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.

Government-Speak Meets “Miles per Gallon”

There’s English, and then there’s “government English.” Congress wanted much more in the way of mandating that car manufacturers build more fuel efficient cars than did the current administration. They passed a bill in November of 2007 providing a newest of measurable fleet mileage mandates (moving from the current fleet average for new cars of 27.5 MPG for cars/22 MPG for light trucks to 35 MPG for both cars and light trucks and SUVs by 2020) to be imposed on manufacturers. The fact that this is a long time line for a relatively modest improvement does not augur well for the priority we have placed on these issues, but wait, there’s more.

You should know how fleet mileage is measured. Miles per gallon… per gallon of what? The government looks at gasoline consumption, not fuel efficiency – across the designated manufactures’ vehicle output. So “flex-fuel” vehicles, capable of running partially on non-gasoline biofuel alternatives, even when there are almost no filling stations equipped to provide cars with products like bio-diesel, give an artificial boost to fleet averages! We really need to stop playing games and get down to business; failure to act sufficiently won’t result in an inconvenience; it will create a radical decline in the quality of our lives.

And then there is the Brazilian “energy independence” story – how are large nation with lots of cars made it work simply with ethanol-based fuel generated from sugar cane. Aside from the fact that the number of cars per person are a whole lot fewer in Brazil than in the U.S. or that sugar cane produces six times more ethanol than a comparable amount of corn (which also sucks huge amounts of water from aquifers that are running out of that precious substance), Brazil also has massive off-shore oil reserves making it one of the richest countries in the Americas! That’s another part of government English… spinning ain’t sinning!

I’m Peter Dekom and I approve this message.

Taxes, We All Hate ‘Em

If you like paying taxes, chances are pretty good you’re laundering money! So the notion of one political party assessing higher taxes and another championing lower taxes is kind of a red herring. The real question has to be: does what you have left after paying your taxes buy you more or less than you used to be able to buy?

Sounds simple, doesn’t it? But whoever asks such an obvious question? You should! After all, if the government can pay for its excesses without raising taxes, that should be a good thing, right? Not if what happens has a worse impact on your lifestyle than paying a bit more in taxes!!! If a country has to borrow, pay lots of interest - particularly to foreign governments - instead of fixing highways or funding more schools, if the value of your dollar falls in relationship with most of the rest of the world so you have to pay more money for internationally-valued stuff (like oil, clothes, electronics, food), then maybe that sneaky government is making you pay a hidden tax, while all the time they are taking credit for not raising the rates. Let’s call them on it!

It gets more interesting when you think of those interest payments as the debt of a wild and crazy youth – nothing in it for the adult who emerged – instead of investments in our future. After all, when you owe a lot of money, who cares as long as you are making a pile and your investments are soaring?!

But when those who generate the value are under-skilled, when the educational system doesn’t train them for the future, when our infrastructure slows the movement of trucks and cars, sucking up wasted gasoline and delaying commerce… well, you get it. To be “all that we can be,” we need to repair our infrastructure, modernize it and make sure our citizens are competitive, generating real earning power.

So next time a politician tells you how they haven’t raised taxes or even cut them to the bone, ask yourself: “Did they create a hidden tax for me? Does my dollar really buy what it used to be?” Don’t let them hide behind the form… look behind them to find the substance!

I’m Peter Dekom and I approve this message.