Some Interesting Reads

I was looking at today's post on The Kirk Report (actually a website I was reading many a year ago, so it is great that FMMF has become one of his favorite reads) and there were a couple of fascinating links today.

First at Slope of Hope, Tim Knight talks about the "True Middle Class"; it is a short post but he probably has America represented pretty well. I say it is not 2 Americas, but 3 Americas - he agrees but has a different 3 class divisions than I do; mostly based on "knowledge".

There are some who call the United States a classless society. I certainly do not. But my view of "class" this morning only partly has to do with assets owned by a given party. It also has to do with how "in-the-know" someone is.

1. Cornupecuniae - This is the ruling class. The top 1% of the U.S. owns 34% of the wealth. Since the mid-1950s, the "skewed-ness" of wealth distribution has becoming increasingly distorted. But the important thing here is the concentration of knowledge and power, because that upper echelons have, over the past few decades, turned the United States into a virtual plutocracy. Consider the ethics and well-being of Goldman Sachs, and you pretty much get the picture. We'll call this Group #1.
2. Ignoramus Felicitia - Here's where just about everyone else is. This is where people who really don't understand the world around them reside. They don't really read that much. They like their sports, their action movies, their sit-coms. They need distractions, lest they risk a chance of being exposed to something unsettling. As long as they can get their $1.99 hot dog/Coke-with-refills at Costco and have a roof over their heads, they're not going to cause any trouble. I'd say this is 95% of the country. Let's call this Group #2.
3. Illuminata Miserque - And here we have those who may or may not have money, but they have knowledge, and they find that knowledge distressing. They learn; they read; they converse; they dig deeper; but there's not much they can do about what they find. This, as you can imagine, is the realm of Slope. Every day there are superb articles shared here, and as a group we continue to learn more and understand better..........the principal result of which is agitation. We'll dub this one Group #3.

If you made it this far to Fund My Mutual Fund and were not disgusted within the first 5 posts (in which case your chances of being in group 1 are extremely high, or you long for the comfort of group 2) you most likely are either a long time group 3, or quickly converting into one realizing ignorance is no longer indeed bliss. It's a long slough but there seems to be a small niche of websites trying to move as many people from group 2 into 3 - but I suppose you actually have to be searching for the greater truth or at least "our" version of it. (which of course could be completely wrong) :) Usually Tim's site is all about day trades so I was surprised to see this sort of topic there.

He continues

The rally which begin in early March and continues to this day (even on Labor Day Weekend, when the /ES simply thundered higher still), was created when Group #1 convinced Group #2 that everything was going to be OK. Group #3 knows things are not OK, but it stands aghast and bewildered that the reality they understand isn't aligning with the action in the markets. It all goes back to that annoying, oft-cited phrase that markets can stay irrational longer than you can stay solvent. The "irrational" part refers to the disparity between what Group #3 sees and the beliefs that Group #1 professes.

I don't have any ambitions to change the unchangeable; I simply want to be well-positioned and well-capitalized to profit from when reality becomes something that Group #1 can't hide anymore. (Of course, they too will be well-positioned for the fall; they're not idiots, you know; there's a reason they got into Group #1 in the first place). And, with that -- and the /ES approaching another lifetime contract high -- I bid you adieu.

Don't forget the liquidity Tim... every market has supply and demand. We only have so much supply of stock certificates and oh so much more paper money chasing it. Also don't forget deflation is the great boogeyman of group 1... they love inflation and control the powers that be that own the printing presses. [Aug 18, 2009: Bloomberg - Deflation Theory is a Lemon We've Been Sold] When you have all the assets (or most of them) inflation is your friend and stable prices are not. Inflation is the enemy of most of group 2, but they don't know that. Otherwise, a great post - welcome to life outside the Matrix.

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Next, it is too long to summarize but Jim over at The Burning Platform has taken things we've touched on in COUNTLESS pieces and put it all into 1 comprehensive blog post titled Living in Beverly Hills.

For the last three decades millions of Americans have been living in Beverly Hills. How can this be? Only 35,000 people reside in Beverly Hills, California. Millions have acted like they live in Beverly Hills, where the median household income is $125,000.

I sometimes get lazy with posting supporting facts and figures, because I've seen the stats so many times my eyes gloss over (i.e. we were talking about the move to 7-8 year car "mortgages" to support conspicuous consumption two years ago), but realizing new readers show up all the time, he does a great job of posting a lot of data points that I now simply take for granted. It's basically a nice summary of the "I want it, I deserve it, we are America - give us our cake, let us eat it too, and then give us a pill so we don't gain weight once we are done eating" culture. Again, if one is in group 2 of Tim's "class structure", you don't want to read Jim's post - might make a person look in the mirror.

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To finish, there is not a blog post but something I read in BusinessWeek which is the last physical magazine publication I seem to be reading anymore. The title of the piece is "Where Have You Gone Bell Labs?" This is a very thought provoking piece on "science and research in America" and how the chase for the near term profits in our corporations, spurred by near term incentive packages has crushed a lot of the basic research we used to do in the private sector. I think this will appeal to the engineering or science type of crowd, but I truly think anyone who gives a darn about what HAS happened, WHY it has happened, and HOW we have a chance to get out of this tailspin will want to read it. Read it here.

If you believe the private or public sector or some partnership of the two should be doing the basic research - that is a whole different discussion but certainly some holistic "Manhattan" Project level change has to happen. I keep returning to jobs because we keep moving jobs away and replacing them with employment that are basically long term liabilities to the country (healthcare, government) - at a level that is not sustainable. [Aug 14, 2009: No New Normal Say Some Economists, Prosperity Without Jobs?] Those cannot be moved away, true - but as we "morph" to a service economy we need to create good classes of jobs that replace the ones that we send overseas. That has been the difference in our "creative destruction" the past 10-15 years versus earlier periods. When industry A died or was taken over by another country, industry B took it's place and provided even better work. Not anymore - certainly not on a mass scale. In lieu of this creation of jobs we've been a country which builds serial bubbles (that temporarily inflate asset values) to create an appearance that things are still fine. And we're doing it yet again.

As any well read person knows some of the greatest discoveries in history were made as a "mistake" while researching something completely different. But with a dearth of "long tail" research that does not provide ROI (return on investment) for a corporation within a year or two, much of this has been abandoned. What has happened nationally is not dissimilar to a technology company that simply tries to cut costs in the near term via lack of research (which of course spikes profitability) but than finds itself boxed in a corner and way behind the curve 5, 10, 15 years later. That company eventually goes out of business due to stoking short term profits but not investing in its future (if said company were in the financial field it would not go out of business as it would be rescued by the government ... but I digress) I don't know the exact solution but incremental change at the edge is not going to bring back 10-15M jobs that we need to replace; an "adult conversation" as a nation needs to commence but considering we're at a place in our "evolution"as a people, that the leader of the country cannot even talk to the schoolchildren without raising a national firestorm, I have little hope.

Name an industry that can produce 1 million new, high-paying jobs over the next three years. You can't, because there isn't one. And that's the problem.

America needs good jobs, soon. We need 6.7 million just to replace losses from the current recession, then another 10 million to spark demand over the next decade. That's 15 million to 17 million new jobs. In the 1990s, the U.S. economy created a net 22 million jobs (a rate of 2.2 million per year), so we know it can be done. Between 2000 and the end of 2007 (the beginning of the current recession), however, the economy created new jobs at a rate of 900,000 a year, so we know it isn't doing it now. The pipeline is dry because the U.S. business model is broken. Our growth engine has run out of a key source of fuel—critical mass, basic scientific research.

The U.S. scientific innovation infrastructure has historically consisted of a loose public-private partnership that included legendary institutions such as Bell Labs, RCA Labs, Xerox PARC XRX, the research operations of IBM IBM, DARPA, NASA, and others. In each of these organizations, programs with clear commercial potential were supported alongside efforts at "pure" research, with the two streams often feeding one another.

But since the 1990s, labs dedicated to pure research—to the pursuit of scientific discovery—have seen funding slowly decline and their mission shift from open-ended problem solving to short-term commercial targets, from pure discovery to applied research. Bell Labs had 30,000 employees as recently as 2001; today (owned by Alcatel-Lucent ALU) it has 1,000. That's symbolic and symptomatic of the broken link in the U.S. business model. With upstream invention and discovery drying up, downstream, industry-creating innovation is being reduced to a trickle.