it’s always the same.

Months ago I looked around me at what was going on in the economy and stock market and it literally gave me tightness in my chest. It was hard for me to concentrate on work, or much of anything. Things that I had read about and worried about were coming to life and the pace of news was nauseating. It’s not that way anymore. Which is actually kind of scary in its own way. The Dow broke 7000 today in what was widely considered a critical support level. Where do we go from here? Likely no where good. But I barely batted an eye. Why? I’ve either gotten used to it, or I’ve made peace with it. This is our new reality. We should move forward. Always forward.

It’s always the same. The people who I watch in life, who I’ve read about, and who I admire, are always the same. Watch how they handle setbacks and misfortune. Sure they might hiccup. But only for a minute. They focus intently on what’s right in front of them. They see what they can repair. What they can improve. Where they can go. They keep moving forward. There are certain people who when you look back at their story, every one of their setbacks ended up being a launching pad for something better. Are they blessed? A coincidence? It’s their attitude. Dr. Liza Siegel, the psychologist from The Apprentice, (Yes, we had an on-site psychologist and let me assure you that we all made full use.) drove this home for me. She stressed how across all the people she came across in her life– whether it was the people who made it through the insane casting process to make it on The Apprentice or whatever, it was this resiliency that was just indefatigable.

So, now, as we look at the insanity around us, remember that it’s always the same. Be that person. If you’ve lost your job (or a friend of yours has, remind them) be that person. The one who takes a second to take accounts, and then wakes up earlier the next morning to move forward. Who creates their next opportunity. Whatever it is, savings vanishing, job losses, home price depreciation, etc — these are all detours. It’s always the same. Those who believe in themselves and their ability– those who believe in hard work and earning every inch of what they get– nothing has changed. There are still opportunities. We just have to get back to work. Oh, and as negative as I’ve been on all of this, I do, truly, believe that when we all get back to work, we’ll be on our way to getting out of this hellish hole. Until then we can each only do our part.

there will be consistency.

I look around every day and what I see often depresses me. It’s what I fear is still to come. Consistency.

In the past consistency meant things getting better, people making more money, things thriving. What I fear, and what I see around me are models failing every where around me.

What am I talking about?

Typical for any business or project is a financial model that justified it. For a local coffee shop, they’d project out the cost of rent, labor, supplies/product, average number of customers, and average amount spent by customers. Profit margins are usually thin, say 10-15%, so a change to any variable can make a business unprofitable and destroy it. What scares me today, is that I fear that almost every single model is wrong now. If you were a credit card company a key input for your financial models would be the unemployment rate to determine the delinquency rate. No ones model had the unemployment rate going to 10% and showing no signs of stopping. People are losing their jobs in a scarily fast fashion. These same people, who have on avererage borrowed a ridiculously high amount of money, now also can’t borrow since no one wants to extend them credit. So they have bills they can’t afford, no job, and no credit to get them there. Then you have most people who are seeing this happen across the country and it freaks them out. They worry for the future. So they spend less. They save more. Other people, the wealthier ones with a lot of savings? Even if nothing else has changed in their lives, they’ve probably lost anywhere from a third to half of their net worth in the bloodbath in the stock markets. So they don’t feel as wealthy as they once were and so they spend less.

All at once, everyone is freaking out, and spending less. No model is built for this massive combination of job losses, deleveraging, and increases in the savings rate to replenish losses. Whether you’re a coffee shop, a media company, a packaged goods company, or the local barber shop your model just got torn to shreds. We crave consistency. Except the bad kind.

I haven’t posted in a while, and on my entire drive home (and for the past months) this thought has been eating at me. So I just wanted to post this and I hope I can let it rest.

my issues with the election.

Candidates have become a necessary evil. Issues are what matter. I’ve blogged about this, and I’ve prattled on endlessly on this since the 2004 lesson. (It was in that brutal, painful election that I saw how pointless the candidate-focused type of campaigning was. I’ve since reformed, and now spend all my time discussing the issues, never a particular candidate.) I’ll cast my vote tonight (mail), and, appropriately, wanted to blog about some of the issues that matter to me.

1) Tax policy: We need massive tax reform. Simply put, as a country, we need to return the tradition of fiscal prudence that is strong in American history. Why? Because we’re running a ridiculously drunken budget. Ideally we need to cut spending and cut taxes to put it to work in the private sector. Most of America can’t afford a dime more in taxes. However, given the structural problems in both our budget and economy, we’re faced with the more realistic choice of needing to find, a way, any way, to put the budget back on the tracks. I’m shocked that this is even up for discussion. Most of us wouldn’t run up a credit card bill, and then leave it as the inheritance to our kids. Most of us were raised by parents that would find that unconscionable, and a government that would do it has my extreme enmity.

2) Education: We need to rethink our education framework from the ground up. Focus on the math & sciences which have, throughout history, been the driver of a nation’s long term economic standing. We need to rebuild education in our poor areas– starting with pre-K in order to save large swaths in this country. Factories have left America in droves over the past two decades, and if education doesn’t step up to save our industrial centers– fat lady, please sing. Again, education is the #1 issue for America’s future. Everything else is built on it. We’ve had a crisis in education for over 2 decades (formerly declared during Regan’s presidency). This can go on for say 10 pages (it does in the book). Bottom line: if we don’t fix it now, we’re screwed. Full stop.

3) Alternative energy: We need something. America has to make something the world needs. Because guess what, what we’ve made for the last few years for the world, they ain’t buying anymore: all that toxic financial crap. No more. So if we don’t quickly build an industry, or a series of them, that can produce something that the world needs, the future isn’t going to be pretty. Everyone says that clean tech/alt energy is it. I hope so. But guess what? Nearly every other developed (and many developing) nation is also sprinting to own this niche. We need to make this a priority, and double down.

4) Infrastructure. We’re headed for a massive recession. Duh. The government needs to rebuild our infrastructure for a few reasons. One, because it’s immediate spending which will stimulate the economy and put American’s to work. Two, without a healthy national infrastructure, you can’t have a viable economy. How do you transport goods between states when your highways & bridges aren’t functioning or get to work when there isn’t public transportation? If you can’t do this, “natural” economic growth slows and dies. Three, in a severe recession the gov’t can’t institute a massive contraction in federal spending because on top of already declining employment, etc this would put us in a death-spiral. Facing this hideous, dastardly choice, we have to make sure that what we’re spending our money on is at least an investment in the future. Investments in our infrastructure, educational system, industrial strategy, etc.

OK, that’s about it. I’m going to go back to writing about this stuff in the book now. Good night, good luck, and please vote.

america’s new favorite sport.

dear politics,

I’ll say that its only in the last ~20 years that we’ve devolved into this. Politics is now the average American’s favorite sport. The only thing funnier to me than partisan hacks, are the partisans who think they can change another partisan’s mind.

While it probably started in earnest years before– in the 21st century, America’s political system converted 100% into a professional sport. We support “our” candidate with the same glee and ardor that we “cheer” for our favorite sports teams. Do you think you could ever convince a Yankees fan to cheer for the Mets? Do you think you could get me (a tortured Mets fan) to ever become a Yankees fan? I’m thinking snow in hell and all that. What makes this tragic of course, and all the more of an accurate analogy, is that our continued support is based in nothing more than tradition, loyalty, and irrationality. Think about it– in baseball, do you really *hate* the opposing team’s pitcher? What if he switched team jerseys next season? Seinfeld had it right that at some point we stopped cheering for team, and we started cheering for uniforms. Well, I guess you could say we stopped supporting issues and principles and we started supporting little letters in parentheses after names ie. Barack Obama (D). When did the parentheses become more important than what came before it? When did the label become more important than what it stood for?

The parallel goes further. The impact of money to MLB, NFL, NBA, etc is huge in the past few decades. Look at how money has almost completely conquered sports, and you’ll see that in politics we’ve created a system in which money has totally taken over. Hundred million dollar players and hundred million dollar candidates.

The idiocy of this drives me to the point of explosion. Realistically, what are the chances of someone listing out their views on a host of issues and having them link up perfectly with any one candidate or party? Yet most people have a fervent adoration and support for “their guy” and almost unconditionally defend all of their positions. And this is killing America.

Our nation had the largest bank failure in its history today. And, given recent events, no one even flinched. That’s how bad things are. This is a crisis. Make no mistake, what got us into this is the politics of big money and partisanship. And that’s clearly not changed, and shows no sign of changing. So, to each of you, partisan hacks, who I meet more and more of every day– i just want to tell you one thing:

I hate you all.

love, surya

the financial crisis explained.

So. Like most people you’re wondering what the hell is going on, right?

Don’t worry. Well, you should worry about the fundamentals of America but you shouldn’t worry about understanding it. Because I’ve got it covered.

First, go to Blockbuster and rent the movie Boiler Room.

YouTube Trailer:

In real life, all of Wall Street followed the pattern of the firm in Boiler Room. Wall Street packaged incredibly crappy mortgages in a complex way and sold them to “savvy” investors that understood them about as much as the average Joe that was sold worthless stock in made-up companies in Boiler Room.

In Boiler Room, they talked about the huge “rips” (commissions) they’d get when they sold stocks and wondered out loud how it was possible to be making so much money for doing so little. The risk-reward was way off. Guess what? In real life, Wall Street was even more incompetent because they never seemed to ask how they were getting such lucrative fees for constructing these seemingly low-risk mortgage backed securities. Well, it’s either incompetence or hubris. It seems so many on Wall Street actually thought they deserved these massive fees just for existing. At least in Boiler Room, the main character wonders what the deal is.

In real life, our government was nowhere near as competent as portrayed in Boiler Room. In the film, government agents were watching the scam, looking for a way on the inside, and trying to take it down. While in actuality, our government aided these morons efforts by providing next to zero oversight or regulation, relaxing rules on leverage and capital requirements so they could ensure the firms would get “too big to fail.”

One more way that Boiler Room is different from reality? I already touched on it, but in the movie, Morgan Stanley, Goldman, Lehman, Bear, ML, et al are lionized. Today, they’re bankrupt, consolidating, or disgraced.

In summary:
Go watch Boiler Room. Step one is to substitute their fictional firm with all of Wall Street’s banks. Next, substitute schilling stocks to average Joe for packaging and selling weak-ass mortgages to the world’s investors. For step three, replace a competent SEC for a worthless Washington (Alan Greenspan & company) and you’ll get government intervention only when things start blowing up and nearly a trillion dollars is lost instead of actual oversight.

lipstick on a pig?

It’s classic. We’re going through one of the worst economic crises that our nation has seen in decades, and the media is talking about lipstick on a pig comments and other total crap.

If there’s lipstick on a pig, it’s the lipstick the Fed is trying to put on the pig that is Wall Street. After years of zero regulation, and allowing the broker / dealers to leverage hundreds of billions of dollars in instruments even they didn’t understand, we potentially face the collapse of the global financial system.

While this is going on, all we can talk about is whether John McCain is being too mean to Barack Obama or if Obama was sexist with his lipstick on a pig comments. How about we ask them what the hell they’re going to do to try and salvage our economy. Their plan for the financial system? How does it differ from the current Fed “plan”? Nah. Who wants to hear about that?

Rome burns, and we change the channel. We’re too busy watching Jerry Springer, a little NFL, and some of the “highlights” of the election. Yeah, go ahead and ignore the fact that Lehman just filed for bankruptcy and Merrill got gobbled up. Nah, that won’t affect us.

This is nuts.

hagel & lieberman.

hagel-is-lieberman-is-hagel.jpg

It looks like VP choices will be announced today or Monday. Cell phones will be abuzzing with text messages, I’m guessing, today. Since it’s almost certain that I’ll be royally disappointed, I thought I’d chime in once again on what I’d like to see.

Barack Obama should choose Chuck Hagel.

John McCain should choose Joe Lieberman.

Why? Because the problems we need to address– how to best strengthen our fiscal infrastructure, rebuild our industrial base, safeguard America against threats, rebuild our physical infrastructure– are all non-partisan issues. If they continue as they’ve gone, as polarized positions to be argued by each side to win elections (or to be used against one another if even brought up), we will all lose. A bi-partisan administration will almost certainly form true centrist positions that wouldn’t be used as political weapons, but instead be crafted and evaluated on policy instead of political merits.

I’m hoping that America catches a break with the selection.

Fingers crossed,
surya

P.S. How would I wager it’ll end up? McCain-Romney and Obama-Biden.

oil: are we screwed either way?

On Kedrosky’s blog todayhe posts that we’re screwed either way oil prices go.

1) oil goes up and our economy is in trouble (eats up all consumers’ disposable income, inflation, etc)
2) oil goes down and alternative energy funded bets don’t make sense.

I think this is crap. Paul’s right from a historical perspective: after the oil embargo of the 70’s, one would think we would have realized that making ourselves beholden to an unstable region of the world that doesn’t have a lot of love for America is probably not a winning strategy. But as soon as the crisis passed, as a nation, we stopped doing all the things we seemed so committed to previously (improved fuel standards for vehicles, conservation, fuel alternatives, etc). Stupid, stupid, unforgivable strategy. So looking at that, you’d say if oil drops #2 comes to fruition.

But I have to believe that we’re in a different world today. If oil were to drop, alternative energy will still thrive. Here’s why:

1) The notion of danger coming from the Middle East is burned into everyone’s mind. Supporting regimes (Chavez, Iran, etc) that are hostile to the American gov’t is becoming a generally accepted bad idea.
2) The amount of money that flows out of the country to fund oil (as well as crap from Asia) is likely nearing it’s breaking point soon. Stopping this huge outflow of cash has to stop.
3) The almost certain to continue to fall dollar will provide a floor underneath oil prices.
4) China, India, et al coming online as growing and hungry fuel consumers will change the dynamics of the market for the long term.
5) Climate change has enough mindshare that it plays into fossil fuel usage regardless of price.

I say that this time is different. Prices go down, oil!

do you realize what just happened?

dear children,

I think we’re sorry for what we’ve done to you. I say “think” because I don’t believe that most Americans have any idea what’s going on right now.

We’re sorry that we’re sandbagging you with massive amounts of debt that will likely reduce your standard of living. Someone called it “indentured slavery”. They might not be far off.

What the hell am I talking about?

Most of us have heard about the current sub-prime crisis, housing values dropping, the gov’t having to take on debts incurred by the private sector. But other than getting that this is likely a bad thing, it can be hard to grasp what this all really, practically means.

In real terms, we might have just increased our total national debt by 50% by guaranteeing Fannie and Freddie. Why does this matter? Because our debt per working person in this country works itself out to be somewhere around $60,000 a person.

No, I didn’t mistype that.

Read this NY Times op-ed.

I’m horrified by just how many people think everything is OK with our economy. How many think everything is OK because we ┬áspend a lot of money (ie., # of cars on the road, housing sizes, total consumer consumption.). The problem is that this is all symptomatic of the disease which we’re in danger of dying from. We’ve borrowed massively from the rest of the world (and from what we would consider the poorer nations of the world, to boot) to finance our decades of prosperity. Then, in a bizarre turn of logic, we point to that borrowed prosperity as a sign that everything is OK. It’s as if we we were parents, and our teenager worked at McDonalds, but thanks to her credit card, she drove a new Lexus, wore all designer clothing, and took fabulous vacations. When we’d try and explain that this just doesn’t work, and that problems are ahead, she’d say that we, “just don’t get it” and point to how well she was doing.

As Bill Gross pointed out in the letter he wrote to Obama a few weeks ago, the reckoning is coming. Our president in ’09 is going to have to choose to right the ship (incredibly painfully) or to continue as is, and ignore the problem. Either way, it sure looks pain is coming. Good luck, children of America.

love,
surya

P.S. This is essentially the overview material for the chapter in Forsaken, on fiscal crises.

5/27/13 –