This Bull Market is Cooked

Posted on August 5, 2014 by MN Gordon

Several cracks in what was thought to be a granite foundation supporting the stock market were revealed last week.  The S&P 500 fell 2.67 percent between weeks open and close.  For the month of July, the S&P 500 finished down 1.63 percent…its first monthly loss since January.

Many reasons were given for the selloff.  The Argentine debt saga, the joint US and EU sanctions on Russia, and the prospect the Fed will raise rates were some of the most popular.  Here at the Economic Prism we have some reservations…these developments should have hardly been a surprise for investors.

Rather, we believe stocks fell for a much simpler reason.  We believe they fell because that’s what they must do.  Remember, the stock market goes up…and it also goes down.

After going up without interruption for the last five and a half years it is long overdue for the downside.  How much downside?  No one really knows.

But it will likely be much, much more than a couple percentage points.  “History doesn’t repeat itself, but it does rhyme,” goes the quote often attributed to Mark Twain. Continue reading →

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Heading for Disaster

Posted on August 1, 2014 by MN Gordon

No place is the mix of geopolitics and economics more turbulent than the muddy waters of oil and gas resources.  This week they were muddied up some more.  On Tuesday, the United States and the European Union sprayed Russia with economic sanctions…restricting their access to capital and oil development technologies.

“The measures mark the start of a new phase in the biggest confrontation between Moscow and the West since the Cold War, which worsened dramatically after the downing of Malaysian flight MH17 over rebel-held territory on July 17 by what Western countries say was a Russian-supplied missile,” explained Reuters.

Here at the Economic Prism we don’t know what will come out of the sanctions.  Will Russia submit?  Will Putin cut off Europe’s gas?

We don’t know…  But we do know these things rarely go according to plan.  What sounds like a good idea today is often a bad idea tomorrow.

Complex systems, incrementally built up over time, eventually hit a tipping point.  Out of nowhere they go haywire. Continue reading →

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Minimum Wage, Maximum Stupidity

Posted on July 29, 2014 by MN Gordon

Minimum Wage, Maximum Stupidity
By Doug French, Contributing Editor

The minimum wage should be the easiest issue to understand for the economically savvy.  If the government arbitrarily sets a floor for wages above that set by the market, jobs will be lost.  Even the Congressional Budget Office admits that 500,000 jobs would be lost with a $10.10 federal minimum wage.  Who knows how high the real number would be?

Yet here we go again with the “Raise the minimum wage” talk at a time when unemployment is still devastating much of the country.  The number of Americans jobless for 27 weeks or more is still 3.37 million.  And while that’s only half the 6.8 million that were long-term unemployed in 2010, most of the other half didn’t find work.  Four-fifths of them just gave up.

So, good economics and better sense would say, “make employment cheaper.”  More of anything is demanded if the price goes down.  That would mean lowering the minimum wage and undoing a number of cumbersome employment regulations that drive up the cost of jobs. Continue reading →

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The Decline and Fall of the Stroh Family Beer Business

Posted on July 25, 2014 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 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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