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THE GREATEST GENERATION. By Mike Gasior Given that this is the year-end edition of my newsletter, where I annually make predictions for the coming year and review last year's forecasts, there will invariably be some moments where I may have to swerve into the negative lane. With this admission in mind, along with the fact that we will be formally closing out 2007 and moving into a new year, I thought I might make the general tone of this edition an optimistic and positive one. Clearly, I was full of crap about ever getting myself back onto my monthly writing schedule, but I remain optimistic about doing just that in 2008. I am also going to be dedicating my efforts to becoming more reliable regarding the video commentaries. One exciting idea we are trying to make a technical reality during the coming year will be "live" webinars, which I plan to broadcast via the Internet (for free). This will allow people around the world to participate via their computer and ask questions of me in real-time by email. This will give me the opportunity to address complex issues in the financial markets as well as current events. I am excited that this will give people who might never get the opportunity to attend one of my seminars a chance to advance their knowledge on a range of subjects. You will be the first to know when I offer the first one. Since there is a lot to cover this month, let's get right to work. 2008 SEMINARS IN NEW YORK, BERMUDA AND GRAND CAYMAN I have been offering training to the institutional investor community for over 18 years, but never before have I been able to say this early in January that my calendar for the year is well over 80% sold out. Nevertheless, we still have some very nice dates available if your organization is interested in holding an in-house session for your staff or having me speak at your function. You can view our course catalog, which details all of our "standard" sessions at the following link. Please remember that we are also happy to create a custom program for you at no cost that is perfectly tailored to your audience's needs: http://www.afs-seminars.com/documents/Catalog2008.pdf To inquire about either in-house seminars or speaking availability, please call my offices at (860)347-6568 or write us at info@afs-seminars.com I will be holding the usual complete compliment of sessions in New York this year, and a very exciting slate of "a la carte" one-day sessions in Bermuda and Grand Cayman. You can see the New York and offshore calendars at the following links: http://www.afs-seminars.com/schedule.html http://www.afs-seminars.com/offshore.html Finally, we are offering a brand-new program for our New York, Bermuda and Grand Cayman programs for organizations that have larger groups of staff looking to attend our programs. Simply buy 50 "training days" or more (meaning you can send 25 people to 2-day sessions, 50 people to 1-day sessions, etc. Use the days in any combination you desire). The discount is substantial since it makes things much easier and cost effective on your end and saves administration on ours. Please contact my office for details about this program as well. VIDEO COMMENTARY ON THE "CREDIT CRISIS" I have filmed a new video commentary where I try to address the underlying problems with the supposed "credit crisis" and give you my take on how long it is going to take the marketplace to work through it. Here are both the "high-speed" and "dial-up" links for the video: HIGH-SPEED - http://www.afs-seminars.com/video/2008-January-768K.wmv DIAL-UP - http://www.afs-seminars.com/video/2008-January-56K.wmv You can view all past video commentaries at this link: http://www.afs-seminars.com/v-commentary.html THE GREATEST GENERATION Perhaps it has been listening to this year's crop of presidential candidates complaining and pontificating about the miserable state of the economy and the world that causes me to have to write this newsletter to set the record straight. While I fancy myself many, many different things, I have accepted the fact that I was born as a natural teacher and economist. Those traits will drive this commentary where I try to actually lay out the truth about how we are actually the LUCKIEST bunch of S.O.B.'s that have ever walked the face of the earth in almost every measurable category: wealth, health, happiness and more. If you were to listen to the politicians tell you about the state of the job market, the economy, healthcare, education and whatnot, you'd probably want to just kill yourself. But if you actually examine the facts of the situation, I hope you will come to the same conclusion as I have, which is that we are by FAR the most fortunate group of humans, thus "the greatest generation". It scares me a little bit when I listen to the speeches being given in Iowa, New Hampshire and elsewhere because suddenly all the candidates have the same exact mantra; change. Change, change, change, change. While I'm perfectly okay with the idea of exchanging George W. Bush with a new president, I'd be a smidge more careful about changing the path that has lead us to the most prosperous moment in mankind's history. I've complained in the past that too many people don't have an adequate knowledge of history and an even lesser understanding of economic history. So, starting with first things first. Let me give you a quick rundown of the last 100,000 years or so. For the sake of round numbers, modern humans first emerged on earth 100,000 years ago. For about the next 99,800 years, not much happened. Sure, there were wars, politics, empires, various inventions and the invention of agriculture, but none of it had a particularly large impact on the daily lives of most people. For almost those entire 99,800 years, people lived on the current equivalent of $400 to $600. Yes, there has always been royalty and aristocrats who lived a life far different from the population as a whole, but the number of these sorts of people was statistically immaterial. Then, about 200 years ago (roughly ten generations) people began to get richer and richer and richer still. Per capita income, at least in the West, started growing at a compound rate of three quarters of a percent per year. A few decades later, that trend took hold all around the world. All of a sudden in the 20th century, things got better still. Per capita real income (meaning adjusted for inflation) was now growing twice that fast at 1.5% per year. Finally, during the most recent 50 years it has been growing at 2.3% annually. What has always been cool to me since I learned about it as a little kid, was the power of compound interest. (Yes...I actually did learn about compound interest as a little kid. What's wrong with that?) Let's say that you're an average wage earner making $50,000 in 2008 dollars. At the current rate, your children will be earning the equivalent of $89,000 2008 dollars 25 years from now and their children will be earning $158,000 2008 dollars another 25 years down the road. Try to imagine what a change in lifestyle it would be if that current, 2008 family were to be able to suddenly be earning $158,000 in current income. This is not some pipedream, but an economic probability for their grandchildren. Many of you who have attended my seminars and heard me give speeches have heard me lament that I tend to find people a bunch of economic hypochondriacs. Every little 1/10th of a percent change in unemployment or interest rates seems to put everybody's panties in a bunch. Certainly, there are economic ups and downs happening all the time, none in recent history more substantial than the Great Depression of the 1930's. Unemployment rose to almost 25% and U.S. incomes fell to level of 20 years prior. For a few years people were basically forced to live the way their parents had done not very long ago and they were miserable about it. This was a brand new way of thinking for people. During the 1700's no politician would have queried voters about "are you better off now than you were four years ago?" because it would have never occurred to anyone that they ought to be. You lived effectively the same lifestyle as your parents did without any expectation that it should be better. This fairly recent revelation that life can, and should, improve from one generation to the next has been the impetus for an era of innovation and wealth creation unprecedented in the history of civilization. Increases in real income have not been the only benefit of this attitude and innovation. Lifestyles in general have improved by leaps and bounds. One hundred years ago the average American workweek was 60 hours. Now it hovers near 35 hours. A century ago a housekeeper would spend 12 hours a day doing laundry. Now it's about three hours. In 1908 approximately 6% of manufacturing workers took annual vacations. Today it's over 90%. The goods and products available to consumers today are equally staggering, and I needn't take you back to ancient history to give you examples of this. When my daughter was still fairly young (about seven years ago) I decided I would make the jump to a digital camera. After some research and shopping I ultimately chose a 1.3 megapixel Olympus camera that weighed about a pound and half. Today it makes a pretty nice doorstop and that's about it. Frankly I could offer you an electronics catalog circa 2001 and I would bet large amounts of money that you wouldn't buy a single technological item in it even at 2001 prices. You would probably view every single thing offered for sale in that catalog as junk. Even with all the baloney we endure when listening to the candidates, the same thing holds true with healthcare. There is no informed person who, if offered it, would prefer the healthcare that was available to patients in 1970. Nor would they be happy to pay 1970 prices. Adjusted for inflation, healthcare is actually cheaper than ever and the quality is extraordinary by any historic measure. My moral of all this is that even with the phenomenal increases in income over the past 200 years, it still grossly understates the overall improvement in our economic condition. The average middle-class American household probably does have a much smaller measured income than the Kings and Queens of the Middle Ages, but I can promise you that King Henry VIII would have traded away half of his kingdom for modern indoor plumbing, all the antibiotics he would ever need in his lifetime and access to the internet. We live during an amazing age. What has driven all of this success and wealth has been technological progress. And remember that the engine of technological progress is one simple thing: ideas. People often think of technology as computers, jet engines and such, but it's much more than that. I could buy a ticket right now to depart from JFK tomorrow morning and the airplane will fly me to Tokyo non-stop. That in and of itself is an amazing technological feat. But it took more than Boeing and Pratt & Whitney to make that possible. Someone else figured out how to write an insurance policy that enables the commercial airline business. Other people thought of ways for computers and software to help the plane fly, the airline to book passengers and for air traffic control to track the locations of the planes worldwide and keep them safe. I'm writing this newsletter on my laptop and sending it to you via the Internet because other people thought that there was a "better way" of doing things than using typewriters and the postal service. Another question is which sorts of ideas are the most important to the economy? Is it the engineers and scientists who bring us plasma televisions, or the insurance, finance or economics people who revolutionize the way markets work? The truth is that both have contributed mightily to the improvements I've inventoried to this point and it is important to the story that innovation is financially rewarded in today's world. THAT is the engine that has driven us to these heights. During the late 1980's; Microsoft who had pioneered the operating system that powered the personal computer revolution, earned about $600 million a year. Meanwhile, Michael Milken who pioneered the concept of financing corporations with below investment grade, junk bonds, earned almost the exact same amount. It is the incentive of being rewarded for progressive thinking that continues to lead us toward an increasingly prosperous future. So turn the volume down on all these politicians around the world who would let you believe that we're on some desperate course of misery and unhappiness. The fact is that since you are even reading this on your computer, after receiving it via the world-wide-web confirms that you are among the luckiest people who have ever inhabited this planet. So shut up and enjoy the fact that you are that one lucky S.O.B. I referenced at the beginning of this rant. MIKE'S GREATEST HITS Before I face the annually frustrating task of measuring how I did on my predictions of a year ago and making some forecasts for 2008 I thought I would do a quick review of some of my predictions from years past. I must tell you I've given you some pretty damn good advice over time. I also can't believe I give you guys this stuff for free. Here are a few of my favorites: MARCH 24, 2000 (NASDAQ was at 5,068.77) --"The stock market still goes down. We just haven't seen it in a while." --"There are lots of people managing money who haven't got a clue what a bloodbath looks like." --"In as little as 10 years, college professors will be talking about this period of U.S. stock market history as one of the 'classic' speculative bubbles." --"Of the Internet 'pure plays' trading right now, probably 90% of them will not exist in five years." APRIL 10, 2001 "It might be a long, long time before you see 5,000 on the NASDAQ again. For example, if you are currently in first grade, it might be sometime not long after your high school graduation. Sorry for that." JUNE 4, 2001 (Five years and two months before the "credit crisis") "The Federal Reserve dropped rates for the sixth time this year, bringing the Fed Funds rate down to 3.75 percent, and are trying their best to stimulate this economy. You need to make perfectly clear in your own mind how amazing and unprecedented these interest rate drops have been. NEVER in my entire professional career (nor my amateur days either), which span in excess of 20 years has the Federal Reserve EVER taken such drastic measures to move rates lower. EVER. You need to understand that our friend Mr. Greenspan and his colleagues at the Fed must think that the U.S. economy is in a 90-degree nosedive and are scared "you-know-whatless" of the future. Perhaps it's a good thing that the average U.S. consumer doesn't have a very clear understanding of what the heck the Fed does anyway, or they might be scared too. Maybe even scared enough to stop the drunken spending spree they have been on for the last three and a half years in which they amassed the highest level of consumer debt EVER. As of last month Americans were paying 14% of their take-home pay to service installment debt. An all-time record." AUGUST 5, 2002 "While I don't think the comparison to the NASDAQ is there with regard to the level of decline that we will experience I am pretty darn confident that the residential real estate market is going to suffer a tremendous blow fairly soon. Housing, as a component of personal income, has never been more expensive than it is right now and I think the low interest rate market is fueling an unrealistic increase in value. Speaking as someone who bought a house at the top of the real estate bubble in the Northeastern U.S. in the late 1980's I see way too many parallels to that time in history which crushed values in the Northeast and Southern California for over a decade. Just because cheaper mortgage money enables homeowners to afford more housing doesn't mean that the real estate is worth what is being paid for it in this current market. As much as it may seem like I enjoy making predictions, I walk very cautiously here since you know my skepticism about anyone forecasting anything. My gut feeling is, based on the current economic climate and my feelings about the imminent future the U.S. could suffer a 20% to 25% decline in current real estate values in the next 3 to 5 years and then stagnate for the better part of a decade while digesting the downward move. The troubling thing about a move downward in price that far will be the sad fact that many families will be totally wiped out with regard to their net worth since this typically reflects many household's major asset holding." DECEMBER 31, 2002 "I have been telling you readers for months that real estate prices are hugely overvalued and will begin to drop. Much of the credit for this belongs directly at the feet of Alan Greenspan due to the infusion of new money into the markets that allowed for severe asset inflation. The stock market became a house of cards that I felt VERY strongly would collapse and I feel the EXACT same way about residential real estate right now. The next two collapses you are going to witness up close and personal are the market for houses and the load of consumer debt, which has accumulated during the past five years." JANUARY 28, 2003 (The invasion of Iraq would occur on March 18, 2003) "Fact Three: I have thought long and hard about this and I feel that this whole Iraq situation is a lose/lose/lose prospect for George Bush and Tony Blair. The entire thing could very well blow up in their face and cost them both very heavily from a political point of view, with very little or nothing to be gained even if a war goes well. All I had to consider to establish this as fact is that if it were a politically expedient thing to do, or good for poll numbers, Bill Clinton would have attacked Iraq instantly. Enough said." NOVEMBER 3, 2003 "REMEMBER THAT I TOLD YOU THIS - HILLARY IS
GOING TO RUN MARCH 30, 2005 "Real estate is over" MAY 22, 2005 "--Begin thinking about a more fuel-efficient car right now before everyone else is rushing to buy one. I heard stories of 3-year old hybrid cars selling on eBay for thousands over their original price when gas prices popped upward earlier this year. That sort of behavior is both hysterical and stupid. Since the life cycle of a U.S. automobile is currently 17 years, put yourself ahead of the curve and get yourself something more efficient now and take the money you immediately begin saving into your retirement account. --Think about how you can begin conserving energy costs around the home with energy saving appliances and light bulbs whenever new ones are required anyway. --When this all begins, the major oil companies will appear as though they're printing money in their basements, so doing some research of your own, and picking a couple of the quality oil stocks out there, might be a good investment. The summary is that oil and gas prices are never going down in a substantial way again, and you should consciously be keeping that in the back of your mind when you make personal and business decisions regarding energy. It might alter your approach and your actions more than you would suspect." PREDICTIONS AND RESULTS I'll try to keep this part as high protein and low fat as possible, so here goes with how I did on last year's predictions. PREDICTION - Dow Jones - Below 11,250. PREDICTION - NASDAQ - Right near 2,000. PREDICTION - Ten-Year Treasury Note - Staying relatively
unchanged at 4.75% PREDICTION - Fed Funds Rate - 4.75%. PREDICTION - Yield Curve - Upwardly sloped by year-end,
but barely. PREDICTION - 30-Year Mortgage Rates - Unchanged
at 6.00% PREDICTION - Real Estate - Residential market weakening
considerably and the commercial segment becoming softer more toward
year-end. PREDICTION - Oil Prices - Oil will stay in a $50
to $70 range and finish nearly unchanged at $60. PREDICTION - U.S. Inflation - CPI for the year
at 2.2%. 2008 PREDICTIONS INCLUDING A COUPLE NEW ITEMS Dow Jones - Below 11,250. NASDAQ - Right near 2,000. Ten-Year Treasury Note - Falling to 3.75% Fed Funds Rate - 3.25%. Yield Curve - Very little change in shape from
year-end 2007 to 2008 but probably a bit flatter. Real Estate - Residential market weakening considerably more and the commercial segment becoming softer throughout the year as the economy weakens. Residential should start finding the bottom by the very end of 2008 and no later than mid-2009. Oil Prices - Oil will stay continually above $80 and will close at $115. U.S. Unemployment - Rising continually throughout the year to finish at 5.8%. U.S. Inflation - CPI for the year at 3.9%. Can you say "stagflation"? The U.S. Dollar - Will weaken somewhat more and then find a bottom in the third quarter. I estimate more than 80% of the move downward has occurred by now. Very little move downward is left but there will be no real upward move. Business Travel - I have been on the road almost continuously for 20 years and 2007 was the most expensive I can ever recall. Expect the cost of airline tickets, hotel rooms, rental cars and everything else associated with travel to increase in 2008. YOUR DECEMBER BRAINTEASER This brainteaser is an absolute doozy, and I will be impressed at anyone who actually gets it without peeking. It is a total departure from many of my past offerings and awfully tough, so don't pull any muscles. Here it is: A man in a restaurant asked a waiter for a juice glass, a dinner plate, water, a match, and a lemon wedge. The man poured enough water onto the plate to cover it. "If you can get the water on the plate into this glass without touching or moving this plate, I will give you $100," the man said. "You can use the match and lemon to do this." A few minutes later, the waiter walked away with $100 in his pocket. How did the waiter get the water into the glass? Good luck, and when you can't take it anymore you will find the answer at the following link: http://www.afs-seminars.com/brainteaser_Jan2008.html Copyright 2008, Michael Gasior. All Rights Reserved AFS Seminars LLC |
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December 2007 Newsletter
