Nothing Fails Like Success

Posted on August 7, 2015 by MN Gordon

Great wealth, like the seasons, is ephemeral.  One generation accumulates it.  While another burns through it.  The difference is dependent upon whether one has a short or long time horizon.

Do they save some seed corn for the next grow season?  Or do they munch it all down in a great big holiday feast?  Of course, the person who saves some seed corn ultimately grows wealthier…though some can’t get past their instant desires.

Others take undue risks with the family wealth.  Rather than preserving capital, they draw it down chasing foolish schemes to make more.  No doubt, these riches to rags stories are the most endearing.

The June 21, 2014, edition of Forbes Magazine tells the tale of the Stroh family’s methodical rise and swift disappearance from the beer brewing business.  “It took the Stroh family over a century to build the largest private beer fortune in America,” begins the print edition of the Forbes article titled, How to Blow $9 Billion.  “And it took just a few bad decisions to lose the entire thing.” Continue reading →

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The Twisted Tale of Consumers and Producers

Posted on August 4, 2015 by MN Gordon

“Every man is a consumer, and ought to be a producer,” observed 19th century philosopher Ralph Waldo Emerson.  “He is by constitution expensive, and needs to be rich.”

These days Emerson’s critical insight has been tipped up on end.  Producers and consumers alike are getting squeezed in a giant vise in the year 2015.  Rising debts and declining wages are twisting the screws down and bulging out the eyeballs of the regular working stiff.

Indeed, Emerson didn’t have the unique opportunity to watch seven consecutive years of zero interest rate policy crimp and crumple the economy and financial system into an overburdened contrivance.  If he had, he would have been appalled by the outcome.  Has the disconnect between the stock market and the economy ever been greater?

Emerson lived in a day and age of honest money…devoid of central bankers.  Printing money to buy bonds and stocks would have been met with a grimace.  It would’ve been considered fraud and deception.

These days it’s considered enlightened central banking policy.  Inflation targets, aggregate demand, unemployment…these are some of the areas central bankers work to influence. Continue reading →

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Deflation with a Capital D

Posted on July 31, 2015 by MN Gordon

The Three Stooges Debunk myRAThere’s a good ole fashioned market panic taking place in the Far East.  Buyers of Chinese stocks have become scarcer than hen’s teeth.  Even the highly visible hand of the Chinese government can’t arrest the freefall.

On Monday, for example, the Shanghai Composite Index collapsed nearly 9 percent.  This was in the face of bans on selling shares and direct stock purchases by Beijing.  Shrewd individuals sold despite the government’s outright threats and demands not to.

No matter how you look at it, government efforts to prop up the market are futile.  They won’t fix the fundamental imbalances.  Market distortions and malinvestments from years of cheap credit have pushed the market out of orbit.  Total collapse is the only solution.

“The Chinese economic boom since the global financial crisis in 2008 has been fueled primarily by debt — with total debt levels surpassing the United States,” reported CNN. “Even the recent stock market boom has been driven primarily by rising debt levels to pay for stock purchases. Continue reading →

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The Perfect Storm Bearing Down Upon Us

Posted on July 28, 2015 by MN Gordon

The barbarous relic wasn’t the only thing that got smashed last week.  Commodities did too.  On Thursday copper fell nearly 2 percent, to its lowest level since 2009.

Iron-ore prices also dropped.  Oil did too…falling below $50 a barrel.  Still, commodity prices could fall even further.

According to Morgan Stanley, the ongoing oil slump could be the worst crash in more than 45 years.  The rationale is simple to follow.  In short, at this point in an oil price decline cycle, production would have tapered back and, hence, supply would have dropped.

A reduction in supply would be the precursor to a price recovery.  Yet this time around, even though oil prices have fallen, supply has increased.  This is completely illogical.

Following the price collapse earlier this year, U.S. production has leveled off.  This is what one would expect.  But, for whatever reason, OPEC production hasn’t decreased or even been flat.  Instead, it has increased from roughly 30.5 million barrels per day in January to over 32 million barrels per day in June.  What to make of it? Continue reading →

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