 | | The Daily Reckoning | Monday, June 27, 2011 |
- When depressions produce innovation...and where to look for it,
- Zen and the art of induced academic amnesia,
- Plus, Bill Bonner on man-made problems, man-made solutions and the distance between the two...
-------------------------------------------------------
Act Before Midnight Monday, July 4 - See How a Small Grubstake Could Turn into HUGE Wealth
New presentation reveals shocking wealth-building secret. See how just a tiny amount could explode into a vast sum for your retirement - all in just 30 days!
Next play goes live Tues. July 5 - you must act on this presentation by midnight Monday.
Details here...
|  | | | Less is More | | Modern Academia’s Paradoxical Approach to Economics | |  | | Joel Bowman |
Reporting from Cartagena, Colombia...
Not much time for our usual, wandering musings today. We're on the road, as Kerouac might say, meandering along the northern coast of the South American continent.
Your editor has this week joined a couple of Kiwi investors here in Colombia for a bit of a gander at what some folks see as the "next Brazil." At first blush, the place appears to be a hive of activity, some good...some, eh, not so much. We'll get to all this throughout the week, no doubt, but first, let's catch up on the news...
Markets are about where we left them last Thursday, give or take. A 100-point selloff on Friday has since given way to a rally of about the same magnitude today. Gold slipped under the $1,500 mark and is looking shaky around $1,490. Oil is down too at around $90 per barrel.
There are, of course, many inputs here; many millions of unknowable variables for why a market might move this way or that, hither or thither. As usual, the press offers only a handful of conspicuously similar conclusions. Apparently, they say, investors are still unsure as to the future of Greece...and what a Spartan collapse might portend for the rest of the continent's peripheral hangers-on (including Ireland, about which Bill has more below...).
And there are problems aplenty in the United States too...and, indeed, with much of the western world (including, particularly, Japan).
Consumer spending in the US, as measured by the reliably unreliable Commerce Department, was this morning revised down to marginally negative for the last month, even as analysts had been expecting a marginally positive reading. For some reason they assume rising unemployment, when accompanied by falling home prices and stagnant wages, ought to engender confidence among America's consumer class. Less money means more spending, or so they must have thought.
If this sounds like an odd deduction, that's probably because it is. And that's what makes it so deliciously tempting to the academic types, and here we are referring to Bernanke, Krugman, et al. Proving that people spend less when they have less to spend might seem like an easy task. And maybe it is. But that fact only sets the question below the intellectual you-must-be-this-tall-to-ride bar of the modern day economics professor. He can't write a hundred thousand word dissertation stating that people with less disposable income might spend less on flat-screen televisions and hand-blown punch goblets. He can't make himself appear smarter by simply observing that which every non-academic already knows from their experience of everyday life. How could our professor justify that cushy tenure by stating that the sun rises in the east and sets in the west? No, he needs something original...even if it is moronically so.
Besides, who is going to pay to hear a lecture linking observable reality with rational conclusions? Students don't want that. They want bamboozlement, bombasticism and weighty textbooks filled with complex equations and difficult-to-remember terminology. They want all this because it makes them appear (and maybe even feel) smarter...to their parents, to their friends and to prospective employers from whom they expect to earn outsized wages for their remarkably undersized real world education. For what other reason would people subject themselves to those horrid "learning" institutions in the first place, losing four years of potential productivity and accruing enormous debt in the process?
Beats us. Almost everything your editor learned in university he's spent a good deal of time and effort trying to forget. Perhaps Bernanke and his ilk would do well to attempt a similar act of induced academic amnesia. What's the worst that could happen? A lethargic, do-nothing government and an equally supine central bank? We should be so lucky!
More on all this later in the week but, for now, we turn our attention to a decidedly active, do-something field of pursuit currently on the precipice of, as resident technologist Ray Blanco puts it, a "new renaissance." Details below...
| | | | Israel Gives Money-Grubbing OPEC the Middle Finger |
Israel just discovered what could be the 2nd largest oil basin in the world today. This could spell the beginning of the end for OPEC - and huge gains for you. Details here.
|
| |
| | The Daily Reckoning Presents | | Transforming Patience Into Gains | |  | | Ray Blanco |
"If you can keep your head when all about you are losing theirs...yours is the Earth and everything that's in it." -Rudyard Kipling, "If"
There's plenty of bad news out there lately. Nations such as Greece are in imminent danger of defaulting on public debts, and thousands of people are protesting in the streets in response to austerity measures. Here in the US, unemployment is rising, and a number of indicators are suggesting a return to economic contraction. On the stock market, weeks of declines in major indexes have wiped out all of this year's gains.
In many ways, our times are a lot like the years of the Great Depression. It is easy for us to get discouraged "and lose our heads" in this economic climate - but we shouldn't. We are living in the most technologically productive period of all history.
The negative parallels between today and the Great Depression are widely publicized, but the positive parallels between the two eras are unknown to most people. Most people do not realize how technologically productive the 1930s were.
In a paper on macroeconomic history for The American Economic Review, Alexander J. Field of Santa Clara University found that the Great Depression years were the most "technologically progressive decade" of the 20th century:
The years 1929-1941 were, in the aggregate, the most technologically progressive of any comparable period in US economic history. The hypothesis entails two primary claims: that during this period businesses and government contractors implemented or adopted on a more widespread basis a wide range of new technologies and practices, resulting in the highest rate of measured peacetime peak-to-peak multifactor productivity growth in the century, and, secondly, that the Depression years produced advances that replenished and expanded the larder of unexploited or only partially exploited techniques, thus providing the basis for much of the labor and multifactor productivity improvement of the 1950s and 1960s. Discoveries and innovations are being made right now that will create vast fortunes in the years to come. If we keep our eyes on that prize, and invest accordingly, we will enjoy world-beating gains. Famous investor Sir John Templeton did exactly that.
In the dark days of 1939, when World War II was breaking out and it seemed that the Depression would never end, Templeton invested $10,000 in a basket of stocks. He ignored the market fluctuations. He kept his head when everyone else was losing theirs and picked up fundamentally great companies on the cheap. By the end of the war, that investment had yielded hundreds of percent worth of gains. He used those profits to build a vast fortune over the following decades.
New technologies are coming in the future that we can scarcely imagine today. In biology, growing knowledge is opening up exciting new vistas for the treatment of the diseases that cause so much death and suffering. The basis for this knowledge is often developed in other fields, like computer science. This isn't surprising, since technologies that appear unrelated at first blush often move each other forward.
For example, scientific studies in the biological sciences - from how the human brain works to the properties of DNA molecules - are furnishing the computational field with new ideas. There is a tremendous convergence taking place between the different fields of science. As a result, the rate of discovery is accelerating so quickly that it is difficult to keep track of all the cutting-edge research.
When investing in new technology stocks, it is easy to be distracted by short-term movements in share prices. Easily frightened investors often end up losing out to more-rational ones with greater patience. It is important, therefore, to be patient and stay focused on the long-term trends.
This is true of just about any kind of investment. We can get bogged down by the minutiae and lose sight of the long-term potentials. This is, of course, a mistake. Even the share prices of the most promising innovators - with truly world-changing technologies - can get caught up in short-term tailspins. However, if we believe in the basic thesis of technology investing and the potential of these companies, these episodes of stock market weakness provide new buying opportunities, rather than reasons to reach for the antacids.
The thesis is simple: Wealth is created by real economic growth, not smoke and mirrors. Real growth, in turn, has historically been created by new technology.
Compare the average per capita economic output and standard of living before the Industrial Revolution with what came after the invention of the steam engine. The gains were enormous.
As another example, we could compare economies that still rely on muscle power for agricultural production with those that have implemented the most recent agricultural technologies. There is a reason for the former being called "subsistence agriculture." People are just barely surviving.
A cursory look at the history of science and technology reveals one glaring fact: The rate of change is constantly accelerating. More has been accomplished in the last few decades than in the previous few thousand years. Investors often say, "The trend is your friend." Technological innovation, therefore, is the mother of all friendly trends.
Investing in the greatest new technologies now and holding them until they reach commercial maturity is one of the best ways to create long- term wealth. If we keep that in mind, we will not be distracted by short-term "noise." In a diversified technology portfolio, even the losses on the losers will be completely swamped by the long-term gains of the winners.
Moreover, we are long-term investors at Technology Profits Confidential. We don't do short-term timing plays. We use our expertise to pick the best long-term technology investments. Our charter is to release one recommendation a month, every month. We do this whether the market is going to go up or down. Sometimes our recommendations perform poorly at the outset, sometimes they don't.
Over time, real value is recognized by the marketplace...and rewarded accordingly!
Regards,
Ray Blanco,
for The Daily Reckoning
P.S. Right now we're following a San Francisco-based company that has leveraged advances in genomics and computational biology to develop a big pipeline of novel and broad-acting anti-cancer, cardiovascular and metabolic compounds. The story has exactly the kind of transformative, wealth building potential that we look for inTechnology Profits Confidential. For the full presentation, see here.
| | |
Breakthrough: New "Magic Bullet" Technology Could Zap Deadly Cancer Cells at Will
In the latest clinical trial, over 85% of cancer patients achieved complete or partial remissions of their symptoms using the "magic bullet" technology. This is a rare opportunity to get in early on a little-known Biotech Company that's making medical history...
Click here for full details.
|
| | | | Bill Bonner | | Irish Property Market Seeks Divine Intervention | |  | | Bill Bonner |
Reckoning from Dublin, Ireland...
"And we pray for Ireland's financial situation...and all the people who suffer because of it."
Priests do not usually get involved in political economics. But among the prayers for the dead, the sick, the unhappy and the incompetent at St. Patrick's cathedral on Sunday was an entreaty to the Almighty to intervene on behalf of Irish bond yields.
Many times have we criticized Ben Bernanke for 'playing God' with the economy. Will we now get a chance to criticize God for playing Ben Bernanke?
Whether or not God intercedes in such matters, we cannot say. But had we been in charge of the program at St. Patrick's cathedral yesterday we would have saved our breath. Ireland's financial problems were caused by man. They can be solved by man too.
But not without some pain. And not by central bankers' clumsy attempts to avoid it.
Friday's market news from America showed a continuation of the trends we've been watching for weeks. The Dow fell more than 100 points. Gold took a big dive too...and ended the day's trading at $1,500. Oil remained at $91 a barrel.
We know it's not necessary to tell you, dear reader, but we will tell you anyway. These things do not signal a recovery. They do not signal inflation. They do not signal an end to the 'lost decade' America has suffered since 2000.
Last week, we focused on the strange happenings of the 21st century. Despite the most promising initial conditions in human history, the century so far has been a dud.
Why?
Nobody knows. Perhaps it is just a normal cyclical pullback after years of credit expansion. Or, maybe it is much more than that - a regression to the mean, in which developed countries slow down for decades so that emerging countries can catch up. Or maybe it marks the end of the Fossil Fuel Revolution, in which we confront the declining marginal utility of further (more expensive) inputs of oil. If so, we may be looking at a Lost Century, not just a lost decade.
All we know for sure is that the Internet, and related communications technologies, have not performed as advertised. They've improved efficiency, but they've left billions of people measuring out their lives on email and tweets, while real growth has declined.
So, let's put that in the back of our minds and return to the here and now...that is, to Ireland.
"Ireland is screwed," said our local expert. "Our property developers are broke. And they owe a lot of money to the banks. So they're broke too. And the banks owe a lot of money to the government, so the government is broke too. And now they're taxing pension funds and our houses aren't worth anything, so we're all broke."
By way of example, we went to look at a lovely Georgian house...set on 400 acres...with its own ocean beach. It had been fixed up and was offered for sale for 12 million euros. Then, the crisis hit. Now, the asking price is 7.5 million.
"That's the asking price," said the realtor. "Naturally, in this market, the actual sales price might be a bit lower."
How much lower is anyone's guess. Houses in Dublin are selling for about half what they fetched a few years ago. And there are abandoned projects all over the country. We looked at a group of houses built near the coast. They were the equivalent of Irish McMansions...large houses with thatched roofs on small lots. There were about 12 of them...offered for sale at about $800,000 each.
"Well, that was bad timing. The developer had to cut the price in half. They're now selling for about $400,000," the agent explained.
"How many have been sold?"
"None."
Hmmmm....
Not that your editor is really interested in acquiring more property. He has too much already. But he likes to keep an eye on the property market. It helps him understand what is going on.
Besides, he'd like to have a stately Irish mansion to house his family office...if he could get it cheaply enough.
"Oh yes, that would make sense. The Bonners are an Irish family. From Donegal. Everybody knows that. But if I were you, I'd hold my fire," said our local expert, who offers financial management services to rich Irish families.
"There's still a lot of momentum in the property market here. I mean, people still think that property will go back up. Speculators are still buying places that they think they are getting at bargain prices. But did you see the bond market on Friday? Irish debt fell again. And if there is any more trouble in Greece, bond investors are going to re- appraise all their European debt. There will be no way Ireland will be about get out of this without a default.
"It also seems likely to me that Ireland has gone into a long, long slump, much like Japan. What we've seen so far could be the very beginning. We could see property prices continue to fall, as people are unable to finance or re-finance mortgages...as the banks go broke...and as people come to realize that Irish property is not going to bounce back. Property values are down about 50% so far. They could go down 80% or 90% before this is over."
And more thoughts...
We thought we were attending mass at St. Patrick's. If you can't have a mass at St. Patrick's in Dublin...where can you?
But there was no mass. St. Patrick's is not a Roman catholic church. It's Anglican. Which was very familiar to us, but not what we were looking for.
"People are always surprised," said an Irish friend. "But Ireland is not what they think...especially not what Americans think.
"Americans imagine that Ireland is an almost mythical island full of Irish people who are all descended from Celts, speak Gaelic at home and go to mass every Sunday.
"It's not like that. It's a melting pot too...with many different peoples and cultures more or less homogenized. You know, in Ulster (Northern Ireland) they say you can tell a protestant from a catholic by the way he walks. It's partly true. Because when people talk about the Catholics fighting the Protestants they are missing the point all together. It really doesn't have much to do with religion itself. The real difference is cultural and political. And almost genetic...that's why you can tell them apart by the way they walk.
"Of course, you understand...I'm exaggerating to make a good story...I'm Irish after all. But there's a lot of truth to it. I'll give you a little history. Nobody knows who the original settlers of Ireland were. But we know the Celts came early, from Spain and France. Then, there were invasions from the Vikings. In fact, Dublin was a Viking settlement. So was Waterford. Towns didn't exist in Ireland until the Norsemen established them. And then, in 1169 came the invasion of the Normans...actually an assortment of Flemish and Welsh soldiers led by Norman knights. The Norman knights were soon as more Irish than the Irish, as we say...but they were still vassals to the crown of England, which set up Ireland for further struggles with the English and episodes of colonization from Scotland and England, many of whom came to be called 'Scotch-Irish' who settled in Ulster.
"You can see the confusion about who the Irish really are in the term 'Scotch-Irish.' It can mean almost anything. They may be Scots. They may be Irish. Or they may be neither. They may be protestant. They may be catholic. Or neither. The original 'Scotch-Irish' were Gaelic speaking peoples who went back and forth between Scotland and Ireland. They invaded England after the Romans left. And then, they called the settlers in Northern Ireland, many of whom were actually descended from Normans, 'Scotch Irish,' because they tended to come from the border areas in England. And then, when many of these people later immigrated to America, they were called 'Scotch Irish' just to disguise the fact that they came from Ireland. The 'wild Irish' were never very welcome, either by the Virginian aristocrats or the Massachusetts Puritans. They drank a lot. They were papists. So, when they got to America they would often redefine themselves as 'Scotch Irish.'
"And then, there is a whole different class of Anglo-Irish, who are not protestant, but not Roman Catholic either. They're Anglican, not at all like the Presbyterians of Ulster.
"Now, this is not a scientific fact, but I think it is true. You can tell where an individual Irishman fits into this mixture just by looking at him. The descendants of the Gaelic-speaking Celts, whom St. Patrick converted to Catholicism, are shorter, with dark hair and roundish faces. The taller, blonder people, with more angular features, are either descendants of the Vikings or of the Normans. Anyone whose name is Fitzgerald, for example. They are more likely to be protestant, or Church of England. That's why you see more blonds and red-heads in the Dublin area, because it was a Norse stronghold for many centuries, than you do in the West, in County Mayo, for example. And John Kennedy, your president, you could look at him and you knew he had a lot of Norman blood in him. Of course, his mother's name was Fitzgerald. It all made sense.
"And of course, St. Patrick's is Church of England, not Church of Rome."
Regards,
Bill Bonner,
for The Daily Reckoning
|
|
|
|
The Daily Reckoning U.S. Edition
Posts
