Ack! Contrarian Overload

When I was a teenager “Alternative Rock” was just coming on the scene. In the early days, Alternative Rock was just that- the alternative to the music that was consumed by the masses. But then people decided that Alternative Rock was cooler than Pop Rock and suddenly there was a movement en masse out of pop and into alternative. The result was that the term “alternative” became increasingly ironic because it was, in fact, simply the new pop marching under a different label. Rebellion, as they say, is best done through conformity.

The reason I bring this up is because I’m starting to feel that way regarding investing and the mainstream media. A couple of years ago economic contrarians where the lepers of the financial media. Everyone seemed to know that the stock market was the place to be, as Dr. Jeremy Siegel wrote, for the Long Run. After all, the Federal Reserve was firmly in control of the economy, and they would never let a prolonged market downturn occur. 

People aren’t saying that anymore. Last week the New York Times ran a story saying that the ten year period ending last month was the worst for stock market returns in the history of the S&P. As the story said, if you factored in Consumer Price Inflation, the S&P returned a negative 40.4% over that ten year period. Now media pundits are lining up to say that the economic troubles we are in are going to get worse still. A friend of mine just forwarded me an article saying that, if the stock market were to return to historical bear market averages for price-to-earnings, that the S&P would soon see levels of around 500 or so- a decline of another 40%. Continue reading Ack! Contrarian Overload

The Mythology of Modern America

You’d have to live in a cave to not know that Barack Obama became President today. (Well, actually, the people in caves probably know this, too.) From the flood of random text messages to the stories in the media, America seems swept up in “Obamamania”. I started pondering why this was.

It seems to me that many Americans believe in the power of democracy — that there is no problem beyond the ability of the collective wisdom of the whole to solve. That the common men and women of this country can work together to, not only make this country better, but put us back on the right course. In essence, that “We The People” can recapture our past glory. Underpinning all of these beliefs, is the idea that a properly-functioning democracy will naturally construct a society for the betterment of all, and that democracies only fail in these regards when they are corrupted by special interests and large corporations.

It’s not overtly stated, but the idea almost seems to be that the common man is good, and the big corporation is evil. If we have a government of the common man and free of the big corporation, then peace will reign and justice will prevail.

To me, this seems the modern American myth, and who better to represent the fulfillment of this myth than Barack Obama.

Being born the black son of a single, white woman — who had no wealth to speak of — certainly fits the criteria for being an “Everyman”. That he made the unlikely climb in politics to the highest office in the land bears all the hallmarks of the unlikely rise of the champion from obscurity to fame. That he’s intelligent and well-spoken serves to help the story even more because it shows that merit and talent do not come from “breeding” but rather from hard work. That he does not come from privilege suggests that he is in touch with the struggles we all face; that he is charismatic suggests that he can set about fixing the things about America that are broken. And, so, Obama seems the perfect candidate to fulfill the promise of democracy. Hence, why there is such a messianic aura about him: he is the one who has been foretold that will fulfill the promise of democracy.

It’s no wonder a lot of Democrats try to lower the expectations America has for Obama down to the range of the practical. No one can live up to fulfilling the expectations that came from a generation weaned on Hollywood magic and fairy tale endings. Unfortunately, I’m even more pessimistic. I feel that this administration will leave everyone disappointed except the cynics who were predicting it to fail from the get go.

It’s not that I doubt Obama’s character, but that I believe that the entire mythology is just that- a myth.

There is nothing divine about a representative democracy. The Bible does not say that, “on the 8th day, God created the House and Senate”. In terms of incarceration and capital punishment, our society is far less free than the police states of the world. Furthermore, to think that the US Government is going to somehow right the wrongs of our economy misunderstands what a government is or actually can do.

A government does not make anything. Any wealth the government has must first be taken from someone else. A government can not create wealth; it can merely distribute it. This being the case, the best that a government can do is, as Adam Smith said in The Wealth of Nations, to give “peace, easy taxes, and a tolerable administration of justice.”

I would hope that Mr. Obama will be better than his predecessor in terms of the administration of justice. For that matter, I would hope that Mr. Obama can do better in the peace department as well, but we’ll have to see. As for easy taxes, I don’t think Mr. Obama is going to do well in that regard. He wants the Government to stimulate us out of this recession, and we’re either going to have to pay for that with taxes or the printing press. Each exacts its toll in its own way.

I try to remain optimistic, but Mr. Obama scares me. Not because I believe ill of the man, but because I believe him to be a honorable person who feels a deeply-held responsibility to fulfill this prophecy that the rest of America has set up for him. It’s a prophecy that can’t be realized, and to attempt to do so is a fool’s errand. What’s worse, the most dramatic and frightening changes in the policies of the United States seem to have come from men who sincerely believed they were fulfilling their mandate to do the right thing by taking decisive action:

Woodrow Wilson gave us income tax, the Fed, and the first World War.

FDR gave us the end of the gold standard, a number of laws that were unconstitutional (that included gems such as making it illegal for Americans to own gold, social security, the longest and most severe depression in America’s history) and the second World War.

George Bush believed that his country needed him to guide them through the dark times of 9/11 and gave us the “War on Terror” — complete with the Patriot Act, an invasion in Iraq, another war in Afghanistan, and the largest deficits this country has ever seen.

Contrast any of these Presidencies with that of Bill Clinton or George H. W. Bush, and it seems clear to me that the greatest damage is done to our country not by Presidents who are corrupt or ineffectual, but by Presidents who believe they must give the people action.

And here we are at the dawning of a Obama’s administration and we seem to have the same horrible combination: a well meaning man of conviction facing a crisis and a nation that wants a quick fix.

This isn’t going to end well.