Financial Musings

Apple Store-Shanghai

I have been known to make occasional predictions about our economy, and this quiet time between Christmas and New Years leads me to venture once again into these waters.

In general I feel that the incessant Chicken Little “sky is falling” rhetoric coming out of the media is creating opportunities in the American stock market. When Apple is selling at a P/E of 14 and I can buy Chevron at a P/E of 8 with a 3% yield, good quality companies are selling cheaper than I can remember. Europe may have a financial crisis, but remember after 2008 the ECB did relatively little to shore up their banks. The stress tests were pathetic compared to the ones forced on the U.S. banks. Germany and France are rich enough to fix this problem and since they have both benefited from the Euro, I doubt they will let it crash. The temporary problems of European banks does however provide an opportunity for U.S. Multinationals to raise their game. Procter and Gamble competes with Unilever all over the world to sell shampoo and detergent. Unilever depends on European banks for lines of credit and my guess is that P & G’s cost of capital is cheap compared to Unilever.

Speaking of cost of capital. Despite the hand wringing from Republicans, the U.S. Treasury’s cost of capital is at an all time low. What does that tell you? That the rest of the world sees the U.S. as the best bet for the future. Part of this Republican meme about the “decline of America” is based on 19th Century notions of measuring trade. In David Ricardo’s time, the fact that England was a manufacturing powerhouse that exported to high value goods to Portugal and Portugal was a rural country that exported wine to England gave them each a comparative advantage in their sector. But when Apple assembles an I Pad in China and imports it into the United States it adds $500 to our trade deficit. But where is the great value captured in the product? By Apple shareholders, because the Chinese labor component is a tiny fraction of the selling cost? So traditional economics is totally distorting our real strength in the world economy.

This is not to say that there isn’t a job crisis in America as our less educated workers are caught in a global labor price arbitrage with Korean and Chinese workers. But this too will sort itself out in the next ten years as huge numbers of Baby Boomers retire. Even now, many companies are trying to hold on to Boomers with hard to replace skills past their retirement age. I’m well aware that there are a few Thirty-somethings who troll this blog that are totally frightened that they will never live as well as their parents. It is kind of pathetic because rather than adopting the obvious solutions to shore up their retirement prospects like removing the cap on Medicare and Social Security payroll deductions on high earners and drastically cutting back the defense budget, they are trying to start a generational war by scapegoating my generation and stealing their pensions.

I try to teach my students that one of America’s great understandings is the link between art and science. Hold up your I Phone and you intuitively get that. I’m pretty confident we can continue to excel as long as we somehow get our politics straightened out. That of course will be the task in front of us for 2012.

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16 Responses to Financial Musings

  1. len says:

    Such bullshit. Art and science? When you actually do one or the other, let’s talk, but you are a money man. You always have been. That was your role in the history you like to relate and it is what you do now. Your students will wise up but not soon because they like so many are as greedy and as star struck as those who have allowed what the author of this link describes.

    But the harshness of it has worn through the patina for the rest. If it worked as well as you say, we wouldn’t be in this mess. Here, Morgan has a point. We suck. Apple makes a closed clique wealthy, a closed ecosystem function, and the rest who support it as the Chinese workers do, they are worse off than the kids selling crack in the LA barrios. The jig is up on your ever tiring plea for special accomodation.

    Obama can’t hide behind Apple’s round fat skirts. He can do the job or move on. People are seriously looking at Ron Paul and it is taking too much parametric to keep Obama’s false face clear in the mix. The harshness is evident. Obama failed to mete out justice, the one job he dared not fail doing, and for that, his second term is very much in doubt. And he signed away our Constitutional rights. For that his legacy is not in doubt; he will be reckoned a villain. As for you, you helped make possible the greatest set back to civil rights and the perception of equality since Lincoln suspended habeas corpus.

    Pick up your prize.

    Jon, what you don’t get is a very old but simple rule: if you don’t leave the party with the date that brought you, word gets around fast and you don’t get invited to the next party. It doesn’t matter how cool the parties you’ve been to have been. Word gets around.

  2. Alex Bowles says:

    @len Here’s an example of Americans in action. You can bet against them if you like, but it’s inadvisable – for reasons that should be clear.

    I agree with you on the “shareholder capitalism is cancer” call. But even the arch-capitalists at Forbes are starting to figure this out. When Jack Welsh (the patron saint of this abomination) is busy telling people that, actually, it’s the “dumbest idea in the world” then change really is in the wind.

    Sustaining this wretched idea is a big (and I mean BIG) part of what’s warping our politics so badly. If I were to make a prediction for 2012, I’d say that the degree to which it’s rooted in specific policies is going to crystalize, creating irresistible targets for the extraordinary dissatisfaction that has been growing relentlessly since 2008.

    I also agree with what you say about who you come to the party with. But I don’t see how this pertains to our host. The clearer example is our President. He got in because he was Change’s plus one. That’s who (or rather, what) he needs to stick with.

  3. Alex Bowles says:

    I should add that, in 2008, people didn’t have anything like the same attunement to the structural underpinnings of our malaise. Private campaign finance, for instance, will still deep in the woodwork, attended to only by nerds and extreme wonks. Post-Occupy, it went from deep obscurity to center-stage, where its strength is only growing. The same is true of other once-obscure provisions (e.g. Citizens United, or the repeal of Glass-Steagall) which people are now recognizing as fundamental errors with ridiculously bad consequences.

    These aren’t the only very bad ideas now coming to light. We’re approaching a situation where the wort of the worst will all be on the table. Like malignant tumors, they can be removed, or they can be left in place to kill the patient. But that cannot be ignored. Obama is going to be seen – increasingly – as the surgeon-in-chief. His legacy will depend on whether or not he botches the operation. I think he’s savvy enough to get this.

  4. Fentex says:

    Despite the hand wringing from Republicans, the U.S. Treasury’s cost of capital is at an all time low. What does that tell you? That the rest of the world sees the U.S. as the best bet for the future.

    The price of U.S bonds is empirical evidence the theory that an expanding monetary base must cause inflation is wrong (at least over periods of a few years). But it isn’t evidence that the world particularly likes the U.S’ future in particular.

    The dropping of national bond prices is happening in all industrialised nations and might be indicative of something less positive – over the longer term.

    It does though, coupled with inflation measurements, remain evidence that people arguing governments should take the opportunity to borrow for investment in infrastructure (and incidentally stimulus) while rates are low have empirical support for their position that ruinous inflation does not automatically follow.

    And speaking of David Ricardo I notice increasing reference to the theory of Equivalence named after him (which it seems he didn’t accept himself). An idea that is so preposterous it’s hard to credit anyone honestly believing it as it seems to boil down to saying that borrowing for investment cannot improve future situations.

  5. Alex Bowles says:

    @len As an aside, that link you posted contains some of the best writing on the Big Crisis that I’ve seen. 2012 will tell if that sharpness is matched with prescience.

  6. BERNARD. says:

    When work will becomes a game a science an art we will have evolved ( I think). The problem we are facing is that the actual industrial parks are obsolete and inneficient. The pollution is terrible most of the water is contaminated, big pharma is killing more then curing, the industrialized foods are toxic and dangerous, the excess of plastic is becoming a real problems and the toxic waste including nuclear are an issue that no govnerment wants to face ( apart from Germany). If you talk about money then the first thing that come to my mind is corruption at all levels so unless great discoveries are made … I think we as a race are doomed. There is no more margin of error and our natural habitats is at stake… Lets see what happens and how we will adapt to the climate change. Some things cannot be fixed with money alone. Hey we need a bit more humanism…

  7. Jon Taplin says:

    Jeez Len–What did I say to offend you so much? My point about Art and Science is the following.the great breakthrough technologies of the 21st Century are not just science. They require design sensibilities and other things we tend to be pretty good at. The Chinese today have the world’s fastest super-computer, but even their academics admit they are missing some of the creativity that distinguishes American invention.

    As to Michael Thomas’s rant. I met him when he was on Wall Street. He doesn’t really believe that the whole edifice of Wall Street is going to fall. The irony of course is that the Union Pension funds like CAlpers control huge blocks of American companies. For you to say Apple makes a closed clique wealthy, shows a fundamental misreading of our economy.

    As to Obama, I know you are pissed off. You never did like him and were always cheering for Hillary. You and Pap have seized upon the defense bill to pillory the President, but even the Cato Institute proves the issue is far more nuanced than you paint it.

    As for me, I’m going to keep dancing with the one that brought me here.

  8. JTMcPhee says:

    … And in other news, the Armenian and Eastern Orthodox holy men who “maintain” the Church of the Holy Kamoly Nativity in Bethlehem had their annual brawl in this Holy Season. Seems the Holy Site is falling down, because the doctrinal and territorial impulses of a bunch of nominal Christian High Priests of (one aspect or another of) the Loving God can’t agree on any aspect of its administration. Not one jot or one tittle. The last big brawl, the endpoint of increasingly hostile skirmishes which are apparently building up again, kind of helped ignite the Crimean War…

    Why does that sound so hauntingly familiar?

    The keys to the kingdom are Identity and Legitimacy. Both were dropped carelessly into the noisome hole under the thrones in the outhouse.

    Jon, it ain’t just the defense bill. And the Papolans are doubling down on their Identities, without a shred of Legitimacy. What’s killing “us” seems pretty simple, to this cynic: Too fucking much of “what’s in it for me?” And the inevitable corollary, in government and management terms: “Where’s mine?” See Mike Royko for an explication, if you care to. He’s dead, of course, but his recorded insights live on… And his magnum opus, “Boss!”

    God’s little joke — giving us poetry and a sense of beauty and a smidgen of kindness and altruism, and wrapping it in and wiring it up with the amygdala and the pituary and the lizard brain, without enough cabling or code to let the forebrain’s better parts over-ride the command signals…

    Fucking stupid humans.

  9. Alex Bowles says:

    @JTMcPhee The saving grace is humor. That, and judicious mockery. But mostly humor.

  10. len says:

    God’s little joke — giving us poetry and a sense of beauty and a smidgen of kindness and altruism, and wrapping it in and wiring it up with the amygdala and the pituary and the lizard brain, without enough cabling or code to let the forebrain’s better parts over-ride the command signals…

    You know my co-workers?

  11. JTMcPhee says:

    Probably don’t need to actually know them. One might expect they are very much of a piece with many of the ones at my last “place of employment.”

    I consider myself blessed presently, with my personal colleagues and confederates. Maybe it helps to have fallen into a discipline that is all about helping damaged fellow humans make the best of some serious deficits and injuries. Tends to attract a different cohort. People who are averse to dumping others on an “ice flow.”

    I hope the new year goes well for you, sir.

  12. Alex Bowles says:

    @JTMcPhee That being the case, you and yours may appreciate this guest post, by Dan Kervick, via the Naked Capitalism blog run by Yves Smith.

    I will conclude by proposing six social tasks for the rising generation – six challenging tasks whose successful pursuit will help us achieve a more just, equal and democratic society. It is my view that the resulting society will not only be fairer and more decent. It will also be more economically productive, and will better promote human happiness and flourishing by more effectively distributing the goods and services we produce. Most of us will be happier in such a society as well, because the practices of democratic equality do a better job satisfying the human desires for cooperation, solidarity, trust, stability and fellowship that are the foundation of the social life for which human beings are naturally framed.

    Extreme laissez faire capitalism of the kind extolled off and on over the past two centuries, and increasingly preached by economists, financiers and conservative thinkers over the past four decades, is a perverse distortion of human nature, foisted upon us by cold and demented thinkers captivated by inhuman notions of efficiency and domination. In the end, it is a system that reduces each human being to an object whose value is nothing beyond what it is worth in the market. We need to restore a social balance, in which private property, entrepreneurialism and commercial activity do not dominate our lives and set all the rules for our existence, but function within a democratic social order framed by a politically coherent and effective commitment to the public good. In a democratic social order there exists an activist public sector controlling a substantial store of social goods, and channeling democratic energies and intelligence into the ambitious perfection of such goods.

    Sounds like a solid agenda for 2012. Happy New Year.

  13. len says:


    Thanks JTMc and you and yours as well.

    I am sitting here working with a surgical mask on in an environment that will kill me if I take it off for too long to finish a task made orders of magnitude more difficult by people who pretend to know a science (computer science) but are instead bullies who practice an art (layout) and who have their power to bully by dint of relationships that control who gets money but not who does real work. I’ve been at this solid for five months day and night and for succeeding I will get to pay my bills and they will get sent to Hawaii. Vacation? That is what time without a job is now for most of us so when someone goes off about welfare loafers, I want them to go see the Great Gazoo in exile.

    “Let Evolution Succeed”, say the scientists which in art speak translates as, “Let the dum dums die.”

    Understand, the money people are not the producers. Steve Jobs was not the creator. They are quite often simply the loudest and meanest and for having won by these means, they expect mausoleums of ivory and unadulterated admiration. Having spent their lives manipulating the talents of others at the end they want to be loved too.

    Money can’t make the message.

  14. Morgan Warstler says:

    oh good lord…

    Listen old man, I’m not angry for ME. I’m angry for my generation and the young coming up behind us.

    STOP SPENDING MONEY. Look at boomers and figure out ways where they start YOY to consume less than they bring to the table.

    Post on it over and over. Never ask for another thing from anyone under 60, otherwise, when your crowd are old and infirm, we’re all going to smile and laugh while we pull the plug.

    It isn’t about better access to high priced colleges and tax payer sponsored debt piles.

    It is about renouncing high priced colleges and the elderly professors / administrators who live there.

    It is about ENDING the seniority protections at UAW because after all they are paying the new hires $15 per hour.

    Jon, if your generation had more children, and buckled down and raised them right, your past spending could be justified (at that dollar figure).

    But you have no right to ask for a higher workers-to-recipient SS system, than the one yourself paid into.

    REREAD that.

  15. Morgan Warstler says:

    The 18-29 vote is up for grabs in 2012 because youth can’t afford cars to put bumper stickers on and those t-shirts are worn out from too many days sitting on the couch unemployed.
    The sobering reality: just 55.3 percent of Americans between 16 and 29 have jobs. And earlier this year, Americans’ student loan debt surpassed credit card debt for the first time ever.

  16. len says:

    The MSNBC early morning pundits say the college kids are going to sit the next election out. They are criticizing Santorum for taking the time in NH to have a debate with “kids who won’t vote”. Seems a bit thick to me. If anyone wants their votes, they better come back with something more than fear and loathing because the kids aren’t afraid and they are very angry. If I were local party wonks, I’d start building a movement in the local elections to overturn the lock. IOW, national party leadership and the administration have failed overall and are providing nothing that captures hearts or fires imagination. Building excitement over local races might be the best option. Consider the next four years to be a team building effort. A longer term strategy seems advisable.

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