Juggling Dynamite

Lewinsky made the decision to have an affair with a married man who also happened to be the President, and for this she suffered personal consequences. The relevant public issue in my view, was not the infidelity, but rather that Bill Clinton, a lawyer and commander in chief of the world’s most influential democracy, lied under oath in his impeachment hearing and, not only got away with it, but continued to enjoy his position of enormous power and privilege after doing so. Without integrity, civilized society breaks down. When leaders are seen to subvert justice and benefit from it, they harm the very foundation of democracy. For me, this saga will always immortalize the many double-standards not only between men and women, but also between figureheads and the rest of us. Lewinsky’s recent Ted Talk is thought-provoking on many levels.

“Public shaming as a blood sport has to stop,” says Monica Lewinsky. In 1998, she says, “I was Patient Zero of losing a personal reputation on a global scale almost instantaneously.” Today, the kind of online public shaming she went through has become constant — and can turn deadly. In a brave talk, she takes a hard look at our online culture of humiliation, and asks for a different way. Here is a direct video link.

Why high corporate profits aren’t translating into widespread economic prosperity, as explained in William Lazonick’s HBR article, “Profits Without Prosperity.”  Here is a video report.

Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into widespread economic prosperity.

The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.

As shown below, the net effect of all this ‘financial engineering’ is that it is fleeting.  We are today in the midst of the third unsustainable bubble in asset prices in 15 years. And each time the bubble bursts–as it must and always does–the apparent net worth gains evaporate quickly, revealing deficits, shortfalls and under-investment in the real economy as far as the eye can see.  The deficits last, while the net worth gains do not.

An initial reading the Chinese manufacturing sector saw activity drop to an 11-month low in March, but analysts may be more worried about the government’s push for much-needed structural reforms. Here is a direct video.

Listen to the long always Fidelity salesperson in this clip explain how they are not concerned (ie. reducing their equity exposure on this news–because they need to keep the equity dream alive for people to keep buying their funds), or as she says they remain confident that Chinese consumers will start spending any day now to drive the economy so that the government firehouse of debt-spending (that has quadrupled total credit in the Chinese economy since 2008 to now some 282% of GDP) can back out as the primary growth engine it has been over the past 8 years.  Best wishes.

In reality, consumer spending in China has declined with employment since the 2008 recession. Chinese people are still largely responsible for their own social security and healthcare and save about 35% of their income as a result (compared with maybe a 5% savings rate in North America). The Chinese saving rate is going up not down.  Moreover while many were trying to improve their net worth by using free-flowing credit to speculate on housing the past few years, home prices are now in retreat and in February, registered 6 straight months of decline in 69 of 70 Chinese cities.

The trouble with investing speculating on credit is that when prices fall you are left with not just capital losses on the property but negative equity and often negative cash flow after making the debt payments.  This is what prompts people who thought they were ‘investors’ to suddenly start liquidating.  If they can find a buyer.  Which drives prices down further and compounds losses…and so on.  The world over, it is always the same.