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Post In Praise of Elon Musk; US Economy Tanks in 2Q 2020
Created by John Eipper on 07/31/20 4:21 AM

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In Praise of Elon Musk; US Economy Tanks in 2Q 2020 (Tor Guimaraes, USA, 07/31/20 4:21 am)

I understand why some commentators perceive Elon Musk as a little flaky and why my friend Ric Mauricio (July 30th) opined that "Musk is brilliant and his specialty is creative destruction. But no, would not want him calling any shots as far as our government is concerned."

However, it is important to balance that judgment with the fact that Musk, before he destroyed the old (à la Schumpeter) or started working on the new, has been pursuing a noble quest to help humanity as the motivation for Tesla (freedom from destructive oil derivatives pollution) and SpaceX (freedom from Earth dependence, sooner or later a must for mankind). For PayPal the motivation was his love of computer programming as a teenager, his knowledge of the Internet, and the need for a better eBusiness transaction paying system.

Furthermore, Musk is a very charismatic leader capable of assembling a top-of-the-line team to work on the "impossible dreams" that he comes up with. I am sure there are millions of great new ideas from all these professionals to produce these fantastic successes started and driven by Musk. Up to now I heard nothing about Musk taking all the credit for these ideas. My feeling is he cares about results, not politics or stealing credit from others. Sorry for sounding so positive.

On another subject, I am very sad to report that finally John Eipper will not be able to call me a pessimist any longer. The US economy has now fallen off a cliff much worse than I ever imagined. The report is that "The US economy shrunk at a seasonally adjusted annualized rate of 32.9 percent during the second quarter of 2020 as the first wave of the coronavirus pandemic spurred an economic collapse of record-breaking speed and size, the Commerce Department reported Thursday. Between April and June, US gross domestic product (GDP) shrunk at a pace that would have wiped out roughly a third of the value of the economy if extended over 12 months, according to the Commerce Department's advance estimate of second-quarter growth. It is the largest one-quarter plunge in economic growth since the federal government began reporting quarterly GDP data."

Like I have been praying for a long while, "God The Universe, please forgive our stupidity and ignorance, give us health, success, wisdom, and happiness." Our beloved nation will need it, as we go down the social economic drain proverbially speaking.

I hope to see you all at the other end in several years.

JE comments: My late father always said he wasn't a pessimist; he was a realist.  Tor, by "the other end" I trust you mean happier times, not some sort of afterlife...

The economic pain is real and visible everywhere.  Many people close to me have lost their jobs, and my beloved Adrian College is struggling.  We're tightening the belt to the tightest notch, and are even drilling new notches.  The only saving graces are the financial markets, which are not as depressed as they might be, and relatively stable housing prices.  Contrast this with 2008-'09.  Any theories as to the causes?  Low interest rates?  People working from home?  They are certainly shopping from home.  Amazon is thriving during the pandemic.  Just yesterday it reported a 40% increase in revenue from last year.  The name fits.

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  • I Met Jim Jones...and Other Thoughts on Charismatic Leadership (from Ric Mauricio) (John Eipper, USA 08/01/20 4:16 AM)
    Ric Mauricio writes:

    I do applaud Elon Musk's dreams, ideas and initiative. Many people dream but never fulfill those dreams. They just dream. So their dreams are lost to humanity. And yes, he is quite charismatic. In my line of work, I have met many a charismatic leader. In fact, I have often stepped away from my line of work to satisfy a curiosity about charismatic individuals.

    One such curiosity was Jim Jones, who founded the People's Temple. It was located on Fillmore and Geary here in San Francisco. I attended a gathering there to satisfy my curiosity one day. Yes, Jim Jones was extremely charismatic and by all appearances, a very smart guy. Combine that with religion and you will create a heck of a bang. But my sixth sense kicked in. He made my hair stand on end. Does anyone remember Adolf Hitler? Another charismatic and smart individual. Well, that's what Jim Jones reminded me of. Many people are impressed by charisma. Many people are impressed with advanced degrees (sorry to those on WAIS who have advanced degrees). Some people are impressed by wealth. The people here in Silicon Valley who I come to admire the most may have all those, but they temper it with a sense of humility. Not easy to do when you have it all. You start to look down on those who have little or no advanced degrees or wealth.

    I can't tell you how many CPAs and MBAs I've met who had no clue on what they were doing. I once had a brother-in-law who had a PhD in archaeology. He was foul-mouthed and arrogant. At family gatherings, it was quite uncomfortable. No one interacted with him. Somehow, I was able to hold a conversation with him by delving into the subject of archaeology. But it was quite challenging to hold a conversation when every other word was the "f" word. Oh, that reminds of the time I visited a friend at SF State in his linguistics class. The teacher asked the class if anyone knew what the real meaning of the "f" word was. No one raised their hands, so I raised mine. Yeah, I had out of curiosity, looked it up. It means to furrow the ground to prepare it ready to plant the seed. Yup, makes sense.

    John E states: "The only saving graces [of the pandemic] are the financial markets, which are not as depressed as they might be, and relatively stable housing prices. Contrast this with 2008-'09. Any theories as to the causes?"

    Let me attempt to explain. In 2008-2009, the housing prices were severely impacted by a housing price bubble fed by very easy money: negative-amortization loans coupled with stated-income funding practices. Today, banks are a bit more level-headed, plus the low interest rates. Today, because of Covid-19, people are holding on to their homes for dear life, thereby creating a scarcity of supply to meet the demand from those who are still employed. Most of the tech companies here have employees who are working from home. And those tech-oriented workers are feeding the demand for technology companies like Microsoft (Up 30% YTD), Zoom (Up 267%), Amazon (Up 65% YTD), and Nvidia (Up 81%). And of course, these techies are earning enough money to buy all the Teslas I see driving around: Tesla (Up 256%); Yes, Tor, investing in Elon Musk is quite profitable. And of course, Apple, who is benefiting from the resurgence of China (Up 32% YTD). That's great, if only I had known to buy those stocks, people tell me. Oh, but you don't have to do that. It's already done for you. This leads me to another point. Which index does one follow? The Dow, with 30 stocks? The S&P 500 or the S&P 1000?  Warren Buffett, who has underperformed the S&P 500 for the last 15 years, advises one to invest in that index. Others say the S&P 1000. Ah, I call the S&P 500 an OK portfolio (which is really what it is; it's S&P picking the stocks based on their rules; not bad, but not the best). As for the S&P 1000, I call it diworsification. In that index, only 5% of that portfolio makes the return positive. The other 95% creates a drag on performance. Oh, wait, that's the average number of mutual fund managers who don't outperform the index. OK, so what portfolio is there to pick the outsized winners? And the winner is: the Nasdaq 100. If you had invested $100,000 in the S&P 500 15 years ago, you would have $347,000 as of June 30th. If you had invested in the Nasdaq 100, you would have $765,000. I am recalculating to July 31st today, but I suspect with the upsurge in the tech stocks, the delta is much greater. Again, you don't have to pick the stocks. The NASDAQ does it for you, automatically.

    I apologize for being a little long-winded today, but there is something that I would like to point out since it affects many of us. No one seems to point this out. Trillion dollar budgets are fed by massive digital printing of our fiat currency. When you do that, you are devaluing the purchasing power of the dollar, benignly know as inflation. But, you say, inflation is relatively low these days. Ah yes, this is being accomplished with lower energy costs, aka fuel costs. So shipping and WFH (working from home) is helping. It is also being helped by government manipulation of the data (no, this is not a conspiracy theory; one only has to look at the various methodologies being used and massaged to calculate the inflation rate). Why would the government base social security on a CPI that includes products and services that impact urban workers and not retirees? Then there's zero or negative interest rates. So while your purchasing power is being whittled away by inflation, your return on your treasuries and CDs are non existent. Ah, another reason to accumulate good companies or real estate (now you know why the smart money is buying these assets). Two issues that are affecting Social Security is the fact that it can only invest in these zero interest rate treasuries and because of unemployment, Social Security taxes on earnings are dropping faster than what is being paid out. Look for a cut in your Social Security in the future. I do have a solution for this, though, and again, no one seems to pay this any mind. Remove the cap on income that the Social Security and Medicare tax is based on. You would, of course, on the other end, implement a governor on benefits to higher-income recipients.

    OK, to quote the late Stan Lee of the Marvel Universe: "Nuff said."

    JE comments:  Ric, I have long known that your common-sense skepticism keeps you financially sound, but it also saved your life.  Imagine if you had fallen under the spell of Jim Jones.  Could you tell us more about your encounter with the 20th century's most notorious cult leader?  (Perhaps that's an overstatement:  some would call Hitler a cult leader.)

    Charisma is undefinable, but it yields tangible results.  I understand why Zoom has zoomed during the pandemic.  But why should Tesla stock be soaring?  The company still doesn't generate actual profits.  My hypothesis:  people are buying the Elon Musk brand.

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  • Our Economic Day of Reckoning...? (Tor Guimaraes, USA 08/02/20 3:58 AM)
    John Eipper commented on my post of July 31st: "We're tightening the belt to the tightest notch, and are even drilling new notches. The only saving graces are the financial markets, which are not as depressed as they might be, and relatively stable housing prices. Contrast this with 2008-'09. Any theories as to the causes?"

    There are many theories about what will happen to our social political economic situation in the future, but our present situation is well understood by many respectable (knowledgeable, not partisan, and honest) authorities on these topics. (Believe it or not, such people do exist.) Over the years I have kept a log on some of their pronouncements to know their level of accuracy and precision.

    The financial markets are doing apparently well because they can borrow as much money as they want to keep the bubble from crashing. In the long term this will create massive inflation when the US dollar slowly loses its primary currency status. Unfortunately the real economy (Main Street) is the world that most Americans live in, and good-paying jobs are disappearing and people are already hurting. Amazon and some other companies are well positioned and making money as people stay home, but they are not creating enough new jobs. The Post Office Service may be closed, city and state governments are in a very difficult situation financially, and because our health care is tied to employment, it will be a double whammy for people laid off, etc.

    As I wrote before on many occasions, in comparison with 2008 our national financial situation is much worse because the Fed is now powerless to help the real economy but continues to create apparently endless deficit lending money to speculators until the day of reckoning, as the real economy lingers in apparent deflation with inflation well camouflaged. There is a good reason why the gold and bitcoin price are going up globally.

    JE comments:  Tor, what will that dreaded Day of Reckoning look like?  The US dollar is a charmed currency, as additional stimulus and "easing" don't seem to affect its value.  At least not yet.  In 2008-'09, the dollar actually increased in value--flight to safety and all that.  Bitcoin is many things, but only the starry-eyed futurist would call it "safe."  Still, the Bitcoin price has more than doubled since March.  Can anyone tell us why?

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    • Thoughts on Nationalism, Bitcoin (Tor Guimaraes, USA 08/03/20 4:52 AM)
      Since scientists discovered and over the years validated what today we call genetics, RNA, DNA, evolution, etc., I find it a waste of time to have any respect for people who still disrespect people from other races. Racism must be shunned like the plague because it is baseless, not constructive, and hurtful to other humans.

      Similarly, while I do admit that nationalism can be fun on some occasions, in this day and age when mankind needs to worry about widespread pollution and serious global warming, poverty, massive ignorance, unstable national governments, and significant portions of the population with no jobs, health care, and poor education, nationalism also seems like a big waste of time. In general, I see no benefits of any kind, only emotional energy conducive to psycho-sociopaths gaining political power and taking the whole nation down wrong paths.

      It is true that some strong leaders who have transformed their nations for the better, have used nationalism as a source of energy to galvanize their people. Lately I have been studying Vladimir Putin and for all the negatives his detractors have brought out convincingly, he seems like a very successful leader for Russia. He shows great knowledge about what is going on in the world from a social political economic perspectives, and I have not been able to catch him lying yet.

      John Eipper commented on my last post: "Tor, what will that dreaded Day of [economic] Reckoning look like? The US dollar is a charmed currency, as additional stimulus and 'easing' don't seem to affect its value. At least not yet. In 2008-'09, the dollar actually increased in value--flight to safety and all that."

      That is a good point. I believe "the day of reckoning" will be more like "death by a thousand cuts" over many years, except that the pain and desperation increases with additional cuts. We have too many negative trends and I worry that these will combine to inexorably bring us down, unless we can make drastic changes that I don't see. Do you? For example, alternative trade payment mechanisms are being accelerated to avoid using the US dollar and increasingly many nations are trading using barter or their own currency. This will increasingly undermine the US government's ability to unilaterally impose sanctions on any country we don't like, short of attacking the target militarily which is immediately more expensive. Our government's behavior has been very disruptive worldwide, friends and foes alike. That has pushed other nations to come together for long-term strategic partnerships that would have been unthinkable a decade ago. This is critical, when our rivals unify and our friends can't trust us. And our own nation has broken apart politically. If these trends intensify, that is what the "day of reckoning" will look like.

      Regarding Bitcoin, despite assurances to the contrary, I have difficulty taking it seriously. It does work as promised if the trade exchanges and storage were not so expensive, and if I were not afraid that war breaks out, or the Sun flares up, and the whole internet goes down, etc. Regarding the recent increase in Bitcoin price, the number of Bitcoins is basically constant, so any price changes are mostly due to demand based on market psychology. When one thinks the fiat currency is doomed, Bitcoin enthusiasts think of it as an alternative to gold, while many gold bugs think it is crap for some of the reasons I mentioned. My guess is it will retain its value and will go up, but I am afraid to make a serious commitment as discussed.

      JE comments:  One of the attractions of Bitcoin is precisely its transcendence of national (or supranational, as with the euro) influence.  This is also its potential undoing.  What is backing up this ultimate of fiat currencies?  Think of it this way:  If society collapses altogether, would you rather sit on a stash of Bitcoins or some gold?  How about pasta, canned beans, scotch whisky--or ammunition, for that matter?

      As for Putin's probity, it's been a long time since we heard from Boris Volodarsky, who has written widely on the assassinations carried out (allegedly) under Putin's direction.  Boris, I'd love to hear from you!

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