The Unsinkable brian cork™

Brian Patrick Cork is living the Authentic Life

what next America?

January27

As I have already stated on this Blog, 2008 was a financial crisis, affecting mostly “Wall Street.” 

Looking ahead, what can we expect for America?

2009 will be the year “Main Street” gets hit. 

Mind you, 2009 will be awful for A LOT of people.  But, I believe it can be pretty good for some people focused on Best Business Practices, clear thinking, opportunities and having a plan.

But, generally speaking, the damage to the real economy so far is trivial to what will happen over the next two years.  There will be two big stories.

Business bankruptcies

Going into 2007 we knew that our financial sector was unusually strong, well-managed with strong balance sheets.  False!  Going into 2009 we know that our non-financial business sector is well-managed (outside of some weak sectors, like autos), with strong balance sheets.  Expect to be disappointed and astonished yet again.

Triage

That is a VERY scary word.

Everybody wants bailouts.  Worse, the expectation of bailouts means that few preventive measures will be taken.  This referred to as “moral hazard”.  We see this, for example, at work in California – which is already de facto bankrupt.  But, nobody gives an inch.  No lower government spending; no lower government wages; no reduced government employment; and, no higher taxes (there is more; but, you get my drift). 

Why compromise? 

Well… The Federal Government will not let California go broke.  Or the auto companies.  Or the universities.  Or the banks and insurance companies.  Or millions of households (not actually sure about that one yet).

There is not enough money to bailout everybody.  Triage will be necessary.

I have seen this under the worst possible scenarios.  But, you can probably relate to it in terms of what Kate Beckinsale does with lipstick on the foreheads of the wounded at Pearl Harbor (but, it is one of the most gripping scenes in the 2001 movie). 

To wit:

  • Those who will die anyway:  no treatment. 
  • Those who will recover anyway:  no treatment. 
  • Those will will recover only with treatment.

Making these harsh decisions might be President Obama’s greatest challenge. He may have one of the toughest jobs ahead of him since Truman.

Looking beyond the downturn, what can we expect?

The consensus confidently – almost to a man – anticipates inflation, against which the Federal government will fight either successfully (optimists) or unsuccessfully (doomsters). 

This is, however, absurd. 

People are already preparing for this “inevitable” outcome by owning mostly short-term debt.  As the end of the downturn approaches — inflation can only manifest itself in times or full employment or via a currency crisis — everyone will (should) take strong measures.  Even elderly ladies in Peoria will own inflation-protected bonds, short-maturity bonds, and hoard gold bars in their basement.

These measures will foreclose inflation as a workable option.  As the government is forced to either issue vast amounts of short-term debt or monetize the debt, inflation becomes useless as a tool.  Short-term debt becomes an albatross during inflation:  interest expense skyrockets as interest rates soar.

Seriously.

Hyperinflation always remains an option – as does atomic war and mass suicide. 

However, none of these are “solutions” in any meaningful sense.  

Seriously.

With a history of vast deficits behind us, and larger deficits ahead (from baby boomer’s retiring), the government will choose Door #2:  default.  We will just not pay all our obligations.  This is historically the most common solution.

How we decide who to pay — and how much to pay — will test America as it has seldom been tested.

  • Do we pay our foreign debts?
  • To what extent do we renege on promised social security and medicare benefits?
  • To what extent do we raise taxes vs. defaulting?  

The big unknown

The recession of the late 1920’s became a Great Depression due to a series of public policy errors. 

Most seriously:

  1. Many nations abandoned the gold standard too slowly, and
  2. The nation with the largest trade surplus wrecked the world trade system.

America was the culprit (for #2),  enacting the Smoot-Hawley Tariff Act in 1930.  We can only guess at the equivalent of mistake #1, but the prime candidate for #2 is China devaluing the RMB to boost its exports. 

More later.

Remember what Hemingway thought of Spain.  Go read those books.  Spain can be defended.

“Sons Gonna Rise” by Citizen Cope.

Peace to my Brothers and Sisters.

Brian Patrick Cork

economic recovery: Full Steam Ahead

January23

It seems that everyone has a lot to say about the current crazy markets. Having not seen the crash coming, many pundits are now predicting the end of the financial world as if it’s a foregone – and logical – conclusion.

Meanwhile, the markets have gone (from my perspective) into a random twitching period where fundamental laws do not apply and technical issues produce violent swings. For example, foreign exchange is in chaos; no one can explain why the yen is so strong.

The Japanese economy is in trouble like the rest of the world. Interest rates are 0%, the carry trade unwound long ago, growth is shot and the deficit is massive. There must be a good reason the yen rallies and falls in huge swings, but it seems no one knows what it is. It’s a fine example of pure volatility.

This wild volatility is not surprising, as the global financial engine has blown a gasket. Yet the bulk of the damage is done, and the engineers, however uninspiring, are nonetheless at work.

Seeing the famous-name banks trade, you might think you were watching financial Armageddon before your very eyes. But I believe the bottom’s been hit. The market is not going to free-fall off a cliff. The accident has happened and the patient is in intensive care.

I was a bit early to the party for the crash, and I can quite believe I might be a bit early for the coming rally, but it will come and it will be very strong.

“Just as most investors missed the market top, the bottom’s here now, and nobody seems to notice.” 

In crashes, a 25% drop is the norm and 50% is extremely uncommon. The next step down, 75%, is exceptionally rare and limited to massive bubbles like China and the dot-com boom. Frankly, however bad the current situation seems, the next phases will not compare with what has gone before or the worst-case outcomes that have been predicted.

What could happen next to knock the market in half again? The market prices in sentiment along with all available information; as such, it must be near bottom. Unless the world was to descend into war (which isn’t actually such an extreme prospect, but still something most people would consider highly unlikely) the only way is up. It’s just a case of when.

I’m stating this the same way I called the bear–loudly. I don’t see the point in hedging opinion, because, at this point, people want something definitive.

economic-recovery-cartoonIs there another crash ahead? I believe the answer is no. While lots of people think this crash has just begun, but I think it’s winding up to go bullish. That doesn’t mean there won’t be harsh economic times ahead for many, it just means the market will rally

The long term is a different matter, and there I think the markets will trade in a wide range for a number of years, reproducing the sort of boom-bust cycle we got used to in the ’70s. This will be caused by the triage of the central bankers and their titanic infusions of money.

We have already seen inflation fears flip into deflation terror and we’ll see it flip back again. This will save up plenty of crashes for later, but along with them will be huge upswings, as crude monetary easing will follow tightening–which followed the easing before–generating a massive swing-trade scenario in stocks.

It will take time, and strangely enough, many derivatives, to take the shaking volatility out of the world economy over the next few years. Derivatives that suppressed the risk for the last few years and then erupted will have a major role in restoring stability. Volatility is a blank check to the market; while it’s killing us now, it will soon become a lucrative business for traders to unload, and spreads will return to normal.

As the great men speak and plan their rescue of the rest of us, the real saviors will be the billions of individuals all working on their own bailouts. Right now, around the world, regular people are trying to work through this emergency of their own accords. This is the ultimate force that will overcome this crash.

In the end, we will push the world economy back from recession and into another round of progress. It’s going to take time, and after this financial earthquake, it will be tough. Even as the aftershocks have us running for safety, the recovery will be underway, and soon enough, its effects will be seen.

Bottom-line…

2009 is going to be awful for many people.  However, it should be pretty darn good for people that use their heads, make good decisions, leverage best-business-practices, and have a plan.  Stay focused. /1

Calling it as I see it – Stock markets call recoveries early.

Going into the weekend, consider “economy of mercy” by Switchfoot.

By the way…  I am, for the moment, deeply engrossed with The Clash.  So, let’s fire up “London Calling” if only because I think we should.

be to my Brothers and Sisters

Brian Patrick Cork

______________________

1/ NOTE:  Brian also has a business Blog that apparently fascinates world leaders and decision-makers alike (but, few others). It can be viewed and relished at: The Human Capital Blog.

History: War Profiteering

June26

Largest example of war profiteering in history?

Well, you have to account for inflation, liberal media.

I mean, in 2008 dollars, the Peloponnession War in 431 B.C. would have been, well, absurd (Read it: BBC uncovers lost Iraq billions).

Look…  Blog entries like this probably only make sense if you actually care about WHY things happen – Social History.

Peace be to my Brothers and Sisters.

Brian Patrick Cork

What’s All This About?

"What am I looking at?", you might wonder.

Lots of stuff.

Meanwhile, here, I discuss events, people and things in our world - and, my (hardly simplistic, albeit inarticulate) views around them.

You'll also learn things about, well, things, like people you need to know about, and information about companies you can't find anywhere else.

So, while I harangue the public in my not so gentle way, you will discover that I am fascinated by all things arcane, curious about those whom appear religious, love music, dabble in politics, loathe the media, value education, still think I am an athlete, and might offer a recipe.

All the while, striving mightily, and daily, to remain a prudent and optimistic gentleman - and, authentic.

brian cork by John Campbell





photos by John Campbell

 

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