued a prescription for our economic obesity. They have found a way to trim the fat real quick. And it just might work. It's called: the devalued dollar.

If Joe Sixpack and Jane Doe found, rather suddenly, their wallets full of greenbacks that had the purchasing power of, say, 60% of last year's dollar--the effect would be just like knocking our standard of living down by 40%. That might be enough of an overhead reduction to get us back in the game of competitive manufacturing. Then maybe we can again crank out washing machines or widgets or memory chips or hula hoops or solar collectors as inexpensively as they will in Manila or Mumbai or Mombasa.

Devalued Federal Reserve Notes will be a mixed blessing. On the down side, they'll mean less buying power for us yankee producers. But hey, we've got plenty enough stuff to last us for awhile anyway.

Folks would have an abundance of dollars again; everybody could get back in the game, pay off some debts, maybe take the kids out to eat.

Now, if that "over-valued dollar" could be knocked down a notch or two so that it is no longer so uppity, what would it take to accomplish such a feat? Everybody take a 40% pay cut?

No way. It'll never happen. Too complicated, and politically impossible. But there is a fix. It might hurt a little bit, but it would work pretty quickly, though not quite as fast as instant breakfast or drive-up food.

Make dollars. Print so many of them that Uncle Tim can push a big stack of chips out on the table to stay in the game. The bluff might just work if he keeps a poker face, although it's Uncle Hu's face that the world will be watching.

Carey Rowland, author Glass half-Full

Wednesday, September 16, 2009

Conflicting Signals?

Two days ago, Sold at the Top posed a profound question of present economic conditions on seeking alpha. The soldish blogger asked:

“Inflation or deflation… stag-flation, stag-deflation … hyper-inflation… possibly even hyper-deflation… or maybe just a bout of frisky-flation? Never has it been so hard for the consensus to agree on the coming trend in prices”

After pondering the subsequent content of Mr. Sold at the Top's puzzle, and after reading Klaus Vogt’s article mentioned below, as well as a few other analyses along the way, including a few here on TPM, I’ve reached a conclusion about the matter:

1.) Everything you don’t really need in this life will lose value in the days ahead. This is called deflation, and it's going to happen.

2.) Everything you do really need, like say, food, will gain price in the days ahead. This is called inflation, and it's going to happen.

Is this a contradiction? Yes, but it doesn't matter, because these economic indices are just human concepts.

What's real, and what is more and more real, is what it costs you, in labor and resources, to get a loaf of bread, a taco, or a salad, or whatever.

Are you playing the market? Consider this:

According to Klaus Vogt of Money and Markets, there are three ways to determine the of value stocks that you may consider buying:

1.) the Fundamental Valuation method, which calculates the dividend yield by dividing stock price into annual dividend

2.) the Macroeconomic method, which utilizes the broad statistical indicators to infer value

3.) the Technical Analysis method, which quantitatively compares short-term and medium-term trends in the context of long-term trends.

Mr. Vogt’s general projections on the stock market as a whole, based on these approaches, are:

1.) by the Valuations method: Long-term Negative, Medium-term Meaningless

2.) by the Macroeconomic method: Long-term Negative, Medium-term Bullish

3.) by the Technical Analysis method: Long-term Bearish, Medium-term Bullish

We can surmise here another set of conflicting signals, although (let the reader understand) the "long-term" projection in all three methods is Negative (Bearish.)

Klaus concludes his presentation with this observation: “This is no time for buy and hold investors. But there are attractive opportunities for medium-term oriented investors willing to buy now and get out on a moment's notice.”

“…get out on a moment’s notice”?

We see worlds of strategic difference here between the predominant, speculative modus operandi of many (most?) investors and the substantive, Fundamental Valuations approach of traditional investors. Furthermore, we do not fail to notice in this wide gulf of equity-worldviews an indicator of our present catastrophic, bubbular problem.

The old faithful Valuations method, using profit/price ratio, has been tossed out the window. Does a real, innovative company startup have a snowball’s chance in this heated environment?

Perhaps meaningful financial reform will require something much more apocryphal than just throwing devalued dollars and new paper regs at the problem.

How many speculators are sitting on a keyboard perch trying to decide when is the optimum moment to “get out on a moment’s notice?”

How many mortgage-holders are standing in line for a job?

As Ringo once said: “This is not your father’s Oldsmobile, ” although your dad may have been piloting this same vehicle in September of ’87, or your great-grandfather in October of ’29.

Conflicting interests, conflicting signals, conflicting emotions, conflicting people. . . Get ready. Watch and pray.

Carey Rowland, author of Glass half-Full