Wednesday, October 15, 2008

Orange is the color this season

I was fighting jet lag and took a walk in the San Francisco center of consumerism, Union Square. Orange appears to be the color this season.

It reminded me of an eccentric co-worker at my first job in an investment bank. Every morning I would be at my desk drinking an orange juice or apple juice and watching the markets. Every day he would say “why drink orange juice, get to the point, eat an orange.” I would blow him off as crazy, but he is right.

As a price test I went into a deli and bought a small bottle of Odwalla orange juice (Odwalla is a Coca~Cola company). The price was $3.00, whoa………an orange maybe $.25, fresh and juicy! And now I don't have to find a recycling bin to put the plastic container in to be trucked to a recycling plant to burn energy and melt toxic plastic.

Time to simplify people. Have a look at your daily consumption and I bet there a lot of ways you can simplify.

Save your money so you can buy things, like a Louis Vitton Vespa

Wednesday, October 1, 2008

Greed is good

I read a lot of buzz from my well educated friends calling for the heads of Wall Street bankers. While I am not a big fan of the Street, the US consumer helped create this mess and really you should be calling for the head of your complacent local senator who let the economy get to this state.

Greed is not limited to Wall Street, while they have it mastered, the greed of American consumers contributed to this mess. The “toxic assets” are mortgages that over leveraged consumers can not pay back. Blaming Wall Street is like blaming the drug dealer for your drug problem (you know who you are)

Remember a few years ago when everyone became a real estate mogul. People were euphoric and borrowed against their new house "wealth" to buy a new Hummer or trip to France.

Yeah well, they should have read the fine print, done some math and kept a rainy day fund. Party is now over. OK the bankers put lipstick on pigs (sorry too easy) and injected too much easy money into the market, but hello they need suckers to sell this easy money to. (you know who you are)

This current bail out package provides a distraction from the real economic crimes that the government let go on for too long.

First: A never ending war in Iraq whose costs are now close to $600 billion, sorry no assets from that investment, not even toxic ones.

Second: The price of oil started to spike when US troops moved into Iraq. This brought in speculative investors who can buy oil futures on loan with only 10% down. The more prices moved up the more debt investors moved in and it accelerated the increase in the price of oil.

Results, debt spending reduces the credit worthiness of the dollar, so the cost of all imports, including oil, goes up. Almost everything you consume is somehow touched by oil, so the costs of food, clothes, heat, paint, etc, all up in a big way.

Now that all of peoples daily costs have gone up, they can not pay the mortgage payments they could barely afford three years ago....the whole thing get the picture, toxic.

Now the banks are in a mess and need help. For every dollar you put into a bank, they will loan or invest approximately $.90 and keep $.10 in reserve. In a simple case the $.90 is secured by an asset like real estate. If the underlying asset value drops to $.70 the “liquid” value of YOUR dollar is now the $.10 in reserve plus the $.70 value of the loan, so in total $.80.

But they still owe you $1.00. So where do they get the $.20 which evaporated, especially if all their assets are dropping at the same, stocks, bonds....oh shit, ouch?

That is where the Federal Reserve comes in to inject some cash and make sure you can get that $1 to buy some bread. They also need to have enough deposits to give you a loan to buy a new SUV to pick up the bread and get yourself to work. If you can not buy a new car, the people at Chevy and the drive through Starbucks don't get paid. They will not click on the internet ad you get it..we are all brothers and sisters.

Sooooo the real economic criminals are the government who did not find a solution to the war and allowed also investors to speculate in commodities with bank debt. This drove costs of living so people could no longer pay their the whole thing melted down. Now politicians step in as heroes and blame Wall Street...politicians....blech.

What now: I recommend support the proposed $700 billion bail out....or the next time you go to the ATM it may say "sorry try back later when congress is done bickering"

Or the Fed Reserve will print a lot more paper money. Then gas, food and Barbie dolls will skyrocket in price, this hyperinflation WILL destroy your savings, if you have any.

But wait, if the fed steps in, those will be your assets. If the government takes over those mortgages, they are the taxpayers property....aka you.

Write your local senator, congressman, state politician and make sure they put those assets (houses) to work.

Maybe subsidize housing for math and economics teachers? Free housing for nurses and other public workers? If these houses sit vacant and fall apart, I do not think the value will go up, then we will pay again in a few more years.

Also, ask them to put some minimum capital requirements on those who want to buy a house. The goverment should help first time and low income buyers keep it out of the hands of the sharks.

Finally regulate, regulate, regulate to get rid of the speculative investors of commodities. Commodities should be limited to the companies who are going to actually use the products and have the cash to back it up.

Peace in the Middle East….umm yeah, let’s get out of there as soon as practical.

Tuesday, September 16, 2008

Let them fall

I am not welcoming the collapse of any company but I am glad to see that the US government did not bail out Lehman Bros.

The investment banks orchestrated this problem and should suffer from their own mismanagement.

I travel to London regularly and over the past couple of years, the number of new Porsches and Austin Martins was increasing. In fact the Austin Martins in London were like BMWs in San Francisco, aka the Bay Area Volkswagen.

Well the music just stopped and its time for the bankers to pay the price for their errors...not the taxpayers. Sorry, but I have no sympathy for the 28 year old guy who just lost his $90K per year trading job. He has to get on the Tube like the rest of us.

During the “global downturn” of the last two years, the markets for luxury products and rats as food, both showed solid growth. This highlights the massive shift in wealth to the financial “wizards” at the expense of middle class consumers and poor nations.

Globally people have been suffering from the inflation caused by financial engineering. I am glad to see the taxpayers are not paying further to keep investment bankers in business.

Over the last 10 years the rise in housing and commodities was accelerated by debt speculation. Commodities, much like real estate, only requires a small percentage down payment to purchase the asset. In fact you can get a loan for the down payment on the asset, so no money down and you are a real estate magnate or a hedge fund manager. This debt speculation drives demand and prices go up, so then people borrow more against the debt-inflated “value” of the assets and prices spike further. There was no real value creation, only debt speculation layering on itself....let me look in my economics 101 book. Not good.

In fact Greenspan warned hedge funds posed a risk to global capital markets.

When this unwinds it happens fast and many people are caught with debts far exceeding the market value of the asset. They have may have no money invested so they can easily walk away. This happened to real estate and now commodities are starting to drop. Be ready for more pain from the hedge funds.

Unfortunately there will be more pain for consumers and some of the bankers that lost their jobs will walk across the street and raise funds to buy the assets they inflated for a fraction of their value. Making millions on the over and under exuberance of the market.

The good news is the fed and a group of remaining banks are creating a liquidity pool to keep cash in the system, of course it is to save their own arses, but it will help keep cash for consumers and to run real value creating business. Could get bumpy though, hold on.

There was a great article in the BBC where the finance minister said; we had 10 years of great growth, now we have to pa the price for some of our excesses. True point, don’t look for someone to blame or bail you out, time to suck it up, be thrifty and remember the good times you had. Hopefully you kept some cash or better yet gold on the sidelines. I hear there is going to be a yard sale on Austin Martins.

Also, please DO SOMETHING and write your local congressman to demand they regulate these bankers.

Thursday, September 4, 2008

Can Obama Wrestle a Bear?

With the cold war now warming up, Russia is getting an early lead on their PR efforts.
All in one trip, Putin saved an endangered tiger and a helpless TV crew.

I am not a big fan of Putin but damn, I was impressed.

So when you Americans go to the polls this November you may want to consider the Hemmingway factor and how it will impact global PR.....I could see Obama saving a Polar Bear and combating global warming all in one trip.

Speaking of a chill:
Anyone remember the previous cold war and its outcome?

One super power was spending too much on military efforts in far away lands. Heavy debt spending to deter a war......and ultimately a once great nation and its currency crumbled.

Funny after the "deterrent military" spending stopped, there was no war?

Well, this time around Russia is full of oil money. The US is approaching record debt levels (as % of GDP) and spending hundreds of billions on military actions in far away places.

Without some planning the outcome could be the same, but the names may change....

Sunday, August 31, 2008


I started blogging after I went to a networking dinner where the theme was inspiration.

It was in the middle of the European cup so inevitably the discussion of football came up (soccer for all you yanks out there......American "foot"ball is a misnomer)

So I asked a British guy why there was no UK team in the tournament. He scowled and answered, because all the best players are at home watching on the telly. (TV)

I knew then I had to start writing my armchair family and friends eyes start to glaze over when I start my rants, but I know you other armchair economists are out there.