The Big Picture

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• The Strange Case of Bandit Bumblebees
• Stiglitz: High Unemployment & High Corporate Profits
• All Empires Crash Soon After They Reach Their Peak
• Meet Up Los Angeles
• 10 Mid-Week PM Reads
• 1993 vs 2013
• Where Is ‘the Party’ Now?
• 10 Mid-Week AM Reads
• Exuberance? Euphoria? Hardly . . .
• The Daily Show: Residential Evil

The Strange Case of Bandit Bumblebees Posted: 09 May 2013 02:00 AM PDT Insects learning behavior from other insects? The question about nectar robbery that has intrigued biologists from Darwin onwards is whether the behaviour is innate or learnt. Darwin, though he originated the idea that many behaviour patterns are products of evolution by natural selection, suspected that it is learnt. Insects, in other words, can copy what other insects get up to. Only now, though, has somebody proved that this is true. Via The Economist

Stiglitz: High Unemployment & High Corporate Profits Posted: 09 May 2013 01:00 AM PDT Nobel Prize Winner Joseph Stiglitz explains why income inequality remains stubbornly high despite impressive gains in corporate America and the stock market with New York Magazines Frank Rich on Rachel Maddow March 5th, 2013.

All Empires Crash Soon After They Reach Their Peak Posted: 08 May 2013 10:30 PM PDT Why America Fell So Far … So Fast Thomas Edison said, "Dissent is the highest form of patriotism."   And because I love my country, I frequently criticize America's shortcomings in the hopes of making her better. But the truth is that the United States is not unusual … it is just like all other empires which have hit their peak and then quickly crashed. We noted in 2008: Political insider and veteran reporter Kevin Phillips has documented that every major empire over the past several hundred years has undergone a predictable cycle of collapse, usually within 10 to 20 years of its peak power. The indications are always the same: - The financialization of the economy, moving from manufacturing to speculation; - Very high levels of debt; - Extreme economic inequality; – And costly military overreaching. We wrote in 2009: In 2000, America was described as the sole remaining superpower – or even the world's "hyperpower". Now we're in real trouble (at the very least, you have to admit that we're losing power and wealth in comparison with China). How did it happen so fast? *** How Empires Fall Paul Farrel provides a bigger-picture analysis, quoting Jared Diamond and Marc Faber. Diamond's book's, Collapse: How Societies Choose to Fail or Succeed, studies the collapse of civilizations throughout history, and finds: Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power… One of the choices has depended on the courage to practice long-term thinking, and to make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions And PhD economist Faber states: How [am I] so sure about this final collapse? Of all the questions I have about the future, this is the easiest one to answer. Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent … overspends … costly wars … wealth inequity and social tensions increase; and society enters a secular decline. [Quoting 18th century Scottish historian Alexander Fraser Tytler:] The average life span of the world's greatest civilizations has been 200 years progressing from "bondage to spiritual faith … to great courage … to liberty … to abundance … to selfishness … to complacency … to apathy … to dependence and … back into bondage" [Where is America in the cycle?] It is most unlikely that Western societies, and especially the U.S., will be an exception to this typical "society cycle." … The U.S. is somewhere between the phase where it moves "from complacency to apathy" and "from apathy to dependence." In other words, America's rapid fall is not really that novel after all. How Consumers, Politicians and Wall Street All Contributed to the Fall On the individual level, people became "fat and happy", the abundance led to selfishness ("greed is good"), and then complacency, and then apathy. Indeed, if you think back about tv and radio ads over the last couple of decades, you can trace the tone of voice of the characters from Gordon Gecko-like, to complacent, to apathetic and know-nothing. On the political level, there was no courage in the White House or Congress "to practice long-term thinking, and to make bold, courageous, anticipatory decisions". Of course, the bucket-loads of donations from Wall Street didn't hurt, but there was also a religion of deregulation promoted by Greenspan, Rubin, Gensler and others which preached that the economy was self-stabilizing and self-sustaining. This type of false ideology only can spread during times of abundance and complacency, when an empire is at its peak and people can fool themselves into thinking "the empire has always been prosperous, we've solved all of the problems, and we will always prosper" (incidentally, this type of false thinking was also common in the 1920′s, when government and financial leaders said that the "modern banking system" – overseen by the Federal Reserve – had destroyed instability once and for all). And as for Wall Street, the best possible time to pillage is when your victim is at the peak of wealth. With America in a huge bubble phase of wealth and power, the Wall Street looters sucked out vast sums through fraudulent subprime loans, derivatives and securitization schemes, Ponzi schemes and high frequency trading and dark pools and all of the rest. Like the mugger who waits until his victim has made a withdrawal from the ATM, the white collar criminals pounced when America's economy was booming (at least on paper). Given that the people were in a contented stupor of consumption, and the politicians were flush with cash and feel-good platitudes, the job of the criminals became easier. A study of the crash of the Roman – or almost any other – empire would show something very similar. We pointed out in 2010 that more empires have fallen due to reckless finance than invasion.  (Whichever side of the stimulus-austerity debate you agree with, spending walls of money on things which neither help people or stimulate the economy is idiotic.) Inequality was – indeed – one of the main reasons for the fall of the Roman Empire … and inequality in America is much worse than in Ancient Rome.   In fact, inequality in America today is twice as bad as in ancient Rome , worse than it was in in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America. Finacialization? Yup, we've got that in spades …  Economist Steve Keen has also shown that "a sustainable level of bank profits appears to be about 1% of GDP", and that higher bank profits leads to a ponzi economy and a depression).  But government policy has been encouraging the growth of the financial sector for decades: Corruption? Check … the government and big banks are all wallowing in a pig sty of criminal fraud.  The economy has been hollowed out due to looting and fraud. And our institutions are so corrupt that people have lost faith in the economy.  They are so corrupt and oppressive that people are more afraid of the government than of terrorists. The bigger the bubble, the bigger crash … and we've just come out of the biggest bubble in history. Costly military overreaching?  Definitely… The war in Iraq – which will end up costing between $5  and $6 trillion dollars – was launched based upon false justifications. Indeed, the government apparently planned both the Afghanistan war (see this and this) and the Iraq war before 9/11. It is ironic that our military is what made us a superpower, but our huge military is bankrupting us … thus destroying our status as an empire. Empires which fight "one too many wars" always collapse: "Just one more surge!" — The Indus "Just one more surge!" — The Kushan "Just one more surge!" — The Scythians "Just one more surge!" — The Parthians "Just one more surge!" — The Saffarid "Just one more surge!" — The Ghaznavid "Just one more surge!" — The Ghorid "Just one more surge!" — The Timurid "Just one more surge!" — The Hotaki "Just one more surge!" — The Durrani "Just one more surge!" — The Aryan "Just one more surge!" — The Persians "Just one more surge!" — The Sassanids "Just one more surge!" — The Hephthalites "Just one more surge!" — The Huns "Just one more surge!" — The Mughals "Just one more surge!" — The Arabs "Just one more surge!" — The Turkic "Just one more surge!" — The Hazaras "Just one more surge!" — The Khwarezmids "Just one more surge!" — The Mongols "Just one more surge!" — The British "Just one more surge!" — The British (again) "Just one more surge!" — The British (Yet again) "Just one more surge!" — The USSR "Just one more surge!" — The United States

Meet Up Los Angeles Posted: 08 May 2013 02:30 PM PDT I am in town for a few meetings and speeches this week. If anyone is game for drinks near the Palomar Hotel from 5-7pm tomorrow (May 9th), please tweet to me @Ritholtz See you tomorrow!

10 Mid-Week PM Reads Posted: 08 May 2013 01:30 PM PDT My afternoon plane reading: • What If The Markets are Undervalued…? (Howard Lindzon) • Should the United States Have 2.2 Million More Jobs? (Brookings) see also Austerity Has Cost The U.S. Economy 2.2 Million Jobs: Study (HuffPo) • Fast Times In The Corner Office: Impatient investors. Volatile markets. Why the speed of business is dooming CEOs. (Daily Beast) • CNBC Viewership Plunges To Eight Year Lows (Zero Hedge) see also Saving CNBC in 7 Simple Steps (Schaeffers Research) • The Food-Truck Business Stinks (NYT) • Stocks With Room to Expand Their Dividends (Barron’s) see also Are These The Breakout Dividend Stars Of 2014? (Street Authority) • Who won the $1.7 bln settlement between BofA and MBIA? (Thomson Reuters) • LinkedIn’s Real Value: Knowing All About People in All the Right Places (WSJ) • Urban Compass: can a startup finally fix the nightmare of renting an apartment in NYC? (The Verge) • Newly Declassified Memo Shows CIA Shaped Zero Dark Thirty’s Narrative (Gawker) What are you reading?   Americans Are Borrowing Again but Still Less Than Before Freeze Source: WSJ

1993 vs 2013 Posted: 08 May 2013 11:30 AM PDT 1993: Apple Newton MessagePad, 100, JVC Video Camcorder, Apple PowerBook 160, Motorola DynaTAC cell phone, Polaroid OneStep, Sony Sports Walkman cassette player, pager and a digital watch. 2013: iPhone

Where Is ‘the Party’ Now? Posted: 08 May 2013 08:04 AM PDT Nobody goes there anymore. It's too crowded. ~ Yogi Berra As a philosopher-type, I like to use metaphors; they can be effective in painting an abstract picture that enables universal understanding. But metaphors can also provide a means to concrete translation for the individual. In a non-philosophical description, metaphors can be instructive and entertaining. So let's entertain ourselves today by observing the collective capital market and economy in terms of the “party metaphor” and let me know where you think the party is today. Nothing Attracts a Crowd Like a Crowd The party metaphor works because every party (and every market cycle) is different, yet they all take a similar shape or form. However, it's not a perfect metaphor (if there is such a thing) because the beginning of the stock market party is marked by the end of the previous party. There are also people who attend parties but may not be labeled as “partier.” But before I digress into party semantics and appropriateness of metaphors, let's begin forming a vision of which stage this current capital market and economic party stands today: The Beginning of the Party: The Federal Reserve brings out the punch bowl to get the party going and the politicians set the mood with music, lighting and games or anything they can find to create atmosphere (better known as illusion). The Middle of the Party: The party-goers begin to separate into their own groups and assume behavioral roles. There are those party-goers (the partiers) who never seem to stop partying; they are among the first to arrive and the last to leave. There are also the party-goers who attend but stand in the corner sipping on a cocktail, either amusing themselves by observing what they perceive to be the crowd's foolishness or they are just killing time because their spouse "made them go." There are also the late-comers who have not yet arrived; they either like being late, they are still trying to decide if they should attend or not, or they haven't yet heard there is a party because mass media and/or social media is their primary source(s) of information. The End of the Party: The absolute end of the party is difficult to predict but they have a common form. The beginning of the end comes when the Fed removes the punch bowl (or even when there is a rumor the punch bowl is about to be removed) as some party-goers leave. But the size of the crowd is not yet at its peak. As the absolute end of the party nears, the late-comers are still arriving. Politicians begin to hand out "prizes" (bought, of course, with cover charge money) and they water down the punch, which signals some party-goers to leave but “free stuff” makes the unaware partiers even more excited. The media also begins to spread word of the party, which brings out the final wave of late-comers. So Where is the Party Now and What Kind of Party-Goer Are You? We can at least agree that the Fed's punch bowl is still out. But do you believe the party is nearing an end or might it still be in the middle? What kind of party-goer are you? Personally, I'm the one in the corner sipping on a cocktail while quietly observing others. I'm not the first to arrive, nor the last to leave. I'm self-employed and the vast majority of my capital is in my own business. Therefore I like to “party” at my own house and leave the big parties to the professionals and the amateurs. Let me know what you think. As Barry would say, “What say ye?” ————————————————————— Kent Thune is the blog author of The Financial Philosopher. You can follow Kent on Twitter @ThinkersQuill.

10 Mid-Week AM Reads Posted: 08 May 2013 07:00 AM PDT My airplane reading for today: • Dow Closes Above 15,000 (WSJ) but see also Dow's hitting new highs — but are you? (MarketWatch) • How To Invest, Think and Live Like Sir John Templeton (Forbes) • Germans Splurge on Italian Homes Locals Can't Afford (Bloomberg)  see also The German model is not for export (FT.com) • ‘Cause these guys did so well spotting bubbles last time: Fed Council Warns of Credit Risk, Asset Price Bubble (Businessweek) • Welcome to the post-BRIC world (Economist) see also No-one is impressed by China's amazing April trade figures (FT Alphaville) • Five Rich Men to Watch at Ira Sohn (WSJ) • Funds See Opportunity in Real Estate (WSJ) but see Federal judge questions constitutionality of Colorado foreclosure law (Denver Post) • Going Public: Endowment performance at our great state universities (All About Alpha) • Navy Ship Can't Meet Mission, Internal U.S. Report Finds (Bloomberg) • This Is the Most Detailed Picture of the Internet Ever (and Making it Was Very Illegal) (Motherboard) What are you reading?   Americans’ Confidence in the Economy Ties Record High Source: Gallup

Exuberance? Euphoria? Hardly . . . Posted: 08 May 2013 04:29 AM PDT Yesterday, the DJIA closed at a new record high, at 15,056.20 while the S&P500 closed at 1,625.96. While I keep hearing some people claim there is an excess of giddiness, please excuse me for failing to see it. My frame of reference is the 1999-2000 top, and I certainly do not see anything remotely resembling that sort of sentiment. We cannot say it even resembles the 2007 top. Remember the Dow 10,000 hats on CNBC? The insane expense accounts, lavish spending? The forecasts of Dow 36,000? In 1999, the nonstop media coverage of markets resembled a home team making it to the Superbowl or World Series. Stocks had become the hottest sport there was. You could not attend a cocktail party or BBQ without the conversation turning to tech names doubling and tripling. We have none of that now: No Dow 15,000 hats on TV. No media trucks lining the street outside the NYSE or Nasdaq to cover the milestone. Hardly any mention of it on the nightly news. Kevin Lane forwarded a note from a friend: “it took until 6:42 pm to get to it, which was a 5 second mention with just a studio read by Brian Williams. No remote from the floor, and they didn’t bother to drag in one of the stooges from CNBC (in one of those corporate co-branding efforts) to breathlessly tell us all what it all means.“ This indifference is not the sort of thing typically seen at tops. Look, I am not saying you have to see lines of blow being snorted off of a $2,000 a night call girl’s ass to say things have gotten irrationally exuberant, but how about a little something? As we have been saying since 2009, this continues to the most hated rally in market history. Until that changes, I suspect it has farther to run . . .

The Daily Show: Residential Evil Posted: 08 May 2013 03:00 AM PDT The Mortgage Electronic Registration System is like a key party, but instead of f**king your wife, they lose track of the deed to your house. The Daily Show with Jon Stewart Get More: Daily Show Full Episodes,Indecision Political Humor,The Daily Show on Facebook Tuesday May 7, 2013 (06:26)

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