Stan

I saw you speak at Howard University two weeks ago and I wanted to thank you again for a brilliant presentation. I sent you an email but I wanted everyone else to know how great it was too! I felt like I was watching Warren Buffett in person. I know that sounds crazy. But Mr. Ponzio definitely has “it”.

We normally have executives from companies like Citi and other big wall street firms. Mr. Ponzio blew them all out of the water. He kept saying what an honor it was to speak at Howard, but I contend that the honor was really ours.

To everyone that reads this website-

If you ever need a speaker at an event, you need Mr. Ponzio. (And please let us know where he will be speaking so I can attend.)

If you ever need someone to manage your portfolio or pension, you need Mr. Ponzio.

Thank you again Mr. Ponzio. Brilliant.

Without outright declaring a “Buy American” protectionist policy, that’s what the government seems to be pursuing right now through monetary policy.

The pains of deleveraging are less severe than the pains of a 1930s-style depression. The trade-off is that our current recovery will likely take longer and have different consequences. On the one hand, we could argue that we shouldn’t bailout the banks. The problem with that argument is that, though the educated, business-minded readers of F Wall Street would find opportunities (in work, in business, etc), the majority of people would be screwed well beyond a less-than-desireable retirement portfolio and one-in-ten chance of losing their paycheck.

On the other hand, we could argue that the banks should not have been allowed to fail. This helps the majority of people, but doesn’t help the educated, business-minded people (like you) that would have seized the opportunity to build something new and great from the ashes of fallen companies.

We have to weigh the risks vs. the rewards, not solely from a financial perspective, but a social order and peace of mind perspective. Which would make our country more delicate from a foreign power/terrorist/business standpoint:

• a 25% economic contraction, with 90% less business spending, 25% unemployment, and citizens unwilling to defend their country because they will not rally behind their government that failed them in their time of need?
• an 8% contraction, high inflation, 12% unemployment, 30% less business spending, and citizens that are in pain, but have not hit rock bottom?

I’m not making economic predictions here. My point is this: If we let the system rebook ala the Great Depression, how long before we are attacked, taken over, or taken out? (It’s easier today than it was in the 1930s.) Would people immediately jump up to rally behind our leaders in this scenario? I’m not sure.

World War II broke out long after we had bottomed out – people were getting back to work, and we were on the road to recovery. Even still, we didn’t jump head first into the War, choosing instead to continue rebuilding our system for a few years. Could we pursue that path today?

There’s a lot more behind this than the numbers, and we’re dealing on a scale much larger and more dangerous than during the Great Depression. If it were purely a stock market / let the weak banks fail problem, the bailout would be wrong. When factoring in the then what, we need the bailout.

Though I admit – certain aspects of it are being handled very poorly.

The real question now is not semantics. It is: are we experiencing a de-leveraging event (circa 1929 and Japan in the 90s) or are we experiencing a normal bout of economic contraction and then expansion brought on/corrected by monetary policy? Joe what you have described is a de-leveraging.

Unfortunately, a de-leveraging takes longer to get out of then a simple monetary policy related contraction. Turning economic activity and creating growth during a de-leveraging is completely dependent on spending and employment because monetary policy (lowering interest rates) is no longer effective due to the zero rate environment. In a typical recession, cutting interest rates prompts borrowing, positive wealth effects, and invesment which eventually leads to a recovery in employment. In a de-leveraging, the inability to continue cutting rates leave only spending of current income to lean on for a reversal of economic decline. No income/employment equals no demand/spending. Saving instead of borrowing further alters demand/spending in the economy and enhances the dependence on employment for economic recovery.

This de-leveraging won’t be as bad as the Great Depression because of the government spending and employment specialization. By the way, the government stimulus is probably not big enough. In 1930s unemployment got above 20%, but you have to remember that are large portion of the population was still engaged in subsistence farming. Now, nobody is engaged in subsistence farming. We’ve all become highly specialized employees emphasizing our comparative advantages. This should put a cap on unemployment. More of a concern is Japan in the 1990s where the powers that be refused to face the de-leveraging head on and let the economy stagger for years. People/companies saved in order to right size their balance sheets which is a dynamic that you described Joe. They did not borrow in the tough times and spend with thoughts of economic opportunity and saving in the future dancing in their heads. Right now, the U.S. government is refusing to take on the current de-leveraging.

Having said all that. There are still some spectacular buys out there. I don’t foresee a greater buying opportunity for some things ever again. There are signficant opportunities to soundly thump the markets over the next few years. It’s a great time to be a value investor.

“If we are to believe that an economy can’t rely primarily on consumers and consumer spending, the entire US economy’s growth has been a sham. Not just recent growth, but the majority of growth for the past seventy years.

See, since 1929 (the earliest GDP data available at the BEA), consumer spending has made up 65.8% of GDP, on average. That is, we have always been a consumer-driven economy.”

Now correct me if I’m wrong, but wasn’t Japan basically manufacturing the little umbrellas we put in drinks at that time? Wasn’t “made in Japan” a commentary on something’s inferior quality? Wasn’t the rest of the world basically a back water producing next to nothing of value? Therefore, wasn’t just about everything all those American consumers were consuming “Made in the U.S.A.? Does it matter that we,

“Both per person and as a percentage of GDP, we manufacture and export more in this country than at any other time in the past seventy years.”, if relative to China and others that is still piss poor? If after consuming all that, we still go out and consume even more of foreign goods? It seems to me that the first part of that 70 years was not a problem, but then things started changing at first slowly and then exponentially.

I still think you are right, that the basic thrust of your post is right on the money, unless of course, we totally flub the banking mess side of it. To be honest, I really don’t know what to think of that one. One minute I think Citi and others should be allowed to go bankrupt, the next that they should be nationalized and the next that we should continue the bailout.