The growth of mass media in America has long enjoyed the creation of generational, social and economic nicknames. The infamous “Baby Boomer” generation carries the flag for the most pertinent nicknames, with a massive trend-setting population that has been closely watched for decades. Within the Baby Boomer generation, the 1980s brought the Yuppies (Young Urban Professional), the DINKs (Dual Income No Kids), even the WASPs (White Anglo Saxon Protestant) need a mention in order to cover our basis. Cue the debut of the newest economic group, the LINTs – Longterm Investor, No Treasure.
So arguably the LINT trend came about in a hundred ways, but let’s focus on (1) less savings (2) investment losses. The 1980s is a good place to trace this epidemic, where the national savings rate peaked and started a freefall. The consumer savings rate in the US was 9% on average from the 1950 to 1985. The peak came and went in the 1980s, as double digit savings rate of 11%+ was achieved. During the subsequent decrease, yearly snapshots of savings rates include 1990 (4.9%), 1995 (2%), 2000 (1.9%), 2005 (-.01%). Yes that is a “-“ negative sign in front of the 2005 statistic.
And for investments, there have hardly been any places of longterm safety. Just look at the so called “Blue Chip” stocks – (whose name actually derived from blue casino chips, the highest in value) once equated with premium, now with the down-and-out GM, Citi, and GE. Gains were made as Baby Boomers and Generation X&Yers saw their stocks in the Dow roar from 2,750 Index in the early 1990s to over 14,000 in October 2007. Gains were made but was wealth accumulated?
People used stock market gains and home sale proceeds to boost themselves into higher quality lifestyles, but typically this was at the expense of personal savings and increased debt. The Dow has halved itself since then and home prices have fallen 20% off peak values with high levered mortgages, leaving even the most prudent investors stuck between a rock and a hardplace. Investments in 401Ks and your home suddenly seem a bit more risky...
Household debt as a percentage of personal savings also has seen a staunch increase, from below 80% in the 1990s to over 120% in the last few years according the US Bureau of Economic Analysis. These figures include credit cards and mortgages, showing that despite the valiant economic times of the 1990s, and the post 9/11 2000s - the money went heavier into consumer spending than into the bank accounts.
So thus as a society we helped to create the LINTs. For every well funded 401K and Roth IRA there were the stark adversaries of cheap debt, tech bubbles, and real estate deals with no money down – the temptation around the corner.
Let it be said that credit must be shared for the LINT acronym (if its deemed credit worthy) as the day it makes it to another blog, wikipedia, or Bernanke’s mouth is the day I reveal that two others helped me with the idea. (And the other reason is that NAWs – No Accumulated Wealth sounded terrible and ASAPs – Always Spending Always Poor – was already taken).
So whats the verdict – is there anyone with the answers? Currently the answer is no, but with another nickname in the arsenal commentators and experts worldwide can give attention and input to yet another trend of our generation.
Tuesday, March 17, 2009
A Worthy Quotation
"America has had no shortage of challenges. Without fail, however, we've overcome them. In the face of those obstacles - and many others - the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, or economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."
-Warren Buffett, 2009 Letter to Shareholders
-Warren Buffett, 2009 Letter to Shareholders
Wednesday, March 11, 2009
Nowhere to Hide
Amongst one of the most rapidly deteriorating world economic environments, we look at ourselves and ask if there is anyone who has the anecdote for the global freefall. The short answer is No, as the scale and scope of the downturn has shown that the globalization we have been witnessing for the last two decades has worked its way into ONE world economy.
A run through the roster of the big names: The US & UK are buried in a drastic recession that needs no statistics for validation. Half of 110 Russian oligarchs lost their “Billionaire” trophies over the last 12 months, in an economy that has boasted an average of 8% annual GDP growth since the turn of the century. Japans economy is shrinking at the fastest pace since the 1970s oil shock. China is watching its exports minimize as the purchasing countries fight dwindling market conditions at home; Chinese exports down 17% year on year and down 25% to the US alone. Although barely breaking the top 25 in GDP ranking, Saudi Arabia, the sole Middle East, has an economy set to contract 1.8% based on oil output cuts, a brutal hit from the dreams realized with $100/barrel oil. India will continue to grow, but will still struggle to attain foreign investment as the communication gap with regulatory bodies is the common stumbling block. Brazil has seen the Brazilian Real lose almost 30% against the US Dollar since the start of the crisis, costing $14 billion solely to balance reserve requirements. The list goes on but the news gets no better…
So what has been learned, and what are we learning? In the complex landscape of the world economies, the basic principles to learn a) how we got here and b) how we get out stay the same. There are infinite takeaways from the current economic climate, but four worth particular note.
Transparency: this starts with the derivatives and goes through political legislation – transparency is and continues to be the biggest factor in successful investment. The shortcomings of this decade: The fact that the financial products were too complex for their own good, asset valuations were based on future earnings, individuals had access to credit without financial knowledge, etc. Amongst it all, hardly anyone –banker, CEO, or ordinary citizen – could fully grasp the true story of their investments, company and pension plan respectively. And that is the foundation that started this mess.
Accountability: Do not sign your name on your mortgage application before you understand. Do not put your savings with an individual whose investments you cannot learn within 10 minutes on Google. Do not jeopardize your shareholders as a CEO with ill intentions. And finally, do not give your hard earned money away in taxes unless you know exactly where they are going. These are responsibilities we all must follow in the new world. No matter what country claims your residence or what government you work under, these are universal pillars to be followed.
Specialize then Diversify: At first a conflicting statement but just ask the fisherman turned currency traders of Iceland who bankrupted their Country about this one. Each country is blessed with a series of natural and/or human resources, whether its oil, specialized service, or whether its wheat and cotton – stick to your core business and secure your income streams before branching out. Conversely, the dependence on only one lifeline of income can be equally disastrous. But a competitive and equal balance of goods and services will limit the downside in any future cycle.
Realistic Expectations: The US is now learning that their elected President is a regular human and not a miracle worker. Russia and Saudi Arabia are learning that $140/barrel may not be back anytime soon. Western Europe is working to revalue every bank’s balance sheet on an asset by asset basis. These all are tasks and realizations falling under the blanket of humility that has spared no nation.
This cycle will take not only time, but significant effort from the citizens of the world economies. The interconnectivity of the global markets is a reality that is forcing reform on all ends of the globe. With a desire to fix what was broken, and take ownership of the future, this is not an insurmountable challenge but rather a crisis that will streamline the world economy.
A run through the roster of the big names: The US & UK are buried in a drastic recession that needs no statistics for validation. Half of 110 Russian oligarchs lost their “Billionaire” trophies over the last 12 months, in an economy that has boasted an average of 8% annual GDP growth since the turn of the century. Japans economy is shrinking at the fastest pace since the 1970s oil shock. China is watching its exports minimize as the purchasing countries fight dwindling market conditions at home; Chinese exports down 17% year on year and down 25% to the US alone. Although barely breaking the top 25 in GDP ranking, Saudi Arabia, the sole Middle East, has an economy set to contract 1.8% based on oil output cuts, a brutal hit from the dreams realized with $100/barrel oil. India will continue to grow, but will still struggle to attain foreign investment as the communication gap with regulatory bodies is the common stumbling block. Brazil has seen the Brazilian Real lose almost 30% against the US Dollar since the start of the crisis, costing $14 billion solely to balance reserve requirements. The list goes on but the news gets no better…
So what has been learned, and what are we learning? In the complex landscape of the world economies, the basic principles to learn a) how we got here and b) how we get out stay the same. There are infinite takeaways from the current economic climate, but four worth particular note.
Transparency: this starts with the derivatives and goes through political legislation – transparency is and continues to be the biggest factor in successful investment. The shortcomings of this decade: The fact that the financial products were too complex for their own good, asset valuations were based on future earnings, individuals had access to credit without financial knowledge, etc. Amongst it all, hardly anyone –banker, CEO, or ordinary citizen – could fully grasp the true story of their investments, company and pension plan respectively. And that is the foundation that started this mess.
Accountability: Do not sign your name on your mortgage application before you understand. Do not put your savings with an individual whose investments you cannot learn within 10 minutes on Google. Do not jeopardize your shareholders as a CEO with ill intentions. And finally, do not give your hard earned money away in taxes unless you know exactly where they are going. These are responsibilities we all must follow in the new world. No matter what country claims your residence or what government you work under, these are universal pillars to be followed.
Specialize then Diversify: At first a conflicting statement but just ask the fisherman turned currency traders of Iceland who bankrupted their Country about this one. Each country is blessed with a series of natural and/or human resources, whether its oil, specialized service, or whether its wheat and cotton – stick to your core business and secure your income streams before branching out. Conversely, the dependence on only one lifeline of income can be equally disastrous. But a competitive and equal balance of goods and services will limit the downside in any future cycle.
Realistic Expectations: The US is now learning that their elected President is a regular human and not a miracle worker. Russia and Saudi Arabia are learning that $140/barrel may not be back anytime soon. Western Europe is working to revalue every bank’s balance sheet on an asset by asset basis. These all are tasks and realizations falling under the blanket of humility that has spared no nation.
This cycle will take not only time, but significant effort from the citizens of the world economies. The interconnectivity of the global markets is a reality that is forcing reform on all ends of the globe. With a desire to fix what was broken, and take ownership of the future, this is not an insurmountable challenge but rather a crisis that will streamline the world economy.
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