The Long Crisis

Archive for the ‘greater depression’ Category

Upon shuttering his hedge fund in October of 2008 Andrew Lahde sent the following letter to his hedge fund clients. From the way things are going in the once good old USA it seems that his retirement and comments were well timed.

“Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to crea te a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won.

At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You wou ld not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde”

The sad fact is that as Andrew Lahde stated some two years ago the United States government is broken to the point of no repair. Events over the next 1 to 2 years will probably prove this fact well beyond any doubt. No one really knows what the future will bring but it is really impossible for the United States to have a recovery to the old happy motoring and senseless consumption economy. The economy that we are attempting to recover to is gone forever. Rather than attempt to recover to something that no longer exists our government should acknowledge that old solutions to our many problems no longer work and that a new economic and political system will have to be created in order for solutions to be implemented.

Of course, it is highly unlikely that our present crop of self-serving politicians will be up to the task of even admitting to the public that our government is badly broken and that a true emergency is at hand. When one refuses to admit that a problem exists it is impossible to find solutions for the problem. I expect that is why Andrew Lahde wrote such a pessimistic letter to his hedge fund clients and why the outlook for the continued prosperity and world leadership position of the United States is today in such jeopardy.

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I’ve long been fascinated yet horrified about the conditions and processes that somehow transforms nations and the collective actions of highly civilized people into inhuman beings possessed by total madness. For example, Hitler’s Germany, Mao’s “Great Leap Forward”, and Pol Pot’s Cambodian killing fields are spot on examples of how evil can quickly be spread throughout a society by a powerful “leader” sociopath with a political agenda, as crazy as it may be.

An America under great stress could and probably will once again descend into madness. I say once again as we have been there before. Our Civil War is a good example of this as disagreements over States rights and the role of the federal government led to the unthinkable, a war between the States. The Senator McCarthy era of the 1950′s is another example of how a talented, if misguided, orator demigod gained control of the national dialogue, which led to the persecution of many people who just happened to disagree with the Sen. and his mad methods. Then in the 1960′s there were numerous riots and civil disturbances as one of the consequences of the unpopular war being fought in Vietnam.

The mass bombing of heavily populated civilian centers in Germany and Japan in World War Two is yet another example of how decent citizens can be manipulated by their leaders in government. The heavy bombing of German and Japanese population centers, occupied primarily by civilians, must have seemed horribly wrong to many American and British citizens, that is until their governments by control of the media were able to present the bombings as a necessary evil and a normal activity against a tough and entrenched enemy. Germans and Japanese citizens were presented by the American government to the American public as less than human as that made it easier to exterminate them. What is that other than leaders manipulating group think and tipping social mood into madness?

Some bombing runs against city centers were terrorist attacks in the sense that they were designed to terrorize the population for a political end, not to destroy military targets. Fighting evil by becoming evil may be effective but hardly keeps one on firm moral ground. The madness of killing hundreds of thousands of civilians was opposed by few Americans or Brits. The total fire storm destruction of major cities was celebrated by the allies. Throughout history, there are many such examples of how charismatic leaders who are media savvy can manipulate populations into a condition of madness.

Today the early stages of a financial melt down and the long term crises associated with the liquidation of unprecedented debt that most of the Western world, certainly America, faces sets up the possibility of yet another descent into madness. As unemployment remains at high levels and standards of living fall in America the hate filled dialog of even one media savvy sociopathic “leader”, probably not yet elected to public office, could tip America’s social mood into one of complete madness.

We are already experiencing early signs of this. The verbal and physical attacks against Congressman who voted for and even against the health reform act are an example of anger and rage felt by many American voters boiling to the surface. This anger has been fanned by politicians and talking heads in both the Republican and Democrat parties. People will become ever more angry and violent as their standard of living falls and then can be even more easily manipulated.

There is a real danger of a population where many people are living on the edge getting completely out of control. If the nation tips into a condition of national chaos and disorder it will be difficult for anyone living within the United States to escape the consequences. Those who think that a private horde of guns, ammo, water, and food will save them from national madness are dreaming unless they are completely hidden away far off the radar. In fact, anyone who is thought by the raving fired up mobs to possess anything of value or thought to be somehow “un-American” will soon come under repeated attack until the mob gets whatever it wants.

As resources become ever more scarce and the various media savvy “leader’s” voices becomes louder and more shrill the descent into madness may come faster than anyone now thinks. Who in the civilized Germany that existed prior to Hitler could envision the madness that would soon follow? In the early 1930′s Hitler was even admired and considered a great leader by many elite Americans and Brits.

Could America’s social mood tip into complete madness? What do you think? Is the process already underway? Could a greater depression take us over the edge of reason into madness?

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The December unemployment figures were released on January 8, 2010 and showed that 85,000 jobs were lost for the month. Since the pre-release guesstimate was for only a small loss for the month, or perhaps even a tiny gain, the figures disappointed Team Obama.

Or did they? President Obama is gearing up for yet another job stimulus program so perhaps with politics being as they are today it was decided that a loss of jobs in December might be helpful in proving that a further stimulus package is required. It really has become hard to believe that the government releases the unemployment report without taking into account political considerations.

However the government came up with the figures one telling statistic is the large number of people who have dropped out of the labor force. Over 900,000 former workers have decided that a job is impossible for them to get given current market conditions. Without this reduction in those seeking work and other adjustments the 10% unemployment rate and the loss of 85,000 jobs for the month would have been far worse.

Since President Obama has taken office approximately 4,200,000 jobs have disappeared. While President Obama can rightfully say that his administration inherited a tremendous mess from George Dubya Bush, one that will take some time to clean up, there is no doubt that unless the job market improves considerably before the midterm elections Obama and the Democrats will face a major hit in the 2010 elections.

The real problem is that the Obama team, along with many Americans, have yet to face up to the fact that we are in the early stages of a depression, not an ordinary recession. The talk is still about a recovery. There is no recognition at all that it is impossible to return to the happy motoring days of 2005. Valuable resources are being wasted by the government to prop up zombie banks, dinosaur automotive companies, and undeserving companies like AIG, while trying to bring back an economy that was built upon the wasteful largely unproductive back of consumerism.

It is highly unlikely that with crude oil once again in the danger zone above $80 dollars per barrel, and probably headed to above $100 per barrel by year end, that there will be any meaningful job recovery during 2010. In fact, there is a high probability that the economy will have a double dip recession. Should this prove to be the case team Obama could well face a bloodbath in the midterm elections.

While there are many items on Obama’s overfilled plate, such as healthcare, immigration issues, security issues, and the wars in Afghanistan and Iraq, it really comes down to how the job picture looks by the November 2010 elections as to whether the Democrats will take a real beating in those elections.

One can reasonably bet that the government will pull out all the stops in an effort to give the job market a boost during 2010. This means that Uncle Sam will be spending even more money that it doesn’t really have in an effort to save the economy. While increased deficit spending may well get some short-term relief the prospect over the long-term is downright depressing.

The United States is headed toward one of two things, neither one of them pleasant. One is that the government will eventually be forced to default on its obligations. In my opinion, this is highly unlikely but not impossible. The more likely event is that the government will attempt to control inflation in a way that allows them to pay off more debt with ever cheaper dollars. The danger here, of course, is that Ben Bernanke, Tim Geithner, and President Obama are not quite as smart as they think they are and take the United States into an impossible to control hyperinflationary environment.

The loss of 85,000 jobs for the month of the December 2009 may turn out to be one of the more minor things for the administration to worry about in 2010. One thing is very certain. 2010 will turn out to be an extremely interesting year.

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