A Fresh and Honest Perspective
By Larry Doyle on February 19, 2009 at 2:10 PM in American Consumers, Barack Obama, China, Current Affairs, Democrats, Economy, Foreign Affairs, Foreign Policy, Japan, Political Strategy, President Barack Obama
It is often difficult, if not near impossible, for an individual, company, institution, or even a government to provide a measured, honest, and unbiased perspective of a difficult situation. Given one’s proximity and emotional attachment to the situation, human nature clouds one’s viewpoint and, in turn, one’s reactions and responses.
How great it is when we can receive the sage wisdom of a neighbor, a retired executive, a former coach, or on the international level a true statesman. While we may find it difficult to hear and deal with a tough message, ultimately the greatest form of “tough love” is simple truth and honesty.
A good friend of mine was gracious enough to share some video clips of a recent interview with Paul Keating, former Prime Minister and Treasurer of Australia. Mr. Keating speaks from experience and does not sugar coat the current economic turmoil.
While the three video clips (listed below) run approximately 20 minutes in total length, please allow me to provide a bullet point overview of some of the highlights. When you do have some spare time, I strongly encourage you to view these clips and gain the benefits of his wisdom. I do not think you will be disappointed, although you may be a bit dismayed as to his blunt honesty. In the meantime, here’s a brief overview:
– Australia had only 1 of the top 50 global banks prior to this crisis. It now has 4 of the top 15.
– the top 200 global financial institutions have had an average loss of 74% of market value.
– the current global economic turmoil is worse than it appears…
– the United States can not reflate the world…
– inflation is coming…
– the G-7 and International Monetary Fund (IMF) are no longer viable entities as structured, and the international economic community needs to formulate new bodies. In the process, we will see a significant shift in power and influence toward surplus nations (primarily China) from debtor nations (primarily United States).
– the Obama administration’s greatest challenge is its engagement of China. It must embrace China and not attempt to dictate to the Chinese along the lines of Treasury Secretary Geithner’s comment about China manipulating its currency.
– Keating strongly castigates the U.S. rating agencies, regulatory bodies, and banks for their neglect and incompetence in risk management.
– a “Bad Bank” may be necessary and has worked previously in other global financial crises
– the global economy needs to work towards debtor nations (U.S. and Europe) saving more, and surplus nations (China and Japan) spending and consuming more
– Keating views himself as neither a fiscal liberal nor conservative, but rather a fiscal pragmatist
– the United States needs to appreciate that it is in for a long and deep recession that will likely last 6 to 7 years!!!
(While I believe Keating is unduly pessimistic in this assessment, I also believe that those who believe the economy will start to turn around in the next 12 to 18 months are unduly optimistic)
No pandering, no nonsense. Mr Keating delivered a simple direct message that I, for one, appreciated. Tough love.
Now let’s go to the videos:
– LD
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Thanks LD! I look forward to watching these. I don’t understand all the financial information I hear, but my general sense is that this will be a slog.
thanks LD, I am at work but will watch when I get home.
It’s sad but I don’t think this is going to turn around in the next 6-12 months either Scams and fraud are still being uncovered as we speak. I am aghast at the rampant dishonesty in our society. I think alot of people who benefited from these scams are going to be subject to some hard times themselves at some point, perhaps this is the only way people learn from mistakes.
Excellent post LD - as always!
Great post, thank you.
Uh, LD should I go stand in traffic now or later?
http://www.cnbc.com/id/15840232?video=1039849853
This is going all over the internet. Keep in mind, this was taking place in Chicago …
Excellent.
Loved it! Thanks.
Cash is king! That’s what I hear.
And NO, after years of working hard from a bleeding heart liberal mindset to help the disenfranchised - who mostly did NOTHING for themselves - I am not willing to pay for the losers’ extra bathroom OR their children!!!
Screw ‘em and the new administration. The Cuba example brought it totally in perspective.
Go CNBC!
Am I angry? Yup!
The Cuba example brought it totally in perspective.
Amen!
LD - Meridith Whitney is striking out on her own and she was on CNBC with a pretty extensive interview. I would expect it will be on the CNBC site for viewing.
I wonder if she agree’s with any of Keatings musings regarding the new Bretton Woods? Also, China, Russia and the oil countries are not going to subjegate themselves to a US run IMF etc. She has a theory that the big US banks have to much market share and we need to shore up the smaller banks to let them take more of the market share. She would sell Citi stock and hopes JP Morgan can survive.
I realy wonder if Obama has a sense of the potential of China and how they can be a real advasory if we choose it to be.
Thanks LD. I always like to read your posts.
The videos are fascinating. Apparently Keating thinks this financial mess heralds the end of American pre-eminence in the world, although he didn’t quite say it that way.
And he predicts serious inflation. So, how does one prepare for hyperinflation? I could make jokes about wheelbarrows, but, seriously, how to cope?
Bart….great question about what to do in regard to protecting vs hyperinflation.
What to do…in my opinion, real estate, commodities (hard assets) and senior secured floating rate loans…because the Federal Reserve will be forced to raise rates to head off the inflation. You don’t need to make these moves yet but I think you should be thinking along these lines.
Larry, for those of us tied into our 401ks, what can we do? Are there certain investment choices we should avoid [they're usually limited in the corporate menu]. I mean, we’ve already limited our company stock exposure [Enron was a huge wakeup call]. But should we burrow down in fixed income funds and just wait it out?
Peggy Sue….
I do think it would be somewhat irresponsible of me to make blanket recommendations as allpeople’s situations are different.
I view a 401K in the context of one’s overall financial posiiton. Variables that need to be addressed are age, liquidity needs, other assets and liabilities. Overall exposures to the markets.
We are ery close to objectives that I was highlighting at the beginning of the year. We have actually penetrated the lows seen on Novemebr 20th for the DJIA while we are still about 3-4% in terms of the S&P 500.
I am not optimistic that we will see a near term bounce simply because from my vantage point there is still a lot of deleveraging (selling of assets purchased with borrowed money)yet to go.
If you are concerned about the markets, I would think that any investor may want to see if the market holds down 3-4% from here which equates to lows last seen in late 2002 and early 2003.
I hope this helps and I hope you appreciate my caution in even thinking about making blanket recommendations. That would not be appropriate.
Good luck.
No, I entirely understand, Larry. In fact, I knew I was walking the plank even asking.
Major angst on a lot of home fronts wondering where the devil this is going. I’m still contributing to my 401k and right now so is my company [although a number of companies are pulling out of the "match funds"].
But then, I am concerned at the drop in the Dow to 7500. Someone told me that that was the number to watch, and if it held we were in serious, serious trouble.
I’d really like to find a crystal ball. :0)
Please never hesitate to ask and I will do my best to offer appropriate advice.
Thanks for keeping us informed LD.
The one statement that occurs regularly is your point that the global situation is worse than it appears.
Even my limited financial reading confirms this, and I have seen the reference to a time-span of three years at a minimum.
I will watch the clips when I get home this eve…
Most informative post LD, and Bart asks the billion dollar question, doesn’t he/she?
I’d rather hear a hard truth than be blindsided.
Great post LD. The videos were sobering but it was good to hear some one who knows say what we have been suspecting. It is helpful to see the situation from a perspective outside our own box. I loved his description that the banks had bandaged themselves up and gone home because their game was too risky.