The Absurdity that is CNBC (Part 1 of Many More to Come)

When studying at home, I probably have CNBC tuned-in on the background more than any other TV network. This is not such a compliment to CNBC's product as it is the pitiful production of TV in general. The only reason I can justify having the network on during the day is because after years of investing and studying the principles of business and writing for The Motley Fool, my ears have become adept at weeding through the fluff and puffery they are shoveling out. The sad thing is, CNBC could be a vital network to help everyday investors navigate the increasingly complex and convoluted world of business and capital markets. Instead, it is a panderer preying on the investing ignorance of the general public; it's a proselytizer of outdated ideologies of laissez faire economics and "self-interest" centered libertarian politics; it's a peddler of complete nonsense (see below from one of its many illogical pieces of advice). Moreover, this dangerous network suffers from the worst case of amnesia I have ever seen. Almost every rational economist agrees that the U.S. economy was on the brink of collapse in the Fall of 2008 and had it not been for unprecedented bailouts of the banks by the U.S. Government, it would have been as Warren Buffet predicted..."back to the stone age." Yet, CNBC commentators loathe the regulatory hand of the U.S. Government that history has proven necessary to protect the public from future Wall Street abuses. CNBC simply does not represent the interests of the average investor, the people who dominate its audience; CNBC represents the interests of the Wall Street elite first and foremost.

Over the course of this blog, I will comment regularly on the baffling content on CNBC. Here is one example... Everyday I listen to the network, I am amazed by its shortsightedness. Yesterday, CNBC had two analysts on that basically said the same thing - "I am a buyer of the S&P 500 if it stays above 1120, I am not a buyer if it goes below 1120." READ that statement carefully and see if you can make sense of it. I hear this kind of nonsensical analysis almost everyday on CNBC. Basically what they are advising here is to buy a bag of peanut M&Ms for $1.00, but don't buy the same bag for $0.90. Does that advise make any sense to you? Of course it doesn't. Yet that's exactly what CNBC is advising you to do. This isn't investing, it is Las Vegas gambling (what they refer to as trading). I call it complete bullshit and a total sham. It is a guaranteed way to lose money. Why? Because, as you buy a stock for a higher price as they instruct, there is a seller on the other end of that deal who is cashing out. Please, do not be a sucker by listening to CNBC.

If you want to learn to really invest, read about Warren Buffet and Peter Lynch and Tom Gardner. But whatever you do, pay no attention to CNBC. I cannot express this point enough.

On that note, have a Happy New Year. The upcoming year will offer many challenges as every year does. In the process of confronting these hurdles, remain thankful for what you have in your life.

Peace

JMac

En Route to a Double-Dip Recession?

The chili was in one word... yum. It was good seeing Grandma and Grandpa, as it always is.

Last night on Hardball with Chris Matthews, he commented on the real possibility of a double-dip recession and his belief that President Obama and his Administration are likely fully aware of this possibility and that they will have a plan in place to avert further financial disaster. Chris Matthews is one of many commentators who have acknowledged the possibility of a double-dip recession projected some time between 2010 and 2012.

The basis for the belief is that when the unprecedented government stimulus measures implemented in 2008 and 2009 run its course, the economy will begin slipping back into a period of declining GDPs. (At some point, when I have a little more time, I will provide a general recount of the U.S. Government's efforts to stimulate the economy over the past decade, and how these efforts created multiple bubbles fueled by unsustainable growth.) The projection of a double-dip recession is rational, as I will explain below.

For the U.S. to avert another serious financial crisis, sustainable growth must fuel the economy. What sector of the U.S. economy will that growth come from? For the most part, domestic growth for large corporations has been stagnant for years. Emerging markets have been the place of growth for many of the largest corporations; this emerging market growth has played a large part in propping up lofty valuations of publicly traded stocks over the past decade. There are numerous examples that can be given.

Just one small example is Papa John's Pizza (Ticker: PZZA). Go back to its financial numbers before the economy nearly collapsed - in its May 2008 quarterly numbers it reported domestic revenue growth at roughly 10%. Having followed the company for years, I can tell you that 10% domestic growth is at the high end of the spectrum for the company (by the way, most U.S. companies would love to have Papa John's domestic growth numbers - the majority of companies have struggled for years to put up even marginally positive numbers in the domestic market). Despite these robust domestic numbers, the pizza maker's international revenue growth significantly outpaced the domestic market by growing roughly 28%. Where is much of this international growth coming from for Papa John's? China. Some argue that emerging markets such as China, Brazil, and India can be the catalyst to keep the U.S. economy from a double-dip recession as new middle classes in these markets consume more goods. The problem is, as we saw in the 2008-2009 recession, where the U.S. economy goes, so to does the global economy. While this dynamic should change over time, as of yet, consumers in emerging markets still have nowhere near the buying power of their U.S. counterparts.

If the U.S. is going to avoid a recession in the next few years, the remedy has to come from within its marketplace. However, as highlighted with Papa John's, the U.S. marketplace is much more mature in comparison to emerging markets, with few growth opportunities. While there are some industries with robust opportunities in the domestic market in the years ahead - these include biotechs, nanotechs, some e-commerce and Internet-based companies, environmental/energy efficiency products, and health/medical care (if the current version of the Senate bill for healthcare reform is passed) - these alone, are not currently broad enough to put the U.S. economy into positive territory over a sustainable period of time.

Where will the growth come from in the next couple of years? Autos? Forget about it. From 0% financing deals over the past decade to the Cash-for-Clunkers program, the U.S. consumer is tapped out with its car purchases. Real Estate? Again, historically low interest rates coupled with government incentives for home buyers put a record number of home owners into the market. Simply put, over the next year or two, domestic growth will not be driven by the private enterprise - it will come from the U.S. Government and the remainder of its stimulus funds. But these funds are largely expected to dry up by 2011 if not sooner. To replace this stimulus, it is hoped that the U.S. consumer will inject spending growth into the market. That's wishful thinking. Consider that roughly 80% of U.S. households already have at least one credit card (the other 20% either doesn't want one or is unable to obtain one); most households have on average over 5 credit cards. The average credit card debt per household is over $8,000. The combination of high credit card payments, mortgage payments, auto loans payments, high health care costs, and for some, extremely high student loans, the U.S. consumer simply does not have the flexibility to fuel sustainable growth for the U.S. economy.

Given this reality, I put the likelihood of a severe double-dip recession at 80%. That 20% chance of averting further financial pain is the unknown possibility of emerging industries (nanotech, energy efficiency products, etc) to provide a new generation of growth sooner rather than later.

In light of the challenging economic growth over the next couple of years, what measures can Congress and Obama's Administration enact to avoid a recession? Can it lower interest rates? No - interest rates are as low as they can possibly go. Can it issue new debt to stimulate the economy? Unlikely - the U.S. Gross debt is about $12.9 trillion; in 1980, just prior to the 20-year bull market cycle, the U.S. Gross debt stood at less than $1 trillion. The U.S. Government, like the U.S. consumer, is cash strapped and debt laden. The Obama Administration simply has few, if any, options available to avert another recession in the near term.

Structurally, over the long term, the U.S. must change its ways to bring in a new era of economic growth. First, there must be a period of massive deleveraging, where consumers, banks, businesses, and local, state, and federal governments reduce the consumption of debt. Second, new high tech growth industries within the U.S. (think nanotechs, biotechs, etc) need to emerge as major global powers (and these industries, once they emerge, must keep their manufacturing facilities in the U.S. and ship their products abroad). For GDP growth to be sustainable, it is imperative that the U.S. be a place that actually produces goods, and can sell these goods in markets around the world. This can happen, but it will require diligence, innovation, a robust venture capital market, a revamped education system, and ultimately, it will require time.

Time, unfortunately, is ticking on the currently unsustainable U.S. economy.

Peace

JMac

What P.L.E.R.B. is all about...

This is my first blog... ever. This forum was selected as I process thoughts more clearly while writing. So, in the process of writing a blog, my intention is to organize and formulate my views and perspective on a wide range of topics and issues. If others gain benefit from this blog, that's a plus.

Much of this blog will be dedicated to issues surrounding poverty, law, the environment, religion and business. Having served in very poor, urban environments of Chicago, Trenton, and Philly, as a law student serving with a federal district judge and previously working on a massive corporate fraud case for the U.S. Attorney's Office - Department of Justice, having written extensively on the environment and business and the interchange of the two as a former writer for The Motley Fool and for a graduate thesis at Duke University and for a project at Ohio State University Moritz College of Law, and having studied religion extensively as an undergraduate student at Milligan College and as a graduate student at Princeton Theological Seminary and having many opportunities to speak to faith groups on reconciliation, and finally, with additional legal studies at the University of Oxford-England, conflict resolution studies at Caux-Switzerland, and working for public policy think tank in Washington DC, these and many more experiences enabled me to obtain a unique perspective on highly complex and difficult issues. It is time for me to get this perspective in writing.

I will also employ this blog to comment on the lighter side of my life and the things I love to do when I am not thinking about the 'big' things. Life is made beautiful and pleasurable by the everyday simple things. Some of these things... cooking, hiking, sports... I will also share my thoughts on from time to time.

Now... need to finish doing my pushups, clean up, and head to my grandparents to share with them the best chili I have ever made... it's an award winner folks.

Peace

JMac