Archive for January, 2011
“A contrarian’s biggest fear is that he may actually be correct” – Unknown
Hollywood has such a simplistic worldview.
Of all the films that have ever been produced, we could probably boil all of the plots down into a handful of categories. There are the nauseating date night romantic comedies, the teenage slasher horrors and the infamous “buddy” movies replete with copious amounts of male braggadocio.
One of my guilty favorites is the “villain joins the good guy/side” movies. This is where a well established bad guy has some sort of epiphany or conversion and joins the hero in a quest against a new villain. Many people like this because they get to see the former bad guy use all of his talents and skills on the winning team alongside the hero.
Like when Luke Skywalker convinces Darth Vadar to come to the good side and join him…or when Rocky’s former nemesis Apollo Creed becomes Rocky’s trainer and helps him take back the heavyweight title……Oh boy here come the rotten tomatoes from the back row……
“Heh! Bechara is in fantasy land again with his silly superheros and movie characters!”, crows the peanut gallery. “He should write a “serious” newsletter and tell us how much the stock market went up today and how we are headed for a future of bigger, better and easier!”
One of the things I am constantly searching for is what a friend of mine calls “dis-confirmatory information.” This is also known as listening to the opposing point of view. Not only is this a good habit for those who wish to complete their understanding of a subject, but it is also a requirement for those that deem themselves intellectuals.
For how can one purport to fully understand a subject or issue if he only examines it from one side? Indeed, skewed, false and sometimes outright dangerous results can be produced when one confines himself to sources that do nothing but reinforce his own analysis and conclusions.
Given my economic viewpoints, dis-confirmatory information is …oh so easy to find. I only have to turn on the TV…any channel. I can reliably find commentators and pundits providing the antonyms of my current world views.
Recently, there was an amazing revelation on Fox News. Unbelievable actually. I did not catch this clip live but found it on the internet recently.
Alan Greenspan, former Chair of the Federal Reserve advocates a Gold Standard!
This is the man who espoused easy credit, reduced interest rates too much for too long, and now…he favors the gold standard as way to ensure governments don’t spent too much? In the interview, he even leaves open the need for a central bank!
After watching this video, I had a very odd feeling, almost nervousness actually. For if this guy seems to be agreeing with me then……maybe I’m wrong.
Is it possible that I’m being taken for a ride? Perhaps the viewpoints that I have developed over the past years are simply part of some scam? Under a ruse of fiscal austerity, responsibility and balanced budgets will it be even harder to make a living, to build wealth and to become financially secure?
I really wondered about these questions as I went home that night. Does anyone make such a 180 degree turn without some agenda in mind? How can he say those things given his past record?
After dinner and after the kids went to bed, I did a few minutes of searching on the internet and found my answer.
Right there before me on the screen was an article Greenspan had written in the 1960s, during his younger days. The letter very clearly and lucidly supported gold as the backing for currency and was fairly critical of easy credit. The article is titled, “GOLD AND ECONOMIC FREEDOM” by Alan Greenspan.
After reading the article I became much more relaxed. For it wasn’t so much that Greenspan had a change of heart or that he even changed “sides.” No my friends, after his surreal terms as Chairman of the Federal Reserve, Alan Greenspan simply came home.
Have a great weekend,
Michael Bechara, CPA
Granite Consulting Group Inc.
Over holidays, as I was cleaning out my desk in the office, I came across something that made me think back to one of my daughter’s birthday parties a few years ago.
Yea….kids birthday parties…..
This one was a fairly typical event, you know, the cake, the relatives and of course, the gifts. When it came time to open the gifts, my daughter smiled with joy as she opened packages of toys, clothes and jewelry.
Finally it was time for the grandparents to present their gift. My parents handed her a solitary envelope. Taking it from their hands eagerly, she opened it and looked inside. Seeing nothing but a few slips of paper she looked up at me quizzically.
“Coupons?” she wondered out loud as she handed me the envelope.
Looking inside I immediately recognized what they were. “No honey, they are US Savings Bonds”, I explained to her.
“What’s that!”, she inquired in an annoyed voice.
The rest of the explanation went like this:
“They are kind of like money”
“Can I spend it?”
“No, you have to wait”
“Wait until when?”
“Until you get paid back”
“Who is going to pay me back?”
“What if they don’t pay me back?”
My wife stepped in and kept the party going by moving on to the next phase of the birthday ritual…the cake cutting I think…..
So my friends, you have probably figured out by now that I came across those savings bonds in my desk the other day. After the above scene played back in my head, I started to think how crazy the world has become.
Once upon a time our government policy used to encourage the saving of money….or in other words living below your means. Classical economics (and common sense) tells us that such a policy has positive benefits to the economy. A society with a large amount of savings is financially stronger, can better withstand economic distress and can also invest those savings for productive purposes (land, labor and equipment) that benefit society as a whole.
My, my my…how far off the beaten path we have gone.
Today’s leaders nearly demand that we rid ourselves immediately of any cash and promote consumption as a civic duty of the highest order! I guess in a perverse way it makes sense, for if government can’t live within its means then why should the citizenry?
In fact, we long ago stopped relying on our own citizens for government borrowing and instead turned to foreigners to buy our bonds and when they no longer could absorb our massive borrowing needs to fuel our crazy spending habits we just……started printing money.
For those that just stepped off a spaceship from Mars and doubt that this is government policy, please refer to the Zero Interest Rate Policy, the fact that the Fed is the largest holder of US Treasuries and the constant exhortations by leaders to “go out and spend!”
But where is all this borrowed money going? A partial list follows:
- Paying interest on all the money borrowed and spent (wasted) in prior years
- Funding 99 weeks (nearly 2 years!) of unemployment benefits
- Fighting two wars that everyone has nearly forgotten we are still fighting
- Providing bailouts and backstops to failed banks and failed corporations
Seen through the prism of the above facts, it is absolutely preposterous that the government is borrowing money from…..a little girl.
Not only will the money she loaned them be spent as detailed above, not only will the additional borrowing increase her credit risk (Her risk of the money not being paid back….for those in the peanut gallery), but as our stated government policy is to weaken our currency, she will be paid back in DEVALUED US Dollars to boot.
Coming home from work that night, I showed the impressive and serious looking US Saving Bonds to my daughter.
“Oh I remember those coupons”, she exclaimed.
“We gotta go to the bank tomorrow and cash in these bonds”, I hurriedly explained
“But I thought we had to wait until they mature”, she questioned
“Honey”, I said shaking my head, “We’ll take whatever we can get!”
Have a great weekend,
Michael Bechara, CPA
Granite Consulting Group Inc.
Happy New Year my dear readers.
Around this time, most bloggers, pundits and assorted idiots are giving their New Year’s predictions.
Where will the stock market go? What will be the best investments for 2011? Who will be the latest discarded lover of that famous movie star?
We don’t have any idea.
In typical Weekly Recon fashion, our mind drifts to the big picture…Where have we been? What choices have we made?….and most importantly what does history tell us about others who have followed similar paths.
Folks, looking back on 2010 (and prior) we see a lot of anxiety, false hope and tons of……..Mistakes.
“Oh excuse us Mr. Perfect…I guess we not as good as you!” screeches the peanut gallery. “This Bechara is some kind of stuck up, self righteous fiend!”
Look, we all make mistakes, it’s part of our humanity. In fact life would be sort of boring without them. I mean, can you imagine being denied the irony and laughter that goes along with seeing another guy call his wife by another woman’s name for example?
No my friends, individual mistakes, trial and error and the two steps forward one step back progress typical of any endeavor are what make the world go around.
What is deadly; however, is when society engages in collective mistakes, embraces mass delusions and generally undermines its own interests. In such an environment even an individual who calls everything correct will have great difficulty.
Of course there is a cornucopia of examples to highlight this phenomenon. Among the most galling are:
The softening of America – Ever witness school being cancelled due to a few inches of snow? How about the attempt to prevent every child from sustaining any injury whatsoever? What happened to woodshop/metalshop in schools? In general we are acknowledging that any fun physical activity carries risks and therefore if we remove the fun we remove the risk as well. Everyone happy now?
Lack of respect for the law
We have discussed this concept on the past. When laws and regulations become so numerous and confusing and enforcement seems arbitrary, the wider population begins to lose faith in the system. This condition is usually found in banana republics where violations of the law are seen as “no big deal” and even serving time in jail does not carry too much of a stigma as people figure “he just didn’t know the right people.” Has anyone been watching the recent foreclosure problems in the real estate markets where apparent violations of law are still being “discussed?”
The execution of “Logic” by that wily character named “Hope”
This crime has yet to be investigated but the evidence is all over the place. Millions of people are sitting in front of their TVs clinging to mirages of recovery, jobs reports and “you can have it all” messages. Those making policy fully understand that our country’s financial position is precarious but they steadfastly refuse to take any real action to avoid disaster.
The snake eating its own tail
The Federal Reserve is now the largest holder of US debt eclipsing even the Chinese! …..But we are not printing money…right?
As we mentioned above, mass delusions are very dangerous things because even those not afflicted will have difficulty swimming against the tide.
This is all about the middle class. The middle class in our country has made many mistakes, some willful and others due to false information. We have believed things that could simply not be true. As a result, we find ourselves in a number of precarious economic, political and social predicaments.
Mistakes are funny things, some are big enough to be irreversible by themselves while others accumulate and cling to each other until they metastasize to the extent that they are deadly.
The key to freeing ourselves from the bonds of our mistakes is that magic moment that all the world’s hard luck cases wish for….
It’s the moment when we wake up and face our problems without fear but with determination. Sure we may be sad and remorseful regarding our past actions, but we are no longer deluding ourselves about our predicaments, no longer anxiously wishing for an unnamed savior and no longer afraid to accept reality for what it is.
The old values and logic suddenly become as comforting as mashed potatoes and gravy on a cold winter day.
Ah the old beliefs. Anything worth doing is risky, no one is above the law, to change things you have to take action and most importantly, there is no free lunch…ever.
The million dollar question is who will redeem us? Will we be strong enough to wake up and redeem ourselves? Or will we kick the can and burden future generations with our mistakes.
We close this week with a clip from one of the greatest movies of all time, Rocky II.
The name of the theme song is, of course…Redemption.
Until next week,
Michael Bechara, CPA
Granite Consulting Group Inc.