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Skipping Destruction By Charles Payne

Question of the Day

With income and wealth declining in America, are you making more now than you did in 2007? If not, what is the main reason things are different today?

Click here to post your answer and let Charles know what you think. He will air some on the Payne Nation radio show.

Niccolo Machiavelli understood human nature and how it impacted a kingdom. His circle of progress for states and kingdoms was later adopted for individuals as well by Robert Burton in "The Anatomy of Melancholy." You work hard and it pays off, shifting you (or a nation) into a state of prosperity and then luxury and rest. In America, the unique form of capitalism, individualism and freedom combined with a strong legal system, propelled the nation into an economic juggernaut. Innovation, education, strong military, and determination not only made the lives of people easier but created widespread wealth, too.

It feels like the combination of the Great Depression and several mistakes made in combating it and World War II might have seen America skip "idleness" and "riots & excess" to move straight into the "destruction" phase. Post war America went back to its virtue & industry phase that saw an amazing spurt of prosperity in the 1950's. I think the luxury and rest period happened in the 1960's as idleness marked the 1970's and 1980's, especially in corporate America, which snoozed as Japan began to ship cars and global competition was more an oxymoron than a legitimate threat.

On Main Street, it was still mostly prosperity even after the stock market crashed, as the housing bubble kept Americans feeling wealthy. Now we could be in the midst of a destruction phase unless we get back to basics. I think we have paid for our sins of individual overspending, corporate sleepwalking, and overall arrogance. The thing is we could truly implode if foundations of our greatness are allowed to erode further. I suspect our window for getting out of this destruction phase is closing fast. We must decide on getting back to basics and unlocking our proven formula or dwell in a prolonged period of (self) destruction.

Federal Reserve Bulletin I June 2012

Seeing the rapid decline in incomes and deterioration of wealth, it's not surprising we've seen the rise of the Tea Party and Occupy Wall Street and maybe should have seen more. (I do not equate those "movements" but there should be so much more frustration as America tumbles into a Cauldron of long term pain and suffering.) The median net worth of the average American family has plummeted to its lowest point since 1992. In the meantime, not only is income not keeping up with inflation, but it's actually lower in 2010 than it was in 2007.

It's the destruction of net worth that's dumbfounding. I'm in awe of how sharply net worth has been mangled in the last few years.

Net worth for people working for others decreased 30.7% from 2001 to 2010 while the self-employed dropped by 33.8%. Retirees have held up but not enough to counter inflation and oddly the net worth of those not working is up almost 100% in 2010 from 2007.

So this is the destruction phase that curiously coexists with a lot of money on the sidelines, the kind of cash that could spark a massive revival of this nation, but it would have to be coupled with virtue and industry. It would have to have a sense of urgency and destiny. It would have to be determined.

We are in the throes of an economic spiral that can't be solved with a bunch of food stamps and higher minimum wage. The left keeps telling us we are not a nation of exceptionalism and too many people believe that stuff. One thing is for sure, we are a nation that fulfills its belief, if not its promise, but it's getting harder to believe.

When I became a stock broker, I thought I'd always make a certain amount of money-it was easy. I was the second hardest worker in my office but soon began to leave earlier and earlier. Then the market crashed. My book of clients was crispy fried and that minimum income damn near became minimum income. It's a valuable lesson. I hope to always remain in the virtue and prosperity parts of the circle of progress

Now it's Italy

Volare, oh oh
Cantare, oh oh oh oh
Let's fly way up to the clouds
Away from the maddening crowds
We can sing in the glow of a star that I know of
Where lovers enjoy peace of mind
Let us leave the confusion and all the disillusion behind
Just like birds of a feather, a rainbow together we'll find
-Domenico Modugno & Franco Migliacci

It looks like the birds of a feather are indeed flocking together as the Spain bank bailout shifted the focus quickly on Italy, where a never-ending stream of scuttlebutt helped to erase the Spain bailout quickly. Add to those, lingering questions about the Spain bailout. Is it enough money, what does it do for government woes, and will it send other bailed out nations scurrying for better terms? That being said, the swift evaporation of euphoria underscores the fact that markets are looking for even bolder measures and complete resolution in Europe. That means clearing the Greek election hurdle and maybe resolving Italy instead of allowing it to become the next country where every economic development wrecks American 401ks.

So, the pain from Spain didn't go away, it actually expanded the idea that so much more money will have to be tossed at the problem-since, this is the path chosen. Of course the idea is that printing money is an easy way to fly to the clouds and away from maddening crowds. It buys temporary peace of mind and there is no doubt the market would glow with delight if the powers that control the purse strings and printing presses just cut to the chase and pumped out €1.0 trillion. The market was hoping to take off or to fly (Volare) on the Spanish bank bailout, but it turns out it's just not enough.

The Market

The 252 point swing lower was the latest 200+ point intra-day reversal and it really stung. The market has proven that once again it's not about fundamentals but instead emotions. There should be legitimate concerns about Europe and America, but what few talk about is the fact this is a selloff based on lack of trust/belief in leadership.