It is important that we understand that the stock market is not the economy. Even people who are not investors tend to make this mistake. It's easier to make that mistake if you're personally invested. On the surface, however, it's obvious that economies don't change as dramatically as the market does. Paper losses can be painful, but they don't translate directly into the destruction of real assets.
I am pointing out the obvious because I'm so sick of mainstream media's economic coverage. We know, in fact, that our so-called Fourth Estate has the collective IQ of an underachieving adolescent. We know this because the mainstream media utterly failed to cover the oncoming credit crisis. They did so even as rational analysts were screaming that Fannie Mae and Freddie Mac were headed for a cliff. When the media spin current events, remember how wrong the pinheads were until now.
So let me quote someone who is not a pinhead: economist Thomas Sowell. He wrote a great piece recently criticizing the media's constant connection of the 1929 stock market crash and the Great Depression.
"Let's start at Square One, with the stock market crash in October 1929. Was this what led to massive unemployment?" Sowell asks.
He then presents the fact that the unemployment rate was at 5% in November 1929, a month after the stock market crash. "It hit 9% in December - but then began a generally downward trend, subsiding to 6.3% in June 1930.
"That was when the Smoot-Hawley tariffs were passed, against the advice of economists across the country, who warned of dire consequences.
"Five months after the Smoot-Hawley tariffs, the unemployment rate hit double digits for the first time in the 1930s.
"This was more than a year after the stock market crash. Moreover, the unemployment rate rose to even higher levels under both Presidents Herbert Hoover and Franklin D. Roosevelt, both of whom intervened in the economy on an unprecedented scale."
So the real question is will the Obama administration duplicate the Hoover and Roosevelt fiasco? Frankly, I don't think it could if it wanted to. I say this for several reasons.
One is Obama's choice of economic advisers, a group praised by free-market economists and criticized by those who want a new deal. Moreover, there are significant international factors driving economic growth that simply didn't exist in the 1930s. Specifically, India, China and the old Soviet satellite countries have been growing at double-digit rates for years.
In many ways, policymakers in these countries are smarter than their American peers. This is because they are playing catch-up for populations that demand real economic improvements. In fact, our portfolio will expand this year to include breakthrough technologies in these unstoppable markets.
In this month's newsletter, I go into more detail about the Obama administration's impact on nuclear energy. What I will say here, though, is that "Only Nixon could go to China." That famous catchphrase has come to refer to the fact that sometimes only opponents of policies have the ability to change them. Bill Clinton, for example, ended entitlement status for welfare.
Therefore, the Obama administration has the power to end the influence of the anti-nuclear energy movement. His science adviser, in fact, has stated that he intends to do just that. More importantly, he has been personally involved in researching next-generation nuclear technologies.
Patrick Cox
for The Daily Reckoning Australia
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About the Author
The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.
Comment by Don on 19 January 2009:
Much as the green movement will hate it - nuclear power is the only long term solution to the planet's energy crisis. The piddle power of solar and wind will never be able to run heavy industry. Looking forward to your article.
Comment by wade on 20 January 2009:
You must be joking or you are seriously misinformed. Obama's economic advisors are anything but praised by free market economists! His advisors are Status Quo economists, which means more intervention and more bailouts.
For example, Tim Geithner (Obamas Treasury Secretary) orchestrated the Bear Stearns bailout - hardly a free market man! Obama himself was a strong advocate of the recent US Big 3 Auto bailout and is talking of an even greater consumer stimulus plan; please show me the free market principles in these decisions. Contrary to your views, we will see Roosevelt style intevention on a massive scale. Dont get me wrong, I dont support the Republicans, but to suggest Obama will take a free market approach is so off base you aint even in the ballpark.
Comment by Ross on 20 January 2009:
Not sure how this guy got a ticket to ride here but he is spinning the talk of a gang of cronies paying lip service "Clinton-Rubens style" to conservative responsibility and doing the exact opposite. Andrew Mellon was the only one with the answers and that involves taking out all the Obama entourage's ticket clipping mates by the roots and rebuilding the academic, commercial banking and reserve bank institutions. The b/s that Stiglitz is trying to shift that he opposed debt, funny money and the ballooning CAD is just so much rewriting the record drivel from the opposite corner of the crony's economic punch and judy show.
Comment by Mirza on 23 May 2009:
I live in the US and I have to disagree with this article. While Obama has proved to be a good president so far... he hasn't really focused too much on alternative energy.
Comment by Biker Pete on 23 May 2009:
I guess you have to ask what 'alternative energy' really means. My bet is that Obama's advisors will go with thorium. (Now this 'ticket to ride' perspective is interesting, Ross. God forbid we should permit discussion of anything mildly in conflict with the herd's position!)
Comment by Biker Pete on 26 May 2009:
And further to the 'thorium' possibility, China is actively buying monazite, even on the internet:
http://www.tradeboss.com/default.cgi/action/viewtradeleads/tradeleadid/123088/subject/Buy_Monazite/
Comment by Bargeass on 19 January 2010:
Got something very special for you Justin. X0X
Comment by Pete on 19 January 2010:
I see The Fruits are at play again... . You'll tire of it before I do, fellas.
Hear the latest is the prof climbing the hill has to wear a black T-shirt with a lightning bolt... and the letters ADHD... .
Comment by Pete on 27 January 2010:
HaHa... a bogus Pete!
Well Cam, I'd have given ya a zero. (Sorry, Ned!) I know nothing about climate change, so I have refrained from making any comment. All the glaciers we've passed, in Europe, Canada and NZ have been retracting faster than an old fella's dink, but I've no idea if it's man-made, or part of a ten-millennium cycle.
But Ned has the pow-a to give ya a Five. Long ago DRA withdrew my rating rights. They're rightly worried about my contributions!
On the balloon analogy, as it relates to the piece-of-string paradigm, I'd give ya a three. But you're barking up the wrong tree, son. "...They're all staring in amazement ..." because there really is no end to the piece of string. Shelter will always have priority. Who needs capital appreciation? You simply do not understand how property and taxation work. After thirty two years of very active participation, I'm now approaching a full understanding. And, yes, I'm a slow learner... .
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