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Jun-03-2012 22:12printcomments

Notes on a Snowbird Stock Market... Heading South

"I wouldn't belong to a club that would have me for a member" - Groucho Marx

RV sunset in window
Courtesy: berggreen.org

(SASKATCHEWAN) - There's an old adage on Wall Street – not unlike Groucho's bon mot above – that if you can get stock in a hot new IPO, you shouldn't. The most recent example, of course, was the over priced, over-pitched and over-supplied Facebook stock issue, which soared only to plummet, as in the favored journalistic verbs, in its first two trading days.

An initial public offering, or the taking of a private company public, is always greeted by brokers as an opportunity to impress clients and make new ones – that is, if the stock's priced right and goes to a premium. It's nice to offer clients something you can buy back at a profit even before they have to put their money down.

But right now the faltering IPO schtick is an apt metaphor for the overall stock market itself, the factors that have been overpricing it, and the portents that – according to a growing number of portenders – signal that the grudging honeymoon since 2009 or so is over on the narrow canyon east of Trinity Church.

“After the kiss comes the impulse to strangle,” according to W.H. Auden. Not to mention a chorus of myriad FB investors, looking at the $27 stock for which they eagerly ponied up 38 bucks a share less than a fortnight ago, which Mark Zuckerman and his cronies happily carted off to the bank. (Probably JPMorgan Chase.)

Meanwhile, in the bigger picture, which is to say “the mocket,” oil is plummeting, gold is skyrocketing and the ink-stained wretches have something with which to stuff their news cycle.

Why? Where should we start – China's economy is growing at less than 10%, the Euro community is a mess, see-sawing between austerity and inflation, and here in la-la land, brilliant conservative economists (heedless of voices such as Paul Krugman's crying in the wilderness) are urging spending cuts in useless frivolities like safety, education and healthcare, which will almost certainly deepen the already lingering recession.

As a result, for all of us, like eager right-wing lemmings, there looms what Barrons' Alan Abelson calls “a fiscal cliff.” In brief, if sufficient lemons are lobbed across the aisle in Congress, the result is sure to be lemmingade. Rather than aid.

Earlier in the course of Greece's economic problems more than a year ago, the people were demonstrating in the streets of Athens against the imposition of austerity measures. For once, the people were right and the government economists were wrong. And they're still duking it out, while the Euro macro-economic savants, like a Vegas casino owner, are debating whether to cut off the vagrant's comps and credit line, or to take him on board as a pit boss.

Same picture on this side of the polluted Atlantic, with a preponderance of Senators and savvy right-wing think tanks champing at big government while realists point out that it was big banks that created the problem, and continue to – at least until we dig ourselves out of a tranche of a trench that's too big to dig any deeper.

The well-regarded Liscio Report fortunately agrees with the Congressional Budget Office, another island of sanity in Washington's mainstream of blame-Obama-for-spending, when what is clearly indicated is much, much more spending, against the risk of a 4% recession in 2013. The Liscio Report concludes: “There's no need to lurch toward balance overnight... (the Republican credo) with the U.S. economy still vulnerable and much of the outside world in even worse shape.”

It's heartening to hear more think-alikes to the likes of Paul Krugman, the Princeton prof, New York Times columnist and Nobel Laureate whom we have recently cited.

Fortunately, Krugman has this habit of not writing like a professor. He understands that access to a good job with decent wages is the most important measure of prosperity for 99% of us. He sees that a lack of demand for products and services freezes us in the current depression, ultimately costing us trillions (the “T” word too common in D.C.) in lost productivity.

He also explains the "saltwater v. freshwater" rivalry in economics: how conservative economists who argue against action to revive the economy are ignoring reality and relying on a "quasi-religious" faith in markets. He also explains how dangerously widening income inequality result in excessive deregulation of the financial industry which directly caused the recent Great Recession.

One of Krugman's main points is that the Stimulus was insufficient and that we need more spending on infrastructure as well as more action by the Fed and revised rules to make it easier for homeowners to take advantage of low mortgage rates. To Krugman, growing the economy and improving the job market should be our only priority, not fixating on our debt. The best way to avoid a long term debt crisis is through economic growth. Austerity will make things worse, not better. (Evidence of this is already obvious in the UK economy after stringent austerity.)

In the current malaise, with Europe's distress, China's sweet and sour export-vs-domestic growth, and America's stalemated political paralysis, international interest rates have plunged from the ridiculous to the impossible, bringing into question (1) the negative-interest-rate prospect of borrowers ultimately paying lenders for the privilege of buying their paper, and (2) the ability of the world's central banks to stimulate recovery.

Meanwhile, with all markets heading south instead of leading to Rome, Barcelona or Athens, there are lots of good playthings to attract investors. Warren Buffett has observed that the stupidest reason to buy a stock is because it is going up. Au contraire, I prefer to heed Rudyard Kipling rather than Buffett, Sir John Templeton or Suze Ormond: he didn't say, but should have, that the best time to buy is when all about you are losing their shirts.

Diamonds are currently a plunger's best friend. And, as the late night hosts didn't sign off during the War to end all wars, but should have: “Bye-bye; buy gold.”

If the precipice is nigh for us lemmings, hard metal will produce the softest landing.

______________________________________________________

Bill Annett grew up a writing brat; his father, Ross Annett, at a time when Scott Fitzgerald and P.G. Wodehouse were regular contributors, wrote the longest series of short stories in the Saturday Evening Post's history, with the sole exception of the unsinkable Tugboat Annie.

At 18, Bill's first short story was included in the anthology “Canadian Short Stories.” Alarmed, his father enrolled Bill in law school in Manitoba to ensure his going straight. For a time, it worked, although Bill did an arabesque into an English major, followed, logically, by corporation finance, investment banking and business administration at NYU and the Wharton School. He added G.I. education in the Army's CID at Fort Dix, New Jersey during the Korean altercation.

He also contributed to The American Banker and Venture in New York, INC. in Boston, the International Mining Journal in London, Hong Kong Business, Financial Times and Financial Post in Toronto.

Bill has written six books, including a page-turner on mutual funds, a send-up on the securities industry, three corporate histories and a novel, the latter no doubt inspired by his current occupation in Daytona Beach as a law-abiding beach comber.

You can write to Bill Annett at this address: bilko23@gmail.com





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