Traders,Investors and Capitalism

The headlines today shout about May being the worst month in a year for stocks. True enough but the implication is that means something. Since the start of 2008 the number of up and down months are roughly equal but gains during the up months have substantially outpaced the losses in the poor months. such is the nature of markets. It bears repeating that day to day and even month to month price movements are largely the result of traders not investors.

I saw a very good 8 minute interview with Dr. Gene Fama (U of Chicago finance professor) that distills quite clearly the essence of capitalism and the efficient market hypothesis (which he is credited with creating). Well worth the time. Here is the link.

Long Term Unemployment

We all know unemployment across the country is at high levels. The segment of those unemployed for more than half a year is huge and trending higher still. This article from NY Post depicts some of the human faces behind this problem . I like her phrase "extend and pretend" which aptly describes the actions of the Congress as they continue to extend unemployment benefits while exacerbating the very problem with their intervention.

There are perhaps no quick fix solutions here and this is an issue that will likely be with us for years.

America's new culture war

This is an excellent (is somewhat long) article in the Washington Post today on our emerging new culture war- free enterprise vs. government control. There are many good points in this piece but since we are concerned about markets and wealth let's focus on two.

In the last sentence of the initial paragraph the author (Arthur Brooks) states that the two competing visions of America are not reconcilable. We must choose. The other point that caught my attention is his statement towards the end of the article about the purpose of free enterprise " human flourishing, not materialism". That indeed is a core belief that is not repeated often enough.

Job Creation

This is a very good piece by John Tamny who writes for Real Clear Markets (a good site that links dozens of market related articles each day). He goes through the simple, yet largely ignored , process of how jobs are created. Despite all the rhetoric, government doesn't create jobs. Government doesn't create wealth, it consumes wealth. John has a keen mind and describes why America will likely continue to be a place of innovation, job creation and wealth building.

Financial Folly

Another good , cogent article on global debt and individual investors by Jason Zweig. 2 or 3 very useful tidbits including the study saying debt levels like ours here in the U.S. erode economic growth by 1% per year (not surprising). Later in the article a quote about these "processes not being linear" is oh so true. Finally, the last sentence where Zweig advises investors to "wring your hands while sitting on them". Agreed.

The Elephant in the Room

A spot on piece in NYT today on the latest from Fannie and Freddie. A very ugly picture indeed. I guess the ability of the politicians to keep this under the radar is owed, in part, to the inability of most Americans to understand what these entities purport to do. I am sure there will be more to come. Stay tuned.

Crisis,Anxiety & Error

A destructive mixture of all the above in Thursday's sharp U.S. stock market pullback. a cogent article in IBD today providing some perspective. While some of the issues yesterday might have indeed been trading errors or even a computer virus , little doubt that the underlying concerns centered on the worldwide debt bombs beginning to explode in Greece(and other European countries).

The S&P 500 is still up about 78% in the past 14 months- one of the best periods in history so some level of pullback is probably good and healthy. Remember our saying around here "markets go up and down, not up and up."

Fannie and Freddie...

A very good easy to read article in WSJ today on just how deep the Fannie and Freddie mess is and the unintended consequences. A real eye opener is how this huge government involvement has not helped us much in terms of home ownership . No one seems willing to address this huge hole in the federal budget (since it is not in the official budget).

Conflict of Interest Revisted

Saw a good article in The New Yorker on how poorly many of the large banks/brokers have performed for their "clients" , yet investors still do business with them. This is one of the real mysteries of life and lends credence to the idea that we don't learn much from history . I guess marketing trumps all else . If this were not so these firms would have been out of business long ago.