When the Gravy Train Jumps the Tracks

Posted on October 2, 2012 by MN Gordon

The future consequences of all that has been done to the financial system and the economy over the last four years – from late 2008 to the present – are largely not understood.  There seems to be some broad impression that the stability of the pre-Lehman default era is gone forever.  But it’s not generally acceptable to talk about in front of polite company.

At present the task falls squarely on the shoulders of oddballs, cranks, and killjoys.  We, of course, are part of this sour cast.  We don’t dwell on it.  Rather we get to it, like we get to most things…with a sharpened pencil, questioning spirit, and the stubborn persistence of a pack mule.

No doubt, by the November 4, 2008 presidential election night, the financial crisis had accelerated the economy’s ride down the highway to hell.  Lehman Brothers, the fourth largest investment bank in the United States, and a bank that had been in business since before the Civil War, had vanished from the face of the earth less than two months prior.  About this time, the finance world watched in horror as black swans relentlessly descended upon the LIBOR like common ravens upon fresh Southern California road kill. Continue reading →

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Skeleton Economics

Posted on September 28, 2012 by MN Gordon

“Markets make opinions,” once said someone who’s much, much smarter than we are.  Perhaps they meant that when markets rise for a long period investors will make up opinions about why they will keep rising further.  Likewise, if markets are falling they’ll come up with reasons why prices will continue to fall.

Of course, everyone’s entitled to their own opinion…regardless of if it’s any good.  One fellow may come up with technical indicators to support their opinion.  Another may follow the fundamentals.  Both, no doubt, are 100 percent correct until just the moment they are wrong.  That’s when they must come up with a new theory to opine.

Housing is one market that has hardly seen a ray of light over the last five years.  After decades of rising prices, culminating in a blowout of irrational exuberance between 2002 and 2006, the impossible happened.  Housing prices didn’t go up.  What’s more, not only did they not go up…they went down.

Since peaking out in 2007, housing prices nationwide have deflated 35 percent.  In some places, like Florida and Las Vegas, the carnage has been much worse.  But now, under everyone’s nose, the housing market bottom may have already come and gone without notice. Continue reading →

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Falling Off the Hunger Cliff

Posted on September 25, 2012 by MN Gordon

The October edition of Smithsonian magazine tells us that “With five simple words in the Declaration of Independence – ‘all men are created equal’ – Thomas Jefferson undid Aristotle’s ancient formula, which had governed human affairs until 1776: ‘From the hour of their birth, some men are marked out for subjection, others for rule.’”

Aristotle’s sentiments are obviously nonsense.  However, if you’ve ever reported to jury duty, and sat in a courthouse selection room all day among peers, you know that Jefferson got it wrong too.  For all men are not created equal…there’s a vast spectrum of people ranging from idiot to genius.

According to Thomas A. Patterson, in The American Democracy – Alternate Edition, what Jefferson – a slave owner – meant when he said “all men are created equal” is that all Americans are entitled to equal justice under the law.  The Smithsonian article attempts to reconcile the conflict between Jefferson’s words and actions as follows: “The very existence of slavery in the era of the American Revolution presents a paradox, and we have largely been content to leave it at that, since a paradox can offer a comforting state of moral suspended animation.” Continue reading →

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Present Conditions and Negative Outcomes

Posted on September 21, 2012 by MN Gordon

There are certain things in life a reasonable person knows they should not do.  These are things so obvious, evident, and elementary they do not require learning.  They go without question.  They don’t have to be tested for confirmation or denial.

For instance, a person should not give a Hells Angel biker the middle finger.  Nor should they play chicken with a semi-truck.  Above all, a person should not stiff the IRS…unless they want the holy wrath of the federal government bearing down on them night and day.

Likewise, the proven way to make money in the stock market is to buy low and sell high.  Everyone knows this.  Yet, despite most people’s better judgment, they have the uncanny knack for buying high and selling low.  Of course, greed and fear have something to do with this.

When it comes to markets other than capital markets people are generally capable of making accurate price-to-value judgment.  Through everyday experience everyone knows when they’re getting a good deal on a turkey sandwich.  So, too, they know when they’re getting ripped off. Continue reading →

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