Where would we be if more of the high-impact economic and financial experts had utilized their massive exposure to consistently place more focus and push behind the long-standing alternatives that would have reliably prevented the kind of life-altering problems we are now seeing for so many people?
Instead we have watched and absorbed as many of these experts have kept the spotlights focused on jumping back and forth between different sectors and asset classes of the financial markets -- popularly known as the market timing game.
And if you don't have the time or inclination to play the game, those who pay the major bills to keep these spotlights on -- and thus direct their focus -- will gladly do it for you, generating enormous turnover fees in the process while the associated risks remain with you.
The S&P 500 is the widely followed index of large-cap American stocks that is considered a bellwether for the American economy.
The major sea change in the character of its progression over the past two decades presents a strikingly clear picture of how this institutional promotion of the market timing game has created a volatile and unstable economic environment.
Could it be that many of these experts who are supplying the breaking news from the economy and financial markets actually do not see and understand how this volatility --that the timing game depends on -- has crippled our system right before their eyes?
Doesn't seem likely.
If It Bleeds, It Leads
To survive let alone thrive in the breaking news area of the media world, long term safety and stability are not sexy subject matters to rattle on about. They simply will not meet the demands of the ratings-eating media machine that has an overwhelming appetite for strife. As a result, what we are witnessing is clearly a driving force behind the ongoing instability.
Henry Ford once said, "A business that makes nothing but money is a poor kind of business."
Waiting around for this cat to change its stripes is not realistic. So let's take a closer look at how this media phenomenon is used to work magic for those who support and manipulate it, its actual results for the average person who has invested their life savings in this system and some alternatives that will break this downward spiral and move us forward.
Playing with House Money
The big guys understand the basic rule -- the absolute necessity -- of playing it safe with their Core Financial Assets. In other words, play it safe with the house money by having in place at all times a firewall of safety around that which is necessary to maintain what you have achieved.
And even when they decided to do some risk taking with their own household accounts, they were sure to have the contingency plan in place whereby the U.S. taxpayer would be the go-to guy if things got out of hand.
Still, if the general rule is to play it safe with house money, how is it, why is it, that the average investor continues to be encouraged -- however subtly so -- to continue gambling with theirs?
The Flying V
For those not familiar with the terminology, a "V-shaped" recovery is a term used repeatedly by the experts to describe the notion that when the Financial Crisis hit and we saw a precipitous drop in the economy and financial markets, that this was somehow a temporary problem that would immediately correct itself once we threw a bunch of money at it and we'd shoot right back up and be on our merry way just like before.
This was a completely false and misleading premise from the start in that it obviously ignores the internal damage that had been deeply rooting itself for decades before reaching an inevitable point of implosion. And to even consider that damage of this magnitude could possibly be corrected or repaired in a short-term time frame -- one quick bounce off a bottom and away we go -- pushes all logic right out the window.
Once the house of cards collapsed, in pretty short order, we started getting this parade of happy talk experts streaming through the extended infomercials for Wall Street armed with the same basic call to action script designed to keep people and their assets in the game -- or get them back in.
With very serious, pedantic looks, they stare into the camera and start reciting this come-hither blabber about how we've got a V-shaped recovery going on. The markets react to this unfounded stimulation and the message is driven home: Act now, or let us act for you. The train is leaving the station and you don't want to miss out!!
Let's stop and think for a moment. Out in the real world of the real economy, where is this big V happening? Have you spotted a big V flying over the land? Maybe it's busy circling over Europe? Maybe we should get the UFO guys in on this?
Is this the appropriate and accurate message from people who have been given the spotlight and are supposed to know what they're talking about?
If you're really just a infomercialist hustling for private interests, just say so. When using the publicly-owned airwaves, wear a little ID badge or make the type of disclaimers that are now taking up more than half of all the pharma commercials. Be straight about it.
And what about the go-to guys who have to make their lives work in the real world? What's their backup plan?
The Lost Decade
So where has all this expert advice taken the average investor over the last ten years? According to the Dow Jones Industrial Average, S&P 500 and Nasdaq, not very far.
For all of this daily bombardment of "It's up, It's down", what we really get is quite meaningless, glaringly counterproductive and grossly misleading -- most importantly from the perspective of the one thing we cannot replace: TIME.
When you walk into the virtual reality of any casino you will never see a clock. In this carefully planned and psychologically controlled type of environment, the last thing they want you thinking about is your time.
On average, how many decades out of the normal life cycle are your most productive? Approximately 3. What's the financial wizards' recovery strategy for this 1/3rd loss of the time value of your most productive years? There is no recovery.
Now, even to the most casual observer, smoke-and-mirrors mumbo jumbo like "Don't worry, it'll come back..." just doesn't cut it anymore when it comes to the reality of your time on this planet.
"It is generally agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges." - John Maynard Keynes
Conservation - A Shift in Perspective
Like the natural resources we all depend on, our financial resources are of equal importance. Especially considering how one supports and impacts the other. The ongoing fallout from the Financial Crisis is not a regional event, but a global contagion reaching and affecting every corner of planet Earth.
Do a Google search on conservation of natural resources and see what comes up. Then try a search on conservation of financial resources and compare the results.
From the same level of concern and priority given to the preservation and sustainability of our natural resources, would it not make sense that the universally established principles and theme of Conservation be broadened to include what we have come to realize, unmistakably, are our limited financial resources?
The individual is the basic building block of any real change for the better. It's never too late. So with the fresh perspective of Conservation, we can each make the choice and commitment for ourselves and the generations to come to get some backbone and act responsibly.
How can it happen otherwise?
Why do we leave major parts of our life exposed in today's world?
We know and understand the necessity of insuring ourselves before the fact against forces absolutely beyond our control for such things as our health, homes and businesses, not to mention the potential liability every time we get behind the wheel of an automobile.
By the same simple logic, would it not make sense to insure, reliably, before the fact, our life-long savings for the major milestone events that are date certain such as the tuition for our children's education and our retirement? And we're not talking about those asset allocation models where risks are shuffled around like deck chairs on the Titantic.
These widely used models were one way to definitely generate all kinds of turnover fees, but, when put to the real test, they did not live up to their promise.
Again, not sexy subject matter like market timing and the my crystal ball is bigger and better than yours nonsense. But at the end of the day, in the real world where people are responsible for themselves and others, the only "timing" that matters is this: will what you worked for be there when you need it?
Independent Thinking for the Greater Goood
Predictions, as we are seeing, are nothing more than good guesses or bad guesses. The time has passed for relying on experts whose crystal balls have been shattering left and right. The chicanery and game playing of the prediction business that the media thrives on is out. Long-term planning and preparation for the inevitable and unpredictable twists and turns that lie ahead is back -- it really never left.
The choice of direction from here is simple and straightforward. That's right, simple and straightforward, not vacuously sophisticated and needlessly complicated in such a way as to separate us from the basic fundamentals that will never, ever be denied -- which is exactly how all houses of cards are designed and built.
Hold it! Back up the truck. Fundamentals?? You know, the simple, old-fashioned, corny stuff like you can't spend more than you make.
"If you know how to spend less than you get, you have the philosopher's stone." - Benjamin Franklin
We can continue to choose sexy and reckless with high ratings and questionable success for a very few. Or we change course over to a commitment to Conserve our Core Financial Resources, supported by long-term thinking whose first priority is a strong foundation that will provide a reasonable amount of stability in people's lives. Or, at the very least, keep the blowups manageable.
To be sure, this approach won't feed the media-cultivated need for the addictive type of hype, "chasing the dragon" thrills that are here and gone in a nano seconds. But it will produce a lot less angst and turmoil over the long term for a far greater number of people.
It's time to Draw The Line!
Like the big guys, you can start by first making a clear distinction between what you consider to be your Core and Non-Core Financial Assets. Then determine how these assets are positioned: either for growth with safety; or growth with risks and the inevitable setbacks that are a part of taking risks, especially in today's economic environment.
Below is a link to the Draw The Line Exercise Worksheet that has been provided for your secure and private use. Take a couple of minutes to type account names only in the column that matches their current status of safety or risk, identifying each account as either a Core or Non-Core Asset. Hit print and you'll get a quick picture of where you now stand.
With this as a baseline, you can make a clear decision to either stay the current course, or head in a different direction.
There are always alternatives.
The choice is yours.
To learn how to implement a crisis-tested strategy for the sustainable growth and preservation of Core Financial Assets, click on the following link:
Viewing the 'Saving Money' Category
More and more we are hearing the term Estate Conservation instead of the traditional Estate Planning.
Think about it. In today's world, if you're not first doing Financial Conservation along the way, what "Estate" will there be to conserve?
No coin has only one side. Like up cycles, down cycles are an inevitable part of the financial markets and the economies they are supposed to reflect. The Financial Crisis was in large part brought on by a head-rattling, mind-numbing lack of forward-thinking and priority given to providing reliable safeguards that would automatically kick in and protect Core Financial Assets when the market coin flipped heavily to the negative side.
When, not if. It has never been nor will it ever be a question of if the down cycles will arrive, only a question of when. And, as we have learned the hard way, the timing is unknown until it happens. Once a down cycle starts, and losses are being incurred, how do you put the toothpaste back in the tube? You can't, it's too late. Time to ride the waves.
Surf's Up! There are two main moving parts to the dynamic of recovering from any losses experienced in the financial markets. First, look at the chart of any index, stock, bond or commodity (examples below) and you will see how they all move in a fluctuating wave pattern. Bearing in mind that legs are strongest in the first phase of a foot race (to mix metaphors), if you have experienced any losses in a down cycle, the first and strongest phase of a subsequent market recovery or up cycle, by definition, is not devoted to real asset growth, but to the recovery or retracement of those previous losses.
The math of compound loss. The second moving part of recovering from market drops is how the math is not working in your favor. For example, to get back to breakeven from a loss of 50% would require a recovery gain of 100%.
Locked-in losses. Keep in mind that when financial or psychological pressure builds up during a down cycle -- which is particularly true when it comes to Core Financial Assets -- and the order to sell goes through, any losses incurred become permanent and the producing asset is gone forever.
Will what you worked for be there when you need it? Recovering from market losses that impact Core Financial Assets built over a long period is an uncertain process. Once caught in this position, you have absolutely no control over the timing of market recovery that will determine whether or not your asset value -- think life savings -- has been restored, if ever, by the time it is needed for date-certan milestone events such as college tuition and retirement.
To eventually recover in financial terms is one thing, but how do you ever recover the time it took to build these assets?
The lost decade. If we use Dow Jones Industrial Average as an indication of just how far the average investor has progressed over the last ten years, the simple answer is: not very far.
So, on average, how many decades out of the normal life cycle are your most productive? Approximately 3. What's the recovery strategy for this 1/3rd loss of the time value of your most productive years? There is no recovery.
Now, even to the most casual observer, smoke-and-mirrors mumbo jumbo like "Don't worry, it'll come back..." just doesn't cut it anymore when it comes to the reality of your time on this planet.
Solution. Start by first making a clear distinction between what you consider to be your Core and Non-Core Financial Assets. Then determine how these assets are positioned: either for growth with safety; or growth with risks and the inevitable setbacks that are a part of taking risks, especially in today's economic environment.
Below is a link to the Draw The Line Exercise Worksheet that has been provided for your convenience and private use. Take a couple of minutes to type account names only in the column that matches their current status of safety or risk, identifying each account as either a Core or Non-Core Financial Asset. Hit print and you'll get a quick picture of where you now stand.
With this as a baseline, you can make a clear decision to either stay the current course, or head in a different direction.
There are always alternatives.
To learn how to implement a crisis-tested strategy that utilizes the "Step Structure" to insure the sustainable growth and preservation of Core Financial Assets, click on the following link:
To illustrate a simple point, let's say that the Germans like to save their money for the cold, rainy days they know are coming, and that the Greeks like to spend too much time partying on their sunny, beautiful beaches. Why should the Germans and everyone else -- like the U.S. in particular who has enough problems of its own -- be dragged along in this co-dependent lunacy of having to bail them out when the inevitable happens?
Far more important for the long-term greater good, is it the right thing to do?
Isn't it obvious to anyone with adult experience in life that brick walls would eventually be hit, like the Germans telling the Greeks, "You Greeks have to live according to our German way of doing things as a condition for your drunk driving bailout."
With just a little foresight, who could have possibly, seriously thought this would ever fly?
The great minds of Europe set up a framework for cultural identity clashes, never-ending cycles of enabling and co-dependency, and the kind of contagious chaos we now see spreading throughout Europe.
As with our Greek example -- think twittered-out, reckless teenager -- regardless of how they may have made a mess for themselves, the reckless ones would rather go down in economic flames, not caring one twit who or what they take with them, before they would ever "surrender" their centuries-old cultural identity and independence -- who cares what it cost.
"Economic Efficencies" may have been the stated goal at the outset, but the chaos that comes with all co-dependency is now the actual end result that is driving EVERYTHING! Like any parent who has experienced the co-dependency nightmare will tell you, it's to Hell and Back before you can break this vicious cycle once it gets started -- if ever. Or put another way, the rascals of the family are bound and determined to rule the family. Unless, of course, the adults in the room stand up, draw the line, and say, that's it, no more, and back it up with the appropriate, consistent action.
European leaders need to get themselves into a 12 step Alanon program - tout suite! One of the first things they will learn is that as long as there is one vulnerable enabler within reach who "thinks" they're stuck cleaning up the messes of the reckless ones, there is no reason, no self-preservation instinct that kicks in to change the predatory mindset of the "I'm entitled, you're responsble" type for the better. The vicious cycle of enabling/co-dependency will just continue on and on.
With all of this said, maybe co-dependency is really what the great minds of Europe were looking to accomplish from the very beginning of this whole exercise. In other words, establish built-in, perpetual justification for the highly-concentrated power "needed" to fix the same recurring problems, which, of course, they set up in the first place.
Perhaps what the Euro's founders envisioned from the get-go was a simple two step process. First, establish a monetary union that is doomed to fail without the fiscal union necessary to control spending, budgets etc. Then, when the transitional phase of planned, co-dependent chaos arrives, they're ready with, "Well, we've established the Euro as a world currency, and can always print more. Not to mention, it'll be a piece of cake suckering some of the world's deep pockets (think U.S.) into our bailout party which will bring us to step two and our ultimate goal..."
At the outset, there is no way member countries of the European union would have ever agreed to surrendering sovereign control of both monetary and fiscal policy at the same time. The Brits got it right and kept the Sterling.
So the strategy is to get step one of monetary union rolling first. And then, as the anticipated crisis mounts, to save the grand vision of the "United States of Europe," the second step of fiscal union is activated with acquiescence to statements like, "We've come this far...can't turn back now...what other choice is there?"
Thus, the original goal is accomplished whereby all co-dependent roads now lead to Brussels where there is a concentration of monetary and fiscal control over EVERYTHING.
Is this how you would define progressive? Or is it a swing backwards to the Medician/Machiavellian times of old Europe, where the self-annointed few are only concerned with concentrating power to control more?
The only thing progressing right now is institutionalized chaos and the mounting price tag that goes with it for the average, hard-working person.
The good people of all the countries and cultures that comprise Europe should be reminded that the United States of America was formed, first and foremost, to get the heck away -- a whole ocean away -- from these power and control games.
A Cautionary Tale For The U.S.
Where are the U.S. leaders who will truly look after the best interests of the average person who doesn't get to sit in on these lunatic planning sessions that result in disaster?
Where are the U.S. leaders whose natural-born, relentless instinct and ever-present first priority is to keep the focus, at all times, on the simple basics of life that throughout time and history have always trumped and taken priority over any clique-driven, self-serving ideological agenda? You know, simple, corny, old-fashioned stuff like you can't spend more than you make.
Here's some more corny stuff: staying grounded with fundamental life principles that have never and will never be denied is the simple -- that's right, simple -- way to avoid building these colossal houses of cards that eventually come tumbling down on the average, hard-working person with a big, fat cleanup bill attached.
The tough part: it takes guts.
Who's got guts?
The backbone that skipped my generation.
We can learn from the Euro Crisis and not get ourselves caught in a vicious cycle that will be mighty difficult to break -- if we aren't there already. And the costs? We're already having to learn new math terms to describe more and more zeros.
However, my personal opinion is that the generations following the Budget-Busting Boomers -- of which I am one -- will have the backbone that skipped my generation and say, "Not going to happen on our watch! No way, no how."
Back to basics is the way forward.
We have heard the reports that one trader, perhaps one automated trading program, may have been responsible for the Dow's recent 1000 point intra-day swoon.
If only one person hitting keys or one automated program -- regardless of who "they" may be -- can have that kind of incredible impact on the biggest system out there, in simple, logical terms, what does that say about current market vulnerability and stability?
We're all aware of the efforts being made to bring stability to the system, to the extent that such is possible. But in the meantime, how do you the indivual protect your core financial assets?
Rather than playing the market timing game with your future whereby you are forced to constantly skip around, generate turnover fees, and maybe or maybe not dodge these market bullets, consider the automatic protection and sustainable growth provided by the Step Stucture of Financial Conservation.
Visit: What is Financial Conservation?
New rules and regulations are necessary to provide better safeguards that more accurately reflect the changing "road and weather conditions" of our economic environment. However, as the pendulum of ethical behavior swings back and forth through time, well-founded rules and regulations are only as good as their level of enforcement.
Had there not been such a significant breakdown in the ethical standard of enforcing the rules and regulations that have been on the books for some time, "crisis" would not be the dominant word used to describe our current economic situation.
When we get behind the wheel of a car, it is the responsibility of each and every one of us to drive their vehicle in such a manner that maintains safety for themselves and others, regardless of what the road and weather conditions may be -- or we pay the price.
Through Core Asset Conservation, the individual takes back control and ownership of their future. By taking the initiative to reduce the level of risks associated with one's core assets, the individual is in a much stronger position to keep themselves and their families in step with the unalterable cycles and milestones of life, regardless of what a changing economic environment may put before them.
Ultimately, ethical systems that stand the test of time are built, maintained and sustained by a preponderance of ethical individuals... a simple fact of life.
"...banks repaying their TARP loans. It's another indicator the banking system is on the road to recovery -- or at least in better shape than this time last year. Of course, that's thanks to Treasury programs [funded by American taxpayers] like TARP and dozens of other Fed programs [which propped up the "Too-Big-To-Fail" banks to the tune of 10 trillion dollars, while at one point Americans had lost 14 trillion in household income] that kept the money flowing when bankers closed their taps [to the little guy.]
We've left our small and mid-sized businesses behind [that employ 80% of our workforce]; and we've left our American people behind... This does not an economy make.
President Obama is trying to nudge banks in the right direction, at least on the surface:
-Make more loans to small and medium-size businesses.
-Increase modifications of underwater mortgages.
-Bring executive compensation under control.
-Give more support to legislation overhauling financial regulation."
"The additional 30,000 troops for Afghanistan will cost an additional $30 billion per year, or roughly $1 million per soldier per year. (It's an extraordinary sum especially considering how relatively little enlisted soldiers are paid; meanwhile, private contractors in Afghanistan now outnumber U.S. forces, The WSJ reports.)"
The point is made with all due respect: Military recruitment has gone up as unemployment has risen. Is this the best type of job opportunity we have to offer our young people?
or "The United States of Wussess"? Read on...
As indicated in my previous post, in its struggle to get back to reality, Japan has finally brought in a new breed of politician who is actually delivering on the campaign promise of bringing real transparency to how government spends the peoples' money.
In the following link Howard Davidowitz lays out how our current problems (artificially low interest rates and a bailout culture, to name a few) are similar to those that have dogged Japan for two decades.
In their search for answers, the Japanese sought advice, no less, from the same guy who now has our president's ear, Lawrence Summers, Director of the White House's National Economic Council, and he's been singing a different tune recently.
Is it overly optimistic to think that maybe we can learn from the experience of others and not take the same long, hard road back to recovery?
"In a major break with the past, new Prime Minister Yukio Hatoyama has introduced a public review of the budget. His party, which ousted the long-ruling conservatives in August, has promised to cut wasteful spending and make policymaking more transparent.
The review has gotten plenty of air time on television and seems to be reviving public interest in politics, which many Japanese have come to see as largely irrelevant to their lives.
'This kind of thing is fundamental to democracy. Before, things were too secretive,' said Yoshitomo Yokoyama, a 77-year-old retiree who came to watch. 'This is definitely a positive change.'
A survey conducted Nov. 21-22 by the Mainichi newspaper showed more than 70 percent of respondents supported the budget review.
Taxi driver Koji Iwano said the public review will bring some fiscal discipline to Japan.
'It's clear that the spending until now was irresponsible,' said Iwano, a 43-year-old from Saitama, north of Tokyo. 'If Japan were as careful as many mothers are about watching their family's budgets, we'd be better off.'"
The Fed stated in documents released from it closed-door meeting held earlier this month that in its efforts to fuel the recovery it is holding to its bank lending rate at basically zero. It acknowledged that there is the possibility, although "relatively low" in their estimation, that it "could lead to excessive risk-taking in financial markets" causing another speculative bubble.
The Fed anticipates that it could be five or six years before employment levels and the economy return to consistent health.
The Fed also announced that it has tightened its regulations regarding conflict of interest rules governing the boards of directors of its 12 regional banks.
Unlike pre-crisis days, I take it as a positive sign that there is some movement from public officials towards a more realistic and forthcoming attitude about dealing with our current state of affairs.
"The post-op on the great crash of 2008 continued in Washington Thursday as the Joint Economic Committee (JEC) held a hearing on financial reform.
'Unfortunately, the regulatory regime that failed so terribly leading up to the financial crisis is precisely the regulatory regime we have today,' Treasury Secretary Geithner declared. 'We need comprehensive financial reform.'
There is a way to have a financial system with a 'reasonable degree of stability' and 'serves a public purpose,' Galbraith says. 'But it does require having a government which is not run by the financial sector.'
Galbraith didn't use the term 'Government Sachs,' (see link to New York Times article in the attachment) but said 'we're not going to get where we need to get...if you have this revolving door where all the people from Wall Street go down to Washington and offer their services and basically serve their own worldview and the financial interests of their friends.'"
MED Comment: Arsonist or Firefighter? You can't wear opposing uniforms at the same time. Which one is it -- really?
Secretary Geithner served in key economic roles such as an Under Secretary of the Treasury for former Secretaries Robert Rubin and Lawrence Summers (current Director of the White House's National Economic Council for the President), and more recently as President of the Federal Reserve Bank of New York.
Clearly, Secretary Geithner and other members of the major insiders club who exercised powerful influence on the economy while shuttling back and forth between Wall Street and Washington -- in both democratic and republican administrations -- knew all to well the state of the "regulatory regime" during the 20-30 year period of time that our severly under code financial house of cards was being constructed.
Now that the house is on fire, these public displays of concern and outcry are following the standard script.
The media thrives and depends on obsession of all types. It is becoming increasingly more obvious how the tremendous focus given to the democrat vs. republican win-at-all-costs obsession is serving as a convenient sideshow distraction to divert the little guy's attention away from a power clique virus that, with no allegiance other than self-dealing interests, has targeted and infected the heart of our economic system.
It defies common sense to accept the notion that this inbreeding of revolving officials, who wear for show hats from all sides of the political spectrum, will suddenly in earnest stop enabling and start demanding from fellow co-dependent power club members -- with heavy interests in the status quo -- the kind of across the board transparency critically necessary to restore the health of our economy.
It's out there, but we need more of that real type of independent stand-up leadership that when the heat is on will not shy away from flipping on the lights to dissolve these veils that cover the hidden agendas of those -- on all sides -- whose priority is not finding real solutions to society's real problems beyond their own tight circles of self-serving interests.
Real change for the greater good sounds and feels warm and fuzzy, but it's just another empty slogan until you back it up.
The New York Times - Banks Bundled Bad Debt, Bet Against It and Won
Liz Ann Sonders, chief market strategist at Charles Schwab, represents the more bullish point of view saying, "It's very clear we're in the midst of a V-shaped recovery." Tech Ticker credits Ms. Sonders with keeping its viewers ahead of the curve. It goes on to say, "In October 2008 she said the recession was upon us and would be deep. Remember, this was months before the NBER's official declaration and at a time when most economists were debating whether or not a recession was in the offing. In June 2009 she said the recession was ending, if not already over, a highly controversial statement at the time."
Ms. Sonders says, "I'm on the more optimistic end of the spectrum," she says. "I'm not expecting the kind of pop in growth you'd normally see after such a big compression, but probably [growth] still above what is a very low level of expectations."
Robert Prechter, founder of Elliott Wave International and author of Conquer the Crash, is on the other end of the spectrum cautioning retail investors to "stay away... for now." He was bullish near the lows in March, but now says the stock market "is in a topping area." Mr. Prechter compares the current market to those of 1966-74 or 1929-32, where massive bear rallies gave way to another "big leg down", i.e., a W-shaped recovery.
Mr. Prechter is predicting another crash in 2010 that will bring stocks below this year's lows. His word to the wise, "be patient, don't rush it" keep your money in cash and cash equivalents for now and wait out this bear market. His analysis further indicates 5 or more years before we turn the corner into real bull territory and "it'll be the buying opportunity of a lifetime."
Ms. Sonders and Mr. Prechter are professionals who have both made, through extensive research and study of the same market history, reasonable sounding arguments for their diametrically opposing views. They represent armies of experts on both sides of the ongoing bull vs. bear debate. Whether the market as a reflection of the underlying economy will experience a W, V, U, "Square Root" or whatever shape of recovery, remains to be seen.
As emphasized in my previous posts, my personal view is that we will be stuck in a volatile environment until we have seriously tackled the underlying structural rigging problems of our economy that were decades in the making.
However, I am optimistic that, unlike before, these problems are being dragged kicking and screaming out of the shadows and into the public eye where with full recognition -- over time -- they will be resolved.
How to Solve the Dilemma: Core Asset Conservation
First, let's stop buying into this Wall Steet notion that we have to "climb the wall of worry" for the rest of our lives. There are alternatives.
As a financial planner, I specialize in the management and preservation of what are defined as Living and Legacy Core Assets. For my clients, the bull vs. bear dilemma is solved by placing these core assets in a step structure that provides, safety of principal, locked-in gains as credited and liquidity. By utilizing the indexing method, clients are able to share in the upsides of the market, but have an automatic defense system in place that eliminates the possibility of losing principal or credited gains whenever the market wave patterns turn negative.
When you know that your Living and Legacy Core Assets are safe, with non-core assets that have direct exposure to the markets, you are in a far stronger position -- financially and psychologically -- to either try and time the upswings and downswings, or just ride out any of the more severe downturns which may occur and not be forced to sell at the wrong time.
From the standpoint of timing, milestones in life -- college tuition, an untimely death, guaranteed retirement income, etc. -- are totally indifferent to whatever state the economy or the markets may be in at the time they arrive.
In today's world, true asset allocation is adding the guarantees of the step structure as a permanent feature to the mix of diversifying risks among the wave patterns of various assets classes in order to provide the stability you can rely on to support life's milestones for yourself and those who depend on you.
For more information on Core Asset Conservation, please visit my website.
"Repealing Glass-Steagall was 'obnoxious' and a bipartisan 'absurdity'...
The end result of the repeal was you have 'taxpayers subsidizing risk-taking' on Wall Street...
'It's the most anti-capitalist thing I've ever heard of in my life.'
...Glass-Steagall wasn't regulation, 'it was common sense'..."
"The numbers are bleak -- unemployment has surpassed 10 percent for the first time since 1983 -- and Warren is not surprised.
'Let's face it,' Warren said, 'This is sort of how we went about the rescue -- we rescued at the top and we left the bottom to kind of fend for itself -- and that's showing up in the unemployment numbers.'
Warren went on to explain that the report is really about the guarantees the Government made to protect banks' assets while leaving the public out to dry.
Morning Joe host Joe Scarborough suggested that it was the old 'socialize the risks, privatize the gains' scenario, but Warren took it one step further.
'The way I think of it is: they say something like 'Give me your money, investors and I'm going to Las Vegas and put it all on red 22. And if red 22 comes in -- woo! we are RICH. If red 22 doesn't come in, don't worry because the tax payers will pay you back the money you invested.'"
See post: The Cheerleaders vs. The Chicken Littles and comments re "A Jobless Recovery" --http://coreassets.savingadvice.com/2009/10/30/the-cheerleade...
"...upgrading the 401(k) alone won't save the nation's retirement-savings problem.
Here's why: Remember, the biggest factor in whether the 401(k) works as designed has to do with when you retire. If the market rises that year, you're fine. If you retired last year, you're toast. And the chances of your becoming a victim of this huge flaw in the 401(k) plan are pretty high. The market fell in four of the nine years since the beginning of the decade. That means anyone retiring this decade had a nearly 50% chance of leaving work in a down market. In fact, your chances of retiring into a down market are even greater than that: forced retirements spike in recessions just as the stock market is tanking.
The solution: a new type of insurance. Retirement savings, it turns out, are exactly the type of asset we need insurance for. We need insurance to protect against risks we can't predict (when the market collapses) and can't afford to recover from on our own. "People tend to meld savings and insurance in their mind, but they are not substitutes," says Nancy Altman, a former Harvard professor and the author of The Battle for Social Security. "It's fine to have a savings plan as a supplement but not as the main retirement protection for everyone." She says the best way to guarantee a replacement for people's wages in retirement is by pooling risk, and the way to do that is through insurance."
"William Black, professor at the University of Missouri-Kansas City School of Law is dumbfounded. 'We put ourselves on the hook in a completely inept way where we lose first. We lose entirely as the taxpayers.'
Black, a former top federal banking regulator, blames Treasury Secretary Timothy Geithner for negotiating such a bad deal on behalf of the American public.
His argument goes as follows:
The government was in no way obligated to lend the struggling CIT money and, in fact, initially refused to provide it bailout funds. More importantly, being the lender of last resort, the government should have guaranteed we'd be the first to get paid if CIT eventually filed Chapter 11. By failing to do so, 'it's like he [Geithner] burned billions of dollars again in government money, our money, gratuitously,' says Black."
The host of MSNBC's Morning Meeting is one example of an increasing number of people from across the spectrum with high-profile platforms who are stepping out, asking the hard questions and won't quit until we get some straight answers and solutions to the same unresolved systemic problems that brought us to the edge of economic meltdown.
Fortunately, because of these efforts there is a growing level of public awareness and support for getting at the root of these problems -- not just paving them over yet again as occurred with Brooksley Born who was featured in the PBS Frontline documentary, "The Warning" (see post below).
There are those cheerleading type experts with the perpetual, frozen smiles who maintain that the necessary measures have been taken to deal with the financial crisis, the economy is now showing signs of recovery, all is under control and we're back on track with the market in rally mode since March leading the way. Then there are those labeled by the smiling ones as the Chicken Littles who are speaking up and saying, not so fast, it's not quite that simple.
Several posts back I provided a link to the PBS Frontline documentary,
"The Warning." The piece focuses on a woman named Brooksley Born who was the head of the Commodity Futures Trading Commission in the mid-90s. Ms. Born courageously raised major red flags to the Clinton administration and congress about the need to regulate financial instruments known as over the counter derivatives. As the documentary points out in detail, she was quickly labeled a Chicken Little and thrown under the bus by the big boys. This lack of regulation ultimately led to the crash of the derivatives market, and helped to trigger the financial crisis.
It's interesting to note, going back to 1987, that some of the same power players and their proteges who are the stars of "The Warning" have remained in key economic positions in both the Republican and Democratic administrations that have followed to this very day.
The financial crisis literally froze the engine of our economy. Once an engine freezes up, it's not as simple as adding oil (read government stimulus racking up more taxpayer debt) and you're on your merry way. It has to be taken apart and rebuilt, which in the case of our economy will take a lot more time and digging beneath the surface than the cheerleaders are willing to admit.
Part of the process of rebuilding the engine of our economy will be to seriously question certain metrics and long-standing fashion trends in thinking that may no longer apply. For example, we continue to hear from the cheerleading experts the same old mantras chanted over and over again like the following: "A Jobless Recovery." With unemployment on the rise as the stock market rallies, this is like Wall Street sticking its big thumb -- that it has on the scales of the economy -- in the eye of Mr. and Ms. America on Main Street saying, "We're ok, you're on your own." Also, I'm trying to reconcile in my own mind how this fits with an economy that the same experts have to admit is based 70% on the consumer. If people are losing their jobs or know those who are, where's the incentive to keep the consumer engine revving at high RPMs? "The stock market is a leading indicator of the economy." Is this metric still accurate or reliable in a market where the controlling mindset has clearly had a generational shift away from the stability of long-term investing based on real productivity to one that is predominated by short-term, grab-and-run speculation that drives cycles of over-inflated "paper asset appreciation" -- think bubbles -- creating a volatile and unstable economic environment?
My personal favorite from the cheerful ones was when the latest bubble was exploding, they were broadcasting to the masses, "When your statement arrives, don't open it -- don't even go near your mailbox until we tell you the coast is clear."
The economy remains on thin ice and our margin for error is as slim as it has ever been.
In "The Warning" there is an interview with Michael Greenberger. Mr. Greenberger served as director of the Division of Trading and Markets at the Commodity Futures Trading Commission from 1997 to 1999. He currently heads the University of Maryland's Center for Health and Homeland Security and teaches the class Futures, Options and Derivatives at the University of Maryland School of Law. Following are some excerpts of that interview that was conducted on July 14, 2009:
"When I first walk in the door, Brooksley said to me, 'This is a $13 trillion market.' ... By the time in May 1998 that we actually try to do something about it, it is a $27 trillion market. By the time Congress in December of 2000 deregulates it, it's an $80 trillion market. As we sit here today, the market has dropped from above $600 trillion to $592 trillion notional value. It's dropped because of the meltdown. ...
And obviously, it went from $13 to $27 to $80 to $600 trillion because nobody's watching the market.
Brooksley had the conception that she wasn't worried about the rest of the administration. She was worried about the financial services industry, that we were effectively now going to say swaps are futures, the dirty words, and that this would meet a lot of resistance.
Because it meant that this multitrillion-dollar market would now have to be traded transparently with capital reserves, with fraud and manipulation requirements, with the regulation of intermediaries, and on organized exchanges rather than this private little gamesmanship where it was. ...
We aren't going to take it over. It's not going to be government-run, but it's got to be done transparently. Everybody needs to know what's happening. It's got to be overseen by a regulator who ensures that fraud and manipulation are not conducted within those markets. We've got to make sure that when people make commitments, they have the capital to back those commitments up.
...and we see the template -- crisis, worry, threatened reform, pull back from the crisis, 24/7 lobbying, all is forgotten.
Right now, all I can tell you is that the battle is evenly matched. You would think after everything we've been through there shouldn't be a battle; it should be understood. No, no, the financial services industry has organized itself and will pitch very, very hard for continuing to have these markets be unobserved by anybody outside of the banking system or their customers. No capital requirements, no fraud controls, no manipulation controls and no regulation of the intermediaries. It's going to be a close-fought battle."
Consider also that competitive economies around the world have had decades to send their generations to American universities and they have closely studied our innovation and formulas for success -- and, more recently, our formulas for failure. These competitors are now in a far stronger position than ever before to beat us at our own game.
The tentacles of this predicament that were carefully hidden from the general public eye have been taking hold and spreading throughout the system for decades. Naturally, those who were the architects and engineers of this deeply implanted structural rigging of taking risks with no skin in the game, what has been referred to as the "socialization of risks and privatization of gains", and who have profited greatly from their handy work, would prefer -- and will fight tooth and nail -- to essentially maintain the status quo. And as public scrutiny bears down, we, of course, are having to sit patiently and watch as the Cheerleaders put on display their standard unctuously dismissive attitudes, denial of personal responsibility and prepared spin as to how forces beyond their control brought us to the edge of economic meltdown. Not a problem, we know this movie by heart, and it won't be the last time we see it.
However, this time around, things are different. The Chicken Littles aren't going away with their feathers tucked between their legs. Public awareness is on a steady drum beat and growing. People from all sides of the political and social spectrums, from low to high-profiles, are uniting in their understanding of what and how much is at stake here. It took time to get into this mess and it will take time to reestablish ourselves in a healthier direction.
As Michael Greenberger put it, the battle is on and the template of crisis that some are counting on --worry, threatened reform, pull back from the crisis, 24/7 lobbying, all is forgotten -- is now facing challenges that are as formidable as the crisis calls for.
In any event, one thing is for certain: we cannot expect political will to take the lead until our non-partisan cultural will has first been established. This is what is meant by the old saying, "Great leaders follow."
"But I can't help thinking that both the victim and the alleged killer are casualties of a treacherous economy, which continues to batter the ordinary American while the experts proclaim recovery is upon us."
"PIMCO's Bill Gross with a great monthly letter. Here are the key points:
- Over the past 30 years, paper asset prices rose 2X as much as they should have based on economic fundamentals
- This was the result of leverage
-The asset price rise in turn pumped up the economy's fundamentals (Soros's reflexivity)
-The government wants to restore the "old normal" (2007) not the 'new normal' (slower growth as asset prices return to trend)
-Therefore... The Fed will keep rates at 0% for at least 18 months into sustained 4% growth
-Next year, when the inventory restocking effect wears off, 4% will be tough
In a New Normal economy (1) almost all assets appear to be overvalued on a long-term basis, and, therefore, (2) policymakers need to maintain artificially low interest rates and supportive easing measures in order to keep economies on the 'right side of the grass.'
Let me start out by summarizing a long-standing PIMCO thesis: The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades. Stock and home prices went up - then consumers liquefied and spent the capital gains either by borrowing against them or selling outright. Growth, in other words, was influenced on the upside by leverage, securitization, and the belief that wealth creation was a function of asset appreciation as opposed to the production of goods and services...
My point: Asset prices are embedded not only in our psyche, but the actual growth rate of our economy. If they don't go up - economies don't do well, and when they go down, the economy can be horrid.
To some this might seem like a chicken and egg conundrum because they naturally move together... if long term profits match nominal GDP growth then theoretically stock prices should too.
Not so. What has happened is that our 'paper asset' economy has driven not only stock prices, but all asset prices higher than the economic growth required to justify them..."
"But of course, there's a reason why it's not legal. Allowing insider trading would annihilate the concept of a level playing field in the market. Altucher says hogwash. That's just an illusion. 'There's already no level playing field,' he says. This problem of insider trading is 'so widespread' retail investors are already at a disadvantage."
"A year after the financial collapse of 2008, indeed some firms are reigning in risky behavior.
'But, the rest of the financial industry does not warrant as much optimism,' says Leo Tilman, president of L.M. Tilman & Co. and author of 'Financial Darwinism: Create Value or Self-Destruct in a World of Risk.' 'We're seeing a lot of very similar behaviors that have led to the previous crisis.'
With a meaningful economic recovery facing an uphill battle, Tilman says it may require another bubble before serious financial reform takes hold. 'I'm thinking about the current environment. Unfortunately it's this shaky bridge over a volcano,' he says.
Meanwhile, Tilman points to three big themes:
- The timing of the next bubble will depend on the U.S. economy and the dollar.
- Economic signs point to extreme caution by mid-2010.
- Ultimately, we still need the right kind of transparency among financial institutions for true financial reform."
"Dr. Nouriel Roubini, professor of economics and international business at the Stern School of Business at NYU and chairman of RGE Monitor, is perhaps best known for his prescient predictions of the financial market collapse in 2005.
Index Universe (IU.com): You've said that you're worried we're already sowing the seeds of the next crisis. Where do you see that most directly?
Dr. Nouriel Roubini (Roubini): Well in commodities, I look at oil prices. They fell from $145 last summer, came down to $30 earlier this year and now they're back close to $80. But if I look at the fundamentals of demand and supply, demand is down to 2005 levels, supply and inventories are at all-time highs. In my view, the movement in oil prices is not fully justified by the fundamentals.
There are improving fundamentals. There is a global recovery. But that justifies oil going from $30 to maybe $50. I think the other $30 is all speculative demand feeding on it -- speculators and herding behavior. Last year, when oil was at $145, that killed the global economy. I worry that oil is going to go up above $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 would have the same negative effects on the global economy as oil did at $145 last year.
Last year, when oil was at $145, the global economy was still growing. Right now it has collapsed, and is recovering. Oil pushing above $100 would have nasty, negative real trade effects and real disposable-income effects on all importing countries:U.S., Europe, Japan, China, India; all the countries that were hit by the oil shock last year. So that's an element that is in my view totally speculative, and dangerous to the global economy."
Time to start thinking Financial Conservation!
An infinite amount of time and resources are spent in making the language of conservation universal in its reach. As a result, the basic necessity of mindfully conserving and not wasting our natural resources has been firmly established. The Green Message is Everywhere. And we have seen how this message is truly effective when directed at the grassroots individual level.
It would be a small step, not a great leap, to apply this pervasive awareness of the core principles of conservation to our individual financial resources that are finite and equally important to our basic survival and quality of life on this planet. In so doing, we will provide a more reliable foundation as well as the example necessary to help ensure that current and future generations are prepared and equipped to Stay in Step with the Life Cycles.
It cannot be determined by anyone with certainty ahead of time how the timing of the markets -- up phase or down phase -- in any asset class will stack up against the timing of an individual's unalterable life cycles and the various levels of life responsibilities and obligations that kick in at each stage. Consider Core Asset Conservation whereby you first distinguish your core financial assets -- those assets necessary to keep you in step with the life cycles -- from non-core financial assets. Place core financial assets in financial vehicles that guarantee -- up front -- Safety of Principal and Locked-In Gains as achieved. Diversification of risks is a concept best applied to remaining non-core financial assets.
Granted this is not an approach suited for everyone, but neither was the much touted notion of "diversifying risks" of all of an individual's assets -- both core and non-core -- through the popular asset allocation models that lead many to believe they were protected and would have the money they were relying on to meet their various life needs as they arrived at the later stages of life. This obviously turned out not to be the case on a massive scale and a great number of people reaching across generations have been severely and, in many cases, unalterably damaged.
It is the trader/speculator mindset that created and dominates the current as well all other volatile economic environments of the past. Since we can't expect the historic profits now flowing to the savviest of the trader/speculator type to act as a disincentive to this type of behavior, it's anyone's guess as to when some kind of equilibrium will be restored to the markets. In the meantime, for financial journalist and the main stream media outlets they work for to continue telling the average investor in today's highly volatile and unstable economic environment that they are just going to have to run faster and do a better job of diversifying risks to keep up with the trader/speculators who had them "outgunned" from the start is flagrantly misleading and irresponsible.
All power and good luck to those who think they are well suited for big casino action; however, for the great many who are not so inclined or equipped and whose time and efforts for the greater good of everyone are devoted to making the real economy actually function, the playing field is not level and they remain at a distinct disadvantage.
In good faith and good conscience, more focus and attention in the mainstream media needs to be brought to this ongoing disconnect between Wall Street and Main Street.
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