Juggling Dynamite

Sell side commentators are busy assuring us that plunging energy prices are positive for the economy. But then they say that about everything…For a more useful overview of the good, bad and ugly of falling oil prices see Gary Shilling’s, Who gets hurt when oil falls.

The U.S. stock market, while pointing up now, may yet have a negative response to declining energy costs, suggesting that the financial risks from falling oil prices may outweigh the benefits to consumers.

If a full-blown global financial crisis unfolds, along with an accompanying worldwide recession, investment strategy will no doubt shift from the current “risk on” stance to “risk off.” In that scenario, you would expect to see a rush into the safety of Treasury bonds and the U.S. dollar and a stampede out of commodities and stocks globally.

Interestingly, most of this is already in tow. Treasuries are rallying as Americans and foreigners pour in; yields recently hit 2014 lows. The dollar has been robust against the deliberately devalued yen and euro, as well as the currencies of commodity exporters Australia, New Zealand, Canada and Russia. And commodity prices, from oil to copper to sugar, are falling.

Only stocks remain to turn down decisively, and even that could change if oil prices keep sinking.

It is important to understand what an enormous black hole finance has become to the global economy over the past 30 years.  If we are to get the financial beast tethered in service to the real economy and families rather than devastating them, we have to understand what misguided policies and incentives have created the problems.

We also have to stop taking financial advice from the sales crowd.  If you have not figured this out yet, unfortunately you will earn your losses.  See an excellent overview of the issues here:  A black hole for our best and brightest

Wall Street is bigger and richer than ever, the research shows, and the economy and the middle class are worse off for it…

…the economy has suffered at the hands of some of its most skilled, most talented workers, who followed escalating pay onto Wall Street — and away from more economically and socially valuable uses of their talents.

The financial industry has doubled in size as a share of the economy in the past 50 years, but it hasn’t gotten any better at its core job: getting money from investors who have it to companies that will use it to generate growth, profit and jobs.

In perhaps the starkest illustration, economists from Harvard University and the University of Chicago wrote in a recent paper that every dollar a worker earns in a research field spills over to make the economy $5 better off. Every dollar a similar worker earns in finance comes with a drain, making the economy 60 cents worse off.

Cyber-Seniors is a character-driven documentary that follows a group of initially reluctant seniors as they discover the wonders of the world-wide-web with the help of their teenage mentors. See:  www.cyberseniorsdocumentary.co­m.  Here is a direct video link.