What U.S. Economic Recovery? Five Destructive Myths

You have to do something different these days. Investing/trading like the “old” days? Not wise.

Time magazine makes one case.

14 thoughts on “What U.S. Economic Recovery? Five Destructive Myths

  1. In this over-regulated, suffocating business environment called America this writer has the nerve to say that things would be “worse” without government involvement? Is he nuts?

    By regulating everything from car exhaust to bank lending criteria to steel imports to noise levels on TV commercials, America has driven up the price of every good and service in the country and priced themselves out of the global economy of 5.5 billion potential customers outside of America. This allowed foreign companies to get a toe-hold by easily making cheaper goods than those made in the US.

    Meanwhile, in their government-coddled indistries, Americans bought into the idea that they should get $50,000/year, a new plasma TV, a $million home, and 3 weeks vacation for pushing a button in a factory. The same guy in China gets $1500/year, not because he’s cheap labor, but because the American is grossly overpaid for the economic value of his contribution. There IS no over- and underpaid in economics…the value is the value…just like in investing, the price is the price, no matter how much you think it should be something else. That’s why Trend Following works.

    Now, because America is like the Pillsbury doughboy — fat, bloated, and giggly-stupid — they are being eaten for lunch by the lean and mean countries of the world who became lean and mean using the forces of pure capitalism.

    And America can thank its huge sense of entitlement and the fact that over 50% of its citizens now pay no income tax. These people don’t feel the pain of $100 trillion government programs. It’s not the rich getting away with not paying their tiny percentage share that’s the problem, as this bonehead in the article says; the rich are a blip on the radar. It’s that the majority no longer pays at all…meaning they have no skin in the game and want more and more, no matter the costs.

    Here’s some math: Even if taxes were raised to 80% on every person and corporation in America with no effect on business (this, of course is fantasy…with corporate taxes at 35%, companies are already leaving America in droves ), America still could not pay its debts at current valuations. America’s only choice is debt default via the printing press…ergo, the commodity boom will continue after this correction. Again, America has no choice because the majority of its citizens are unable to survive further job losses and stresses that would be caused by drastic government spending reductions. America doesn’t have the stomach for it.

    America is bankrupt!!…”Bankrupt”: Assets – liabilities = negative number with no way to make the number positive. That describes America.

    Trust me, Anthony Wiener’s not the only “Dick” in Washington.

  2. Some people have a faith in government “help” that I just don’t understand.

    A great example of a regulator not understanding what he’s regulating is the CFTC expanding their empire into retail FX. They recently doubled the margin requirement to “help” keep traders “safe”. But look at an example of the effect (in round numbers).

    A typical FX dealer wants 5000 to open a regular account. It took about 1000 to margin 1 lot before the regulation change. Now it takes 2000 per lot. This means that the customer with 5000 can only do 2 lots instead of 5. The CFTC regarded this as keeping traders “safe” because it would limit them to smaller positions and keep their trading more conservative. But, that assumes that the trader is only trading 1 currency pair and is trying to leverage the biggest position possible. It also prevent the trader from taking 5 positions in 5 different pairs. This is called “diversification” and is regarded by many as a conservative strategy. So, we have regulators who don’t understand diversification and don’t understand that margin is not inherently dangerous; it is a tool which can be used in a more or less dangerous manner, but it’s just a tool.

  3. @ Trader Ken

    Thanks for the link, but I’ll stand by my reference to “Pure Capitalism” in China, India, and the rest of Asia. Capitalism accounts for dishonesty. You mean to tell me that John Paulson, the “billion dollar man,” and Fidelity can’t do proper due diligence in China to find out if they’re being taken for a ride?

    If they’re THAT stupid, they deserve every loss coming their way. i.e. no bailout.. That’s capitalism.

    I have done over $100 million worth of business with China and never lost a nickel (yes, they tried to dupe me), whereas a lot of larger companies, like Royal Bank of Canada, for example, have lost loads of money ($25 million on one deal alone) because of fraudulent paper work. Why is that?

    It’s because “corporate people” rely on image, not substance. That’s why they’re in corporations…they can hide the fact that they’re incompetent with a nice suit, a good Powerpoint presentation, and an ego. That’s also why they suck as traders…nothing separates the losers and winners faster than putting your money down on a bet and keeping score with a bankroll. The markets don’t care how nicely you comb your hair. And America is FULL of corporate people!! They run the coporations and represent the majority of politicians.

    THEY are the MAN behind the curtain. Pull the curtain away and you see a giant steaming pile of nothing.

    Maybe I should hire myself out to these bozo investors to show them how to get in good with the Chinese so they don’t take you to the cleaners? The first thing the Chinese do when they meet you is start complimenting you and wining and dining you like you’re an Arab shiek…obviously the people at Paulson and Fidelity ate it up. Losers!

  4. No bailout? What do you call the massive stimulus enacted a couple years ago by China in the midst of a boom? That was pure capitalism? Come on. China’s GDP looks like a Madoff equity curve. You really think that’s free markets at work?

  5. A country with a fixed exchange rate, where the largest companies are all state controlled, with GDP quotas for area managers, with fake banks, with the mother of all Feds, run by communists, is pure capitalism? You’re making money because the (red) man behind the curtain wants you to make money…for now.

    How China Could Yet Fail Like Japan

  6. Thanks again for the link. I agree with everything they say about China tanking at some point. But then, my company could discover a cure for cancer and go public and my shares would STILL have 50% corrections on the way to the moon.

    And when I said “No Bailouts” above, I was referring to no bailouts for any company that loses its shirt in ANY business dealing; in this case Paulson and Fidelity.

    But the most important point I would like to make about China is the incredible contradiction a US citizen experiences when visiting that country. China is a dictatorship — whether it’s still Communist in anything but name is up for debate. Yet, if you go there…and I would encourage EVERYONE to go there so they can see what growth looks like…as a businessman you experience more freedom than anything you’ll experience in North America.

    In other words, what you realize by being in China for an extended period is the extent to which our lives have become regulated over here. As I said above, there is even a US law that dictates the volume level of television commercials. What the hell is the government doing taking time away from Anthony Weiner’s crotch to address TV volumes?

    Yet in China the government tends to stick to the essentials of government: defence, education, infrastructure, economics, safety, security, the environment. The day-to-day life of the average Chinese citizen has way fewer government intrusions than our lives. Business people are allowed to do what we do best: start companies, invest, make things, hire people, and expand. In turn, the tax revenue generated by that unhindered growth is used to provide the ESSENTIALS of government, including universal healthcare, a strong military, and a clean environment…yes, despite what you read in the western media, China is now the largest maker and user of solar panels, wind energy, hydro-energy, nuclear energy, and has planted more green space in the last two years than the rest of the world combined.

    And another misperception about China…there are more demonstrations every year in China against government policies than in the US. And what usually happens at a Chinese demonstration is a government official talks to the denonstrators, hears their issue and promises to address it. Which they usually do if it makes sense. All very civil and actionable. If you’re looking for a place where demonstrations are met with a huge police presence, concern over security, cracked heads and loaded guns, and Wolf Blitzer on the scene saying anarchy is at hand, that’s the US.

    And yet over and over again, we listen to fat Congressmen and government idealogues looking to spread “freedom” across the world like it was 1775. How about starting with the US?

    Our attitude that every inconvenience and every issue — from plastic McDonalds toys to a new house to a guranteed job to state welfare to new energy sources — has to be addressed by government has made us fat, lazy, inefficient, and easy pickings for the new economies of the world. Don’t blame the new economies, blame ourselves…we elected the people who continued to pour slop into our feeders until we couldn’t move!

    It’s no longer “We the people…,” it’s “Weeeeeeee the people…!” (as in a a pig squeal).

  7. Im not saying money can’t be made, of course it can. My big point is that what they are doing is unsustainable and because of that Im not buying into the “China (or any other low cost labor provider) is going to take over” rhetoric. They’ve come a long way in a short time and that’s great. Im just saying they are going to have to change some things if they really want to move forward in the long run.

    You’re posting alot of government rhetoric. How do you know they planted all that green space? John Paulson thought Sino had a whole lot more forest than apparently they did. He believed the rhetoric and its cost him about 1/2 billion dollars so far.

    I’d much rather live in a country with a $40k per capita gdp with rules on tv commercial volumes than one with $3k per capita gdp and no volume rules. Pay me $37k extra to not be yelled at by an advertiser? I’ll take it! If we want to improve things in this country let’s look at countries with higher per capita gdp’s, not lower.

    Also lets add fake patents and bogus education systems to our list of “pure capitalism”, lol:

    China’s Shortcuts to Economic Growth

  8. Why do I believe the government? First of all…I’ve seen it. There was a 20-mile wasteland between Beijing and Tianjin in October of 2007…sand, weeds, bricks, garbage, etc. I went back in January (just over 2 months later) and it was ALL forest and gardens. There had to have been 10 million trees planted. They had 80 large track hoes…yes 80!…finishing it off when I was there.

    That same project would’ve taken 30 years anywhere in North America and the Chinese did it in a couple months. As I’ve said before…you have to see China to believe it. It sort of reminds me of Silicon Valley where things just GET DONE…no yacking and posturing, just do it!

    Second, the government realized it had a problem with corruption in business and government. But in China, unlike America, a politician convicted of taking bribes is usually executed. Let’s just say that, as a result of this practical approach, the problem isn’t what it used to be.

    Similarly, after China got control of Hong Kong in 1997, they employed similar crackdowns on crime. That’s why the triads that were so powerful in southern China now operate out of the US and Canada. Barely a day goes by where a Chinese newspaper doesn’t show a picture of a criminal, usually sitting on a chair, with a bullet hole in his head. The paper says, “This is so and so…he and his friends tried to extort money from businesses. We are now looking for his friends. Have a nice day.”

    That’s why I can walk back to my hotel at 3:00 AM in dowtown Beijing or Tianjin or Zhongshan without fear. Try THAT in Chicago!…or LA…or New York. You wouldn’t make it 20 feet!

  9. …and as for the TV volume control…My point is why do people think every inconvenience deserves a government response? That’s not what built America.

    It’s almost impossible to start and/or run a business in America without being part of some lobby group to make sure some stupid regulation doesn’t come along and turn your business plan into manure.

    We’ve all seen it as traders. The government is now looking at how to curb speculation when there is a mountain of data showing that decreased speculation leads to greater volatility.

    I once voted for a guy that promised to do nothing…I would love it if All politicians would just take a year off. If they did, no doubt the country would be on its way to recovery. Then they could all come back to work and take credit for it…but at least things would be better.

  10. …and one last thing about China…their savings rate among their citizens is just over 35%. The North American average varies from -2.4% to 2%.

    The Chinese don’t do debt.

    A Chinese friend of mine owns three large international companies that he started from scratch in 1983 selling one unit at a time. He’s never had a bank loan. When the financial crisis hit in 2008, he picked up three more international companies (2 Europe-based and one US) for pennies on the dollar because they were leveraged to the nuts.

    You don’t find that kind of patience in North America or Europe. Hell, the average American will sell his soul for a new plasma and a Nintendo Wii.

  11. An anti-debt attitude also is not pure capitalism. If people want to blow themselves up with debt or enhance their profits with debt, let em. That’s pure capitalism.

    The bottom line is that a system supported by govt stimulus and a govt that has their hand in virtually every successful enterprise is not pure capitalism.

    At the end of the day I’m following the data. If I want to build a good trading system Im going to look at the guy that’s making 40%/yr, not the guy that’s only making 3%/yr. If I want to build a good economy Im going to look at the country that has $40k/per capita income, not the country that only has $3k/per capita income.

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