Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

What Have We Learned?

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One solid year of an up market, and one solid month of the most agonizing trading time I've had in my entire life, have put me in a deeply reflective mood. Even though the January 19th high has not been violated (yet), I am having deep doubts as to my long-term outlook on the market. It seems to head higher, regardless of external news or realities.

So what has the past year taught us? I have some thoughts on this; and although these thoughts may seem grumpy, snarky, or even whiney, I promise you, they are not intended to be. Cynical? Yes. Despairing? Sure. But complaining? No. Complaining about reality is pointless. So here's what I think the world has learned:

1. Investment banks can, with few exceptions, act with impunity. Yes, Lehman and Bear are gone, but that's just a sliver of the investing banking world. By and large, investment banks entered into the crisis as winners and exited the crisis as even bigger winners. They now know there really is no consequence for negative outcomes. If they win, they keep the profits; if they lose, they will be bailed out. End of story. So I think that, far from being chastened, banks have been emboldened to act in a manner that makes 2007 look like doe-eyed innocence.

2. Financial reform isn't going to happen. Whatever gets passed is going to be feeble. Maybe they'll pass a bill demanding that disclosure statements on credit card applications be in a font size two points larger than before, but that's about it. All this Volcker rule hub-bub is only going to compel the Goldmans of the world to dispose of their classification as bank holding companies, now that the need to be in that category (with its benefits) has passed. The panic is gone, so the motivation for real change is dead.

3. Real estate is doing just fine. Think real estate is in trouble? Ask the holders of SRS how their investment is doing. Real estate isn't going to be permitted to fail.

4. The financial industry is doing fine. Disagree? Check in with holders of SKF. They, as with SRS holders, are holding on to securities at lows never before seen in history.

5. Keynesian "economics" works. On the rare occasions a government faces a crisis, they just have to "print" (well, electronically create) trillions of dollars in "money." Bang! Problem solved.

6. Buying as many stocks as you can during times of panic is like legally stealing money. Gobbling up stocks – any stocks! – a year ago was a brilliant move for those who did it. The old saw about buying when there is blood running in the streets surely has held true.

7. It's much easier being a bull than a bear. The reason is simple – – pretty much all the vested interests in the world are on your side. You don't have to fight the tide all the time. Nine years out of ten, you're going to be right.

8. The unemployment rate doesn't matter. About 10% of the public has no income, and about 20% is underemployed. Obviously it doesn't matter to equities. The government will just keep printing up unemployment checks (no matter how many extensions are required) to keep things civil.

9. The US dollar is a one-edged sword. If the dollar is weak, equities will explode higher. If the dollar goes down, it doesn't matter.

10. The citizens of the U.S. love buying stuff. It doesn't matter if they need it, or if they have the cash on hand to afford it. This is the national pastime, and it's never going to end.

To a person like me, who is rational to a fault, and who loves free markets, these cold realities are depressing beyond imagination. But I'm not an idiot; I can see what's going on, and it's time to face the facts.

Have a nice day.

North Korea Propaganda

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One aspect of the bear market that I anticipate over the next few years is, somewhere near its bottom, something really awful happening in the world. That "awful" could take many forms – – a major new war, a nuclear terrorist attack, or some other horrifying event. In the 1937-1942 analog, the awful event was the attack of Pearl Harbor and America's subsequent entry into the war. The market bottomed out a few months after that, and it more or less moved higher for the next quarter of a century.

Sometimes I wonder what country (if it is a country, as opposed to a group) could be involved in such an event. One clear candidate is the paranoid and isolated state of North Korea, which makes Imperial Japan look sensible by comparison. This country has fascinated me for years, and I genuinely hope the day comes that its people are liberated from the evil oppression of its leadership.

As isolated as it is, North Korea offers an unwitting peek inside its madness via its propaganda posters. Most of them, naturally, are designed to illustrate how wicked the United States is.

0203-dogs 

The text in the poster translates (in the normally catchy style of PRNK propoganda) as “Though the dog barks, the procession moves on!” The dog, by the way, isn't seen as the cute little ragamuffin that someone like me would observe, but as a vile and dirty creature.

Of course, much of the propaganda comes across as curiously wacky in its purpose of compelling what is seen as beneficial social behavior.

0203-goats 

For the above picture, we have the text “Let’s extensively raise goats in all families!”, which is an ethic I actually could find myself sharing with the North Koreans.

Well, a new market day is upon us, so I'll turn my attention to other matters. Go get 'em.

The Government’s Forecasting Ability

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Tuesday morning's New York Times had an interesting article on the federal budget and the fact that annual deficits are projected out as far as the eye can see. The federal forecast extends through 2020, and it shows year after year of trillions upon trillions of dollars of red ink.

One aspect of this I've always wondered about is: how accurate have past federal forecasts been about surplus/deficit projections? Intuitively, I had always assumed Washington's projections would have leaned heavily toward the rosy side. It turns out this supposition was correct.

The Times put together a very interesting graphic – shown below – illustrating, over the years, what the projection of the ensuing ten years would be (shown in light blue) versus the reality (shown in dark blue). As you can see (although I know the faint blue is hard to discern), in almost all cases, government projections were too high by hundreds of billions of dollars. I've highlighted some of these clusters of optimism with the rounded red rectangles.

Even the forecast from last year (the light blue line on the right side of the graph) has already been shifted downward (e.g. much worse deficits) just one year later.

0202-debtpredictions 

What does this mean? It means that, even though the projections for the next ten years are the worst ever in the history of the United States, they are probably far too optimistic.