Siegel for the Long Run

Hmmm. This is interesting to contrast with some of the examples in The Wisdom of Crowds. In that book, Suroweicki is saying that (under certain conditions) the crowd knows best, and you'd be wise to rely on the crowd's knowledge. And he even uses an example from how the stock market reacted to the Challenger explosion to almost immediately punish the stock of the company who was ultimately found to be at fault. In other words, the stock price really did reflect the value of the investment. But this guy is saying something in contrast to that: overall the market is too easily swayed by the wrong things.

My questions is this: how come the poor investment strategies didn't weed themselves out? Why do they continue to survive even if they're wrong? In other words, why hasn't the market moved towards better efficiency?

SIEGEL: What I am talking about is the aging of the population, the fact that the number of workers per retiree is going to go down, drastically....

And that's why I believe the rest of the world -- which is a much younger world -- is going to loom as a far more important piece of the entire growth puzzle and as a part of investor's portfolios.

I gloat. Therfore, I am.

We're selling our assets now because:

1) They are high in value right now, and
2) We'll get a lot of benefits from the government when we get old because politicians want our votes.

Point (2) is not particularly mysterious, nor is the solution to it: a) back Bush's Social Security reform to the hilt, b) it might be timely to contemplate the ethical pros and cons of the use of terrorism against Enemy #1 of America's Future, a.k.a. the AARP. After all, the AARP is a far greater threat to this country than Al-Qaeda. Only 3,000 Americans died in 9/11, which is nothing compared to the number of old people who will be left to die nameless in nursing homes after Social Security goes bankrupt, their checks disappear, and desperate nursing home owners and staff are forced to flee to non-extradition-treaty countries with whatever cash they can get their hands on, knowing that the public will be too busy gleefully celebrating celebrating the death of the hated program that has driven tax dollars higher and higher for decades and forced cuts in every other program as well as dashing any hope of restoring military parity with China, and all because of the insane stubborn pigheaded myopic greed of the King of Lobbyists. I don't recommend killing anyone, personally. But considering that this organization is a racket engaged in grand larceny against the entire younger generation, I wonder if there might be a case for something milder, e.g. blowing up the AARP's headquarters at night, when people aren't around? I'm open to suggestions...

As for (2), it's largely a function of the fact that foreigners love putting their money here. I think we're suffering from something akin to Dutch disease, a.k.a the natural resource curse, except that instead of oil we have the dollar, which happens to have become the world's #1 hard currency at a time when expanding trade and strong growth in developing countries are boosting demand for hard currencies. See my essay here.

Selling our assets? Exchanging them perhaps. Investing in my children instead of the stock market, for example.

Damn Lancelot, you are on a roll! Not a big fan of the AARP myself, and I think they are shooting themselves in the foot by protecting to the death the benefits of one generation to the detriment of the next. But...

I think that the worst case, a 50% reduction in benefits, will result in grandpa and grandma moving in with the kids or rooming up with other seniors, not death in the streets. And as we have previously discussed, this could be a good thing. Especially if it could be tied to a tax decrease for the younger people.

To give a direct answer as to why we are selling our assets now it is the starve the beast strategy.

The fundamental problem with the starve the beast strategy is that structural deficits do not harm government, but they do massive damage to the US private economy. The structural defits now absorbs around 30% of private domestic savings. So we have to sell our assets to finance the defict. We are experiencing "crowding out" it is just that it is working thorough other channels then high interest rates.

"We" are investing a great deal in real estate. Hopefully the US will continue to attract young immigrants to support the real estate market...

I think in the future, the US will have no choice but to become even more immigrant-friendly.

A more neutral view is that we are selling assets now to finance consumption. As long as the current account deficit is so large we have to sell assets to finance it. We are consuming 6% more then we are producting. It is like taking out a home equity loan or cashing in your 401 to pay for a vacation.

The Sale of assets is premature, and geared to sustain Government spending. A ten-page article might explain it, though doubtful of proposition. Government placement of Dollar-denominated securities in foreign hands pressures either lower Dollar value, or increased foreign purchase of American domestic assets. There is foreign internal pressure not to devalue the Dollar, due to loss of Trade Advantage. Blame the Government and its idiotic spending. lgl