No Fate But What We Make

Neel Kashkari, who was the Interim Assistant Secretary of the Treasury for Financial Stability, and is now managing director and head of global equities at PIMCO, had an op-ed this morning on the

that was pretty bleak in its assessment of the U.S. fiscal house, and the government's ability to get its fiscal situation under control. The part that is getting the most attention this morning is that Kashkari references the "Terminator" movies, specifically Sarah Connor, and her son, John. If you are not familiar with the movies, where have you been for the past 25 years? To give a brief synopsis, a computer program called Skynet was invented by Cyberdyne Systems, and eventually wreaked havoc on the world, causing a nuclear war, and eventually taking humans prisoner and wiping out most of the population in the future. Sarah Connor is the mother of John Connor, who eventually leads the human race to victory over Skynet. Skynet sent "Terminators" back in time to try to kill Sarah before she could give birth to John, to stop him from being victorious in the future. You can get a full history here, courtesy of

Here are the few paragraphs from Kashkari generating the most interest: "Remember the Terminator series of movies about a woman, Sarah Connor, who learns that machines controlled by a military computer system, Skynet, take over the planet in the future? She tries desperately to stop it from happening. Yet, despite all of her efforts, she fails. The machines take over the planet." "Is it possible that certain events have already happened that have put us on a path whose destination we can not alter, despite all of our wisdom and effort?" "Yes, Sarah Connor failed to stop Skynet. But she did successfully prepare her son, John Connor, to lead the resistance against the machines. While we may not be able to avoid sluggish growth, we believe investors can earn attractive risk-adjusted returns by looking globally for the companies with strong balance sheets that are best positioned to thrive in the multi-speed global economy. And, hopefully society can institutionalize the lessons from this crisis so that future generations don't repeat it: Individuals, corporations and countries should only borrow to fund long-term investment, not current consumption." Kashkari goes on to talk about the "New Normal" (which PIMCO says it low returns for all asset classes and increased volatility), and how all of the stimulus from the Federal Reserve (quantitative easing, low interest rates, Operation Twist) has done has not really worked. He cites past examples of where central banks were not dovish enough, including the Great Depression in the U.S., Japan's "lost decade," and helped prolong the downturn or even caused them. That is not the case here, as we are in a balance sheet recession, with the private sector paying down debt, instead of taking it on. The latest consumer credit report done by the Federal Reserve showed that it fell by $9.5 billion. Expectations were for a rise of $8 billion. The survey is done by the Federal Reserve. Kashkari says that the downturn we are experiencing might be inevitable, no matter what the public sector does to help mitigate it, considering what the country has done for the past 30 years. Debt, both public, and private soared since then, and it looks like the debt bubble is finally starting to burst. We are seeing massive de-leveraging, which in the long-term, is a good thing. Not so in the shorter-term. Kashkarsi writes, "Perhaps we really are in for a lengthy, multi-year period of slow growth and private sector deleveraging, and there are no policy tools to prevent that from happening." While the de-lveraging will probably continue for a few more years, the bleakness that Kashkari and PIMCO present may not last as long as they think. Kashkari says that it may not affect equity valuations, as corporate balance sheets are impeccable, and the companies continue to enjoy solid, not spectacular revenue growth, and are becoming more efficient. Unfortunately for the country, more efficient means cutting jobs or implementing technologies that cut jobs. Corporations do not care about jobs in any one country, they care about growing around the world. They will always look for the lowest cost of employment and the highest return. The country has two options: continue to go about the status quo, and keep seeing the middle class shrink until we are a country of poor or rich, with nothing in between. Or the middle class can rise up, (as they have done with @OccupyWallStreet) and fight for their rights in an intelligent, and productive manner. The focus needs to be on innovation and start ups, not just small businesses. Stifling innovation even further will hurt the recovery, however meak it already is. To quote Sarah Connor, "No fate but what we make." America, it is our time to keep fighting for the country that is the greatest one on Earth.

Don't let Skynet (the status quo) win.