Seeing the Round Corners

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August 25, 2020

As the political conventions are about to be over (finally), an earlier column from this writer’s archives is most appropriate.

When it comes time to voting for a President of these United States, voters sincerely (knowingly or not) want to believe what their political party candidate says he/she will do and how they will lead. It is interesting to watch and listen to what is said. When a candidate has been in office and delights in his accomplishments, they are reiterated over and over in campaign ads.

The present election politics is about to implode due to the status of various aspects of American voters and their daily lives such as the stock market which is at a record high and the Democrats have been unable to keep it crashed. Companies have returned from overseas locations with the collateral benefits of the lowest unemployment in all segments of the American population, including Blacks, Latinos, and other minorities

The important “gem” to glean from this election (and the four years of the Trump Administration) is the incessant attack on President Trump and the Democrat’s failure to have anything to tell the American people (and the world) what their plans are for the country. The Democrats offer at best vague ideas and nothing but old recycled ideas that have never benefited the American people. The most dangerous of all ideas – SOCIALISM – is the underlying force. Medicare For All is socialism no matter what color it is painted!!!

Americans may want to make careful comparison to today’s economy and the one in 2011 as described following before they vote in the 2020 Presidential election.

REPTILIAN BRAINS AND THE RECESSION         August 15, 2011             
Sometimes, just sometimes, the American people are their own worst enemy. This past week’s volatility in the stock market proves yet again just how appropriate that statement is for this present day and time. 

To set the “tone” for this edition, this question is posed:  When has the stock market not rebounded immediately or shortly after hitting bottom? Yet every time the market is manipulated into one of these “plunges” to the bottom, investors react bypassing the intelligence that drove them to invest in the first place. The reptilian brain takes over! 

Humans are endowed with three main brain functions:

  • the fore-brain (neocortex):  thinking and reasoning;
  • the mid-brain (limbic system):  emotional center; and
  • the hind-brain (alertness/autonomic brain processes of the body):  heartbeat, blood pressure and fight or flight responses.

The hind-brain is located in the area of the brain stem, and is similar to the entire brain of today’s reptiles (lizards, birds, etc.)  

So what does reacting with reptilian brains mean? Just as breathing, heartbeat, digestion, blood pressure and fight or flight response are autonomic brain processes of the reptilian brain, impulses such as survival and self-care kick in when investors think their 401K’s and life-long investments have gone down the drain.  Far too often, the reaction is to sell off and get out, a response so strong as to overpower the most advanced area of the brain – the fore-brain which functions for thinking and reasoning. rhaps the best advice a financial adviser can give a client is “turn off the news and I’ll call you when the market rebounds!” 

Only a week prior to last week’s stock market dive, the Wall Street Journal (WSJ) posted its “Ten Signs the Double-Dip Recession Has Begun.” 

  • Inflation:  A rapid rise in prices as evidenced by Starbucks 17% increase in the price of coffee; cotton prices doubled in 2010; and the increase in retail prices of sugar, meat and corn-based products as well;
  • Investments have begun to yield less:  The DJIA’s last plunge (to below 7,000 that time) was in March of 2009, but was back above 12,000 until the sonic drop on August 4th. However, the rise had slowed during the three months prior to August 4th, with the ten-year Treasuries yield at about 3 percent. 
  • The auto industry:  Slow car sales are a sign of a slowing economy and lagging consumer confidence.  Car sales slowed after year-over-year improvement through April of this year, but then stalled in May with the decline attributed to high gas prices and supply problems as a result of the earthquake in Japan. GM and Chrysler emerged from bankruptcy after receiving huge bailouts from U.S. taxpayers only to see, along with Ford, a 1 percent drop in sales, according to the WSJ. Remember in all this mix – JOBS – several thousand had been cut before and during the last recession with rehiring just beginning, only to end as sales dropped in May. 

Point-of-Information:  Hopefully, the impact on the American economy by disruption of manufacturing capacity in Japan by the earthquake is noted by the reader.  See “China Economy Slows” later in this edition.

  • Oil Prices:  Even oil prices have contributed to the fray, not responding to the re-slowing of the economy as is usual. The drop in 2008 and 2009 was from $140 per barrel to $50 per barrel, but is now above $100 per barrel showing no signs of such a dramatic drop. The impact felt by consumers, then retail businesses, as consumers reduce their driving to make purchases, and by airlines and other services companies pass increased fuel costs on to customers. Yet more foreign impact as no increase in production is announced by IPEC. 
  • Federal Budget:  The debt limit debate did its fair share to prevent a full economic recovery. Job cuts at the federal level will pale to those predicted in state and local governments which are predicted at 450,000 in 2010 and 2011. Massive deficits in states such as California and New York mean higher rates on their bond payments, adding to the problem of deficits. 
  • China Economy Slows:  How America could reach this point is sad, but be that as it may, “U. S. exports to China are key to the health of many American businesses,” (and their employees), according to the WSJ.  China’s economy has grown so vast that its slowdown “is usually seen as a cause of global commodity price inflation.” Tightening the ability to borrow money by China’s central government is responsible for a decline in Chinese purchaser manufacturing and export numbers. The “trickle” down is that if demand for energy and raw materials fall, so does demand for good and services by China’s large and growing middle class fall. Large U. S. companies such as General Motors (one of the two largest car companies in China) are impacted. Take note, spending in China by the Chinese people now impacts American companies! 
  • Unemployment:  The consequence is more than two-fold as those unemployed have no choice but to reduce their spending while government must fund unemployment benefits as it struggles to cut spending. The scared elderly, always a favorite target, end up delaying retirement, keeping jobs younger workers could take for three reasons:  threatened cuts to Social Security, Medicare and huge declines in the value of their homes.  Home values have dropped to 2002 levels.  No doubt, many older Americans regret making their home value the significant financial basis of their retirement  The most serious of the choice indicators is an estimated 5 million Americans have been unemployed for over a year and face running out of benefits if they have not already, according to the WSJ. 
  • Debt ceiling:  As we all know, the debt ceiling was raised in time to avoid default, but the debate resulted in such acrimony, the refrain heard all too often throughout America was “fire the whole bunch!” Reducing America’s debt, even slowing its growth, requires difficult and often unpalatable solutions, even in a stable economy, but as the recession lags on, dealing with the debt limit and the deficit are nearly a contradiction in reality. Higher taxes will be an impediment to the economic recovery. Cutting services to reduce expenditures will be unacceptable to voters back home with the election year only four short months away. The Federal Reserve’s action to leave interest rates at a historically low rate may have a positive effect on purchases and hiring but that remains to be seen. 
  • Access to Credit:   Small businesses are given credit as the main driver of economic growth, but banks are now “less willing to loan money to companies with under 100 workers because these firms often rely on a few customers for revenue and usually have very little money on hand.” Large corporations are sitting on $1.2 trillion in cash as disclosed CBS’ 60 Minutes (General Electric, Cisco, others)! Construction jobs that represent a large proportion of the employment base in many areas of the country such as Florida have not rebounded. 
  • Housing:  The WSJ labels the housing market as the “single largest drag on the American economy.” Values escalated at a ridiculous pace with the American home being looked on as “the primary source for money used for retirement, college education and the purchase of many expensive items such as cars.” The combination of this type of leverage and the collapse of real estate values proved disastrous, bankrupting many people who lost jobs or found themselves with negative equity and unable to sell because they could not pay the bank at closing. Construction jobs in the home building industry accounted for a huge jump in unemployment.   

That reptilian brain mentality is obvious in so many aspects of America’s daily lives. Reacting without thinking or reasoning is the reptilian brain influence plain and simple. Homeowner’s borrowing to the hilt with no consideration given to the possibility of consequences is reptilian brain influence at its worst!! 

Food for thought – regardless of what county assessors impose, state property tax departments dictate and realtors tout, does it make common sense to act as though property values will forever escalate?  Just think, using that reptilian brain mentality, the average size residential lot will be valued at a million dollars at some point in time. Everyone owning a home will be a millionaire!!!!

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