I will probably get more traffic on this blog today than I’ve ever had, thanks to Jane Wells from CNBC and her Stock Studs contest. I’ve been in this industry for about a decade, but am relatively obscure and mostly out of the public eye. Most of what I have done in this industry the past 5 or 6 years is behind the scenes for other companies, and typically outside the scope of seeking media attention, as I typically do not fit into the conservative industry norm. I used to post on the AssetAlchemy Inc. blog more regularly, but found some of my posts created a conflict of interest with some of the firms I had contracted with. As such, I began addressing more of my thoughts and beliefs through personal platforms, such as @doughawkmedia on Twitter, where I post about an eclectic group of topics in addition to financial markets while working. Though I could very well take this opportunity to attempt to write the perfect market post, designed to finesse you into seeing I have a wide breadth of economic insight instead of just what some may think is a pretty face in a contest, I have decided I would like to take an alternate route.

I’ve watched CNBC during market hours for the better part of the last decade. I’ve watched a lot of great personalities come and go in that time. The loss of Mark Haines had to be one of the most devastating blows to financial reporting in decades. If you threw out bullshit around Mark Haines, you better be prepared to eat it, because he wasn’t going to let you feed it to the masses. In a similar respect, things weren’t quite the same the year Bill Griffeth took off and wasn’t around to mediate everyone’s heated debates. Though Erin Burnett has moved on to CNN, I’ll admit that my wife probably would not allow me to be in the same room as Erin, at least not without some type of chastity belt, after seeing my comfort with watching her on CNBC. Something about her manner, and what sometimes seemed a quirky lack of professionalism, drew you into a bit of calmness which seemed to take some of the stress out of the markets. Well, except the day she wore the giraffe dress, I guess. Quite honestly, I grew to enjoy and admire Dennis Kneale when he was on the air at CNBC. Not because I agreed with the things he said, because I rarely did, but because he had the balls to speak his mind even if it might not have been politically correct. More importantly, he seemed to have the guts to admit when he was wrong, which appeared to be quite often. Something about that was refreshing, in a world where media seems to be controlled by financial and political interests, and bias creeps into the reporting of the facts themselves.

Though I think misinformation is probably one of the biggest plagues this world has ever known, I understand the economics behind market spin, exacerbating the drama, or even being excessively bullish, for instance, on the market itself if a bullish euphoria is what draws viewers and subsequent advertising dollars. How much spin, though, do you really need to put on the facts before the news becomes propaganda? What I do not need is for someone to interpret the news for me, because they will most likely interpret it wrong. The markets the past half decade are a clear indication of that. Maybe I’m in the minority on that one though, because most shows these days seem to be built around interpreting the news for the viewer. In line with my desire for facts over fiction I have continued to watch CNBC over the years because they are less biased than most other networks, but more specifically because of people like Mark Haines and Bill Griffeth.

Personally, I think we need more journalists such as these who can once again present the facts, or discover the facts, and still keep you engaged without having to manipulate the actual news to do so. It is why I think so highly of Jane Wells. You can send her on any assignment and without manipulating the actual facts she always seems to know just how much of herself to inject into a story in order to keep the people engaged, it doesn’t matter whether it is the opening strikes of World War III or two turtles fornicating, and that is the sign of a true journalist. Though it has been an honor to be a part of some ‘Funny Business with Jane Wells’, what I’d really like to thank Jane for is, well… just being Jane Wells.

It’s starting to feel a lot like the story of “Peter and the Wolf” isn’t it? At the end of the day, what does a bailout for Greece even mean? What is it that is really being saved in the long run; a World Economy, an Economic Union, a Sovereign Nation, a failed attempt at Socialism, or the liberty of Greeks as individuals to govern themselves? Or do we look at it as something more sinister, such as a foreign power using economic leverage to subtly take away the sovereignty of a nation without firing a single shot, while trying to look like a savior to the nation that was just conquered? Is there deception in the air? Sometimes things that appear to honor you are intended to destroy you.

I don’t want to get caught up in the Greek issue specifically, but it leads into somewhat of an epiphany I had lately about how people visually represent Maslow’s Hierarchy of Needs, and how that might pertain to the economics of today:

First, is that mass psychology of a social unit tends to also follow ‘Maslow’s Hierarchy of Needs’ to some degree, not just the individual. As a developing nation, you will first focus on the basic needs of your people, which Maslow referred to as Physiological (food, water, sleep, homeostasis) and Safety (safety of body, employment, resources, health) and I must assume a degree of sovereignty is implied in these levels. If you do not have these resources, you will either attempt to attack a nation that has them in order to survive, or you will perish. A nation will grow into its social stages and eventually seek self-actualization by trying to provide (although it appears it is often by force) a path to other nations to reach the same self-actualization (that is self-actualization as interpreted by the egocentric nation pushing it.) Strangely, a nation will often try to secure lower level needs by throwing a shroud of ‘self-actualization’ over the intent, such that the people find it easier to swallow. In other cases, I think it is possible that you can get so caught up in maintaining your visions of self-actualization, even as a collective social unit, that you can start to neglect your lower level needs. I think after a few thousand years of Greek history and myths, the Greeks, of all people, have fallen prey to this last scenario, which leads into the next observation.

Second is that Maslow’s hierarchy is often portrayed in the shape of a pyramid, with the most fundamental needs at the base level on the bottom, and the need for self-actualization at the top. The idea being that, as you achieve and maintain comfort at a specific level, you then work your way up the pyramid to the next level, at some point reaching the peak. What had not occurred to me before is that, when looking at it as a climb up the side of a mountain, past the precipice of the peak there is a sharp slide down to the bottom on the other side. Now, maybe the levels were volume based on relevance to a person’s overall motivations and desires when being envisioned as a pyramid, or maybe it was a subconscious depiction knowing that the less important something is to our actual survival, the harder it is to maintain. It isn’t represented as a square, such that once you reach self-actualization you have a nice platform on which you may rest. You are on a pointed peak that requires great balance and an abundance of your concentration. From a psychological perspective you are in a terrible position because your attention is distracted and you begin to take the lower levels for granted, not realizing when the bottom is falling out from under you until it is too late. From a scientific perspective, momentum is suddenly working heavily against you, keeping in line with the concept that the bigger you are the harder you fall. From an economic perspective, you become a sitting duck to other nations who want your remaining resources, because you are preoccupied with a sense of philanthropy. The Greeks were so focused on their self-actualization, they were oblivious to the fact that their foundation of the lowest level of needs was crumbling. With just a small slight of hand, the coveted vacation spot may soon be known as the German Isles.

But how does this really relate to economics today? Along with an incline, a peak, and subsequent decline in what I would refer to cumulatively as the Information Technology Revolution and its subsequent bubble, there has also been a parallel journey up the incline of the pyramid of ‘Maslow’s Hierarchy of Needs’, a peak, and now a quick decline down the other side back towards the basic necessities of life. It appears to me that most industrialized nations, after 15 years of easy money bubble markets and exponential technological growth, have become stuck in self-actualization and do not realize they are actually quickly sliding down the far side of the pyramid. Just as it takes people time to acclimate to a new economic reality, they are forced to acclimate to being on a new level of the pyramid. It appears the governments are still striving for globalization, while the people want their government to save “them”, not save the world. When there is a disconnect that large between the people and their government, people do not feel they can vote it away, and the people revolt. The first signs of it showed up with the Greeks, who individually do not want to accept extreme austerity measures for the benefit of individuals residing in the rest of the European Union. The point being that social unrest is replacing globalization as the new economic trend, and it is a bubble that is just beginning.

As people worldwide are beginning to rebel, some governments are crumbling and other governments are quickly jockeying for power in an attempt to come out of this as the new world superpower. Allegiances among nations appear to be quickly changing, and globalization may once again quickly stagnate as people demand that their governments prioritize their economic survival over the survival of foreign nations. Crumbling governments also restrict information to the people, in order to limit propaganda which entices them to rebel, and limit their ability to congregate in order to rebel. Governments in fear of revolt begin to take away your freedoms. As governments provide fewer social services, people will have less leisure time with a shift back towards actual labor for survival. Employers will most likely demand a higher level of work and less acceptance of personal internet usage. In scenarios such as the current societal trends, people tend to focus more on circles of close family and friends and less on acquaintances. There is an undisputable trend away from “the easy life” we had for a decade and a half, and once again away from globalization.

So what seems to be the epitome of representing the absolute peak of this pyramidal trend, and the paradigm shift we are about to experience? It will most likely go down in history as being Facebook. It represents a peak in globalization, a peak in socialization, a peak in information technology, a peak in entrepreneurship, a peak in maximizing revenue from the intangible and a peak in the masses providing the bulk of the resources (content) for the benefit of the few (Facebook Inc) once again in history. Facebook’s existence relies upon its 845 million users globally to provide the content with which Facebook makes an advertising revenue stream, yet we have seen how easy it is for a government to shut off access to a specific website, or the entire internet, to an entire nation. In reality, restrictions to Facebook’s website are in essence controlled by individual governments primarily and only secondarily by Facebook themselves. China doesn’t care if U.S. stock holders of Facebook get hurt if they restrict Facebook access to the Chinese…and why should they? Facebook is already being acknowledged as a political tool which has helped topple regimes across the Middle East, do you think these governments will continue to allow access under those circumstances in the future, when governments themselves feel threatened? People will most likely have less and less time to play on the internet, as employers demand that employees once again work in order to increase profit margins. People may be more likely to start using it for political propaganda, and less for leisure, thus increasing the odds that you will be restricted or monitored. If Facebook already dictates how you may and may not interact with your peers on their website, how much effort do you think it would take to restrict certain topics of discussion entirely? Once you have reconnected with an old peer, do you really need Facebook to maintain it, and if you don’t care to interact with that peer by other methods, did you need to reconnect with them at all or was it really just a superficial addition to the quality of your life? As governments tend to monitor social media to a greater extent to search for potential threats, and demand more power to fight a perceived threat without trial, do you think people will continue to be so free in their posts and providing content that displays their personal beliefs? Will people continue to frequent the site as their freedoms of speech become more and more restricted, and the risks of doing so become greater? Without the user provided content, where is the revenue stream? Facebook’s profit last year was about 1% of the estimated value of the IPO. If this is truly the peak of the “need” for Facebook, and it can’t find a way past the obvious obstacles towards accelerating that growth, which the current trend suggests may arise, then that is a long time to wait for a return on investment. There aren’t that many barriers to entry with social media and people are fickle, do I even need to say the word MySpace? Is Facebook really a service that you feel the current 845 million users can’t live without nor could never be restricted from, in order to validate the $100 billion valuation, which is based solely on advertising revenue in a declining consumer market and driven purely by a users willingness to upload personal content?

Which once again brings us back to the Greeks, and a reference to another relevant story. The Greeks had spent 10 years trying to conquer Troy, just as Facebook has spent about the same amount of time trying to conquer the masses. The Greeks knew that the circumstances that allowed them to continue an attack on Troy were coming to an end. As somewhat of a “Hail Mary” to keep their efforts from being spent in vain, they came up with the idea that is now known as the “Trojan Horse.” To the Trojans, the Greek’s parting gift of the wooden horse appeared to be a representation of the Greek’s self-actualization as an offering for the goddess Athena, which appealed to the Trojans own self-actualization as well. What it turned out to be was the catalyst the Greeks used to remove the Trojans from their basic needs of survival. The Trojans were entranced with the wrong part of the pyramid, as many seem to be today. Ironically, the Trojans must have also believed the phrase “Greek Bailout Imminent”, in order to fall for the ruse. I think Facebook realizes that the circumstances that allowed them to continue an attack on the masses with social media are also coming to an end, and now they present you with a “Trojan Horse” which they are calling an Initial Public Offering. They’ll pitch you the peak of the pyramid, but watch out for the crumbling foundation.

I posted this to a friends response about the political parties which also had a mention about technocrats. Figured maybe it should go on the blog:

The honest truth is that the United States only became the worlds superpower because we were the only industrialized country not to have it’s infrastructure destroyed with two world wars. We were already on the downside of our economic lifecycle when the internet created another artificial upswing which the United States got much of the benefit from. It created a small amount of tangible wealth and a huge amount of intangible wealth, and it was inevitable that the latter of those would finally collapse. What is worse, that very technology made it easier for the whole world to get wrapped up in the same bubble. Which leads us to all the political parties trying to convince the largest sector of the public that they can solve an unsolvable problem. The more people realize the problem isn’t being solved, the more they try to blame it on politicians just not knowing what they are doing, and thus the more the world is leading towards Technocracy, thinking the solution is that we need more experts in their field to make the decisions. Technocracy is not Democracy in most cases, as those experts are not typically elected, they are appointed. Not only are the Socialists realizing that socialism doesn’t work, and quickly turning to Technocracy, but now many people think Capitalism doesn’t work and are doing the same. It’s really much bigger than that, but also much simpler. A nation which has the best access to factors of production [land (which includes natural resources), labor, capital (including entrepreneurship) ] will grow until they run out of those resources, they will then need to either conquer a new land, absorb new factors of production (with things like NAFTA and Economic Unions like the EU) or they will perish at the hands of another nation that wants their resources. Has happened over and over for thousands of years. Alexander, Cyrus, the Huns, Vikings, Francs, Romans…the list goes on and on. There is nothing the government can really do to fix the current problem that will be acceptable to the American people, while still leaving the American people with both their egocentrism And their sense of ethics in tact.

We have grown short on natural resources and neglected the ones we have a comparative advantage at (like food production), we have labor that needs to be reallocated so dramatically that nearly half of our current workforce needs to be in other fields to be creating real growth for the nation and we’ve wasted American capital by pseudo conquering lands we have gained No natural resources from, only to keep the american people in a state of fear about “terrorist” retaliation to such actions, and by using our National Guard specifically, so they don’t question why they are there and it removes them from the general workforce to give the appearance that unemployment is less than it really is, if they had not deployed into active duty.

Another friend mentioned that “both parties are owned by corporations” And at this point, he is right. Both parties are indebted to corporate interests much deeper than they could probably ever pay off on. The kind of change our government needs, would be so dramatic in the eyes of the people and the government, the changes necessary to fix the government, in and of themselves, would probably destroy it. I love this country, or at least the idea of this country we were taught in school years ago intended by our founding fathers, but I’m afraid this isn’t going to end well no matter which approach we take. Historically, there seem to be 2 possible solutions to the Real long term problem: We 1) either conquer the Chinese (through military power or just coercing a paradigm shift in their political ideologies) or 2) We learn to speak Chinese. Neither is really acceptable, but if we don’t choose one, then eventually they will make the decision for us. History shows that it is so. At the end of the day, you do what you have to do so that (whoever you believe to be “your people”) will survive, the rest is just political posturing, so the masses can sleep better at night with a clear conscious. If the people can sleep at night, they don’t give a shit what you did to get them there. If the people can’t sleep, then they revolt.

I had to respond quickly to this one: Ken Fisher Dubs New Normal `Idiotic,’ Sees `Great’ Decade Ahead

Now, it is possible that Ken Fisher has David Copperfield on retainer. With a billion dollar bankroll I guess you could, theoretically, make the 800 lb. gorilla in the room disappear. I’m guessing it will take a lot of smoke and mirrors for Ken Fisher to be right about the coming decade, and maybe Copperfield could pull off some trick to provide that appearance. Yes, there will be opportunities where money will be made, but where Fisher seems to have his head up his rectum is that he is apparently unaware that we just came out of 15 years of an extreme global bubble market, with Information Technology creating a stimulus for growth we hadn’t seen since the Industrial Revolution. Fisher has obviously become acclimated to the ideology that this bubble phase of extreme growth was the norm, and it is not. This isn’t the same scenario leading into the 90′s. At this point, there is no new technology to push us into another “Industrial Revolution” growth phase. The “new normal” that Fisher is trying to say is “idiotic” is really just a “return to normalcy” after a decade and a half of Fisher getting to ride the gravy train on what will probably be the biggest technological boom of our lifetimes. Most people under 35 probably don’t even comprehend the difference between a normal bull market and what we experienced in the past decade and a half.

Pessimism is not always irrational, Mr Fisher. Many are probably overly pessimistic that the world is going to fall apart or that the United States will come to an abrupt economic end, but being pessimistic that there is no new driver of growth in the pipeline to boost the economy may just be rational, as opposed to the delusions of a man who needs to produce a return on investment and is therefore psychologically inclined to “talk his book” in order to keep his client’s funds under his management.

At this point, I’m guessing a chimpanzee has a better “long term” memory than Mr. Fisher and I think he’s been sniffing the wrong end of the rat this time!

Well, at least Paul Volcker has finally caught up and is pointing out things I stated nearly 2 years ago.

Again, this wasn’t hard to see coming…you just had to look at the facts.

I hate to say I told you so, but…..I did in fact tell you so!

Eurozone was unstable to begin with!

Dow historically should be around 10,5000 to 11,000 at the moment.

Check the posts and the dates, people. I’m tired of hearing people say there was no way of knowing.

Is anyone doing the math on this?  The last figures I read are that roughly 200,000 cars have been sold under the program.  The United States population was last estimated at just over 304 million people, licensed drivers in the U.S. are estimated at about 200 million, our workforce is estimated at 154,287,000 people.

Cash for clunkers appears to have benefited roughly .066% of the U.S. population (if you exlude the small number of auto manufacturers, dealers and salespeople who directly benefit) , it has benefited roughly 0.1% of licensed drivers in U.S., and has benefited roughly 0.13% of our labor force.

In contrast, we are at nearly 10% unemployment, and roughly 11% of all mortgages are either delinquent or in foreclosure.

Other than the nominal temporary benefit to the auto manufacturers and a negligible trickle down effect to suppliers and their laborers, and a small handful of dealers and salespeople… where exactly does the concept of  “cash for clunkers” being a phenomenal success stem from?

Our government wastes a lot of time on the soap box about issues that really have nothing to do with solving the problem. They spend very little time solving the real problem.

Housing prices are a symptom, not the problem.
Executive pay was a symptom, not the problem.
Madoff was a symptom, not the problem.
Sports advertising produces a ROI, it is not the problem

How did people get so damn stupid? Everyone started acting on emotion instead of facts, that produces stupid responses. They are like a bunch of ants that seem organized as long as they can go through the drone motions of everyday life and not have to think, but the second someone steps on the anthill they run around hysterically like chickens with their heads cut off.

You talk about new housing sales? Where do you think the new buying is going to come from, Mars? People who were in a position to buy in the next 5 years were enticed to do so a few years ago. Many of those who had the sense to wait till prices dropped are no longer in a position to buy due to the economy. Where do you think the excess buying came from to create the bubble…FUTURE DEMAND. Demand has to drop below historic norms before it can totally correct. What new buyers do you think are going to be enticed by lower rates? Once the facts are acknowledged, the solution will become clear.

People bitch about what happens to TARP money. You can’t take your new center fielder and give him a 10 million dollar bonus, and then put a ball and chain around his ankle to keep tabs on him and expect him to perform at peak levels….same with companies. We either gave them the money because we think they are viable, or we don’t. Next we’ll tell them they can’t pay their creditors with TARP money.

Our current problem stemmed from having priced risk out of speculative markets and taking excess leverage as a result. You can’t solve that problem by lowering interest rates to get people to continue taking excess risk and expect the problem to go away. When rates are appropriate for risk, money will start moving again.

Madoff was given an estimated 10-17 billion to invest. Not 65 Billion. The S&P lost about 65% from its 2000 highs. After considering the currently recovered funds, Madoff lost about 90% of investor funds. That may drop as other funds are recovered. He lost investors about 25% more of their investment than they would have lost in an S&P index fund anyway. He is certainly a criminal and deserves to go to jail, but he didn’t steal 65 Billion dollars. He lost an excess of about 3-4 billion of investor funds. If they recover some more funds, Madoff investors may be no worse off than if they were in the general market and never liquidated their positions.

The USD dropped over the past decade due to the extreme leverage and how it was created, which worked like a multiple to increase the money supply. The money the Fed is injecting into the system doesn’t come anywhere near offsetting the deleveraging and the USD money supply is actually shrinking, not expanding.

You can’t price risk back into the markets by lowering interest rates, you just shift the excess risk to other markets….and a bond bubble is going to hurt a hell of a lot worse than a stock or real estate bubble. A large portion of bond buyers think it is a riskless asset and have no idea how much they can lose if they need to sell bonds before maturity when rates rise.

Protectionist measures have almost always been reciprocated 10 fold and cause more economic harm…why even consider it. Times of better globalization have always fueled growth, times of decreasing globalization have always stifled it.

China isn’t in a recession and they have tons of cash. You think they are going to stop buying commodities for their infrastructure because the prices are too cheap? No, they are going to take the opportunity to increase their infrastructure and create commodity demand….it will create global inflation.

Regulation can never prohibit problems in a capitalist economy. Companies will always find the loophole in the regulation and start doing business through the loophole. In order to compete, all other companies must start using the loophole to alleviate the other company’s competitive advantage. The loophole then becomes a necessary and accepted business practice, until it escalates to the point of crisis. Then we hastily add new regulation to fix that loophole, after it is too late and usually creates further problems or drives companies to find another loophole….and it starts all over again. We’ll never be able to devise regulation in advance that removes every single loophole. Pressure heads toward the area of least resistance…

We have to stop reacting to the emotion and melodrama with knee jerk reactions, and start drilling down to the real facts of the situation. If scientists acted like the investment community, we would be making human sacrifices and think the Earth was flat. The fallacious logic and resulting melodrama is out of control.

The Fed has just fueled the treasury bubble even more….just like they fueled the housing bubble after the stock bubble burst

They keep trying to fix the wrong problem. Instead of letting risk get priced back into the economy, they just keep trying to shift the excess risk around. They are robbing Peter to pay Paul by pushing rates excessively low to stimulate risk taking, and they just don’t see it. You can only entice people to take excess risk for so long. For over a decade people learned that excess risk brought great pleasure, but now they feel excess risk brings great pain and you can’t overcome that by making it easier for them to take excess risk again….it is basic psychology. The Fed have become so stuck on the mindset that monetary policy is done a specific way every time, they have stopped looking at the underlying problem to see if the traditional approaches make sense. They have also come to the false conclusion that booming speculative markets make for a booming economy, when it has to be that a booming economy makes for booming speculative markets. They are putting the cart before the horse.

10 years from now, it’s quite possible that Ben Bernanke will be labeled “the man that killed capitalism.”

This Madoff stuff is so out of hand in the media. The guy committed a crime and should be punished, but nobody seems to want to look at the real facts.

If you give me $2 to invest, and I say I put it on the horse “Stupid Sucker” in the 5th at Belmont and I tell you it came in at 50 to 1 paying $102, in a nonexistent race, and then I take off with your money….did I steal $102? No, I stole $2.

Records seem to indicate that the funds invested in Madoff were somewhere around 10 -17 Billion. They have currently located roughly 1 billion in assets. That means the investors have lost between 90 – 94% of their investment at this point. If / when they find more assets, that percentage loss will drop.

If these investors had invested in the S&P 500, they would have still had a huge percentage loss in net worth. Depending on the clients funding date it would be hard to determine an exact percentage, but from the S&P’s peak in 2000 to present there has been a 65% drop. The S&P lost 2/3 legally of what Madoff lost illegally. When you look at the spread between the two, the damage Madoff did is substantially less than it is being presented at roughly 65 billion. We are talking about an excess loss of about 3-4 billion dollars over market averages. If they recover more assets, these losses are actually going to get closer to matching market averages.

The guy committed a crime (or at least confessed to committing one at this point) and should go to jail, and I feel no sympathy for him, but we should be evaluating this situation based on the FACTS concerning actual damages and not on EMOTION. Our legal system was designed that way for a reason!