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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

America’s Confidence Deficit

On June 30, 2011, in Economy, Our Culture, by Tim

The Conference Board reported that consumer confidence dropped to a seven month low on worries over high unemployment and dim prospects for wages, even though gas prices have been falling steadily from the highs in the spring. Here are two other measures of fading confidence from Gallup – on the economy and banks from earlier in the week.

The budget deficit is, of course, important, but maybe policy makers should focus more on the growing “confidence deficit” as a means of boosting the U.S. economy. Recent history has shown that inflating an asset bubble is the surest way to improve the American mood over the short term, getting the masses out there spending more money, and, since we haven’t seemed to care much about the long-term in recent decades, instead of talking about slashing Medicare and raising taxes, the folks in Washington should give some serious thought to policy options that would give us all one more good financial bubble.

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“Wealthy” Americans Less Optimistic

On June 29, 2011, in Consumerism, Housing, Our Culture, by Tim

What’s not surprising about this CNBC poll is that more Americans are more pessimistic about the U.S. economy, but, what is surprising is how they’ve defined “wealthy”.

Nearly two-thirds of the nation (63 percent) is pessimistic about the current state of the economy and its future, with just 6 percent optimistic about both. The attitudes of wealthier Americans—those with incomes greater than $75,000 or more than $50,000 invested in the stock market—are now in line or even more downbeat than the nation as a whole.

Just 26 percent of Americans with incomes above $75,000 believe the economy will get better in the next year, four points below the national average. In December, it was five points above. For the first time in the survey’s five-year history less than half of those with $50,000 or more in stocks think it’s a good time to invest in the market.

Over the next year, most Americans think home prices will fall and wages will drop as they spend less, save less, and drive less while the number of these “wealthy” individuals using credit cards to help make ends meet almost doubled from 12 percent to 20 percent.

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The California Budget Crisis – 2011 Edition

On June 24, 2011, in Debt, Our Culture, by Tim

It looks like the California budget crisis might again be an extended affair this year despite elected officials not getting paid after they failed to produce a balanced budget by the deadline earlier in the week. Kudos to Controller John Chaing who, according to this Sacramento Bee story the other day, enforced Proposition 25 and blocked pay to state legislators until such time that a balanced budget is sent to Governor Brown’s office.

Here’s one of the reasons why California’s finances are in such a mess – guys like Frank Acosta who collect wages and benefits of more than $60,000 a year for mowing the grass at public golf courses as detailed in this SacBee report.

For 23 years Frank Acosta has tended the grass on Sacramento’s public golf courses. He earns about $60,000 a year, plus a city pension and health benefits.

It’s a good living, but it’s one that officials say the city can no longer afford. As part of their effort to cut costs and plug a $39 million budget deficit, the Sacramento City Council voted last month to outsource maintenance jobs at city-owned golf courses.

If finalized this fall, the move will result in 38 city workers losing their jobs, but will save the city an estimated $500,000 a year, according to city budget officials.

“I sit at home and think, ‘Man, I have to look for another job after 23 years,’ ” Acosta said. “I never thought of that, but I guess I should have.”

The agreement would mark the first time the city has laid off workers to hire a private contractor, according to labor union officials.

And it probably won’t be the last…

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Roach Calls U.S. Consumers “Zombies”

On June 21, 2011, in Economy, Our Culture, by Tim

Stephen Roach at Morgan Stanley doesn’t hold out much hope for higher levels of GDP growth in the U.S. in the wake of a three decade long credit binge that had Americans borrowing and spending like there was no tomorrow. It turns out there is a tomorrow, and that tomorrow is today, details of this saga provided in this story at CNBC.

U.S. consumers, hobbled by debt and high unemployment, have been deleveraging, a process that will take another 3 to 5 years, Stephen Roach, Morgan Stanley’s non-executive chairman and the author of The Next Asia told CNBC on Tuesday.

According to Roach, American consumers, whose buying habits account for 70 percent of America’s gross domestic product (GDP), had effectively become “zombies” after the financial crisis.

“In the last 13 quarters since the first quarter of 2008, consumer spending growth in the United States has grown an average annual rate of 0.5 percent. Never before has the American consumer…been this weak for this long,” he said. “So something big is going on post-crisis and that’s why I refer to them as the zombie generation.”

Oh well, American consumers have been called worse.

Just the fact that the label “consumers” is so thoughtlessly applied to the greatest generation of shoppers the world has ever seen – as if they were locusts – should have been a tip-off that the late-1990s/early-2000s U.S. spending boom wouldn’t last.

The whole “everyone gets wealthy through asset inflation” approach worked pretty good there for a decade or so, but, it just might be time to finally ditch the old adage, “Never count out the American consumer”. It sounds like Roach has already counted them out.

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18th Century France: “If you really wanted to insult someone, you called them a banker”

On June 21, 2011, in Currencies, Our Culture, by Tim

James Turk of GoldMoney.com and Max Keiser have produced some new videos about paper money’s disastrous appearance in France during the 18th century, a period of history that most people are either unaware of or, somehow, think bears no relationship to what we’ve seen in the last few decades on a global scale.

Since John Law is the subject of part I in the video above (part II is here), now’s the perfect time to point to the online version of Charles MacKay’s 1848 classic, Extraordinary Popular Delusions And The Madness Of Crowds. If you haven’t already done so, reading the first 100 pages is highly recommended as it just might radically change how you think about paper money and speculative bubbles.

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Fix Medicare Waste, Fix Half the Deficit?

On June 20, 2011, in Debt, Our Culture, by Tim

I don’t know if the statement above is correct or not, but if the data in the chart below from this item at The Economist is correct, it’s pretty close.

Then again, the many proposed solutions to fixing Medicare, such as the alternatives in this CNN/Money story, seem to gloss over what would appear to be low-hanging fruit in the chart. I guess we’ll find out soon enough how a clearly unsustainable system becomes sustainable again, if not this year or next, then the year after that.

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