September 1st, 2014
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Ahh, for the Good Old Days…

by Rick Ackerman on February 8, 2013 12:01 am GMT · 30 comments

[The author of today’s guest commentary is Brad Culkin. A regular in the Rick’s Picks forum, he is the founder and CTO of a medium sized capital-equipment manufacturer. RA]

What’s next for investors? It helps to know what’s happening now and what happened in the past. Whatever the facts, don’t expect life to be like the box of chocolates — “you never know what you’re going to get” — that Forrest Gump like to offer up. If you think like him, you had better “run, fool, run!” since the future will bring you only inexplicable chaos. For me, at least, trying to predict the future only makes me nostalgic for the past.  When I think of the 1980s, I remember a more innocent time.  Financial intermediation was an actual service.  Bankers and brokers were like Yenta, the matchmaker in Fiddler on the Roof.  To them, savers, investors, borrowers and entrepreneurs were like earnest and forthright men seeking comely brides for happy and productive partnerships.  The marriages didn’t always work out — but hey, that wasn’t Yenta’s job; she just made the introductions.

By the time the 1990s rolled around, we knew more than a few Yentas who were hooking up savers with, um, inappropriate dates. Economist  Hyman Minsky, who knew a Ponzi scheme when he saw one, would not have approved, since the hookups were creating balance sheets with non-existent assets, poor cash flow, and principal that was unlikely to be returned unless via new investors recruited to keep the game going. Many commented on this sea change at the time, as companies with no history, no seasoned management, no sales, no earnings, and no real assets went public and borrowed.  Bad Yentas indeed. We might have hoped this sort of mass folly would have ended with the dot-com crash of 2000-02. Unfortunately, there were far more egregious ethical breaches to come — sins few of us could have imagined at the time. Before the New Millennium was even a few years old, many of our financial intermediaries had jettisoned the matchmaker shtick and become shameless financial pimps.

Sort of Like Countrywide

Of course, a pimp is a matchmaker too, albeit in an unwholesome way. He finds wayward girls (aka “talent”) at bus stations, hooks them on drugs and then ruins them. Sort of like Countrywide Financial. Desperate borrowers? Check. Savers misrepresented as good risks? Check. Bribes for vice cops and health inspectors? Check. Borrowers well-coached to fill out applications?  Check). The similarities are so obvious that I won’t belabor them. And who is the “talent” these days?  Well, that would be our children.  And what are they being pressed to do?  Why, to service Johns, of course.  And who are the Johns?  Why, that would be all of us: savers and taxpayers!  Witness the student fiasco, where borrowers are too young to know better – to know, in fact, that they will have little chance of escaping from debt slavery via bankruptcy.

So, to answer the question posed above: What comes next? Not much, if you’re looking for signs of positive change. There will be no budding relationships between savers and borrowers.  No faith in tomorrow.  No plans for the future.  No shared sacrifice.  No expectations of real economic growth.  We’ve become a bunch of saver “Johns” looking for financial love — aka yield — in all the wrong places. The shame of it is that our children are clueless about how an economy is supposed to function. They think being deeply in debt is the natural condition of their lives, and of their government. If there’s an epiphany for them down the road, it s most surely going to be a painful one.

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{ 30 comments }

VegasBob February 6, 2013 at 1:36 am

Brad,

What you’ve described is both the logical outcome and the shameful legacy of LBJ’s Great Society of the mid 1960s, when a series of laws was enacted, under the guise of compassion and social justice, to legalize and legitimize stealing money from those who had it to “redistribute” or “transfer” it to those who did not.

With the possible exception of Reagan’s first term, each administration since LBJ has presided over a steady social, moral and economic decline in this country. We’ve now raised two generations of Americans who basically have no moral compass whatever. And why should they? After all, if theft by government is legitimate and lawful, why should theft by private individuals be considered wrong?

For proof of America’s descent into a country lacking any sense of ethics, integrity or honesty, one need look no further than Ben “Bernokio” Bernanke, the Chairsatan of the Federal Reserve. If Bernokio had a single shred of honesty or integrity in his being, he would have immediately recognized that money-printing is the functional and moral equivalent of counterfeiting and fraud, and would have refused to countenance such behavior on his watch. Instead, he has printed counterfeit electronic dollars on a scale unprecedented in world history.

Neither Republicans nor Democrats have any moral legitimacy any more. Both parties are hellbent on using the coercive power of government to establish a police state to control the personal and/or economic behavior of others.

As such, there is no hope for this country, absent a complete and total economic collapse.

Chris T. February 6, 2013 at 2:18 am

I would extend the above at least back to FDR and the New Deal, but really, that and LBJ are really only the conclusion oF what the Progressives started.
Teddy Roosevelt and Woodrow Wilson, that is.
W.H. Taft in his brief interregnum, didn’t go along very much, which led to his falling out with TR, and ultimately, TR helping to get WW elected (by drawing most if not all votes from WHTaft).
Of course once Wilson made Taft CJ of the Scotus (honi soi qui mal y pense), Taft was on board, just as CJ Roberts recently went on board.

Reagen’s first term was not an exception, just looking at his budgets, or his war on drugs, etc. It merely looks a little bit less dire, but he and GB I made uo for it quickly in later years.

Fully agree with your last sentence.

Chris T. February 6, 2013 at 2:24 am

Mr Culkin states:
“…our children are clueless about how an economy is supposed to function. They think being deeply in debt is the natural condition of their lives….”

How true!
But true of this and the previous generation no less. For the older gen’s, the last sentence could be changed to:
They think inflation is the natural condition of their lives….
Debt, as the only possible “escape” from the burdens imposed by this theft of wealth, is only more prevalent as a natural condition, because we’re much closer to the end game than say our parents are/were.

VegasBob February 6, 2013 at 3:49 am

Chris T,
You do have a point as to the seeds of our decline being sowed during the time of TR, WWW, FDR and the New Deal. The reason I started with LBJ rather than FDR is because during the the 1930s, 40s, 50s and early 60s, there was still a sense of ethics, honesty and integrity in much or even most of the population.

Until LBJ’s Great Society, behavior that is commonly accepted today, such as theft, teen pregnancy, bearing children out of wedlock, applying for welfare, etc. all carried some level of societal disapproval, stigma or punishment.

It was during the Johnson Administration that these kinds of undesirable behaviors were destigmatized and even legitimized, and came to be increasingly accepted as normal as the years passed.

Chris t. February 6, 2013 at 11:19 am

cant disagree with that.
“came to be accepted…”

I think there is a whole unwritten commentary as to how this general morality was actively undermined if not subverted, by art, entertainment, media, etc. the principle was that of dripping water: steadily, unnoticeable it will erode the toughest Rocco, and if at first there was outrage, eventually it dissipates into silent acceptance by the old, the newer knowing nothing else.

eternal vigilance seems impossible with that onslaught, which, as another example the anti-gun interests are showing yet again.

once these values, or rights, are eroded away, impossible to restore, too synthetic.

John Jay February 6, 2013 at 2:49 am

In our Brave New World/1984 economic system, savers are superfluous at best, and Enemies of the State at worst.
Anything that might act to rein in the power of Big Brother must be crushed.
Today, no interest rates, tomorrow, no savers!
Like night follows day!
Because, of course, in the bad old days, the treacherous “Savers” used “Interest Rates” to limit the size of government debt, and, consequently, the size of government power.
The Ministry of Plenty under Easy Al, and now Beneficent Ben, has proved that with ZIRP and Fed purchases at Treasury Auctions, the government no longer needs savers or interest rates.
Or budgets or debt ceilings for that matter.
Or down payments to purchase a house.
Or a proven ability to repay a mortgage.
So how will the scarce supply of housing be allocated?
Simple, houses go the FOBB.
Friends of Big Brother.
The Federal government will soon be backing all the mortgages in the land.
Any house with a mortgage will be occupied by FOBB.
That is where we are headed with the economic/political system I see developing.
After that, Big Brother just needs to strip those with paid off houses from their real estate.
And 401k/IRA pension monies too.
Why not?
It worked with GM bond holders, didn’t it?
Just call it a “Tax”, and it will pass the SCOTUS just fine!
Just think big!
To see the future of the USA, just look to the past!

Andrew February 8, 2013 at 9:53 pm

“In our Brave New World/1984 economic system, savers are superfluous at best, and Enemies of the State at worst.”

….just woke up to this fact. This statement is far sighted. ZIRP can not change, lest it blow up the whole system. So, we are stuck going forward, which is probably the plan.

It’s time to phase out the savers and the interest rate bother. We are headed toward the end game. It is diabolical for sure.

We are a bunch of useless eaters. They are keeping the game going, sucking up the assets/monies that are still out there.

The end is impoverishment, and that is the plan. Will the people know that this has all been engineered, or will we again blame ourselves for this miraculous misfortune?

We are way too easy to knock off…

gary leibowitz February 6, 2013 at 7:06 am

Yes the era of Sodom and Gomorra are upon us. We reap our own destruction. Retribution and a cleansing of the soul. I find this interesting since almost every period in my life had the same arguments.

The lack of conformity in the 50’s brought us on the brink of a commie state; puritan white christian values were challenged; the need to hold onto a state of paranoia from our cold war heritage. Yes all thse things were true but one glaring omission from modern times was economic concerns. The white citizens for the most part had it as good as they strived to make it. The black’s for the most part were educated and accepted their second citizen role.

The 60’s brought on one of the greatest rebellions against old established rule, out of sheer boredom from idle complacent adolescence. Brought up with material wealth and privelege allowed the philosophical discussion to take hold. The draft and a very dehumanizing televised war solidified the socialist movement. It brought violence and societal injustice into our livingrooms, as we sat eating out TV dinners.
The “in” society became the anti-establishment. Rules were meant to be broken. Sitcom satires raised our social awareness of these injustices like no other era before or after. Once again economic hardship for the citizens in power did not surface at this time, and it became easier to be more generous to the less fortunate.

The 70’s were basically an aimless mess in almost all categories except an acute awareness of economic divide. The yo-yo stock market, the peak of unionism, massive inflation, put the economy as the front and center issues.

The 80’s was an explosive time of corporate rule. The ponzi schemes that set us on the path of financial dependence and ruin started in the early 80’s. Credit cards, lay-away, leasing, international banking, mega mergers, outsourcing. The technology explosion coincided, and created a wild era of speculation and stock market bubbles. Tech, real estate, banking, utilities, you name it, all participated in the stock market era of boom and bust.

I will stop there since most reading this have an idea on what went on after the 80’s. The article concludes that the 80’s was a nostalgic time. I saw it as the start of this 30 year journey of financial ruin. I must have lived thru a differenet 80’s. I guess the roaring 20’s can be thought of in similar vein, but put into context on how the 30’s came about sobers one up.

gary leibowitz February 6, 2013 at 7:26 am

I made some glaring mistakes. Sitcoms sprang up for the most part in the 70’s. Most remember the tech boom of the 90’s, but the biotech and advent of the “intel chip” of the early 80’s allowed the tech companies to become giants today.

If you see others, please excuse my haste.

Chris t. February 6, 2013 at 11:33 am

I think the article looks at the 80s in relative terms to the very recent years, but the author surely would not absolutely qualify them as such.

liars poker has it right, and the other scandals of the time. bosky, anyone?
what about notch’ Nicaragua fast and furious?

all known to the author surely, but they all pale by comparison.

John gutfreund must have cursed himself for only getting lousy 10s of millions, when scarcely a decade and a half later there 100s of millions if not billions.
how quaint!

fallingman February 6, 2013 at 6:02 pm

Nice piece Brad. Thanks. Very well done.

And thanks for your comments JJ. Spot on, as always.

John Jay February 6, 2013 at 9:53 pm

We are all on the same page, and no one is disputing anything written here.
We have probably reached The Truth.
Great observations by all, I created a folder to save them for myself, a very good synopsis of what has happened and where we are headed from here.
The government of Argentina has frozen food prices to try and stop inflation down there.
At least they admit they have an inflation problem.
Ben can never do that, he can only Stonewall it and pretend all is well.
His lies should be growing bigger and bigger now!

Lawrence Harold Rothfork February 6, 2013 at 6:19 pm

Hello Rick: in my book..you are da man! I make reference to you all of the time with my friends and family. This guest article and the guys that regularly make comment are the most recent example of the brilliance of “Ricks Picks”. Sure would like to share this on Facebook.

&&&&&

Thanks for your kind words, Lawrence. Please feel free to share anything on my site that’s publicly accessible.

RA

redwilldanaher February 6, 2013 at 8:37 pm

Enjoyed the essay Brad.

bc February 6, 2013 at 10:26 pm

Rick supplied the graphic which is simply brilliant. I would caption it:

“New Head of Structured Products at Goldman”.

Our bankers and brokers like being called banksters. It’s a huge step up from the pimps they really are.

fallingman February 7, 2013 at 7:56 am

“New Head of Structured Products at Goldman”.

Ha. That’s rich. Love it.

Jill February 7, 2013 at 5:49 am

“The story is told that after he had been deported to Italy, Lucky Luciano granted an interview in which he described a visit to the floor of the New York Stock Exchange. When the operations of floor specialists had been explained to him, he said, ‘A terrible thing happened. I realized I’d joined the wrong mob’” (1Ney, 8).”

http://w3.tribcsp.com/~fredj/ney.html

Steve February 7, 2013 at 7:12 am

Why do you all worry about the economy?

Real Men and Women worry about treason

To: Represenative Earl B.

Petition for Bill of Impeachment against the Office of President.

Come now the Sovereign in Common to demand the impeachment of:

Barrack Obama for capital Murder, a High Crime

Said perpetrator has killed, or ordered the murder of Americans in breach of contract Framers/Obama by agreement and endorsement for beneficial use of Public Trust.

The Contract Framers/Obama states [without exception]

No Person Shall. . .be deprived of Life, Liberty, or Property without Due Process of Law. . .Article the Vth of Amendment orignal Bill of Rights A.D. 1791.

Barrack Obama has admitted to the Court of the united States that he has intentionally, knowingly, malciously, and willfully with negligent and/or reckless disregard ordered the murder of an American, without Due Process of Law.

If Barrack Obama claims a totalitarian privilege as Commander in Chief, he admits contemplation of High Treason.

The is a beneficiary petition under Sovereign Immunity and constituional security, that the individual Barrack Obama has admitted High Crimes of Murder, and/or conspiracy to murder in breach of contract meeting of the minds, to reach agreement, to endorse contract Constitution Framers/Obama endorsement under Article VI Const., supra.

Futher Affiant Sayeth Naught
/s/ St George
Steven George
T1S, R5E, Sec. 31 Williamette Meridian

Chris T. February 7, 2013 at 4:39 pm

alas, the treasonous won’t call one lone of their own out!

BDTR February 8, 2013 at 3:21 pm

The case would be more convincing, Steve, if it came after a preceding indictment of more massive, at least to date, treasonous murder and squander of national resources and treasure for benefit of a private cartel of industrial and financial criminals in the undeclared making of war under pretense of contrived intelligence and false flag instigation.

Maybe I just missed your post to that effect sometime mid-last decade?

redwilldanaher February 8, 2013 at 7:07 pm

“Why do you all worry about the economy?

Real Men and Women worry about treason”

EXACTLY. As you know though Steve, the law, the truth, what is right, are of little value these days. Desensitization worked well…

gary leibowitz February 7, 2013 at 11:17 pm

Still expecting the world to be punished for the follies of the past 3 decades? If history is any guide it just might.

Largest inflow into mutual funds this January. How large? 77.4 Billion. The old record was some 23.7 billion less, in February of 2000.

I believe the drawdown since 2006 was over 400 billion. A really big reversal for one month. In fact if the data is to be believed that would mean one third of all the losses since 2006 were made up in one single month. Now that’s impressive.

How long till the ultimate high is anyones guess, but it sure looks like we can get a spike to the top.

BigTom February 8, 2013 at 12:06 am

Gary – was just reading this a.m. that 100,000 put options(yea as in one hundred thousand) has just been taken out against the financials. Could this be something like all the short positions quietly taken out on the airline industry just before 9-11? just askin…. and hey, what ever happened to the investigation into that cloak&dagger?

Some Trader Has Made A Very Big Bet That Something Very Bad Will Happen Within The Next 60 Days

Read more: http://www.businessinsider.com/art-cashin-on-big-vix-bet-2013-2#ixzz2KFlfQpi7

gary leibowitz February 8, 2013 at 12:39 am

The article sites a bet against the low VIX reading. It is near historic lows so that could be one reason. Betting against the huge “dumb money” inflow of January, showdown with the Republicans on automatic spending cuts, and long up trend with no volitility could be the real reason for the bet. I wouldn’t conclude it’s insider info like the 9/11 event.

My guess is that based on history the odds of the VIX jumping are high, coming off these known events.

I myself, while expecting a decent correction find it hard to conclude this last move is “the top”. We shall soon see. In fact the next possible correction has some very defined support levels, around 1450, and then 1395 on the SPX. If they get taken out it might be a self-fulfilling prophesy for a crash.

I am out of the market right now, but might try and guess the next correction. I am now gearing up for shorting the market after the last 14 months on the other side of the trade. I still think May/June are the more likely tops, but will not argue with the tape.

Pat February 8, 2013 at 12:45 am

Like they say…. “there’s one born every minute”

The dude just gave away $11 million bucks. Wish I’d been the seller !

fallingman February 8, 2013 at 5:42 pm

Gary,

It’s “cites” as in citation.

gary leibowitz February 8, 2013 at 11:18 pm

As for “cites” check out the recent articles on sub-prime market and equity loans. Both real hot. Guess peoples short term memory is 4 years. Looks like the Fed has done its job by bringing back “normal” behavior.

Now we know why the economy is showing signs of improvement. Spend and borrow. An old theme.

BigTom February 8, 2013 at 7:15 pm

Just a for what it’s worth story and probably interesting only to those following gold. Was watching a netflicks ‘twilight zone’ episode last night at a friends house. This episode was origonally broadcast in 1961. Four guys robbed a bank of a million dollars worth of gold bullion, stored it in a cave, climbed into their gizmos and entered a 100 year hibernation period, planning to come out and enter a new world penalty free from their caper. When they come to one is dead from the hibernation process, and two more are dead within the next several days due to the greed factor playing itself out amongst them. The lone survivor now with all the gold is found laying alongside a seldom used death valley road, he is dying. A futuristic bubble cars passes by, stops and the driver gets out and brings back a sample of the gold ‘relics’ found in the dyning man’s pack. ‘What’s that,’ the wife asks. ‘Gold.’ he tells here. ‘Isn’t that something they used to think was valuable way back when.’ ‘Yes,’ he replies, ‘back when before they found a way to manufacture money!’

Hey, the story sort of fits into the ‘Ahh, for the Good Old Days’ article above. Remember this is a 1961 production. Interesting. Is this a case of the future happening because someone ‘knew’ and it was predicted, or someone smarter that us could figgure the processes then playing out would have to lead to 2013’s money printing episodes now taking place? The only future ending here it seems could be the collapsing back into the old gold system that held man accountable financially to a standard ‘higher’ than that he was ethically capable of himself. Or, man reaching a moral plateau where ‘honesty’ is now one of his genetic virtures! I think we may have our answer here.

The whole thing sort of reminds me of Huxley’s ‘Brave New World’ written in the 30’s and Orwell’s ‘1984′ written in the 40’s. I wonder when those who were writting this stuff back then were considered ‘looney conspirators’ as the press likes to label anyone today saying things that do not concur with their ‘thought speak spoken here’ stuff, and how shallow present day thought process has become boxing ‘it’ in by government thought police making sure those speaking outside the box are lunitics….I wonder if they will get away with ‘printing and thought policing’ as a new way of life or does man’s inherent genetic traits eventually overcome? Stay tuned…..

Chris T. February 8, 2013 at 7:21 pm

Didn’t know one could trade the volatility itself.
When the levels are really low, it’s pretty sure that the underlying will diverege sharply at SOME point.

That’s more certainty than for most underlyings, where ever being in-the-money (or not never reaching it, as the case may be) isn’t near as certain as for the VIX

Really no different than Paulson:
it really was a no-brainer to bet agains that market, his “skill” was in figuring HOW to do it, rather than in figuring out TO do it.

“77.4 Billion. The old record was some 23.7 billion less, in February of 2000. ”

So really, adjusted for true inflation since then (13 years no less) its only about 30 billion more than in 2000, not 54 billion.

Measured against the total market cap of the largest indices, 78 billion doesn’t even seem that large.
(sure the marginal effect is of course much greater…)

BigTom February 8, 2013 at 9:47 pm

Yeah – trading the vix? If that is possible guess now financials are like the ‘bookie’ of old hanging out on the street corner. A bet on the bets coming in? Step right up, we can leverage that!

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