Here’s a ray of friggin’ sunshine that came a-waltzing into the Rick’s Picks chat room yesterday: “Good afternoon, gentlemen. Everybody loaded up with E-Mini S&P contracts for tomorrow’s POSITIVE jobs report? More good economic news today, retail sales up much better than expected for December. E-Mini probably up 15-20 points tomorrow. Yee- haw!” What makes this comment particularly interesting is that the subscriber who made it lives in Michigan, the very heart of the nation’s Rust Belt. Were we perhaps being churlish to point out that the “much better” retails sales were actually only modestly better than the dismal numbers that had been expected? We did, but Mr. Sunshine was undeterred. “Come on, Rick, he responded. “Things aren’t that bad out there. Businesses around here are actually doing quite well.” Where is “around here,” we wanted to know? And which businesses? “Basically, all businesses,’ he replied. “A guy I went to school with who runs a real estate company said business was up substantially from last year. Our local paper mill is running three shifts steady.”
If the supposed global recovery’s credibility hangs on the fact that one Upper Michigan paper mill seems to be humming, and that one Realtor in the same neighborhood has an upbeat anecdote to tell, we’re just not buying it — especially with no corroborating evidence whatsoever in our own town — Boulder, Colorado. One might think that because Boulder turns up on virtually everybody’s Top Ten Places to Live list, that the local economy would be relatively resistant to the Great Recession. In fact, business-tax revenues have fallen so steeply that the town has had to make unprecedented cutbacks in services. Moreover, few expect things to improve in 2010, and even deeper cuts are being anticipated for next year. As for the local housing market, although prices have not collapsed as they have in such places as Florida, Arizona and California, the real estate business is on life support. We know about a dozen local Realtors personally, and all of them say this is the worst business environment they have ever seen. One of them who made a lucrative living working the low end — hard-to-qualify buyers — has traded down to the point where he lives so to speak, in a shed and now drives a subcompact instead of a Hummer. Another friend, an erstwhile very successful commercial broker, has moved into health insurance. And so on, and so forth.
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“If things are so bad,” Mr. Sunshine persisted, “and PEs are supposedly too high, then why is the market continuing higher? If things were as bad as you guys say, the markets should be cratering. I’m not saying its all good, but the economy seems to be improving.” There are of course many reasons why the stock market is moving higher – but none, we would argue, that are tied to the condition of the economy or to prospects for the future. The U.S. stock market and other around the world have benefited from a huge excess of financial liquidity, and that is all there is to it. The final word on this went to a chat-room denizen who was probably less bearish than most of us: “Markets peak during the good news. This one has already priced in recovery. I doubt we head straight down, but with PE’s set to be sky-high, even with decent profits, there has to be a lot more downside than upside.”
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Rick thank you so much for pointing out the NY Times article on walking away from your debts without any guilt!! Here’s my unequivocally supportive reply:
A
The answer, my dear readers, is that in fact an individual has the same ability and right to make that choice without feeling guilty about it. Anyone trying to guilt you with the idea of “moral obligation” is filled with hypocrisy and should be ignored. They do NOT have your best interests in mind.
The laws of the United States of America work both ways. Laws and provisions on bankruptcy, credit, debt, loans and other related matters exists as a framework within which you are legally entitled to make a strategic decision that is best FIRST for you and your loved ones, not your creditors, who by the way, are apparently involved in some questionable games with their funds that threaten the stability of the entire financial system of your country.
For the vast majority of business owners facing a financial crisis of some kind, the very first decision they will make to protect themselves, NOT protect their creditors, is to hang on to every dollar of cash it is legally possible for them to hang on to while they are not sure where the next dollar may or may not be coming from. I call that being wise, accepting reality, not irresponsible.
As a business, large or small, for an individual, YOU are your own corporation, YOU are your own business entity. Your name is YOU Incorporated, http://www.YOU.com, and the moment you hit financial crisis, especially financial and unemployment crisis you did not ask for, there is not any question about your “moral” decision to stop paying your creditors. You only need good credit for a mortgage or car loan anyway. Both without which, your life can still pleasantly continue if you must. Accept your reality and make wise decisions. Part with your precious dollars only for things you need.
In terms of business strategy, you have the right to make the same choices as businesses do, even as they may be unpleasant or embarrassing. But you have the same right.
There is only your decision to do what Morgan Stanley does, to do what many other business do as a business strategy decision to survive, to continue into their future, accepting and dealing with the consequences as best you can.
If you are in a situation where owning a home can’t happen, then accept it and rent. Make the wise decision for yourself to hang on to every asset including every dollar that you have to protect and secure your future.
That’s why they charge you interest!! BOTH parties accepted the laws and provisions providing for risk potential vs. the profit potential when they made you the loan.
Who should eat the loss? You or Them?
I remember the first car I ever bought from a new car dealer. It was a 1983 Toyota Celica and I was a kid in my early twenties. At the closing, the salesman left the room to go talk to the manager. He came back and told me that his boss the sales manager said that if we raised the price of the car just $100, we had a deal!
Guess what I told him? I told him this, in a very friendly yet direct tone:
“If the difference between me buying this car or not is only $100, your dealership can afford to eat the $100 a lot easier than I can.”
Of course he knew I had him and sold me the car. Do what you must, stand firm, and don’t spend one single minute feeling you have somehow violated a moral code and deserve a spanking when you’ve done your best and that is the situation you face. Yes it is unfortunate, but you have an obligation to be wise to you and yours first.
See the Article at The NY Times Here
Perhaps the Upper Michigan paper mill supplies paper for the Federal Reserve printing press!
The reason the stock market is/has gone higher is because the Fed is lending money to JPM, GS, etc @ .25 interest, the banksters, buy stocks with most of the money, cover with shorts that cost a little of the money; or vice versa, write off the cost of the shorts/longs and bonuses, salaries over a million, charge losses against profits, pay back TARP, make political contributions and go home @ night with the satisfaction that being the best and the brightest, they have done the ” Work of G–” because they are the annointed ones and those not in there circle, well, there’s a reason for that, they are not the annointed. Seems simple to me.
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