Saturday, September 19, 2009

It's the Economy, Stupid!

Here's something fun I discovered while I was trying to get organized about this posting: magazines don't publish the articles they've recently published in their actual, physical, magazines on their website. Or, if they do, they hide them too well for me to find. I receive an actual subscription to Fortune magazine (full disclosure: it's a free subscription that I received when I joined the business school honor society, Beta Gamma Sigma...I am a total dork). I'm a little behind on my magazine readings (in case you hadn't noticed, I've been a little busy buying a house and attending a bagillion weddings this summer). In any case, I just finished reading the May 25, 2009 Fortune magazine. Stanley Bing wrote an article called "Lessons We'll Forget: The economy has made us sadder, for sure. But wiser?" Basically, it's an article that pokes fun at some of our current economic problems, because hello?, we've seen them all before, but we all apparently get too high off the economy when it's doing really, really well to remember how much the hangover at the other end of the cycle sucks.

I generally consider myself a realist more than a pessimist or an optimist. I totally believe in capitalism, not because it's a perfect economic state, but because it's the best we've come up with so far. I also think that Newton was on to something with his whole apple scenario, and that ultimately, we're all moving towards entropy (and that the increasingly obese American is probably moving there faster than the rest of the world, but that probably deserves its own rant). So what does this have to do with the economy and Stanley Bing? Everything!

Here are the main points of Mr. Bing's article:
  1. Economics is a bunch of bushwa.
  2. Wherever there's money around, there will be crooks.
  3. The law is a ass.
  4. In God we trust. All others pay cash.
  5. The rich are not like other people, i.e., you.
  6. The press is the running dog of the ruling class.
  7. Nothing lasts forever.
  8. Breakfast is the most important meal of the day.
  9. We just forgot all this stuff.

I'm not sure I agree with point 1; however, it is true that economists are behind the curve. The ones I've known actually admit it. They can't declare it a recession until something like three consecutive periods of negative growth, or some such formula. There are actually rules for declaring a recession, and it's not just as simple as my company just went under, or my home suddenly lost a lot of value. Maybe you're an idiot and you've been making VCRs while everyone else on the planet has moved into the 21st century, and maybe you bought a ridiculously overpriced dump of a house. Economics is a science, and sciences aren't perfect. I mean, most people get a vaccine and then don't get sick, but maybe you're that oddity who gets the shot and gets sick. It sucks, but it happens. Economists also make forecasts, presumably based on a whole bunch of data and trends and formulas, but forecasts, by their very nature, can't be 100% accurate.

Of course, where's there's money, there's crooks. And of course, a lot of times they are very intelligent people. Otherwise they'd just be pickpockets.

For the record, the "a" in point 3 is Mr. Bing's, not mine. Here's the deal: nobody wants to regulate the economy while it's growing. That's like making it to the championship and then not playing for fear of getting injured. And with the economy, generally, a rising tide lifts all boats. So nobody's losing on an upswing.

Mr. Bing follows up point 4 by saying "Every panic in history has been precipitated by the same stupid series of events." This actually suggests that the economists in point 1 should have been able to predict this recession, and they probably secretly did, but who wants to go around being all gloomy saying, yeah, yeah things are really good now, but watch out, we're gonna fall. Hard. And fast. Banks lend money. It's how they make money. Sooner or later they're going to lend some money that doesn't pay up. It's a gamble. Investing always is.

Here's the deal with point 5. It's a helluva lot easier to stay rich than to get rich. Earlier I said that I'm a fan of capitalism. Capitalism doesn't say that everyone will become rich. In fact, it doesn't say that anyone will become rich. Capitalism says that people will find the fairest price. Not the lowest price, but the fairest. I like Warren Buffett. I think he's a smart man who's made a lot of money in a thoughtful way (as in, I think he was thinking). Buffett's investment strategy is pretty simple, when you get down to it. He says find a company you like (here's a hint, if you can't figure out how they're making money, it's a bad one). Figure out what you think a fair price is for their stock. If it's currently selling for less than that, buy. If not, wait. It's that simple. So here's where my capitalism, Newton's law, and entropy all tie together. Eventually, I think, in capitalism, the price of a stock will be fair. Unfortunately, I think the time span may be longer than we want to wait. What goes up will come down, as in the case of overinflated housing prices. And eventually, everything will even out.

Point 6 is a little confusing, but it basically says the same thing Gladiator said: the heart of Rome is the mob. People like simple things. The economy is anything but simple. People also like drama. This is why there are so many "reality" TV shows. In this age of virtually limitless media, people hear/see/read one simple, dramatic thing about the economy and believe it for the 3.7 seconds it sits in their brain (am I being generous?) until the next media sound byte hits. And since reporters are losing their jobs, too, the amount of quality data, if there ever was any, is shrinking. Which means, we're all obligated to think harder, because the people who might actually understand what's going on and be able to explain it in layman's terms don't have that opportunity anymore.

Points 7 and 8 are more or less universal truths that I'm not going to go into.

And as far as point 9 goes, once we get through something, it's a whole lot easier to look at it through rose colored glasses and forget how bad it was at the time.

I'm not going to try to predict the end of the recession (I'm not an economist, for one). But things will get better. In the mean time, I do have a bit of financial/investment advise. First, I'm going to paraphrase Mr. Weasley, of Harry Potter fame. He told his kids to never trust anything that can think for itself if you can't see its brain (all in all, pretty sound advise, if you ask me). The same thing applies to investments. If you can't figure out how a company is going to make money, what they're selling, or who will want to buy it, don't invest! This isn't rocket science. For example, Coca-Cola makes...what?...drinks. Who buys drinks? Thirsty people, or basically everybody. Poof! We've just established that Coca-Cola is a company that could be considered for your investment portfolio (I'm not saying go out and buy it...I have no idea if it's fairly priced right now...I'm just saying, when it comes down to it, we can figure out their plan--this is a good step 1).

Second, and everyone says this, and no one seems to listen, but if it seems too good to be true, it probably is.

And finally, if your gut is telling you not to buy something, listen to it! When all else fails, your stomach will tell you if things are ok or not.

1 comment:

  1. Virginia said... "I generally consider myself a realist more than a pessimist or an optimist."

    Jon replies... "Really!" (UBER heavy on the sarcasm)