Blair Dehuff

Poisoning the Green Shoots

Steve,

As you noted, one major poison in the system is CEO's who ignore the long term health of the company, and instead focus mostly on current quarterly results and pumping up the stock price. How do we incentivize CEO's to take a long term focus?

Of course, there are many nowdays who would argue that we need poison to fight the poison. Rat poison for CEO's who are paid way too much to care about the company (as in CEO's who get paid 400 times the average worker's salary). When you give CEO's millions in company stock as part of their compenstation, that only reinforces their short term focus and increases their motivation to pump up the stock price, even if it means fudging the numbers.

Maybe this poison can be eliminated only if the entire CEO compenstation structure gets changed (and Boards of Directors start taking some responsibility). Any other ideas?





On Jun 08 09:43 AM Blair Dehuff wrote:

> Let's remember just how recently (in the forth quarter of last year)
> it looked like the entire US financial system was on the brink of
> total collapse! The banking system looked to be headed for a complete
> meltdown. The stock market had no bottom. Everything was going down.
> There was no "safe" place to hide money, except under the bed or
> by buying treasuries. EVERYTHING looked pretty grim.
>
> Now, fast forward to today (only a few months later). The financial
> world has not collapsed (or at least it LOOKs like this has been
> avoided) and retrospectlively there are many Monday Morning Quarterbacks
> taking pot shots at Government officials. Truth is, massive government
> intervention was in fact needed to restore public confidence. Although
> some of this "intervention" can be rightly viewed as "chemo" to save
> a dying patient, I realize the "poison" which you are talking about
> is not the short term stimulus which governments have been injecting
> into the system.
>
> You are absolutely correct that what is poisening the US economy
> is much, much broader than this and has become ingrained over a long
> period of time. Only now it is generally being recognized by the
> public at large (i.e. that there is in fact NO free lunch.) The public
> is now being FORCED to cut back on spending, and amazingly US citizens
> are starting to save a little. While this is good, it is a bit too
> little, and way too late. The system has been poisened for too long,
> and as you pointed out is still being poisened. Higher taxes are
> inevitable, one way or another (both legislated and through higher
> inflation). We, our children, and our grandchildren will have to
> "pay" (for the free lunch everyone has been enjoying for many years)
> through a reduced standard of living. There is no way around this,
> even though we may take steps to reduce or eliminate the poisen in
> our system.

Poisoning the Green Shoots

Let's remember just how recently (in the forth quarter of last year) it looked like the entire US financial system was on the brink of total collapse! The banking system looked to be headed for a complete meltdown. The stock market had no bottom. Everything was going down. There was no "safe" place to hide money, except under the bed or by buying treasuries. EVERYTHING looked pretty grim.

Now, fast forward to today (only a few months later). The financial world has not collapsed (or at least it LOOKs like this has been avoided) and retrospectlively there are many Monday Morning Quarterbacks taking pot shots at Government officials. Truth is, massive government intervention was in fact needed to restore public confidence. Although some of this "intervention" can be rightly viewed as "chemo" to save a dying patient, I realize the "poison" which you are talking about is not the short term stimulus which governments have been injecting into the system.

You are absolutely correct that what is poisening the US economy is much, much broader than this and has become ingrained over a long period of time. Only now it is generally being recognized by the public at large (i.e. that there is in fact NO free lunch.) The public is now being FORCED to cut back on spending, and amazingly US citizens are starting to save a little. While this is good, it is a bit too little, and way too late. The system has been poisened for too long, and as you pointed out is still being poisened. Higher taxes are inevitable, one way or another (both legislated and through higher inflation). We, our children, and our grandchildren will have to "pay" (for the free lunch everyone has been enjoying for many years) through a reduced standard of living. There is no way around this, even though we may take steps to reduce or eliminate the poisen in our system.

The Economic Trifecta: Inflation, Devaluation, High Interest

Trying to guess between long term deflation or hyper-inflation is like trying to pick between two very bad no win scenarios in order to guide your investments in the right direction. Sometimes the best "decision" is to do nothing at all in response to doomsday forecasts (which rarely play out anyway). For example, I don't buy gold as a hedge against hyper-inflation. Reason: I would never buy enough gold as a percentage of my portfolio to make a real difference. So what if you hold 10% in gold and the remaining 90% of your portfolio gets creamed? Meanwhile your 10% in gold is just a highly speculative gamble which guarantees you nothing. Example: I hold very few stocks, and what little I do hold is not in the US market. Belief that theUS stock market will sooner or later eventually come roaring back just because it is now so low is not necessarily good logic. The new "normal" for the US stock market could be just a sideways drift for many years to come. Long term hyperinflation or deflation scenarios make little difference in ths. Both camps could be (and probably will be) wrong.