Volatility and uncertainty=instability and insecurity

Yesterday I saw gas prices sway 15 cents between two Sunoco stations two blocks away. I can guarantee the tanker didn’t pull in twice that day.

I’ve watched the stock market go up and down like a yo-yo, without any relation to the string or any laws of gravity that used to apply.

In one day, Bear Sterns lost half it’s value- yet their business is based purely on long term financial paper.

The price of everything has seemingly decoupled from reality overnight and is now based on fancy.  This is not an economy anymore- it just became high seas piracy, where you can loot at will, until someone bigger than you comes and loots from you.

Ben Bernanke  at the Fed is throwing whitewash on a fence without fence posts. President Bush has no clue what a gallon of gas costs or why people are losing their homes.

I saw an article “are we talking ourselves into a depression,” and I almost have to laugh- because if you think about it, with an oil and corn based economy, and the prices of both skyrocketing, it won’t stop steamrolling unless someone starts shooting the biggest looters: the major banks and investment companies who created an intricate system of derivative financial paper that was totally built on optimism and an always expanding bull market.

At this point the churn and volatility are feeding the collapse. The simple solution is to lock things down and force some sensible restructuring into place. While the big movers are able to quickly restructure and take advantage of rate changes, the individuals at the bottom don’t have the same ability. To refinance a home takes weeks or months, yet refinancing Bear Sterns can happen on a dime.

To give you a local example, look at the effect gas price changes can have on your budget. Gas prices rise 30 cents a gallon in a week, you buy 30 gallons per week, that’s $9 multiply it out and add it to the cost of all the goods you buy that are shipped by truck and it quickly becomes staggering. This swing in gas prices has no bearing to the price the gas station paid for the gas last week- it’s all based on what the next fill-up is going to cost.

Then, consider my small little family grocery, Halal International Grocery up the street. They price their products on the shelf with stickers when they stock the shelves. Yes, the cost to get their new products goes up, but, since the cost of labor to relabel the goods exceeds the value of changing the prices, there are still bargains to be had. Kroger just changes one shelf label and reprograms their registers and voila, instant price change.

If we slow down the small changes, we won’t see the huge compounded changes which are then spooking the big players – which then restarts the cycle. Each time, the swings are getting wilder and soon, it will be out of control.

It’s not going to be pretty when the brakes go on, but, the crash that’s coming may be fatal. It’s times like these when dictators have risen, it will be a true test of the values our country was build on if we can make it through without the worst in people coming out.

Comments?

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6 Responses

  1. D. Greene March 16, 2008 / 1:03 am
    Well, all I can say is that at least it wasn’t my generation that set up the system responsible for the current economic and financial woes. What do you propose we do, specifically?

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  2. Greg Hunter March 16, 2008 / 1:10 am
    The only reason I bitch is because we all go down together! What is the point of following a path that only leads to folly?

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  3. David Esrati March 16, 2008 / 9:11 am

    I’ve mentioned some of the solutions:
    Stock must be held at least a year or longer, with tax incentives for long term holding. Pull it out before a year, tax profits at 85%
    Stop quarterly reporting.
    If the CEO isn’t the founder or a pre-ipo employee, have restrictions on the ratio between lowest and highest paid employees.
    Link credit card rates to prime, with a max of 15% spread and a cap of 22.5% no matter what prime is.
    Stop repo of homes, if loans were predatory in nature: force restructuring and or give a period of interest only until other options are fully explored.
    Switch to 100% public finance of campaigns- so we no longer have politicians owing too many favors.
    Abandon all subsidies of ethanol until CAFE standards are raised and met.
    Implement zero sprawl initiatives, and focus on walking communities- encouraging walk to work and public transit over car based economy.
    End the war in Iraq. Concentrate on rebuilding America.
    Eliminate highly derivative financial instruments- and refocus on sound business fundamentals.
    If you’ve been reading for a while- I’ve touched on many of these in the past.
    It won’t be easy, it won’t be fun, but, we may not have a choice.

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  4. Greg Hunter March 16, 2008 / 12:34 pm
    It won’t be easy, it won’t be fun, but, we may DO not have a choice.

    Like the housing crisis only much bigger and people still do not get it. The Feds are not leading on this one and it will require the support of the Region in a greater effort than implementing the dam projects for the Conservancy District. The disconnect from Nature is complete, but we will see how that turns out.

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  5. Juan March 17, 2008 / 10:47 am
    David – there already is an incentive for holding stocks long term. That’s the difference in the sort term capital gain tax rate and the long term capital gain tax rate.

    And why stop quarterly reporting? That makes NO SENSE at all. I know that you’re thinking that the quarterly reports are what cause people to make their investment decisions, but by the time the 10Q’s come out, any news that affects the market is already out. And, what if your year of holding time “expires” sometime other than at the end of the year? What should the investor base their decisions on then? Your suggestion makes good rhetoric, but not any sense.

    Along with eliminating ethanol subsidies, how about eliminating tobacco subsidies as well?

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  6. Juan March 17, 2008 / 10:48 am
    oops! I mean “SHORT TERM” not “sort term”

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