Subtle Survival

Stock market was way up last week after crashing for most of last month; traders don’t think we’ve seen bottom yet. Breakfast cereal, canned soup, macaroni and cheese, alcoholic beverages (lower end), health care, alternative energy and military hardware – where the jobs are. Consumer durable goods (sales and manufacture – cars, appliances, etc.), most retail, financial services, building and construction, media and advertising – where the jobs aren’t and aren’t likely to be any time soon. Even within categories, like food-related areas, you can see contraction in more expensive organic produce and high-end consumables like Starbucks coffee, while bottom-end staples are strong and steady.

Market volatility and “deflation” are the side effects of low consumer confidence, collapsing real estate values, contracting GDP and rising unemployment. Might look good to folks who can afford to keep buying – prices inevitably come down and stay there for a while – but when you want to see more jobs, a strong tax base and a rising stock market, sustained low prices can prolong the pain.

And then there are the subtle side-effects of falling prices. Take oil for example. Aside from the obvious negative impact on the priority of seeking alternative energy through exploration and technology and the obvious glee we can observe as oil-rich sheikdoms and belligerent Latin American blowhards are forced to swallow more than their pride, there is this terrorism thing.

We don’t like contributing oil/blood money to governments (even indirectly by raising the demand for oil) that support anti-American terrorists (Iran sits high on that list), but when oil prices collapse (down from almost $147 over the summer to around $65 a barrel recently), the money that some of these oil rich sheikdoms were funneling to support poorer nations – like Egypt (remember how many Egyptians were part of the 9/11 killers) – that are rich in angry militant poverty but lacking in oil or other natural resources, is now drying up. And the power of poverty as an Islamist (militant, politicized Islam) recruiting tool cannot be overstated.

Even the oil companies think that the explosion in the price of oil last summer was unhealthy (but they think the price is unrealistically low right now). In an interview with the Associated Press, Jim Mulva, the chairman and chief executive of ConocoPhillips, said he thinks we’re going to stabilize at about $80-$90 a barrel in the near term. Whatever happens, one way or another, the unintended consequences of oil price volatility can kill you. Perhaps it would be better if we detached those life-threatening elements from the price of fuel.

In a world where paying for and deploying a massive global military presence is no longer economically viable, we truly need to find a vastly less expensive protective philosophy to keep global poverty from expanding attacks by those who tend to blame the “rich” industrialized nations (we are very rich by comparison – even in this deep recession where so many of us are losing jobs and homes) for their plight, particularly the United States. Their political leaders need bogeymen they can use to bolster their own power base. We’re an easy target. As the global economy crumbles, you can only picture how bad life has to be for those at the very bottom. People with nothing left to lose can be the most dangerous forces on earth.

So whether you support helping poor nations cope for humanitarian reasons alone or selfishly don’t want to spend another trillion dollars sending our military overseas to fight angry militants hell-bent on destroying America, it’s a problem we just cannot ignore… until later. And no, I most certainly do not want the price of gasoline to soar again!

I’m Peter Dekom, and I approve this message.

The Psychology of Panic

If there is a lesson in the soaring stock prices, it’s about just how much of the market is psychological. The traders were looking for a sign that responsible government action would guarantee the financial viability of the credit markets – an excuse to take advantage of overly discounted stocks, to take the first steps that launched a stampede. They didn’t get that reassurance from the American government. Instead, they got their comfort overseas this past weekend, as European countries (both the pound sterling-based British markets and the Euro-based European markets) guaranteed, at least on a temporary basis, that their banks would not fail, and that the European governments would be the guarantors.

Look at the results, even as the U.S. seemed caught like a deer in the headlights! The markets sky-rocketed on Monday, a process that might even continue on Tuesday… but without American solutions to our localized credit freeze on small businesses and with nothing to stop the free fall of mortgage foreclosures from subprime mortgages (and the continued imploding of housing values as a result), Americans could find themselves back at the bottom of the feeding pile in the very near term.

That there are great buys out there, with stocks trading well below their normal average 12-13 times earnings, is without any doubt. But if trust and confidence are not rebuilt quickly in the hearts and minds of homeowners and those holding down the basic jobs that support our economy, that market surge will, at least from an American perspective, be short-lived as the markets vacillate up and down searching to find the bottom again. We really need more than Europeans' solving the problems; we actually need some American action!

We know that the Federal Reserve has joined a number of international central banks to help insure that there is more “liquidity” in the market, but inter-bank lending rates are still rising around the world. If the central bank efforts were working, that trend should be reversing (rising inter-bank rates are an indicator of lending banks’ fears, of a basic distrust in the solidity of the credit markets in general). And Mr. Paulson’s folks have said that they intend to use over 1/3 of the $700 billion to fund local banks and unfreeze local credit markets. Stop talking about it, and “get her done”! And please don’t forget about the homeowners themselves!

If our government addresses those foreclosures at a consumer level (a moratorium on foreclosures, as I have repeatedly noted, would be a great step pending sorting out the good from the bad and resetting viable home ownership with livable interest rates) and recharges the small business credit market sooner rather than later, I believe that we have already seen the bottom, and while I do not expect a spectacular recovery in the near term, I also think we can keep from falling through the floor. But if trust and confidence do not return and stay with the basic American consumer/homeowner groups, well… we’ve already seen where that can lead.

Maybe, before it really takes action, the government has to make sure that Treasury’s cronies are on board with fat retainers for the big law firms and major financial advisory fees for the bankers – all for a group of folks who found and exploited the loopholes that got us here in the first place. Come on… the middle class and those at the bottom of the economic ladder need some representation too. Trickle down seems to mean trickle up into the pockets at the top.

We’re not out of the woods by any means… we just found a clearing – let’s not mistake that for “mission accomplished.”

I’m Peter Dekom, and I approve this message.