Tuesday, January 06, 2009

The Systems Fail, All the Circuits Blown, And the Message Lost, In The Machine

Reading economic crisis story after economic crisis story would lead one to believe apocalypse is coming, however, the doomsday crowd always fails to estimate the creativity of mankind, and more importantly the cardinal desire for self preservation. Several times in the past year I've heard the rubber plane analogy. When faced with dire circumstances, with obstacles or predictions not met, one could say the rubber plane has hit the mountain. In essence, the plane changes course until it hits another mountain, all the while the only thing needed to steer clear of is the volcano.

The 'real wealth' is a paradox in terms. It reminds me of what Chris Rock once said, 'Shaq isn't rich, the white man who signs his paycheck is.' In recently talking to an academic type friend of mine, who thinks this vaporware wealth is largely 'evil', the wheels spinning in my head validate to me that the fundamental science of economics is good, it makes common people like us able to buy cars, and live in suburbia, with a standard of living better than kings in old times.

Throw a bad math equation in the mix (subprime), couple that wil reflexivity (people think the stock goes down, therefore it goes down), and puts and shorts on otherwise healthy stock (greed) and we have some problems. Enter the life and times now, volatile, 1) China going, hmmm, is the white man ever going to pay us back, 2) the Jones's not able to afford any more luxuries on credit, and 3) a turbulent middle east, one in which the US takes a staunch support for Israel, we threaten alienation from OPEC, therefore potentially losing the currency reserve status for oil. All the while, our money printing presses going 24x7, where's the inflation going?, and when is the right answer to fix this going be 'save and produce' instead of spend more?

Yes, doom and gloom -- I would say it looks 'bad' for the USA only because of the scaling back of lifestyle, heaven forbid, the government and consumers buying only what they can afford. The USA won't sink into 3rd world status, and there won't be a run on the bottled water on the store shelves, the rest of the world will simply enjoy a higher standard of living, that is, to the extent of their respective dysfunctional governments will allow.

What is real wealth anyway? Say if one has a 401k that matches to a certain percentage, you put 50% in, your employer 50%. If you're 'down' 37% for the year, in nominal terms you're really still 'up' 13%, and that's the math we have to get used to in the new financial era. Two factors will corral 'growth' to nominal means in the future 1) intense scrutiny and regulation of the markets, and 2) the emergence of 'business ethics' as Billy Madison would say. Ahhh, capitalism these days, feelin' like the puppy that $hit in the corner.

As Peter Schiff says, 'there's a bull market somewhere' and like the ancients say, 'if you want to build cities, you have to build roads'. The rise of global shared hegemony is on the way, currencies will be allowed to 'float' against the reserve, and it will be holistically beneficial to civilization. China is building infrastructure, and churning out double and triple the number of educated and hungry people. As government regulation eases by means of controlling civil unrest, the red will also add white and blue.

Perhaps I'm young and naive saying the US hegemony is over (its been said time and time again throughout the 20th century), our credit is stretched, our military the same, our attention span and tenacity have went to the way of iPhone apps and 'hard working' paper shifters.

As we stand on what Mr Progress calls the 'arc of history,' the way I see it, we have a few options, continue to think the world will give us their money, and in return re-create vapor money for them, or we can embrace the developing world, investing in something tangible. My 35,000 foot high level strategic investment strategy for the future, invest in what makes America green, and what makes China red, white and blue.

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