Saturday, May 8, 2010
The thing that hath been, is that which shall be; and that which is done that which shall be done; and there is no new thing under the sun.
'For in much wisdom is much grief: and he that increaseth knowledge increaseth sorrow. Sorrow is better than laughter: for by the sadness of the countenance the heart is made better. The heart of the wise is in the house of mourning but the heart of the fools is in the house of mirth. For wisdom is a defence, and money is a defence, but the excellency of knowledge is, that wisdom giveth life to them that have it. For God shall bring every work into judgment, with every secret thing, whether it be good, or whether it be evil.'
-Ecclesiastes 1:18, 7:3-4, 12:14
5am central time on a Saturday with Barron's, just delivered, in hand.
The dots on the cover; 'expect a bottom soon', 'bull will regain his footing', 'make money on Old World's woes', 'flock to the dollar', 'get very defensive'.
Inside Honest Abe channels Bill King (proprietor of the best daily newsletter on the planet), Santoli does his typical if-but, the letters to the Editor beat up on Goldie, there's some pablum hand-wringing on the 'Flash Crash', and an interesting chart comparing this 'recovery' to past recoveries.
The 2 year percentage change of the S&P from the market bottoms of October 1974, August 1982,December 1987, October 1990, and October 2002 were 67%, 62%, 57%,36% and 44% respectively. Currently we stand at 64% from the March 2009 low.
The number of 5% plus corrections during these previous recoveries were 3,3,6,6, and 3 respectively.
Currently, we stand at 5.
The gist of the jibe?
Steady as she goes, pay no attention that the market action this week was, per every 'established' financial model, absolutely impossible. Choose mirth over sorrow.
Your humble blogger would rather mourn the loss of all rationality.
Back when I was a pup and making my way in this world came across counsel that had been the editor of the Harvard Law Review. Would watch this fella give a deposition and as he did, as his 'subject' offered up a lengthy word in rebuttal, he would take that word, and on his yellow legal pad he would proceed to jot down every four letter word that he could create from the lengthy one, all while continuing the deposition. Freaky brilliant he was and one bit of advice he shared that always stuck with me was 'imagine your future self, what advice would he give your current self?'.
This anecdote came to mind when a commentator to a previous post asked me 'Could you do a post for the young, or those with enough fire in the belly to try something new, about what industries/jobs look interesting going forward?'
Most all of us want a glimpse into the future, but counter intuitively our arrogance regarding our dominion over our environment dismisses our ability to perceive tomorrow.
We are fooled by self-determination over ingemination, viewing the past as more primitive than similar, and the future as more unique than repetitive.
So to answer the 'going forward' query made would offer to the next generation the most penitent apology.
For my generation 'it' started with Reagan, ideology ascendant over reality, we could grow out of deficits, we could cut taxes, and providence would trickle down. True there were remedies called for after Carter, most certainly, but the mantra became inviolate and was taken to the extremes that provided the germination of the crisis we are living through now. This 'ideology of the rich' hallmarked by folks voting against their self-interest given the inculcation that someday they too would be rich or at least entitled to it, was accompanied by an 'ends justifying the means' mentality that morphed the political 'manufacture of consent' into an economic 'manufacture of content', i.e., the slow and insidious debasing of almost every government statistic to maintain the illusion of prosperity. It is no coincidence that we have had bubbles and crashes over the last decade, for ephemeral undertakings and their resultant creative destruction would seem to go hand in hand with a Potemkin prosperity.
Now we stand at a crux; deficits without end, income growth due to government transfers and temporarily pumped by counterproductive government policies, an eroding tax base with increasing? GDP , an unemployment level empirically WORSE than the WORSE levels of the Great Depression, a fervent desire to obviate the requisite and inevitable creative destruction of scores upon scores of festering bad speculative bets ... and a perpetual motion machine in Washington that seems hell bent to legislate bigger shovels to dig out of a hole.
The models of course say that recovery is 100% assured. Unfortunately the models also were 100% sure that the 'What Just Happened Crisis' could never happen and neither could the May Trix 'Flash Crash'.
Perhaps our assumptions are wrong.
In choosing 'prophetic' models with a track record of failure we are mortgaging the ability to be masters of our fate. To foresee a future that rhymes with a past is not, as the pablum narrative whines, to refute self-determination but ironically such recognition would harness the same to shape the unknown to a more benevolent conclusion.
Deficits do matter, belief in a random deliverance is foolish, better to accept a mandatory across the board cut and employ a fair and flat tax.
Free market statistics that are transparent and real allow the free market to allocate resources productively and intelligently.
Creative destruction is the progenitor and the instigator of the wealth creating mechanism of capitalism.
Empires are not eternal. The hard fought blessings of liberty are secured by the prudent not the profligate.
Years from now all this, and most assuredly more, will be obvious and this chapter in history, marked by excesses and folly, will be seen as similar to the ones preceding.
There is nothing random about that.