How to Face Risk in an Uncertain World

Posted on May 26, 2023 by MN Gordon

Managing risk.  Mitigating uncertainty.  Is attempting to crack this unsolvable puzzle all just a waste of time and energy?

The Popocatépetl volcano erupted last week.  It was an impressive sight.  Smoke and ash, in addition to 1,500-foot-high lava fountains, spewed from the volcano’s conical, crater top.

El Popo, as the locals call it, is about 45 miles southeast of Mexico City.  Roughly 25 million people live within a 60-mile radius.

The eruption prompted the Mexican government to raise the warning level to “yellow phase three.”  This means residents should be prepared to evacuate.

With a little luck, the volcanic activity will subside – for now.  In reality, there’s no good way to evacuate 25 million people from a single area.

For example, when panicked residents attempted to flee Los Angeles during the 1992 riots the highways quickly grinded to a halt.  Enterprising vendors traversed the immobile onramps on foot, selling bottled water and canned soda pop at a hefty premium.

Thirsty evacuees had little choice.  They were trapped.  They had to pay up.  There was no way out of the LA Basin. Continue reading →

Posted in Business, MN Gordon | Tagged , , , , | 23 Comments

How Corruption Makes You Poor

Posted on May 19, 2023 by MN Gordon

Are you the type of person who works hard, saves money, and invests with the intent of accumulating lasting wealth?

If so, you’ve likely noticed that things don’t quite add up between what you’re regularly told about how the economy and financial markets work and what you actually experience.  We think there’s more to this than just dollars and cents.

The central feature of economics is prices.  How they are determined and how people respond to them.  This process establishes how prices adapt to meet the supply and demand pressures of the market.

Through experience, buyers can determine what’s a good deal or not.  And they adjust their behavior accordingly.  Similarly, through testing, sellers determine the optimal price of their products; a price where profit margin is best supported by sales.

For example, when airfares are cheap, a father may spring for long distance plane tickets so his family can vacation somewhere exotic.  When plane tickets are expensive, he may opt for a road trip and tent camping at a national park. Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , | 29 Comments

Circa: Now!

Posted on May 12, 2023 by MN Gordon

America’s economic landscape is becoming littered with one steaming pile after another. The primary offenders include consumer price inflation, interest rates, gross domestic product, and unemployment.  Here we’ll take a sniff of the unpleasant odor that’s wafting around us.

To begin, consumer price inflation is still well above the Federal Reserve’s 2 percent target.  In fact, the Bureau of Labor Statistics reported this week that consumer price inflation, as measured by the consumer price index, is increasing at an annual rate of 4.9 percent.

And even if you go by the Fed’s preferred inflation metric, the personal consumption expenditures price index, consumer prices are rising at an annual rate of 4.2 percent.  This is still more than double the Fed’s selected target.

So, too, short-term interest rates are relatively high when compared to the last 15 years.  By this, when you go from 0 percent to over 5 percent in a matter of 18 months the impact on credit markets can be both significant and adverse.  As the former managers of Silicon Valley Bank recently discovered, ultra-safe Treasuries can quickly transform into risky assets. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 2 Comments

What Will People Do?

Posted on May 5, 2023 by MN Gordon

Put my dusty morals on the dusty moral shelf
Try to do for others but I care more for myself
My life is like a desert just a lot of sand and rocks
Try and buy some peace of mind and find the store is locked

You can’t get water from a bone dry wishing well

– Bone Dry, by the Cadillac Tramps

Letters of Doom

Treasury Secretary Janet Yellen is a woman of letters.  We like this about her.  Because, like us, in a world of text snippets, tweets, and animated gifs, she finds the traditional exchange of letters to be most civilized.

Her academically trained brain – ensconced beneath a white hair shelmet – guides her thinking.  With purpose and intent, Yellen puts fingers to keyboard and taps out letters to Congress warning of imminent doom.

Her most recent letter, published on Department of the Treasury letterhead, and addressed to The Honorable Kevin McCarthy, rolled off the printing press on Monday the 1st of May.  The objective of the letter was to correct grave misinformation she supplied in a prior letter to Congress.

Specifically, on Friday the 13th of January, Yellen, sent a letter to Congress informing legislators that the statutory debt limit of approximately $31.381 trillion would be eclipsed on January 19.  And that the Treasury must resort to extraordinary measures – accounting maneuvers – to delay a U.S. government default. Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , | 1 Comment