“Capitalism threatens our existence.”
That's the message today from legendary investor Jeremy Grantham, who's GMO Capital manages $97Bn and, like Buffett, writes an annual letter to his investors. Part one of the letter has some great general investing advice but part two gets very interesting as Grantham titles it "Your Grandchildren Have No Value (And Other Deficiencies of Capitalism)" exposing what he considers the "two or three main flaws" of Capitalism that are "potentially fatal and have gone largely unaddressed."
A sustainable economic system, for instance, can’t be based on ever-increasing debt, corporations can’t be allowed to run governments and loot treasuries, and “growth at any cost” is a recipe for planetary suicide.
Grantham points out that a company is now free to spend money to influence political outcomes and need tell no one, least of all its own shareholders, the technical owners. So, rich industries can exert so much political influence that they now have a dangerous degree of influence over Congress. And the issues they most influence are precisely the ones that matter most, the ones that are most important to society’s long-term wellbeing, indeed its very existence.
Thus, taking huge benefits from Nature and damaging it in return is completely free and all attempts at government control are fought with costly lobbying and advertising. And one of the first victims in this campaign has been the truth. If scientific evidence suggests costs and limits be imposed on industry to protect the long-term environment, then science will be opposed by clever disinformation. It’s now getting to be an old and obvious story, but because their propaganda is good and despite the solidness of the data, half of the people believe the problem is a government run wild, mad to control everything.
Here are some of Grantham’s finer points:
- Capitalism too heavily discounts the future value of cash flows as it seeks to raise debts: “Your grandchildren have no value.”
- "For example, let us say that a firm’s current actions are going to cost society at large a billion dollars’ worth of harm in 50 years. Further, let us agree that all of the costs will definitely be imposed on the company. The company would feel that pain today as equivalent to only a mere $1 million hit to earnings. Why should they care?"
- Companies foolishly reward executives for taking on debt: “Total remuneration … for senior officers … rose as a percentage of the average worker’s pay from 40 times in Eisenhower’s era to over 600 times today with no indication of any general improvement in talent.”
- It’s about profit, not people: “Capitalism in general has no sense of ethics or conscience. Whatever the Supreme Court may think, it is not a person.”
- The more people borrow, the more they just gamble: “Leverage … increases your returns over and over until, suddenly, it ruins you. … There are no Investors Anonymous meetings to attend.”
- This time, it’s not so different: “Ignore the … inevitable cheerleaders who will assure you that this time it’s a new high plateau … even if that view comes from the Federal Reserve itself. No. Make that, especially if it comes from there.”
- Washington is becoming a corporate subsidiary: “What Capitalism has always had is money with which to try to buy influence. … The issues they influence are precisely … the ones that are most important to society’s … very existence.”
- Big companies can’t help it: “Ethical CEOs can drag a company along for a while, but this is an undependable and temporary fix.”
- Economic theory ignores natural laws. It suffers an “absolute inability to process the finiteness of resources. … Capitalism wants to eat into … limited resources at an accelerating rate with the subtext that everyone on the planet has the right to live like the wasteful polluting developed countries do today.”
- It’s not just inexpensive oil we are running out of: The “loss of our collective ability to feed ourselves, through erosion and fertilizer depletion — has received little or no attention.”
- Americans are too optimistic: “They adopt a hear-no-evil approach to life and listen exclusively to good news. … There are always a few experts lacking in long-horizon vision, simple common sense, or whose co-operation has been rented, like “expert” witnesses at a murder trial, who can be dragged out to reliably say that everything will always work out fine.”
- Governments must step in. “To interfere with Marx’s apocalyptic vision, we need some enlightened governmental moderation … before capitalism gets so cocky that we have some serious social reaction.”
- Where Marx and Engels got it wrong was in thinking workers would unite. “It’s going to be hard to have a workers’ revolution with no workers. Organizing robotic machine tools will not be easy.”
Does Grantham go too far or is he just part of the growing chorus of Capitalists questioning Capitalism? As I said way back in 2009 in "A Tale of Two Economies," the widening gap between the rich and the poor has gotten to the point where it is now harming the system and some (not too many, I'm afraid) of us Capitalists don't think it's prudent to simply take what we can from what's left of the bottom 99%'s wealth as if our fate is not entwined with theirs.
The concept of "giving back" has been ground out of the American mind-set and it's led to mountains of unsustainable debt World-wide as well as the destruction of the US and European Middle Class – turning the First World into a nation of haves and have-nots – a situation that simply cannot last, no matter how many new reality shows we come up with to distract the masses.
Eurozone unemployment hit 10.7% in January, the highest level since the Euro was established in 1999 and, outside of Germany, it's over 12% with Spain and Greece at 20% unemployed. December was revised up another 0.2% to 10.6% as well. 24M people in the Eurozone are unemployed and inflation is up 2.7% so those benefit checks buy less and less every month yet investors continue to believe that, where there is a whole lot of smoke – there is no fire.
Our own economy lost another 351,000 jobs last week with 7.5M people in the US collecting benefits and the other 9M finding that even 99 weeks isn't long enough to find a job before those benefits run out.
Personal income was up 0.3% in January but Disposable Personal Income was up just 0.1% as every dime of that extra $14.1Bn went straight into our gas tanks. That left Real Disposable income up just 0.1%, which is down from 0.3% in December and half of what was expected by Economorons, who don't seem to know that people buy gas and food – despite what the Fed says.
We wisely shorted oil (/CL) at $107.50 and gold (/YG) Futures at $1,720 in the morning's Member Chat and we've had two runs back to $107.25 on oil already and gold is back to $1,704 as the Dollar heads back up to test the 79 line with the Euro already failing to hold $1.33 and the Pound rejected at $1.595 but with a long way to fall to catch up to the Euro. We expect oil to run up to perhaps $108.50 again into natural gas inventories at 10:30 but then we'll want to get short again, most likely.
The Pound is holding up well because Martin Weale, of the BOE says that U.K. inflation may prove more persistent than expected, making it unlikely the economy will require further stimulus once the current round of bond purchases ends. Higher oil prices and potential wage pressures as the economy recovers “suggest a risk that there may be more persistence to inflation than one might expect at a time of rising unemployment and weak demand,” Weale said in a speech in London late yesterday. “I do not think there is likely to be a further case once our current program is complete” in early May for more bond purchases.
That will be good news for JP Morgan, who purchased $147.3Bn worth of insurance against just $142.4Bn in debt against bonds they sold to the PIIGS as well as for Goldman Sachs, who reported yesterday that they had purchased $147.3Bn worth of insurance against just $142.4Bn in debt. Before you go thinking there might be some sort of conspiracy involving what would have to be clearly illegal communications and coordination between our biggest Banksters, and not just the most amazing cosmic coincidence of all time – let's hear what one of their pet analysts, Chris Kotowski of Oppenheimer, has to say on their behalf:
"There are a nearly infinite number of possible coincidences that could occur any day of the year but don't. Every now and then, they do."
Well, I certainly feel better. Until I remember that we have a 1 in 625 chance of being destroyed by a giant asteroid in 2040 – we'd better hope that JPM and GS aren't rolling those dice!
Apparently the pipeline "explosion" is a fire a kilometer away from the actual pipeline. There's also some blather about oppressed tribesmen or something and the US needing to pressure the Saudis to deal with it. I don't normally say this, but WTF?? From the link dropped earlier by dclark41.
"A pipeline between Awamiya and Safwa has been reportedly targeted, and is under fire; the Saudi government sources were quick to claim that the fire is one kilometer away from the pipeline."
I like that idea StJ – As long as it's not too much hassle for you, let's give it a try.
re: Start Profit
Then I would like to take credit for coining the phrases, "Start Loss" and "Stop Profit", for those trades made that resulted in same.
F'r instance, you would execute a, "Start Loss", transaction when you have a monstrous recognized gain in AAPL by 12/31, (which all of yours would be because you are buying and selling within a few hours or day) and have, in another security, a sizeable loss that has very little likelihood of redeeming itself within the 30 day' wash sale' rule. This would reduce your capital gain taxes (shhh…..don't tell Felipe..) .
Portfolio / Phil – I'll see this weekend if it's a problem and we can adjust Monday, but can't be much more of a hassle than what I do now… And that will leave people to make choices instead of being guided along!
I have meant to post this article, but Dylan is talking about that now…
That goes along with the post I had last week on getting rich changes you! It seems that there are proofs now.
So I take it blue is the new red.
Proof/Stj – or does it just mean that lying, cheating and stealing actually pays…? Seems to work for Congressmen.
chasw – lflantheman's AAPl 50K Portfolio started out as 50K on 12/6/11, but now has grown to (at least) 225K (175K profit + 50K start) … that is how can he can buy 10, 20, 40 contracts at a time.
Burrben…..from your earlier question 1:26 post. Nothing fancy. I trade mostly on TDA. Their charts are decent and I look at the 10 day, 5 day, 1 hour candlesticks. I look for trends, but don't often overlay with moving averages or other derivatives. Because I'm so familiar with this stock the price trends over time are pretty much burned into my brain, but I note particularly the 5 to 10 day trend. I study the overall market trends several times daily, because if the overall market moves up or reverses AAPL usually follows (or leads), but not always. I read as much news as I can find (in the time I have available to me) on AAPL. A lot of it is crap, but some is useful. I read what Phil has to say about the markets, and about AAPL, but I don't allow any other trader (not even Phil!) to influence my AAPL trading decisions much. Many seem confused as they watch me trade this stock, which tells me that my trading techniques are somewhat unique, or out of the ordinary. Perhaps, but it works for me. Hope that helps.
chasw….4:13 post. Well, I just buy and sell them. The options I'm using right now are the April 500s, and the portfolio is no longer 50k, but more like 225k, so I have to choose options that are expensive in order to keep trading costs lower, because one of the ways I make money on AAPL is by swing trading, my definition of which is buying options, then selling them when they "swing" to profit. So if I need to move 25k or 50k in and out the market at a time, then I have to use expensive options. Otherwise I'd be spending thousands of dollars just to trade. Right now the April 500s are about $50 per option, so I can buy just 10 for 50k. I don't expect most others following my trades to be moving these amounts around (yet….but keep trading AAPL and maybe!) so they can work in percentages of what I'm using for the trades. Buy one option , or two, instead of 10 or 20, and so on. Hope that answers your question.
Stjeanluc……think dylans article is similar to reciprocal altruism….which can be distorted into pointing out as people need other people less, reciprocity ends. Hence, when the rich get richer it is our nature not to help others or compound our generosity…its simply in our DNA……(sad i know)
Iflan/diamond, Thanks for answering, just looking for confirmation.
Doug Kass of Seabreeze Partners Management this morning advised investors that he has taken up a “small short position” in Apple (AAPL) stock given that it is “trading at an historic premium to any of its moving averages.”
With Apple shares up 14 cents at $542.58 this morning, the stock is above the 30-day average of $477.48, the 50-day average of $450, and the 100-day average of $420.72.
Kass a short while later tweeted he was shorting more of the PowerShares QQQ Trust as Apple seemed to display weakness after the Institute for Supply Chain Management published its “Report on Business” for the Month of February, showing a reading of 52.4 versus economists’ expectation for a 54.6 reading.
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Sad indeed Stardawg!
looks like the oil pipeline explosion rumors were false, anyone want to bet we we do not drop to where we beagn the day. I have noticed rumors that move a market seem to maintain the market in favor of the direction of the rumor…my 2 cents
sage – I'm guessing one reason it holds on is it's tough for the bagholders who bought during the frenzy to let go.
Joe Walsh / Phil
Joe lives two houses away from me. He has visited a couple of times because we have a hobby in common — amateur radio. He is extremely nice, down-to-earth, reliable and humble. I think he is happy without the drugs.
RonR: Joe Walsh? Damn. I've got the last Crossroads show CDs, he did a great set, I'd love to know what boxes/set up he hooks up to his equipment. With or without the drugs or the Eagles, great player. Love to see his guitar collection. I've got one, but not likely in the same league. Did hang onto a '59 Strat that has the tone, though – – not all of 'em do. I asked a luthier about that once, and he told me "the average wood used today is superior — back in the day, quality was widely dispersed. But today's wood has less variation in quality, back then you would occasionally get an amazing piece, a function of that dispersion." I lucked into one that does, off of Ebay @ 2002, the Holy Grail of Strats, slab rosewood, the whole deal. I'll bet he has one at least as good, in what must be a dream team collection.
Blue/Ink: Thats what happens when you take the blue pill. Everything is SO much nicer.
Shorting oil futures at 108 with dollar rising
Dollar being sold/ oil rising and out with a small loss
Same conditions, dollar rising and off $108
Well…..I've been gone for 10 days and I see nothing much has changed.
The rising channel is still in tact for most of the index's. They've been bouncing off the 10 DMA like it's an impervious force field.
BTFD's still the flavor of the day. I'd imagine they'll spike the RUT to get it back in line shortly.
6:24 AM Oil futures are -0.7% as the market buys a Saudi denial of reported pipeline explosion in its Eastern province, which SEB strategist Filip Petersson described as a "very successful scam" by the Iranians. "They want higher oil prices to compensate for lost export barrels and are obviously using various means to achieve it."
Ohh it was an "Iranian' scam!
So we should be back to where we were then … below $107 and with a dollar stronger today may be even lower…
lionel – Looks like you're not buying their story?
…And there it goes!
No I am not.
I am outraged by the rubbish US financial media spit out every day.
Now, I made 30c on the trade just because I was saved by poor German retail sales data.
Oil is well "defended' by our "Iranian" friends 🙂
Amazing how easy it is to spook the oil market. The picture I saw of the "Explosion!" looked like a brush fire with no pipeline anywhere in sight.
Mate, I swap teams and go with the flow.
Buying oil now below 108 looking for 30 c up
Lost my morning commentary as my computer decided to freak out but better now that I turned my trusty baseball bat on it. Side effect is – now it's bullish!
Anyway, short story is BOJ said they would expand messing around with Dollar and Dollar is 79.34 so it's amazing we aren't down more this morning but I think we will be if the Dollar stays up as we were 78.80 yesterday so it's a 1% gain.
Oil right on $108 line, Gold $1,715 so both of those should fail if the Dollar stays over 79.25 and our indexes are already down 0.25% but could do much worse with little prodding.
On to new post…
Phil / WordPress
If you are writing you post in the WordPress blog editor, and not our little "comment" box, WordPress will save a copy of the post every minute. So you can just revert back to the Autosave.
FWIW, I stopped writing in the comment box. I now write in a editor with autosave, and copy/paste into the comment box.