04-02-09 - Finance

I'm thinking about getting my cash back into stocks (long). I'll probably dollar-cost in slowly over the next 12 months or so. I'm kind of tempted to go big on Citi and GE. They're trading so low that there's a high probability of huge returns (100%+ easily). I really don't believe there's a huge risk either, since the government has shown no signs of bailout restraint yet, and they would get further prop-ups and tax favors and everything else the government can do to keep them from failing. It really seems like a government-backed gamble which is a wonderful place to be (and the same way that the mortgage industry made so much money all those years).

In contrast, something like LVS (Sands) is not such a desirable gamble IMO. It does have a nice huge possible upside (casinos + crazy chinese gamblers = megabucks), but it's not going to be bailed out by the government the same way something like Citi would, so it's not a free ride gamble - it really might go to zero and go bankrupt.

I have some slightly different views than many pundits on the economy. For one thing I believe the sickness extends far beyond just the finance and real estate sectors. I believe 99% of our entire country is broken. Our health care costs are too high, our workforce is too unskilled, we haven't been spending on R&D or infrastructure or education, our immigration policy is too draconian, too much of our economy is in services and consumer spending.

On the other hand I disagree completely with the people who claim that the US Financial Behemoth will never be the same, or that it's gone for good or whatever all the silly pundits are saying. In fact I would predict the exact opposite - the US Financial sector will be back to making huge risky gambles just as fast as they possibly can, and eventually our government will help them do so again. It might take a little while for people to forget, but there's one thing you can be sure of : once a problem is fixed, everyone forgets about it and starts removing the fixes and things that would prevent it from happening again. So the reckless financiers before the Great Depression led to lots of laws and regulations preventing it from happening again, with limits of bank sizes, minimums of liquid capital, regulators placed in the banks to watch their actions, limits of what different types of financial services could be mixed. But in the good times those rules were eroded little by little, until Clinton and Bush nearly completely eliminated them. And the exact same thing will happen again. Granted, it took almost 50 years for it to happen the first time, but we are far more flighty and apathetic now than people were in the last century. All we need is a new crisis to forget about this one.

American crisis response always progresses something like this :

Severe harmful overreaction that doesn't really fix much

Scapegoating of some minor players

Forming of committees to investigate and lots of announcements that lead to nothing

Things mostly get better and a new crisis comes along

Giving in to lobbyists that want rules relaxed so they can make more money

Letting it happen again

So shall it be with banking, terrorism, etc.

1 comment:

kim said...

So it is with everything.

Reminded me of Petrosky's book 'Too Engineer Is Human'


Which is basically a bunch of case studies about how whittle away safety buffer/over-design until there's a collapse of a roof or bridge, killing a bunch of people, then people get vigilant again, then eventually forget. Rinse, lather, repeat.

old rants