As the Greek drama continues to play out, I'm reminded of ketchup and the five known fundamental tastes in the human palate. According to Malcolm Gladwell, ketchup is one of the few things on the plate that contains all five.
Salty
Sweet
Sour
Bitter
Umami
Umami is the proteiny, full-bodied taste of chicken soup, cured meat, fish stock, aged cheese, mother's milk, soy sauce, mushrooms, seaweed, and cooked tomato. "Umami adds body," Gary Beauchamp, who heads the Monell Chemical Senses Center, in Philadelphia, says. "If you add it to a soup, it makes the soup seem like it's thicker—it gives it sensory heft. It turns a soup from saltwater into a food." - gladwell.com
For now, Greece has surely been salty, sour, and bitter; and for investors, resolution will be sweet. But, what about umami? In Greece, the fight is about a hard landing or a harder landing. The austerity cuts are severe to be sure, but this is what happens when we come to the end of the line. For those that think anyone bringing up risk of massive debt, lower incomes, too much spending, too little learning is overreacting or obstructing the footloose ways of Washington they must study this Greek tragedy.
Naturally, if you were born into the system the radical changes being forced upon from outsiders does seem unfair. Yesterday the parliament voted 154 to 141 to move ahead with measures demanded by parties that can write another check to keep the entire country afloat for the moment. Cuts like a knife...
> Property tax $0.50 to $14.00 per square meter based on value and age
> Income tax threshold changed; begins at $6,800 annual income, up from $11,000
> Pension cuts above $1,600 a month
> Pension cuts above $1,400 for retirees under 55 years old
> Wage cut and termination for 30,000 public sector workers; one year reduced wages then termination
> More salary cuts
What's amazing about the sacking of workers is that the Greek constitution prohibits it and that 30,000 is only 3%, which means one million people work for the government out of a total of 4.3 million total jobs. It's clear the shift must be made as government doesn't create wealth only the illusion of wealth at the expense of the future.
Back to that elusive taste of umami. I think Greece should bail on the Euro; it's the only way to one day achieve the full-bodied taste of heft that comes with self-determination. I chatted with the owner of a Greek diner I frequent in New York, and he was pretty clear about the situation, but not sure on solutions. Ironically, even after saying he wasn't sure if Greece having its own currency would be the answer (after all, having the drachma didn't stop them from digging this hole) he went on to say foreigners are buying up all the good land there and the people are beginning to feel like "slaves" in their own country.
Crying in Her Rolls
That is a knockout statement to be sure, but many Greeks are willing to go down that road as opposed to something more difficult than austerity squeaking by in parliament. But, they are not alone. This is what happens when you lose your work ethic, or for many people in Mediterranean Europe, never develop a work ethic. One will tend to accept almost any condition other than the road not traveled. Case in point is the story of Patrizia Reggiani, ex-wife of Gucci scion whom she had killed, after he left her for another woman. Her sentence of 29 years has come up for a daytime release program.
She told the court "thanks but no thanks" and added "I have never worked a day in my life." This is the same woman that was so angry when her husband left her for a younger woman and the court only ordered her an allowance of less than a million dollars a year that she put together a motley murder crew that included a fortune teller and night porter at a flea bag hotel. Granted her jail cell has plants, and she even has a pet ferret. Plus, she gets to go on weekly visits to see her elderly mother. Still, it's an amazing story of just how hard it is to go to work when in fact you have never worked at all. Patrizia once said "I'd rather cry in a Rolls than be happy on a bicycle." It seems to me that Greeks are opting for crying on a bicycle rather than digging in deep and starting all over again.
Losing Faith and Hiding Money
The idea of hiking taxes seems sure to backfire in some respects in Greece. Although tacking on the property tax to the electric bill is brilliant, people will find ways to cut corners elsewhere. For years, more than 40% of tax obligations have been evaded in Greece because they are too high already. Moreover, people want value for their money, especially money taken in the name of social good that really erodes society. Greek citizens have more than 10,000 offshore companies and more than €20.0 billion in Swiss bank accounts.
When people are worried about confiscation of wealth they tend to hide wealth. It's a law of survival, and one that's being played out in this country, too. As the most powerful man in the land keeps telling the public that poor people are poor because rich people are rich, commerce slows down as survival instincts go into action. When the Vice President of America suggests not raising taxes or hitting up the highest taxpayers for more money will trigger more cases of rape in this country survival instincts kick in because we have a lunatic spreading the most atrocious message of hatred possible. Make no mistake, rich people are mostly smart and look deeper into the future than everyone else. They look into the future and make moves in the present to avoid a worst-case outcome.
This brings me to Steve Wynn, CEO of Wynn Resorts (NASDAQ:WYNN), and champion of free markets. After the closing bell, Wynn Resorts posted earnings results and held its conference call. Steve Wynn went off! Some of his observations included...
"...anxiety and fear that is endemic in the United States of America- due to the government"
"...public making the connection between deficits and their standard of living"
"...rich people are now being defined by the administration as people who make $1 million"
"...most businesses in America other than giant corps paying taxes as partnerships or S corps"
Wynn added that Democrats are bankrupting the country and vilifying anyone who's successful, deficits are killing us and the dollar is worthless.
In addition to our government's addiction to spending that relies on massive borrowing, we are attacking the part of our economy that actually separated us from the rest of the world. Our engine of free markets is slowly, but very aggressively, being lassoed. Smart people are going to evade being tied up but others without resources are going to continue to get hurt as wages decline and the true value of those wages sink lower as well. Everyone is heading for the hills of balling up in a fetal position waiting for this period to go away. In the meantime, it's about losing faith and hiding money, or simply not spending or investing it.
The lack of economic growth, coupled with mounting debt, is why the Misery Index (created during the Johnson Administration) reached a 28-year high last month. It combines the unemployment rate with inflation; yes, no income in a world of higher prices creates misery. The reading of 12.97 is the highest since Ronald Reagan was in office, but there is a distinct difference. Ronald Reagan inherited a greater mess than Barack Obama as the Misery Index peaked at 21.98 under Carter the summer before Reagan took office. Reagan was welcomed with a 19.33 index reading, but that was the highest during his Administration and was at 9.72 when his term was over.
President Obama was greeted with an index reading of 7.83 and it has only gotten worse since, accelerating even faster this year.
Today's Session
It's all about Europe and Greece as violence is intensifying and rumors swirling a mile a minute. Much attention this morning is on the EFSF and its ability to buy bonds on the secondary market and what other strings and parameters would be attached. On the earnings front, it continues to be a mixed message. The market isn't reacting to news of Gaddafi's death but he was an evil cancer to the world.
