Tuesday, October 26, 2010

The End of Wall Street

Wall Street IS dead. Long live... what?

This is one of those cases of being careful what you ask for - you may just get it.  Actually, this was going to happen - it was as ineluctable as death and taxes.

Bear Stearns and Lehman Brothers have joined Donaldson, Luftkin, & Jenrette; Hambrecht & Quist, Alex. Brown, Morgan Keegan, Pru Bache, and a host of other non-bank brokerages that have gone the way of all flesh.... OK... So who, and what, is left?

Not much, really. A couple of zombie big banks... and Goldman/U.S. Treasury/the Anti-Christ.

The only thing keeping New York and its metro region from slipping off into a Billy Joel like ferrel state-of-mind is the yield spread.  Given where TPTB hail from, the Fed just ain't gonna let that happen - they would rather destroy the currency, California, relations with China... anything but that.

Maybe you are thinking the drug, healthcare, or consumer staples sector... I doubt it... Moore's Law applys to drugs as well as micro chips, 18% of GDP on healthcare is simply not possible in the long run, and just how much bleach and tooth paste do we really need?  It won't be long before folks use half the tooth paste per brushing and reuse spray bottles with diluted vinegar and ammonia... it seems the end of bubbles is nigh... and that means a great many folks will need to make their living by honest toil... especially as the municipal and state tax revenues fail to materialize and all those public employees join the bankers and brokers in the ranks of the 99'ers.

The banks, brokerages and the rest of the financial sector are in for a great deal more contraction.  Given that China and Japan exported things, and the U.S. exported financial services, this is just disastrous for government revenues on all levels.  All of the folks complaining about the "rich" won't have a great deal to complain about in the future... but I don't think that that is going to work out so hot for the "poor" that continue to rely on others for their resources.


This is NOTHING but good news to the next generation, at least for the ones that play their cards right.  Housing costs are no longer going to absolutely destroy them... and if they don't let the student loan thing ruin them... and they stay clear of states and municipalities that want to tax them into penury... AND they absolutely, positively do not marry without a prenuptial agreement... then they have as much of a shot at a beautiful life as any other generation... certainly more than their parents who got sucked into the whole material competitiveness and divorce thing with the help of Hollywood.  (Remember the '80s? Limo's and cocaine and rolexes and the Hamptons... didn't do much for people's well being... turns out that "early to bed and early to rise" was no lie. Who know's what wisdom young folks will pick up next? "A penny saved is a penny earned"?)

The next bubble? Oil has more of a shot than Gold from here, me thinks (but much depends on the various policy responses and initiatives coming out of Washington).


The U.K recently rejected Keynesianism.  Is the U.S. next?  Maybe not yet, but perhaps after the next presidential election.  While absolutely necessary, it will require the greatest political sales job and foresight since Herod rejected Cleopatra's come on, because it will require convincing the elderly to make sacrifices along with everybody else - and living as I do amongst them here in Florida.... well, I am not so sure about that.  The idea that incoming Tea Party folks are already talking about FUTURE cuts and FUTURE age increases for benefits does not sit well with my mathematical mind...

But you never know.


bureaucrat said...

The UK has just started their "French"-like protesting. We'll see just how far the UK austerity gets. Methinks not far.

Also, the answer to life is cycles. Everything that has happened will happen again. Case in point: the silent generation, people born between 1930-45, also known as .. my parents. Cheapskates, both of them. They saw what they Gret Depression did to their parents and the adults around them as pre-teens. Because of that, they have been scared to death of credit.

The Millenials and pre-teens of today are seeing the same thing: watching as the depression of today wrecks their parents with job losses and foreclosures. This current generation of 8 year olds will be incredibly frugal people as adults. Everything comes around again and again.

The baby boomers will look totally foolish in the history books, with Greenspan as their false god.

Dextred1 said...


Honest question. What do we do then? If we go on this pace we will be 20 trillion in debt by 2020 and thats assuming the deficeit spending comes down as Obama budget projects. I just don't see this working out very well. The numbers are scary. 93 million on SS by sometime around 2020 from the current 52 million. You always tell us to tell you answers, but what to you purpose?

bureaucrat said...

Well your question is broader than the piece that Jeffers did and my response. :) This time I was just pointing out that a lot of financial stuff is generational. Just like my parents of 60 years ago who even today shun debt because of the effects of the Great Depression, a similar situation is happening to the pre-teens of today, watching daddy lose the job he never thought he would ever lose, and the eviction from the 4-bedroom suburban house they thought would always be theirs.

This has a profound effect on the kids, cementing their feelings about debt long into the future. And frankly, that is a good thing. I can't wait for the kids to stop spending on their silly video games, compact cars, IPhones, clothes and other unnecessarys. These kids today are children of today's Depression, even if we don't want to call it that. They will not see credit the same way, ever.

tweell said...

I'm not so sanguine about the future, Mr. Jeffers. Housing costs have not dropped as they should, since the too-big-to-fail banks would then have to admit their insolvency. The higher education bubble is still inflated, and you can bet that there will be more government 'help' to keep those deserving administrators employed and those students paying.
As far as avoiding areas of overtaxation, I don't think Texas and North Dakota can put that many people to work. With fewer men choosing to marry, the government fallback position is to treat long-term relationships as marriages, call it common-law 2.0.

PioneerPreppy said...

I can tell you whether it be progressive democrat or tea party republican if they raise the retirement rate or touch any 401K's without first raising government employee retirement to 65 minimum there is going to be complete hell to pay. French riots will look tame compared to what a politician will get here in the US if they raise the social security age to 70 while still allowing government employees to retire with pensions at 55.

Still I stand with Tweel on this one the government is going to continue to manipulate housing rates and downplay inflation until there is nothing left. They will not defund the unions nor change anything except inflate the debt away.

I find it funny that Bur can use the history repeats itself argument but yet ignore such past civilizations as Rome and Greece to name a few. Perhaps we will get a repeat of the 1860's in there as well?

bureaucrat said...

The U.S. isn't Rome or Greece. And, I'd like to think we are indeed smart enough to realize our own problems and deal with them. But 235 years is a long time for a country/empire to exist ...

I would also remind all the government haters (like Jeffers :) ) out there that 1) while I started with the Federal government at age 22, and am scheduled to retire at age 57 (which is normal, but early), that's 34.5 CONTINUOUS YEARS of service to this country. Not 10, not 20, not 30, but way over 30. 2) Most government employees are not like me, starting with the guv'ment as their second or third career, and half don't stay longer than 10 years. Of the six I started with, four are left. Life changes. 3) We also cannot forget the overwhelming majority of people don't live to age 95. Humans die, usually in their 70s. And they usually become disabled long before that.

So there. :)

PioneerPreppy said...

All well and good and I applaud your long service actually. Yes things change and although some 20 odd years ago the average citizen had no issue with someone from the military or the few actual federal employees getting a pension after 20 years of service those days have changed.

You can blame the teachers unions and state governments for that.

I doubt the general populous is going to go for anything less than paid in 401K's (or government equivalent 405? or something) with reasonable matching and no access to it until age 59 like everyone else. Pensions are not going to be paid for much longer I would actually bet my silver ETF's on that. Citizens are going to demand government employees use the same medicaid system as private parties or pay out of pocket for private ones before this is over as well.

Dan said...

Big-Pharma is playing the same games as Wall Street. How long before it dies too? It’s that trust thing I was harping on. If you don’t trust the pharmaceutical companies to at least have some simulacrum of honesty are you going to ingest their products?

BTW a few days ago Charles Smith did a bang up job than of explaining the importance of trust.