I totally agree with you on the business environment. Also consider all the technological advances and globalization which has facilitated trade. At the same time, the world economy has become more competitive. This view can be argued against when you discuss corporations such as WMT, MSFT, KO, XOM... I guess there are also many powerful foreign firms in certain sectors (MT, Toyota). Nevertheless, these companies need resources from all over the world to create and sell their products. All said and done, I think there are other more significant attributes than the the business environment. Most of us would be in agreement that the increased money supply and potential of inflation is a main concern. Some other issues that have been raised are leverage, debt, and unemployment.
Here is a good documentary on the Great Depression (starting w/ part 1): http://www.youtube.com/watch?v=ulVQ-kH1MAA It's a little over an hour long. I think I first saw this in November. What struck me most are the similarities between spending, debt and market psychology. People were told to spend, buy material goods and life's luxuries on credit, buy stocks on loan with 10% down (now illiquid OTC derivatives were 30:1)... it was an introduction into a ultra-consumerist type culture as is even more evident today. I think with the advances in technology and global trade prior to the 21st century we had a similar belief as expressed by the tech boom. Everyone was bullish and people with no business of being in the stock market where buying tech stocks with P/E's of 60. What is scary about the documentary is that history seems like it may repeat itself. A year before the major crash, JP Morgan and his banker friends met and decided to buy stocks to show confidence. It worked for a year.... and then everything blew up. It kind of reminds me of the FED buying all the toxic assets. (The debt will be passed on to taxpayers... there are too many people already barely able to pay their mortgages or any credit card debt in general... taxes will also hurt businesses... less profit for businesses could result in less jobs... it's a dangerous chain.) Charles Mitchell's and Jesse Livermore's family members are interviewed in it too.
Irving Kahn knows few things about depression: Despite the constant comparisons with the Depression, Kahn says itâs âabsurdâ to think the U.S. is headed for a repeat of the 1930s when people âfelt so helpless.â Back then, the Feds refused to aid banks and were powerless to adjust interest rates or insure accounts. In fact, Kahn points out, up through 1971, the Federal Reserve couldnât even lend money if it wasnât backed by gold. Today our government is creating billions of dollars â literally â to help get the economy back on track, we have programs to insure individuals donât lose their bank deposits, and thereâs a general sense that Washington will do what it takes to help both Wall Street and Main Street. Thatâs not to downplay the troubles ahead, and Kahn is the first to suggest ultrasafe government bonds for part of a portfolio. But as an investor who has seen dozens of economic downturns, Kahn plainly says this is just part of the natural cycle of the market. âInvestors have no reason to feel bearish,â he says. âTrue value investors are glad the markets are down.â http://www.gurufocus.com/news.php?id=58475
Kahn may be missing the big picture. If global growth is weaker than most believe right NOW, we're going to have more systemic shocks to the system and we're going to see a hell of a lot more distress. I think most are underestimating the totality of the job losses we'll see within a year or so, the size of the 2nd wave of foreclosures (including prime residential and CMBSs) and the rapid adaption the American Consumer is making towards 'bunker,' 'savings,' 'I'll buy what I need, not what I want' mode. If confidence falters now after bailout 1.0 (collectively), there's no way bailout 2.0 will be politically feasible, and then you'll see the extent of the infection. There is a ton of anxiety among the watchmen right now. They're banking a lot of chips on trying to prop up confidence, but that's a risky strategy if people see the ultimate truth and it shapes their actions.
He seems likes an intelligent value investor. If Kahn has this opinion, than that is all well and I hope the Kahn Brothers Group make some money.p All I will say is that there are no psychics in the stock market. If Warren Buffett (BRK.A, BRK.B) can lose 40% in one year with seemingly conservative equities, then there is truly no person with the right answers. I'm not saying this in spite of Kahn, but I do think that sometimes "legendary" Wall Streeters are overly praised whereas they can be wrong. Equally so, the smartest economists from Harvard, Yale and Princeton are rarely in agreement and are frequently wrong too. Otherwise they will be flying in their own jets, instead of peddling on a bicycle to their lower six-figure salary offices.
I do not like CNBC, but this is a great article. Click on the video of Jim Grant if available: http://www.cnbc.com/id/31204170
The great Krassimir Petrov has also compared the great depression to today for those who have not already read it here is the link: WORSE THAN THE GREAT DEPRESSION http://www.financialsense.com/editorials/petrov/2008/1102.html
................................................................................ Good Post..... One interesting item is just who the author is....and where he is from.... WORSE THAN THE GREAT DEPRESSION by Krassimir Petrov, PhD Prince Sultan University, Saudi Arabia November 2, 2008 He takes a very common sense type approach to this comparative viewpoint.... Two items that should be reviewed and enacted pronto....albeit unlikely are two very important structural changes.... 1) Structural US tax changes....ie 10% C tax per state....5% Fed....no other taxes ....did not happen in 29.... 2) A new worldwide securities exchange....the technology for this is available today....not in 29....Most all populations need a financial out when their local political gasbags are in their finest hollywood forms....and serves as the most efficient source and allocator of wealth for progressive means.... Structural govt . changes required.... Like a rat that does not return when there is no cheese....the human keeps looking....ie the highly antiquated 2 party system which is depression causal...has to be replaced with a system that works.... The US desperately needs to rid itself of Hollywood, DC.... Must be changed to state mandates....which would eliminate the nonsense and better represent and manage localized populations and townships....The internet is making this possible....
Yes, in fact I would think that the commerce part of our economy is quite strong. That is probably due to technological advances plus relatively stable governments around the world. The component which is unstable is the activist government (in the U.S. at least). This is not just an Obama thing, but goes back to at least 45 years, maybe to FDR. While government programs and guidelines may have been well intentioned, many have grown to a size which is cannot be supported. Others are complex, and can have unintended consequences. In this regard I am thinking of the Community Reinvestment Act. It can be argued that the CRA, with the complicity of HUD and Congress laced the world banking system with junk debt, nearly bringing it to its knees. Then, the obscure Mark-to-Market rule of Sarbanes Oxley delivered a 90 mph curve ball to a stunned banking community. Legislators in Washington can barely find the men's room, much less anticipate what negative synergies their laws can bring. And I am using the CRA/SARBOX just as an example. What are we to expect from National Health Care, or Cap and Tax Carbon Emissions initiatives? What other calamities does the government have in store for us? I think these are the types of fears which will throttle back investment, and underpin a coming depression (if we have one)
........................................................................................ Bingo.... Legislators in Washington can barely find the men's room, much less anticipate what negative synergies their laws can bring. .......................................................................................... Numerical financial effect "govt. policy what if " models are available in most decent university economics departments.... Math in engineering is far more difficult than getting representative outcomes of most propositions.... Man....the Hollywood, DC ego driven gasbag system has got to go.... Good post....