Economics for One

Here’s a great chart comparing the losses in the stock market during various economic downturns, courtesy of www.dshort.com.

Four Bad Bears

From 2006 – 2008, Peter Schiff appeared on numerous shows predicting the economic collapse.  This compilation of some of those clips shows him clearly articulating not only what would happen in the US and world economy, but also the mechanism and timing of the collapse.

Despite his solid reasoning and clear articulation, many of the other panelists and hosts openly mocked and ridiculed him.

This clip demonstrates two things: 1) the predictive power of the Austrian school of economics, and 2) the profound ability of otherwise intelligence people to ignore excellent arguments and instead believe what they want to believe.

Here’s a great Op Ed in the Wall Street Journal.

http://online.wsj.com/article/SB123544318435655825.html

They give a great argument for focusing the Stimulus on Entrepreneurs, rather than traditional, moribund behemoths.

A healthy, competitive economy is like an ecosystem.  Unsuccessful businesses die young.  Successful businesses are able to grow, accumulate resources, and age.  But eventually they too give way to younger, more competitive companies.

By propping up the older firms, we are basically preventing the new, more competitive and more effective firms from taking their place.  This stifles innovation and weakens the overall system.  On the other hand, by encouraging the creation of new businesses, we find those more effective replacements sooner, and create a stronger, healthier economy.

John Williams has developed a great site that publishes unadulterated versions of many of the standard economic statistics.  You can find it at www.shadowstats.com.

From his web site:

Have you ever wondered why the CPI, GDP and employment numbers run counter to your personal and business experiences? The problem lies in biased and often-manipulated government reporting.

The government has a vested interest in misrepresenting key economic data, such as the unemployment rate and the rate of inflation.  Basic economics, and common sense, suggest that they will likely follow their self interest. Read more…

Most people don’t really understand inflation.  They know it has to do with prices rising – prices for food, housing, utilities, clothes, entertainment, and everything else, really.  But beyond that, they’re often at a loss for how to define inflation.

Inflation is one of the least-understood concepts in economics.  And with good reason: in the US, we haven’t seen terrible inflation for the last couple of decades, so it hasn’t been all that important.

But we’re starting to see it now. Read more…

This is an interesting time to be investing.

It reminds me of the early 1990’s.  A lot of uncertainty.  A lot of opportunity.  Prices fluctuating.  Irrationality in some areas, but not across the board, much like during the peak of the bubble from 1999 to 2000.

There are some great opportunities in equities right now.  Some long — some short.

I’ve been heavily weighted in energy stocks for the past 3 years, and it’s been a great ride.  But oil won’t go up forever.  The upstream oil producers have benefited from the high price of oil, and they will suffer when it goes down.  And down it will go; despite the claims of increasing demand in China and India, there really is no fundamental justification for the current high price of oil.  It’s a bubble, and it’s clear the large oil producers understand that.

Likewise the ongoing, slow-motion real estate collapse has created some impressive possibilities.  Who is going to buy up all that foreclosed real estate?  And what about the houses that are not in foreclosure?  They may be perfectly good homes, but they won’t be able to command their previous prices.  When prices get irrational–and they will!–gobble them up while you can!  Rent them out and hold onto them.

And watch out for the financial sector.  A lot of companies got caught up in the chase for a quick buck, and are over-dependent on the real estate market.  As that bubble collapses, it’s likely to have a devastating effect on some banks.  The only financials I’m holding onto are Goldman Sachs, Bank of America, and a small position in Schwab.  I also think Wells Fargo remains pretty good.  But these stocks need to be monitored closely, as they are decent issues sitting in the middle of a minefield.

I don’t tend to do a lot of short selling–but there may be some great short opportunities in the financial sector now.

I recently met a man who tried to impress me with his entrepreneurial credentials.

“I’ve always been an entrepreneur!” he proclaimed.  “When I graduated from school I immediately joined a little startup, named Yahoo!”  He looked quite pleased with himself.

He was in his early 30’s.  I thought about it a moment.  “So, how may employees were there?”

“Just 350 back then.”  He answered smugly.

Pause.  “And when did they go public?  Wasn’t it around then?”

“Well, yes.  Just before I joined.”  Now he looked uncomfortable.  Or annoyed.  Either way, he seemed to realize I was calling his bluff; I quickly changed the subject. Read more…