Meridian Third Quarter Commentary

Q3 2011 Commentary

Double Dip, Nope – Failure to Launch – It’s a Depression
EuroZone
Social Security & Ponzi
Steve Jobs

No Double Dip - Failure to Launch

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Quick communication note:

I’ve taken a liking to Twitter – it is now my primary news source (it’s where I first read of Steve Jobs death). I encourage you to follow me on Twitter as I am constantly posting or re-tweeting stories that I come across that you may enjoy. If you don’t have Twitter, you can go to my blog, www.meridianwealth.com and follow my Twitter stream on the left hand side.

Double Dip, Nope – Failure to Launch – It’s a Depression

In the past sixty days pundits have gone from talking about recovery, to endlessly debating the onset of a “double-dip” recession and then back to talking again about recovery. All of this talk is cheap and wasteful; it’s clear the country is mired in a depression (I’ve said this for almost two years now) and whether or not GDP contracts in the 3rd and 4th quarter doesn’t matter.

It’s time to stop debating whether or not we are in a recession and time to start figuring out how to get our country and the world out of depression. This country needs jobs and it needs them now. Unfortunately, instead we waste time investigating solar companies, while not investigating the financial system that got us into this mess. Isn’t the real problem with the Obama backed solar company, that it isn’t competitively producing solar panels in the U.S.? Does that not scare anyone? It should.

The United States is not double-dipping (for that would require a real recovery first). What we have is a failure to launch. This country was plunged into its first depression since the 30’s back in 2008 and we have no real prospects for getting out of it. While balanced budgets and a return to a gold standard may sound like a prudent course, its proponents have no understanding of our country’s monetary system and will turn a depression into a full blown Great Depression.

The real problem we face is that neither of the parties that control our country have an economic clue. They are too busy catering to the big banks to notice that the big banks are part of the problem. While I profess to know little about Occupy Wall Street and it’s goals – their core concerns have validity – big banks control our political system and the bigger they get, the smaller the middle class will be.

EuroZone

Of course, as bad as things are for the U.S. economy, the EuroZone is in much deeper disarray. The U.S. has several options out of its depression and in my opinion a bright future (I’m still bullish that the U.S. will continue to produce more Steve Jobs). Europe on the other hand, is stuck in a depression with few viable solutions. The adoption of a Euro currency has been a disaster and its collapse seems inevitable. I believe there are solutions to the current crisis but in the end the strains of a connected currency will force them to make decisions no one is currently prepared to make. Since the decisions will have to be made, they may end up being made in absentia – in other words they will be forced on them by events out of their control. One likely outcome is the disappearance of the Euro and the re-adoption of currencies by those in the EuroZone. This will give each country control of their currency and some flexibility – it may also lead to currency wars as each country tries to devalue and become more competitive.

As gloom and doom filled the current economic environment is, the past few months served to see stock prices in the U.S. cut by 20% (only to see them rally by 14% in only six days). In my opinion, stocks are still for the most part overvalued. However, there are some areas that are beginning to look reasonably valued and I have worked to set the portfolios up to take advantage. I cannot rule out a crash in the market, but do believe that the right portfolio of stocks may provide a reasonable enough return to justify some exposure.

I know some of you have expressed concern in the past about the Hussman fund. You will be glad to know it did very well during the 20% drop in the market – at one point outperforming by almost 2000 basis points. The fund is in the portfolio to protect on the downside, it is doing its job.

Social Security & Ponzi

Talk has turned a lot lately to the topic of Social Security. In one Presidential debate we had a candidate foolishly refer to Social Security as a “Ponzi” scheme. I say foolishly because I believe that words have meaning and it is clear that Social Security is not a Ponzi. A Ponzi scheme is fraudulent by design, however a country who is monetarily sovereign (meaning they can print their own currency) can never run out of their own currency – thus there is no design fraud. One item that sets Social Security apart from all Ponzi schemes is that Social Security is NOT reliant upon an ability to find a greater fool. Whether or not the structure of Social Security is a good thing, our government can always meet every obligation owed if that obligation is owed in a currency it can print. Social Security can NEVER become insolvent. This doesn’t mean there are not consequences to such a system, but fraudulently describing our current Social Security in order to frighten people is not a solution. Bottom line – if you are feeling queasy about the potential insolvency of Social Security – don’t. It is not and cannot technically ever be insolvent.

Steve Jobs

Perhaps the worst news this last quarter (economic or otherwise) was the passing of Steve Jobs, co-founder of Apple. I was just a child when I began working on a computer for the first time, the Apple IIe. I fell in love with computers because of Steve Jobs and his innovation in technology has quite literally transformed how we do everything. My business runs on Apple. I own just about every Apple product and am constantly amazed at their ability to transform industries. Five years ago there was no iPhone and no iPad. Imagine if Jobs had died five years ago, the world would be different. Now imagine if he had lived just another five years. It was truly a sad day in our household, Steve Jobs will be missed.

On a lighter note, I saw a funny tweet the other day.It went something like this: Ten years ago we had Bob Hope, Johnny Cash and Steve Jobs – today we have no hope, no cash and no jobs! As depressing as that tweet was, it also made me laugh. This country is going through a very rough road and it is unclear to me if we have the leadership to get us out of this depression, but what is clear to me is that innovation in this country is not dead. The Great Depression saw innovations that created new industries and while some believe that we are not innovating, I dismiss that. It will take time and things may continue to be rough, but ten and twenty years from now we will wonder how we ever did without something that was created during these tough economic times.

Kindle

One thought on “Meridian Third Quarter Commentary”

  1. Well done, Scott.
    As long as there are some of us who, like you, can see through the smoke and mirrors, we have reason to be hopeful. But it won’t be easy. The thirties brought us Woodie Guthrie and Franklin Roosevelt, a couple of hopeful people with real leadership qualities and a love of and respect for ordinary people. That decade also brought us Adolph Hitler, who used a demagogic interpretation of German exceptional-ism to gin up a hateful campaign that almost took the whole race down.
    What’s it gonna be?

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