The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

What is the greatest deception in the history of finance?  Depending upon your perspective, some entities and events of deception that come to mind might include corporate accounting scandals, rogue traders, Ponzi schemes, and various entities and events related to the financial crises (market bubbles) throughout history.

“The greatest hazard of all, losing one’s self, can occur very
quietly in the world, as if it were nothing at all.  No other loss can
occur so quietly; any other loss — an arm, a leg, five dollars, a
wife, etc. — is sure to be noticed.” ~ Soren Kierkegaard

In terms of damages caused by these entities and events of deception, the financial losses, some of which are in the hundreds of billions of dollars, are the most tangible and easiest to measure.  Using the most recent and obvious reference point, the current financial crisis slashed retirement assets in 2008 by nearly $4 trillion, as reported by Reuters.  This decline in assets is epic in proportion; but what is the non-monetary cost and what led most of these people to place their life savings in the stock market to begin with?

Returning to the question of what is the greatest deception in the history of finance, consider this scenario:  Hundreds of millions of people are led to believe that one particular financial pursuit, which, to accomplish, requires the largest financial effort of a lifetime; but more importantly, and for most people, it is also the most physically and emotionally taxing effort of a lifetime; working in various unsatisfying and stressful jobs and sacrificing meaningful pursuits for this one financial pursuit; and the effort requires 30, 40 or even 50 years of time, assuming the end destination of this pursuit is ever reached — or if it even exists… and this doesn’t include the $4 trillion decline (see above)…

This financial pursuit, this deception, is called financial freedom.

“Man acts as though he were the shaper and master of language, while in fact language remains the master of man.” ~ Martin Heidegger

The idea of financial freedom is no conspiracy to deceive the masses; but it sure has sold unimaginable amounts of financial products and services!  Furthermore, how many books, websites, blogs, magazine articles, media advertisements and financial planning sessions have used the term financial freedom as leverage to sell something?

Financial freedom is such an overused and abused term that its meaning is bordering on abstract.  As of this posting, a Google Search for “financial freedom” produces more than 33 million results.  What is financial freedom anyway?  Who decides the meaning? How can one be free if their idea of freedom is defined by someone else, or not defined at all?  Does financial freedom even exist?

Common words, phrases and abstract ideas can be practical for use in language and mass communication; but for an individual to spend the predominant amount of financial and non-financial resources of a lifetime for something that has not been clearly defined for the individuals particular life, how can this not be described as anything but aimless, illusory or even the greatest deception in the history of finance?

“Ever more people today have the means to live, but no meaning to live for.”~ Viktor Frankl

The true deception of financial freedom need not be blamed on anyone but oneself; however, this is not necessarily an intentional deception — it is a result of the human condition.  As humans, we are constantly searching for patterns that will reveal the shortest distance from point A to point B; and we are searching for meaning and fulfillment; but we trick ourselves into believing that we are searching for pleasure — and money buys pleasure, at least according to the thousands of implicit and explicit messages we receive on a daily basis.

Certainly, the messages of media noise and social conventions are difficult to ignore.  Nearly every media (print, television, Internet) image you’ve seen in your life implies that your current existence is lacking something — and this something is a certain article of clothing, a watch, a beverage, a pill, a car, a house, an investment strategy or particular physical appearance — to be somebody other than who you are now — all of which can be purchased with money (whether it be your money or someone else’s money).

So, if wanting more is a natural human behavior and we are deluged daily with enticing messages that encourage and support this behavior, what can be done, if anything, to manage this challenge?  To help make my point, I will defer to an anecdote delivered to MBA graduates of Georgetown University, back in 2007, by Jack Bogle, founder of Vanguard:

“At a party given by a billionaire on Shelter Island, the late Kurt
Vonnegut informs his pal, the author Joseph Heller, that their host, a
hedge fund manager, had made more money in a single day than Heller had
earned from his wildly popular novel, Catch-22, over its whole history. Heller responds, ‘Yes, but I have something he will never have: Enough.’ “

In summary, the best way to “get rich quick” is to be content with “enough.”  What greater tragedy can there be than to chase something for one-half to two-thirds of a lifetime that may not be actually acquired by the means for which you have sacrificed?

“If thou wilt make a man happy, add not unto his riches but take away from his desires.” ~ Epicurus

To conclude, there is no such thing as financial freedom, at least not in the conventional sense of the term, which is the great deception.  Paradoxically, the pursuit of financial freedom is closer to slavery than it is liberating.  Furthermore, and in my humble opinion, freedom cannot be procured by financial means — freedom most likely lies at the point at which the utility for money begins to diminish — the point at which the basic sources of physical well-being — food, shelter and clothing — have been met.  Beyond this point, freedom cannot be procured by financial means, yet millions continue pursuing the idea of financial freedom.  This is the deceit.  This is the illusion.

True freedom begins by learning contentment — by the realization that you already have “enough” — where the search for pleasure can be replaced by the search for meaning.

——————————————-

Kent Thune is the blog author of The Financial Philosopher

Fascinating stuff:

“New York has withstood the worst economic crisis in seven decades and remains the leading global financial center, followed by Singapore, which topped London as investors’ preferred place for doing business, according to Bloomberg Global Poll.

Twenty-nine percent of respondents in the quarterly poll of investors, traders and analysts who subscribe to the Bloomberg terminal say New York will be the best place for financial services two years from now. Singapore is chosen by 17 percent of respondents and London is the pick of 16 percent. Shanghai has 11 percent, while Tokyo, once considered a global hub, gets the nod from only 1 percent.

I have mixed feelings about this poll: I am thrilled the home team (and my home town) took the top spot, but I am an Anglophile who loves London, and was sorry to see them slip to 3rd.

>

Source:
New York Eclipses London as Financial Center in Bloomberg Poll
Alison Fitzgerald
Bloomberg, Oct. 30 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEC0OYmvvcZM

A few interesting reads for your Tuesday:

• Goldman Sachs: U.S. Stocks Primed for Takeovers (Bloomberg)

• Climbing the Golden Wall of Worry (Barron’s)

• Zen Lessons in Market Analysis (Hussman)

• Home rescue plan delaying, not solving crisis (Reuters)

• End the war on drugs, start the legalization (Marketwatch)

• The Years of Magical Thinking (NYT)

• Vitriol, invective at the speed of light (Associated Press)

• The Appraisal Process Moves Front and Center (Matrix)

• In handy spreadsheet form, a complete listing of the always stimulating TED Talks

• Credit Report Card: A Truly Free Look at Your Credit Record (Credit Bloggers)

• Thanks for all the great comments on car buying!

>

What are you reading?

“The Human Ticker”

>

Source:
“The Human Ticker”: StockTwits and the Power of Social Leverage
Aaron Task
Aug 26, 2009 04:13pm
http://finance.yahoo.com/tech-ticker/article/311907/”The-Human-Ticker”-StockTwits-and-the-Power-of-Social-Leverage

My quote:

“This is a trading rally not a multi-year rally,” he says. Eventually something’s got to give: “We’ve never had six-month period before where we’ve lost two million jobs and the market’s gained 50%,” he says. “That’s simply unprecedented.”

>

>

Source:
Professionals Are Buying The Stock Market Rally. Are You?
Peter Gorenstein
Yahoo Tech Ticker, August 21, 2009 08:00am EDT

http://bit.ly/4ak0hM

I noted earlier that the oddity of imports versus exports calculation would produce a positive contribution to GDP. Let’s look at the details of this, and find a way to understand what this means.

First, off conceptualize the difference between what imports and exports are. At the most basic level, Imports represent our consumption of overseas production, i.e., We buy what they make.

Exports are where overseas consumers purchase our production, i.e., They buy what we make.

What were the specifics of the GDP data regarding import/export?

-Real imports of goods and services decreased 15.1%

-Real exports of goods and services decreased 7.0%

So in Q2, both consumption by us of overseas goods and services and by them of US made goods and serivces declined significantly.

The Differential between imports and exports — who dropped fastest — was the key to this quarter’s GDP data.

According to Bloomberg, Decreasing Exports subtracted 0.76% from GDP. At the same time, falling Imports added 2.14%.  Net contribution of the fact that Imports are free falling twice as fast as Exports are = 1.38%.

If they were both falling at the same rate — if Europe and Asia’s consumers were hurting as much as ours –  GDP would have been -2.38%.

If it seems weird to you that the ratio of domestic and overseas shrinking economies and their reduced consumption somehow turned into a positive GDP contributor, well, welcome to the wonderful world of government statistics.

There will be some good news and some bad news this morning at 8:30. That’s when GDP will be released.

The Good News will be that we are no longer contracting at the painful rate of 6% annually; Call it the end of the Freefall period we saw from September 2008 to March 2009. The Bad News will be twofold: 1) That the national economy is still contracting; the 2) Why we are contracting — the real world factors — will show the recession marches on.

My best guess — and given the oddities of this data point, we can only accurately call this a guess — is 1.5- 2.0%. If the number comes in negative, it will be the 4th consecutive quarter in a row of contraction.

In an odd twist, with US consumers are weaker than their Asian and European counterparts, it turns out to be a positive for the GDP data. Why? When imports fall faster than exports, it is a net gain for the way GDP is calculated. I know that sounds bizarre, but on a relative basis, less US consumption of imports, is additive to the final GDP number.

What else do we know about economic activity this quarter?

• Unemployment has risen;

• Wages continue to slide;

• Industrial production has fallen every month;

• Deflation continues to stalk many asset classes;

• Credit availability is weak, lending standards are tight;

• Capacity utilization is at a very low rate of 68%;

• Retail sales (other than gasoline price increases) are soft;

What does this mean in terms of the end of the recession? The NBER calls a recession –the way they use the word– as “a period of diminishing activity.” If economic activity is poor, but flat — meaning, a low plateau at the trough — they very well could call the end of the recession.

However, they describe their procedure for identifying ends of recessions by looking at when the contraction ends. That is unlikely to be Q2 of 2009.

As Paul Vigna notes in this morning’s WSJ, “The elements that will drive a recovery — rising wages, consumer demand, production and sales — haven’t appeared.”

Hence, regardless of GDP data, the Recession is likely continuing, albeit in an ordinary, form.

We have not run these charts from Matt Trivisonno in some time;  they are simply jaw dropping:

>

>

I have the lead quote in the this page one NYT Business section article on the Markets — which came out prior to this NFP:

“Less-worse isn’t the same as better,” said Barry Ritholtz, chief executive of FusionIQ, a research firm. “We want to see ‘good.’ In order to grow profits, in order for earnings to increase, in order for corporate America to start hiring and spending, we need to see greener shoots. So far that hasn’t really happened.”

Great graphic, too:

>

>

Source:
In 2nd Quarter, Stocks Gained, but for How Long?
JACK HEALY
NYT, June 30, 2009

http://www.nytimes.com/2009/07/01/business/01markets.html

Last week, we saw Continuing Claims decrease — proof, said the green shooters, of the imminent economic recovery.

Only, not so much:

Those of you (who can still afford the luxury of) a trusty Bloomberg will note the ‘exhaustion rate’ for jobless benefits – EXHTRATE – reveals that people are not leaving the pool of continuing unemployment claims because they are getting new jobs; Rather, they are leaving because they have exhausted their benefits.

They are now unemployed AND broke. That is hardly a green shoot . . .
>

Exhaustion Rate: U.S. Workers Losing Unemployment Aid

>

Hat tip Bill King