As the market figures out a direction this week, let’s examine three headlines; each worrisome for different reasons:
Some very bright men opine on the Euro’s future here: http://www.bloomberg.com/news/2011-08-21/el-erian-joining-feldstein-fels-on-prospect-of-euro-evolving-into-new-core.html. If you want to be part of a union, strong partners must support weaker partners in times of need. Partners in a union also work out compromises when they disagree. Kicking the PIIGS (Portugal, Italy, Ireland, Greece, Spain) off the Euro currency presents a real potential shock to global markets and at this time the EU will likely sidestep this immense policy blunder. To put this issue in perspective, most US citizens would love to be rid of “housing bubble and illegal immigration” states like Florida, Arizona and Nevada. I leave out California because it’s simply too darn big and important to the US as a whole. You could argue the “parasite” sates are dragging the dollar down with big budgets, falling tax revenue, and localized economic problems the folks in Illinois and Virginia just don’t care about. You can see how this argument can quickly turn to political civil war and roil markets.
Warren Buffett’s tax rhetoric gains supporters: http://economix.blogs.nytimes.com/2011/08/23/what-the-rich-can-afford-in-income-tax/. Bruce Bartlett is a conservative guy when it comes to economics. Why is he talking about tax increases for the rich at a time when populist headlines are all the rage? I won’t discuss the specific merits of his argument, but opening yet another pitch fork stand for angry villagers doesn’t seem like a great idea. It is important to note that changes in the tax code represent a shift in the distribution of wealth–markets get depressed when this happens, no matter the direction of the shift. Losers hate losing more than winners like winning: that’s basic behavioral economics.
So ridiculous, it’s worrisome: http://www.marketwatch.com/Story/story/print?guid=CF3F1872-CCE9-11E0-BE2D-00212803FAD6. The future is always scary, I agree. Human civilization will successfully deal with the challenges a more populous planet Earth presents. We are capable of immense innovation at an exponential rate relative to what we believe is possible today. Gloom and doom stories like this about post-apocalyptic investment ideas are about as useful as umbrellas at Chernobyl. if you feel inspired, don’t log into your Schwab account. Go out and buy a Nissan Leaf with some roof-mounted solar panels.