Don’t stop. Don’t stop the dance.
Brian Ferry, Roxy Music
Sounds like the theme song being sung not only GM, Citigroup, GMAC and other ‘vilified’ lending institutions, but also for the guy that speeds through a left turn signal just as it turns red in his BMW SUV- and talking on his cell phone. To that person, image and perception isn’t everything, it’s the only thing. Out in public he may appear all important and mighty talking on that brand new iPhone while waiting in the checkout line at the supermarket, but deep inside he’s crumbling under a pile of house, auto, and ‘stuff’ type debt. It’s more important to worry about how your neighbor and co-worker perceive you than to live within your means. Even though we’ve been inundated almost to the point that it's impossible to pick up a newspaper or magazine without deleveraging being mentioned, for about 2 years now, but has all that talk really made a difference yet? I recently purchased a new car after my former (paid off) vehicle was destroyed by a drunk driver. A mere 4 months after the purchase I’m received ‘VIP Cash Vouchers’ in the mail from the dealer to put towards the purchase of a new vehicle. I just bought one a few months ago, why do I need a new one? I refuse to perpetuate the machine. I only use credit cards when I get something for nothing, ie: Discover cashback bonus and Chase cash rewards card. All the while, never carrying a balance. Yes, credit card companies hate me. We pay extra on our mortgage and car payment every single month.
Looking back, the warning signs were in place everywhere. Car dealers continually pushed the concept of a ‘Smart Buy’ on unsuspecting buyers to make the idea of perpetual debt sound like an intelligent financial decision. What ever happened to the term, “Lease”? I guess it wasn't a flashy enough term to fool the masses- aka, the ones who didn’t even belong at the dealership in the first place-into purchasing their first leather seated Range Rover. It also amazes me how GM touts its superb American craftsmanship, yet for the past how many decades they’ve offered discounts to anyone with a connection to GM work. Almost every person I know of who’s bought a new car talks about the incredible deal they managed because their brother in law has a friend who’s cousin is retired from GM. This is the cost for quality- a GM discount. Keep perpetuating the machine by purchasing a new ‘quality’ vehicle every 2 years because, ‘Hey, everybody else buys a new car every two years anyway.’ Smart Buy. Yep, PT Barnum would have been proud.
Demographically, the auto industry is toast. The baby boom generation bought a car for not only themselves and the Mrs., but also for each of their 1.7 kids progressively during the 1990’s and 2000’s by way of lease and smart buy. Growth ensued, and the ones who created the modeling for future growth, (you know, those engineers with impressive degrees from the Ivy Leagues) believed it would multiply forever, not taking into effect the shrinking demographics of today’s America. (Those are the same engineers who composed models for the housing industry that claimed housing prices would go up forever.) Everything we’ve done to make life easier for America has somehow made it more complicated. Cell phones were supposed to make it easier to get a hold of somebody, now we’re on call 24/7. TV was supposed to bring us great live shows, now Americans waste away their days watching TV to find out who the latest person was to check in to ‘Celebrity Rehab’. Exercise has gone out the window as there's no longer enough hours in the day due to the overload of simplicities. I’m the idiot because I’m riding in the street on a bicycle and I happen to be on the shoulder while a stressed out person needs to turn into the coffee shop to get a coffee after work. Hey, don’t get mad at me. I’m just trying to get exercise after a mind numbing day in the office of watching co-workers concoct new ideas to advance themselves in the “Rat Race” with the least amount of effort.
Another warning sign. I remember when I started my first full time job the day after I graduated college, everybody was telling me how important it was to buy a “starter home”. After all, renting was stupid because you didn’t get the tax deduction. I chose to rent an apartment and not follow the herd. While an apartment did have its pros and cons, at the end of the day I was saving much more than I would have had I gone the ‘Starter home’ route. Today, the experts who were once touting the idea of taking out a large mortgage and investing your savings in an index fund have disappeared. It's now, once again, a smart idea to rent and save up enough to put down 20% when buying a new home.
How about the amount of commercial real estate for sale these days? Did anyone else scratch their head a few years ago when the leaders at Starbucks said they were building coffee shops on both sides of main streets in big cities so customers wouldn’t have to make the left turn in order to get their $5 coffee? Who’s going to buy all this empty commercial real estate? What can possibly even go there besides a nice park with trees and a baseball field? We’re done. We no longer need a new TV each and every time there’s a new button added to the remote control, nor do we need a new couch whenever it fades a bit from the sunlight, nor do we need a new kitchen to add $10,000 to the resale value of our homes. When I travel the main shopping districts, its nothing but signs on former corporate, chain store/restaurant types saying, “Building For Lease”. Our leaders have managed to completely crush and deter small business startups. The small companies where it all starts have been pushed to the wayside as we’d rather prop up the bloated, mobidly obese “too big to fail” types. You want to get into your own business, apply for your own Quizno’s or Subway and hope that you’re not getting a pink slip at the end of the season when the franchise begins to make cuts. If you want to buy something on Ebay, you're only choice is buying from a powerseller with the 'buy it now' function. Bidding on items is a relic of the past.
Since the 1980’s, this has been the world we’ve created. Push it to the limit and double down on all bets at the casino because your guardian angel, err I mean the Fed/Treasury, will be there to catch you if you fall. I read that the average salary of a stockbroker in 2005 was $250,000, yet most still managed to underperform the indexes they try to emulate. The new way to entice the retail investor and keep the commissions flowing in is to proclaim that “Buy and hold is dead!” To make profits you now must trade every time your prized blogger or timer of the week says he's bullish or bearish. That's if you're lucky enough to find a timer who's willing to stick their neck out and use a chart as a crutch. Buy high, sell low, buy high sell low, repeat 50 times a month and you’ve made your broker nearly $350 in trading commissions. Is that much better than a .09% fee on an index fund at the end of the year? Unlimited trades and intra-day trades are the answer to financial security- allegedly. All you need to do is follow the trend and stochastics that 20 million or more other investors are watching at the same time. Some edge we’re giving ourselves.
The American Dream may have been just that, a dream. The last few to get out and lock in their guaranteed 40 years of retirement pension are the real lottery winners. A poor farmer in Mission, South Dakota wins $232 million in the lottery, but “only” takes home $83.5 million of it. Who’s really making out here with the lottery? The days of sitting around waiting for your next federal pay increase that’s “owed to you” are gone. Where’s the money going to come from? I’ve seen federal job fairs with folks showing with resume in hand, and they have the qualifications and leadership from the private sector that many federal agencies are in dire need of. They know what it’s like to have to produce and put out to maintain a job. How many in this world have spent more time computing their “high three” than worker output? GM employees worked 30 years and lived the retired life for another 40. The creators of baseball arbitrarily placed the bases 90 feet apart, arguably making the dimensions perfect (as gauged by the number of close bang-bang, game deciding plays at first base). Today, the arbitrary retirement age of 62 is not looking so perfect a number.
Continued in part II
