The U.S. economy languishes in a quagmire of uncertainty and fear. We all need a jolt from Napoleon Hill’s, Think and Grow Rich. We’ve lost our imagination. We depend on government. We think if we just hang on, things will get better; when they won’t, unless we collectively take action.

Actions begin with thoughts, with imagination, with dreams.   Ideas get buried in political gambit. Dreams get squashed by disconsolate pessimism. “I can’t do it” echoes along Main Street more often than, “Let’s just get it done!”

Americans have been here at other times. The Great Depression was the time for despair, and many Americans were desperate.

How much of this information sounds familiar?`
• October “ is the cruellest month . . .” for the stock market.  Time’s cruelty is  T.S. Eliot’s theme in The Waste Land. Time, greed, and fear coalesced on “Black Tuesday” (October 29, 1929).  Stocks lost 38 points as 16 million shares changed owners (the Dow Jones did not trade as many shares until 1968). The Dow Jones Industrial Average declined 89% from its peak and found a bottom at 41.32.
• In the 1920’s, industry and business announced exceptional profits.
• Wages were low and credit purchases were high.
• Real estate prices peaked in 1935 and lost value prior to and after the 1939 collapse.
• 40% of US banks failed.
• Unemployment climbed to 25% in 1933
• During his first year as President, Roosevelt charged the “unscrupulous money lenders” and ” self-seekers” for the economic collapse.
• The American family saw a drop in income from $2,300 to $1,500 annually; that is a 40% decline. A 2009 survey by FinaMetrica indicates that 64% of respondents expect a drop in life style.
• Government initiatives created road and building projects.
• The Dust Bowl of 1935-1938 forced 800,000 out of their homes and off the farm. Did Al Gore catch a cyclical event or an inexorable global catastrophe that might be mitigated?
• The Home Owners Refinancing Act passed through Congress in 1933 helping about one million families get mortgages.

Sounds familiar and worse.

Maybe imagination, hope, belief, expectation, and ideas helped Americans get through the effects of avarice.  Maybe changes are just simple economic cycles. Maybe,  World War II gave Americans focus, hope, and incidentally, economic growth.  Who knows for certain? I think energy and necessity (“the mother of invention) exceeds the impact of circumstance.  What we are matters more than where we are.

Napoleon Hill writes, “Never in the history of America has there been so great an opportunity,  for practical dreamers as now exists….The rules of the race have changed, because we now live in a changed world that definitely favors the masses, those who had little or no opportunity to win under the conditions existing during the depression, when fear paralyzed fear and development. ”

“We who are in this new race for riches, should be encouraged to know that this changed world in which we lives is demanding new ideas, new ways of doing things, new leaders, new inventions, new methods of teaching, new methods of marketing, new books, new literature, new features for the radio, new ideas for moving pictures.”

“Back of all this demand for new and better things, there is one quality which one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it.”

Where are the inventors and innovators? They are doing what inventors and innovators do. They change our world; they lead us because they dream, they innovate, they invent, and they have ”burning desire”.

You may think that America has lost its “burning desire” for invention and innovation;  not so. The Kauffmann Foundation tracks the creative and inventive spirit of America.

Here are recent news stories from the Kauffman Foundatin newsletter:

 
• World Turns On Its Entrepreneurial Axis: During Global Entrepreneurship Week, November 16-22, millions of young people around the world joined a growing movement of entrepreneurial people to generate new ideas and to seek better ways of doing things. Eighty-eight countries across six continents came together during the second annual global celebration of entrepreneurship to inspire young people to embrace innovation, imagination, and creativity.
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• Company Founders Credit Experience, Management, and Luck for Entrepreneurial Success: While fostering new business creation could again help the United States move more swiftly toward ending the current recession, little has been known about the factors that cultivate and support entrepreneurialism. However, a new study from the Kauffman Foundation, “Making of a Successful Entrepreneur,” provides insight into company owners’ views about what influences the success or failure of a startup business.
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• Canadian Student Takes 2009 Global Student Entrepreneur Award: Simon Fraser University student Milun Tesovic, founder of MetroLyrics.com, has been named champion of the 2009 Global Student Entrepreneur Awards (GSEA) and the recipient of $150,000 in cash and donated services that will help support his company and development as an entrepreneur. The GSEA Global Finals, featuring students from eighteen countries, were held at the Kauffman Foundation during Global Entrepreneurship Week.
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• OECD Report on Entrepreneurship Reveals Economic Impact on Firm Formation: The Organisation for Economic Co-operation and Development (OECD) has unveiled the first indications of how the economic slump has affected entrepreneurship in the United States and eleven other countries in 2008 and most of 2009. The report, Timely Entrepreneurship Indicators, shows that firm formation declined and exits increased, which economists say could have significant implications for job creation.
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• College Freshman Show Increasing Interest in Entrepreneurship: The most ubiquitous survey of college freshmen in the United States reveals that interest in entrepreneurship among first-year college students has risen over time. Trends in Business Interest Among U.S. College Students bases its findings on data available through the Cooperative Institutional Research Program, which for forty years has conducted the CIRP Freshman Survey. Find out more arrow
• Partnership to Launch Book Series on Innovation and Entrepreneurship: The Kauffman Foundation, Princeton University Press, and the Berkley Center for Entrepreneurial Studies at New York University have announced a publishing partnership to launch the Kauffman Series on Innovation and Entrepreneurship.
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Do you believe history is repetitious?

Do you believe that what happened then can happen anytime?

Are you dreaming…inventing…innovating?

What you don’t measure, you can’t track.

This axiom matters when bear markets hobble your investment portfolio. Understanding the cause, measuring the result, and tracking the patterns,  guides and instructs.

Most of the news we get heightens anxiety or accelerates our greed.

When the news affects personal assets, we shun the obvious in catatonic stupors. Many investors acknowledge choking on their emotions during this recession and stock market decline.

We forget  economic rhythms that always undulate between profit and loss. We sometimes  see economic trends as irrational and bizarre and forget the simplicity of supply and demand.

As long as humans trade dollars for stock ownership, loan money to corporations or  governments for bonds, and manage risk with options, markets will remain rational most of the time and irrational some of the time.

George Soros says, “The key to understanding this crisis — the worst since the 1930s — is to see that it was generated within the financial system itself. What we are witnessing is not the result of some exogenous shock that knocked things off balance.”   “A New Motor For the World Economy”; The Bangkok Post (Thailand); Oct 18, 2008.

Opportunity drives us, taking chances absorbs us, money comforts us, but tracking effectively often eludes us.  Wall Street markers tell us where we’ve been, not where we’re going.

The hiking trail cairns on Mount Washington stand as immovable rock formations that do both. What makes investing so difficult that we don’t use simple indicators rather than a cacophony of mixed-messages?

“Teach a parrot the terms “supply and demand” and you’ve got an economist.”
Thomas Carlyle quotes (Scottish Historian and Essayist, leading figure in the Victorian era. 1795-1881)

Carlyle overreached when saying this, but he’s on to something rudimentary about economic predictions.

Investor cairns or markers include the S&P 500, Russell 2000, and the Wilshire 5000 (intrepid investors may use the Investor’s Business Daily 1000).  An index tells us where we’ve been with myopic predictions.

In 1744, a group of captains and merchants met at Starbucks (well,  the coffee shop on Threadneedle Street in London). Coffee houses were then what they are today, social gathering places where business deals and loud conversation filled the place.

Merchants and investors  wanted to track shipments between Virginia and the Baltic at the “Virginia and Baltic Coffee House”.  They tracked shipments of “tallows, oils, flax, hemp and seeds from the Baltic states”.

Today, “The Baltic produces independent shipping market assessments. Using a panel of international shipbrokers, we provide daily assessments on over 50 dry and wet routes, weekly sale & purchase and demolition assessments as well as daily forward prices.” (Read more about: The Baltic Exchange)

What makes this index prescient? Well, the Baltic Index is a leading indicator. We learn how many cargo ships travel, where they’re going, what they’re carrying (lumber, coal, iron, grain, cement, as examples), and the value of their cargo.  Every business day, the the Baltic membership accesses ” a dry cargo fixture list.  Each fixture is carefully checked and verified.”   The Baltic … is regarded as the most comprehensive and independent such list available.” (The Baltic website)

There’s no economic prognostication or guesswork. The Baltic Exchange motto: “Our Word Our Bond”.

An economist reading “The Baltic” magazine gets the facts. The Baltic Exchange measures what it tracks. When economies do well, shipments increase; no guessing, estimating, or preponderance of divergent economic opinions.

You can peruse “The Baltic” magazine on line; the June 2009 issue bids farewell to Michael Drayton as The Baltic Chairman.  Read his answer to the question “What are your greatest fears for the shipping markets over the medium to long-term?” (The Baltic, June 2009, page 5)

When you want a foward-looking indicator, look  at Bloomberg’s  Baltic Dry Index chart.

  

 

American Insurance Group

American Insurance Group: Economic historians and Ph.D. candidates will dig deeply into the annals of this economic crisis. The American Insurance Group (AIG) will be the protagonist of the historical-story line. AIG’s risk tolerance, risk analysis, and policy to insure risk could be the root of this economic turmoil.

Rather than elaborate and interpret, I will  list a series of relevant stories. Click on the titles below to read the report on a separate browser page. 

Corporate malfeasance convolutes and distorts the best qualities of a firm and its people.  Many AIG employee stomachs turned sour when learning of AIG’s failing compleasance. In the Leviathan, Thomas Hobbes’s “fifth Law of Nature, is compleasance; that is to say, “That every man strive to accommodate himselfe (sic) to the rest.”

Hobbes contrasts the man who will adjust himself, his passions, to the larger group with the “man that by asperity of Nature, will strive to retain those things which to himselfe (sic) are superfluous, and to others necessary; and for the stubbornness of his Passions, cannot be corrected, is to be left, or cast out of Society, as combersome (sic) thereunto.” AIG Corporation may “be left, or cast out of Society, as combersome thereunto.”

Here are your stories; this is not an exhaustive list. 

• Falling Giant:  A Case Study Of AIG by Gregory Gethard
• Jim Crammer Apologizes to AIG Employees
• AIG Employees on Edge as Once-Safe Company in Turmoil
• AIG On The Brink
• Crisis on Wall Street: Questions and Answers On AIG
• Charlie Rose: A Conversation About AIG with Hank Greenberg

In 1987 the dollar could buy you 154 yen; today a dollar buys you 117 yen. If you traveled to Japan in 1971, you could have a great time with 358 yen for every dollar.

In 1985, James A. Baker as secretary of Treasury Chief listed, “Item one on (the) agenda was the dollar”. This is the subject of the Appendix attached to Baker’s auto-biography, Work Hard, Study…and Keep Out of Politics

The dollar and trade deficits sent U.S. policy makers toward isolation to protect the American worker after World War I. Isolationist policies do not work because we live in a global market.

Baker recalls the steps taken as forty-four nations approved the Bretton Woods Agreement (1944). Bretton Woods established the International Monetary Fund and the World Bank. The dollar was benchmarked to gold prices and other currencies were benchmarked to the dollar.

Baker considers Bretton Woods along with “the Fed’s successful war on inflation” as the fuel that “set the American economy afire.” As with America; so with the world.

James Baker asserts “economic policy coordination” as fundamental for American and international prosperity. After World War II, the United States presumed economic, political, and military supremacy. But the world is changing; some countries do not care what we think or do.

Today, the U.S. is challenged in every category by every nation. Why live the American dream when you can experience the dreams of India, China, or Thailand?

America faces incredible economic challenges. How can we sustain predictable economic power if we do not bring debt under control? Debt payments could become the life-style waster for successive generations.

Well, how does this effect the dollar? One tool countries use for economic management is raising the value of their currency. Currency value is a benefit. Trade balance is the goal.

U.S. economic policy may be in the cross-hairs of low interest rates, low dollar-values, high oil prices (current low-prices are temporary), and large trade-deficits. A decision to control one could be a catalyst for the other.

“History teaches us that men and nations behave wisely once they have exhausted all other alternatives.” – Abba Eban

During an interview on Meet the Press (October 18, 1987), James Baker was prompted to say, “We will not sit back in this country and watch surplus countries jack up interest rates and squeeze growth worldwide on the expectation that the United States somehow will follow by raising interest rates.” (Listen to Bloomberg TV, and you might hear this recurrent economic theme.)

Baker writes, “One lesson I learned at Treasury is that even the most innocent remarks about the dollar or other economic issues could provoke investors to buy or sell, almost blindly, in response.” It all adds up to historical redundancy; the crisp dollar is crumpled.

Tags: investing, dollar, currency_rates, economic_policy,