Wrestling with an 800-Pound Gorilla

The economic 800 lbs gorilla

An 800lbs gorilla is not easy to overlook

Where does an 800-pound gorilla sleep?  Anywhere he wants to. Even though it sounds like a broken record, Europe is still a driving force for investment news, and the U.S. continues to show signs of timid economic growth. Whether it’s latest opinions on the June 17 Greek election or Spain’s weakened banking system, Europe remains the 800-pound gorilla in the room.

Although a weaker Europe makes for a stronger U.S. dollar, can stocks flourish in an environment that favors the dollar?  Conventional wisdom tells us no:

• A stronger dollar whittles down revenues of U.S. multinational companies.
• The dollar generally benefits in a risk-off environment, as assets rotate out of risky assets, such as stocks.
Through much of the preceding two years, stocks and the dollar have largely moved in the same direction. Although there have been a couple of exceptions, we should expect any prolonged euro weakness to create additional headwinds for stocks.  However, it is also an election year in the U.S., which historically creates favorable conditions for stocks.

What is the Impact of a Stronger Dollar?

Although few would argue that a stronger dollar is a bad thing, the swing back in that direction is not without consequences. Investors are advised to be aware of what these changes are and how they may affect future decisions. In general, stocks may struggle in the face of a strengthening dollar. Here are a few reasons why:
• Oil prices begin to face stiff headwinds, although this is favorable for consumers.
• A strengthening dollar works against commodities and the profitability of firms that deal in raw materials.
• Falling commodity prices pave the way for a disinflationary environment.
• A disinflationary condition encourages the Fed to take further stimulatory action, but with rates near zero, the Fed has little ammo left; they would be pushing on a string at best.

Whispers of Another Recession?

Lately the bond market has taken another ominous turn. Yields fell last Wednesday to 1.62% and actually touched 1.54% on Thursday. Tuesday’s triple digit spike in the Dow had no noticeable impact on bond prices, which usually move opposite stock prices and therefore should have raised yields.  However, consumer sentiment and retail sales data may provide a balancing act.
This latest action in Treasury securities is potentially worrisome, since it highlights increased levels of both fear and uncertainty. A couple of noteworthy observations are in order here:
• A flattening yield curve is historically associated with the beginning of a recession.
• However, panic may be premature here. Some of the recent drop in yield is due to safe-haven buying and not fears of recession.
• Unlike last year’s flight to safety, investors are not herding in droves back into T-bills, and short-term government notes have held fairly steady.
• A robust jobs market is the surest ticket out of a recession. ADP recently reported sluggish private-sector employment growth of 133,000 in May, which is up somewhat from a downwardly revised 113,000 in April.
Consumers may be providing some support to help stave off another full-blown recession.
• Eighteen retailers tracked by Thomson Reuters posted a 3.9% rise in same-store sales for May, surpassing the expected 3.6% increase.
• Consumer confidence indicators for May are mixed, but consumers do not appear to be retreating.
• The University of Michigan reported last week that consumer sentiment hit its highest peak in over four years.
• The Conference Board’s report of consumer confidence, however, fell for a third straight month.

A Peek at the Coming Week

Markets are tethered to Europe.
• Spain’s debt yields are dangerously high; Italy is lagging, but yields are in an upward trend.
• Expect downgrades from debt ratings agencies.
• Headlines and rumors will continue to influence market responses

Bernanke’s testimony on Thursday will be closely watched.

• Economic growth is slowing, and bond yields are in the basement. Consequently, expect Bernanke’s testimony on Thursday before the Joint Economic Committee to be the highlight of the economic calendar.
• Some topics he may (or should) address include thoughts on Europe and the impact on the U.S. economy, employment, the upcoming ‘fiscal cliff,’ bond prices, and monetary policy.
• Previously, the Fed announced anticipated economic growth later in the year. Listen for any appreciable change in this language.

Egg on their Face(book)

Did Facebook want OPERA so bad, it decided to last minute greed at the IPO?

The Facebook initial public offering (IPO) leaves investors with a bad taste, all eyes are still on Europe, and despite a shaky stock market and a 10-year bond yield at a new low, overall signals are actually less gloomy than you might think.

Just days before the IPO, Facebook raised its offering from 337.4 million shares to 421.2 million shares – all of it from insiders. They also raised the offering price from $25-$35 to $34-$38 before finally pricing it at the top of the revised range and giving the news media much to crow about.
Only days before the overhyped IPO, General Motors chickened out with plans to stop advertising on Facebook, citing little impact on sales as a result of ads placed on the social media site. Facebook concedes it is having some trouble monetizing the fast-growing mobile platform. According to the Wall Street Journal, lawsuits are beginning to fly, including one that alleges Facebook and its underwriters failed to properly disclose changes to analysts’ revenue forecasts.
Now the politicians are beginning to weigh in, and that’s rarely good for anyone. There is also the possibility that state regulators will begin scratching around for evidence of potential wrongdoing. A typical aspect of initial public offerings is too much supply combined with a high offering price that primarily rewards insiders (one of the many reasons I typically do not recommend IPOs to clients).
So far, Facebook hasn’t been all it was cracked up to be for the average investor, and the sliding price of the world’s largest social network creates another rotten odor for financial markets. A steady diet of negative headlines doesn’t do much for investor confidence, and they can certainly reinforce the notion that markets are “stacked against the little guy.”  On the other hand, IPOs are certainly risky, but one seemingly failed offering should not taint an overall market that offers many solid, dividend-paying, wealth building investment opportunities.  Nor should this latest disappointment override an otherwise sound financial plan you have already built for yourself.

Compared to Europe, the U.S. Looks Relatively Good

Since the euro broke through $1.30 on May 9, currency traders have been dumping it amid fear of further contagion. The current rate is barely above $1.25, bringing the currency to a 23-month low. Last week, the former prime minister of Greece reportedly said that a Greek exit from the eurozone was inevitable, though he later walked back those comments on CNBC that same evening.  Despite chatter in the media that a Greek exit is manageable, activity among eurozone stocks, German bonds, U.S. Treasuries, and the euro say otherwise.
Although U.S. markets have been frothy recently and the 10-year Treasury bond yield reached a new modern low, other significant indicators are not all bad. For example, existing home sales pushed upward during the critical month of April.
While forward progress has halted, jobless claims remain near the bottom of the recent range (hey, at least it isn’t getting worse).   Keep in mind that some may be finding employment, but others who exhaust their benefits may simply drop out of the labor force. After all, one must be actively seeking work to qualify for benefits and be counted among the unemployed.  Those who simply give up looking effectively but artificially lower the official unemployment rate.
On the other hand, driving to job interviews is getting less costly. Thanks to the poor global economic climate, gasoline prices peaked early and have been headed lower, giving American drivers a much needed break.

A Peek at the Coming Week

Europe hasn’t changed much and remains fluid.
  • Keep an eye on sovereign debt yields and – very important – potential bank downgrades by major ratings agencies.
  • Keep another eye on upcoming Greek elections on June 17. Any indication that the New Democracy party might come out on top could soothe market fears of an early Greek exit from the eurozone.
  • Expect headlines to create volatility in either direction.
  • Focus returns to Friday’s employment report.
  • ADP provides a sneak peek of private-sector employment on Thursday.
  • Citing weather, the Fed mostly dismissed recent reports of weak job growth, but another fall off in nonfarm payrolls will likely get their attention.
  • Most economists see unemployment holding at 8.1%, but they rarely forecast changes. Will we see another artificial drop tied to a declining labor force, rather than an actual increase in the number of people finding jobs?

All Signs Point to… Recession?

So many signs, so few answers

So many signs, so few answers

There are plenty of confusing signs in financial markets lately.  Most of them center on the continuing saga in Europe. Some forecast another U.S. recession, but others argue continued slow growth appears more likely.  How does one manage these recent conflicting signals?

Although the latest round of market turbulence centers on Athens, it is not Greece that should worry investors; it is simply too small a player. Instead, the larger fallout looms from the weak links of Spain and Italy as they continue to hold the financial markets hostage. Major affected markets include U.S. and European equities, the euro, Treasuries, and a long list of commodities.  The Economic Cycle Research Institute (ECRI) and Institute for Supply Management (ISM) are at odds regarding another recession, but on the plus side, the dollar is strengthening and bringing U.S. fuel prices down.  This is an unusual turn of events as we enter the summer driving season.

Much of Europe is now in recession as the U.S. market expands, albeit at a snail’s pace. Although Greece’s impending exit from the eurozone grabs the headlines, the countries to watch are Spain and Italy. In particular, undercapitalized banks in Spain could lead to major turbulence that ripples into Italy and swamps Germany’s ability to hold things together on the continent.
U.S. equities have thus far avoided much of the downdraft from Europe’s recession, but expect major reactions if the European Central Bank (ECB) is forced to step in regarding Spain and Italy.  For the most part, major central banks have likely decided to forego any more “too big to fail” bailouts ala Lehman Brothers. Expect the Federal Reserve to closely monitor this situation.
Is the U.S. Facing Another Recession?
The well respected Economic Cycle Research Institute (ECRI) reiterates its earlier call for a coming recession. The organization bills itself as the world’s leading authority on business cycles and first called for a recession last September, repeated the warning in March, and now continues to insist we are heading in that downward direction.
Weak real income growth (jobs) is the primary reason for the ECRI’s gloomy perspective. Currently, real year-over-year growth in personal income is below where income stood at the start of every recession for the past 40 years. The institute has a solid track record, so their warning is not to be taken lightly. Although a modern low of 1.71% on the 10-year Treasury sends a foreboding signal, continued slow growth remains a more likely path.
For example, manufacturing, as measured by the Institute for Supply Management (ISM), is still expanding. The latest ISM survey is nowhere near recession territory.  Over the last 35 years, there have been zero instances of a near term recession at the current level and when the ISM was trending upward.

Europe: Finding a Balance between Austerity and Growth?

Austerity measures put Greeks into the streets

Greece may be just a first example of the chaos to come

Just to be clear, the people in Greece can riot a bit more and seek a violent outlet for their austerity anguish, because they know that leaders in Europe’s largest economies will do anything in their power to keep the Eurozone in tact. German cancellor Merkel’s meeting with newly elected French President Hollande last Tuesday moved the focus from austerity to sustainable growth as the direction to go. Eurozone President Barroso declared today: “We are doing a root-and-branch reform of our budgetary and economic policies,” he said. “And, beyond the so-called ‘sound and fury’, we are making good progress in laying firm foundations for strong economic recovery and sustainable growth.”

And the G8 meeting this weekend at Camp David is looking to sugarcoat realities with softer stances and words. And Tiny Tim Geithner is applauding the whole charade as if economic recovery were a matter of goodwill, decency and government sponsored public works projects.
All the while Obama is sitting between a rock and a hard place in this election year. If the Eurozone tanks, the US economy will face a severe setback, even before voters cast their preference in November.
But for argument’s sake let’s assume for a minute that Europe will avoid the meltdown and actually move towards a slow recovery. Then what?
Well, since none of the fundamentals of why the global economy almost imploded in 2008 have really been tackled or corrected, let’s play along with the economic scenario many market participants are hoping for: a calmer Europe.

A Calmer Europe?

If the “old country”” does recover, will we be able to put on the party hats and celebrate? Well, not really. Sure, the pressure on equities would ease up, causing a brief rise in the market. But then what? Are we really out of the woods, entering a rose garden?
If Europe escapes this mess without a major crisis, it’s only because leaders are just kicking an already deflated ball yet a bit further down the road. Besides it should also be clear that those PIIGS countries won’t come back at a promising pace. The path to economic recovery will still be a long slow crawl. Too long for constituents to be happy about.
Also, China continues to have growing pains of its own. What started as talk of a Chinese slowdown is now turning into real – and worrisome numbers. Sure, China isn’t doing horribly, but it’s hardly the hot market of a few years ago. It’s also clear that economically the country has now entered fascism as its economic model, while still trying to hold on to the communist principles. It’s clear however, the promise of never-ending growth with minimal risk just isn’t materializing.
Then there are other top tier players with mixed performances. With commodity prices cooling a bit, Brazil’s GDP growth is projected at 3.2% in 2012, just a slight improvement from last year’s 2.7% growth. However, only a few years ago, predicting double-digit growth rates would have drawn no laughter, based on Brazil’s impressive 7.5% growth rate in 2010.
And yes, then there’s the US story. The job market is “recovering” at a snail’s pace. If the euro crisis ends, it won’t mean a burst of growth for the US – instead it could mean some additional headwinds. US Treasuries will no longer be shielded by buyers protecting themselves from the worst-case scenario. As soon as the storm clouds over Europe clear even a bit to a drizzle, Treasury investors will leave in droves, either flooding back into equity markets or higher-yielding euro countries.
And then Fed Chairman Bernanke will once again find the ball in his court, resulting in two barriers for the US economy. First, US interest rates will feel strong upward pressure and The Fed will have to pump yet more money into the system to keep the rates low as promised. And second, the US dollar will tank again. The EUR/USD exchange rate has essentially been a risk-on/risk-off trade for the past six months. Like a jojo in heat we have witnessed the games that are played and at the slightest bad news in Europe, the US dollar gets a little stronger. Then over the next few days, as nothing critical happens, the euro starts to creep back up. If Europe turns into a real recovery, the dollar will slide from the current $1.30 EUR/USD to last summer’s $1.45 EUR/USD in no time at all.
Remember, the dollar isn’t strong. After the Federal Reserve’s monetary policy of the last few years, the USD has been ravaged. It has only managed to stay afloat as a result of Europe’s underperformance and other problems. If those pressures let up and the Eurozone again shows promise, the dollar is going straight down. Believe it or not, the European Central Bank is still more responsible than the Federal Reserve… and if investors have an equivalently safe option between the two, many will choose Europe.
So, even if you believe the story of parting clouds ahead, don’t get too excited; this isn’t the end of it. In the best-case scenario, we can stop worrying about Greece and can start worrying instead about a weakening dollar and a sluggish economy. Perhaps that’s better than expecting a crash just around the corner, but all the elements of kicking the can way further down the road are still in full play. It’s certainly no picnic either.

Earnings Clear a Low Hurdle

Keeping expectations low, helps meeting targets

There was some relief as initial earnings data cleared a relatively low analyst hurdle amid a successful bond offering in Spain, but it will be a mixed economic picture overall for the coming week.

With only 20% or so of S&P 500 companies reporting earnings so far, companies appear to be more cautious in the face of another potential European credit problem (Spain), China’s slowing growth, and a loss of momentum in the U.S. labor market. Analysts have been fairly conservative with their estimates, creating relatively low hurdles for companies to clear.

Of course earnings season is still young.  A hefty stream of reports is due out this week, including powerhouses such as:  3M, Apple, ConocoPhillips, Hasbro, Netflix, and Xerox.  Although the financial press seems to obsess over whether a company will meet, beat, or miss earnings expectations, revenue estimates may bear closer scrutiny.  According to the Wall Street Journal, companies that have exceeded earnings expectations but missed revenue estimates saw share prices drop by an average of 2.6% within three days of earnings announcements.

Goofball Government Inflation Statistics

During the past 12 months, the U.S. government reports that wholesale inflation has increased 2.8%, while consumer prices rose 2.7%.  Allegedly, this is the slowest pace since 2010.  The Federal Reserve describes inflation as being “under control,” although anyone who buys groceries or gasoline describes a markedly different experience.

For example, the public discovered recently that the Producer Price Index (PPI) was unchanged in March, thanks to a 2% drop in gasoline prices! Did you see gas prices drop in March?   Exactly one day after this report was released, we learned that gasoline prices within the Consumer Price Index (CPI) rose by 5.7% in March.

How can we know which number is correct?  A quick visit to the federal government’s official website for energy information (www.eia.gov) tells us the national average price for a gallon of gas rose from $3.78 on February 27 to $3.996 on April 2.  This is a 5.7% increase, while the misleading 2% gasoline price drop in the Producer Price Index was credited to “seasonal adjustments,” whatever those might be.

Leading Indicators Better than Anticipated

Interestingly, the lag in consumer expectations during March was was offset by a rise in consumer spending.  Clothing, electronics, and furniture sales led the way. March auto sales also rose 0.9% by dollar volume as consumers began purchasing cheaper and more fuel-efficient vehicles.

On the jobs front, last week’s bad news reported rising new claims for unemployment reaching a four-month high of 388,000.  This was significantly worse than the expected claims of approximately 374,000 payroll jobs.  In contrast to the disappointing payroll reports, the broader “household survey” reported a substantial 882,000 jobs in March, though many of these represent part-time or “underemployed” workers who operate largely off the grid. Still, the news that more people are employed in some form or fashion explains why consumer spending stays so robust.

It appears as if the analyst community was a bit too tentative about first-quarter earnings announcements. Very recently, the analyst community has done a complete turnaround.  Positive analyst earnings revisions now exceed negative revisions.  Looking beyond the first quarter, earnings growth is expected to re-ignite later this year, thanks to more favorable year-over-year earnings comparisons. Election years also tend to rev things up during the middle of the year, as the campaign hits its stride.  During this time, it is highly advisable to simply ignore the headlines and hold on for a wild ride!

A Peek at the Coming Week

Investors keeping an eye on:
•    Consumer confidence report
•    Fed Chairman, Ben Bernanke’s next report on Wednesday in light of very sluggish job growth in March.

A strengthening U.S. dollar may be problematic for the market going forward, although any hints of additional easing could weaken the dollar, which is actually good for stocks.

•    French Elections

Neither candidate garnered more than 50% of the vote, so look for a runoff election on May 6.
According to most polls, the Socialist candidate, Hollande, is leading the incumbent, Sarkozy.  A political lurch to the left in France could bring about additional uncertainties in Europe, fueled by worries that new leadership may backtrack on the modest austerity measures already in place.

•    GDP data.
The government is reporting the economy grew by 3% in the first quarter.

•    Earnings from Apple, Baidu, and others
•    Weekly jobless claims.

After two weeks of disappointing news, investors are hoping for good news this week. Last week, claims fell 2,000 to 386,000 but economists were expecting a larger decrease.

Growing Public Demand for Socialism

francois hollande presidential contender

François Hollande's Running Platform - Change Now!!!

In France, the 3rd largest economy in the Eurozone, the presidential election cycle starts today. Now the system in France calls for a run-off election to get rid of the deadbeats and end up with two ‘serious’ candidates (kind of what we have just witnessed in the Republican primaries here. Honestly there needs to be something wrong with your brain to want to become president of any country, in my opinion.

But to be honest, something awkward has happened in recent weeks in France, that will almost certainly kill incumbent president Sarkozy’s re-election chances and once again underline that as a whole, the Western Industrialized countries see a growing public demand for socialism.

Current president, Nicolas Sarkozy, a conservative in name only, was running at a fairly steady gait toward re-election (thanks to the head start awarded all incumbents), when leading socialist candidate Francois Hollande came out with a proposal to tax anyone with an annual income of over one million euros at a rate of 75%. He also promised to add a tax on all financial transactions and increase taxes on France’s biggest companies to 35% – securing bragging rights as levying the world’s third-highest corporate taxes, the US being #1. This all on top of a 25% VAT, one of the world’s highest. By some calculations, the result of Hollande’s new taxes is that effectively 100% of all incomes over one million euros will now be stripped away by the state. (Lady Madonna….see how they run).

As a result of these proposals Hollande has galloped ahead of all other potential contenders and is now projected to finish nose by nose with Sarkozy this weekend.

Why did I say earlier that Mr. Sarkozy could hang up his re-election aspirations?

Because he is the only one running for office on a somewhat conservative “right of the division bell ticket”, hardly reaching a 40% voters approval. On the left side however there is a slew of pseudo intellectuals who will be weeded out today, but their followers will give affection to Hollande during the final election on May 6, long before they even smile at Sarkozy. It is projected that the “conservative” Mr. Sarkozy will go down in double-digit flames come May 6.

What will that do to the already very tender status of the Eurozone and the Euro? If you can’t see the writing on the wall I may find some time next week to give you an inclination, but if you got money locked up on Wall Street, now is the time to take some profits and move to the sideline for a little while. Maybe flirt with gold and silver.

On a global level we now have most governments with aggressive funding needs, as local funding has all but dried up, requiring them to go to international markets where many hungry animals are crowding the troughs. And as governments are about to get a lot more broke than they are already, considering rising interests on their debts, there is a global trend toward a resurgence in public demand for socialism in response to a worsening financial/economic crisis.

And Just in Case You Don’t Believe it is Happening Here Too….

I present this video in evidence as it reflects the findings of an economics professor at Valencia University right here in Florida, when he asked his sophomores to write an essay about the role they expected the Federal Government to play in them accomplishing the American Dream.

Read and weep as you learn that the Age of Entitlement is now absolutely upon us as the inevitable result of several generations having learned that government is omnipotent in preventing and addressing everything that ails us. People are now trained to look to government to solve their problems – all their problems -, not just jobs or health. How about free education and as a graduation present the government will give you the down payment to your new house?

And so it is that we find ourselves at a particularly interesting juncture in the historical record. The Governments who taught and schooled their constituents for decades into believing that the institution of government holds the solution to all problems and is the source of succor to all who need it, are now ending up between the proverbial rock and a hard place.

When confronted by reporters about the fact that his 75% tax on high-income owners would raise nowhere enough revenue to offset France’s towering debt and social obligations, Mssr. Hollande was heard to respond:

“It’s not a question of return. It’s a question of morality.”

Frankly the truth behind it all was never explained in a better fashion: it’s not the consequences that matter; it all comes down to morality, better yet the perception of morality in the eye of the beholder.

When coercion and theft are considered moral, anything is possible, and none of it good. And no, I can’t say for the life of me how this is all going to end or continue, but I’m pretty sure it’s not going to end well.

Tax Freedom versus Cost of Government Day

Tax Freedom?

Tax Freedom, Really??

Today is according to some sources the day Americans “celebrate” Tax Freedom Day this year, a mere four days later than last year due to higher federal income and corporate tax collections. That means Americans will work 107 days into the year, from January 1 to April 17, to earn enough money to pay this year’s combined 29.2% federal, state, and local tax bill. For those who get it, isn’t it ironic that yesterday was Emancipation Day, a day to commemorate abolishment of slavery?

In any case Tax Freedom Day is a vivid, calendar-based illustration of the cost of government and it gives Americans an easy way to gauge the overall tax burden. The latest ever Tax Freedom Day was May 1, 2000—meaning Americans paid 33.0% of their total income in taxes. A century earlier, in 1900, Americans paid only 5.9% of their income in taxes, meaning Tax Freedom Day came on January 22 in that year. And to show that not all states are created equal, Tennessee this year “enjoyed” the earliest Tax Freedom Day on March 31, while New Yorkers have to work exactly one month longer to fund its combined government’s expense budget.

tax freedom day map per state

My take on taxes is slightly radical for most and primarily reared by the fact that in 1979 my personal Tax Freedom Day in the Netherlands was September 7. As a result of that burden the next year I moved away, as did many of my peers in those days as we vividly experienced how the parasite overwhelms and kills the host.

The media called it the year of Brain Drain. And that’s where America is going today.

Here’s why. If this year’s budget deficits were included in the calculation, tax freedom day would be May 7 and considering the growing National debt, it is only a matter of time before our Tax Freedom Day here will move to late summer.

And these are taxes to feed a bloated, corrupt government with a danger streak. And to be sure, this is not an isolated gift to the American people. Most governments across the world today are on a fiscal rampage and what concerns me most is that a lot of people have accepted taxation as part of the natural order of things, like rain or day and night. Death and taxes are seen as the two inevitable things in life, and you are a silly idealist – if not a dangerous madman – if you believe otherwise.

I caught a glimpse of the popular CBS sitcom “Two Broke Girls” last night, in which the sentiment was created that it is a proud patriotic and joyful event to pay taxes, almost like an honor. I found it distastefully sad evidence of herd manipulation in the fight for who owns the moral high ground. The state, the media, teachers, pundits, corporations – the entire establishment, really – all emphasize the moral correctness of paying taxes. They call someone who doesn’t do so a “tax cheat.” And that is a sad perversion of the reality because if you give the tax authorities the moral high ground, you’re looking at a communist system in the making. I had a good friend in the Hungarian resort city of Balatonfured who “owned” and worked a vineyard. In the early 1970s the communist government physically took 90% of his harvest and allowed him 10% to live off. That’s what we’re looking at here.

Taxes are, at best, an artifact of a primitive feudal world and actually no longer necessary in an advanced, free-market civilization and my point here is that you can’t give the tax authorities the moral high ground. That’s important because decent people want to do the morally right thing. This is why sociopaths try to convince people that the wrong thing is the right thing.
If an armed mugger or a gang of muggers wanted my wallet on the street, would I give it to them? Yes, most likely, because I can’t stop them from taking it, and I don’t want them to kill me. But do they have a right to it? No. And every taxpayer should keep that analogy at the top of his mind.

Keep in mind that if people really wanted anything the state uses its taxes for, they would, should, and could pay for it in the marketplace. Services the state now provides would be offered by entrepreneurs making a profit and employing people. I understand, and am largely sympathetic, to the argument that a “night-watchman” state is acceptable; but since the state always has a monopoly of force, it inevitably grows like a cancer, to the extent that the parasite overwhelms and kills the host. That’s where we are today in my opinion.

People also once thought the world was flat, that bathing was unhealthy, and that there was such a thing as the divine right of kings. Many things “everyone knows” just aren’t so, and this is one of those. A government – for those “practical” people who think they need one – that stuck to the basic core functions of police and courts to defend people against force and fraud and a military to defend against invasion, would cost a tiny, tiny fraction of what today’s government costs, and that could be funded in any number of ways that essentially boil down to charging for services. As it is now, the average US taxpayer probably works half of the year just to pay direct and indirect taxes. And that doesn’t even count the cost of businesses destroyed or severely hampered by regulations, restrictions, absurd demands and a million other ways governments burden, obstruct, and harass people and businesses.

A better perspective of the road ahead is to look at the real cost of government day. In 2011, Cost of Government Day fell on August 12.  Working people had to toil 224 days out of that year just to meet all costs imposed by government, which was a full 27 days longer than 2008. This year we’re looking at August 21!!
In other words, in 2011 the cost of government consumes 61.42 percent of national income. Looking at the current growing deficits, the US is rapidly approaching the 69% I paid in combined taxes in the Netherlands in 1979. The writing is on the wall.

I don’t believe in utopia, but I do believe our world could be far freer, healthier, and happier than it is today – without any divine intervention, magic, or changes in the laws of physics. Just a different path, every bit as possible as the one we’ve taken to where we are today.

The Pain in Spain offers Temporary Blame

Spain' economy slumping

Spain's Economy is like a Bull Fight

European financials remained relatively calm during the first quarter, but rising bond yields in Spain and Italy caused some angst among investors this past week. This may only be a hiccup, though, as stocks rallied strongly later in the week.  Still, some are questioning whether the €1 trillion in liquidity provided by the European Central Bank is no longer a financial consolation for central Europe.

Recent concerns about whether or not heavily indebted Spain and Italy can successfully pull off a new round of austerity roiled U.S. investment markets last week. According to Bloomberg, Spain’s 10-year bond yield is up from 4.87% in early March to 5.97% on Tuesday, including 22 basis points that same day. Italy’s 10-year bond yield is up from 4.81% to 5.69% for the same period.   As was the case with Greece, there is fear that painful austerity moves could worsen economic woes, making it more difficult for these countries to reach deficit reduction targets.  The yield on the 10-year U.S. Treasury Note continues to hover just above 2%.

Why this is Not Greece, Part δύο

Conditions in Europe are a bit different this time.  Unlike last fall, eurozone banks are now flush with cash, thanks to a €1 trillion infusion from the European Central Bank (ECB).  Although banks are still undercapitalized, the ECB’s cash injection has eased fears of an immediate banking crisis.

Despite concerns about Spanish and Italian debt, we are not seeing the mad rush back into the relative safety of U.S. Treasury Bills.  In contrast to last summer and fall, concerns about double-dip recession in the U.S. have faded. Perhaps the key question is, “will the latest jump in yields attract investors, compensating for extra risk and easing worries about a continued deterioration in confidence?”

Weekly Jobs Progress Stalls

Last week the Labor Department reported that weekly jobless claims grew by 13,000 to 380,000.  There has been some chatter that this latest rise was due to difficulties in making seasonal adjustments to the Good Friday holiday. After some encouraging progress late last year, this progress appears to have stalled. Perhaps last month’s employ report was merely an aberration. Although jobless claims can be volatile from week-to-week, and there is some disagreement about just how these numbers are counted, they remain an important indicator going forward.

Pain at the Pump Beginning to Slump?

Don’t cancel your summer road trips just yet. Last Tuesday, the Energy Information Administration (EIA) reported it expects gasoline to average $3.95 per gallon from April through September, peaking at $4.01 in May, barring a major fracas in the Middle East, of course. Lower, or at least stable, prices would certainly be welcome news for battered consumers.

On Monday, the EIA reported a miniscule $0.002 decline in gasoline prices to $3.939.  This is the first drop since January 22.  It’s not much, but we’ll take whatever good news we can find on this front.

A Peek at the Coming Week

Earnings season is front loaded with financials.
•    Key earnings reports to watch is week include:  Citicorp (C), Goldman Sachs (GS), US Bancorp (USB), Bank of America (BAC), BB&T Corp (BBT), and Capital One Financial (COF).
•    However, don’t ignore reports from these companies as well:  IBM (IBM), CSX (CSX), Intel (INTC), Union Pacific (UNP), Halliburton (HAL), Texas Instruments (TXN), DuPont (DD), General Electric (GE), Schlumberger (SLB), McDonalds (MCD), and many more.
Key economic data
•    Retail sales and housing starts will be observed very closely, along with homebuilder sentiment, existing home sales, and industrial production.
•    Data from last month indicated the gradual recovery in housing is likely to be a key indicator. Spring is traditionally a strong selling season in the housing market.

The Quantitative Easing Carousel

The Quantitative Easing Carousel

The Quantitative Easing Carousel

Mixed messages on quantitative easing (round 3), a triple-digit loss in the Dow from a lackluster Spanish bond auction, and weak March jobs data – it’s enough to unravel investors’ nerves lately. On a positive note, American automobiles are selling like hotcakes!

On March 25, Federal Reserve chairman Ben Bernanke seemed to hint that QE3 was a very definite option, but the minutes from the Fed’s March 13 meeting signaled otherwise. As if that wasn’t confusing enough to investors, last Wednesday’s poorly received Spanish bond auction resulted in a triple-digit drop in the Dow industrial index. A weak March jobs report is not likely to help the situation much.

Financial markets had already priced in another round of easing after Fed chairman Bernanke announced the pace of decline in the U.S. unemployment rate might not be sustainable. However, the on-again-off-again chatter from the Fed appeared to be off again after Tuesday’s release of the Federal Open Market Committee’s (FOMC) minutes from the March 13 meeting. The minutes simply did not share the chairman’s enthusiasm for another round of easing. As a result, stock prices fell, the price of gold took a beating, and the bond market turned decidedly lower.  On balance, the FOMC sees modest growth continuing in the coming quarters, and they expect the unemployment rate to continue falling gradually over time.

At the current rate, however, it may take until 2020 for unemployment to return to pre-2007 levels.  Nonfarm payrolls rose just 120,000 in March, breaking the three-month trend of 200,000+.  The unemployment rate fell from 8.3% to 8.2% as individuals simply left the labor force, offsetting a 31,000 decline in employment from the Bureau of Labor Statistics’ household survey, which calculates the unemployment rate.

Bernanke warned that sluggish final demand in the economy could slow employment growth. It may be too early to say whether the mild winter borrowed from spring’s job growth, or if March was simply an anomaly.  Overall economic trends are still favorable, and we shouldn’t infer too much from a single month of employment data.  The weak jobs showing does put pressure on the Fed, however, and will likely increase chatter regarding more quantitative easing.

March Auto Sales Sizzle

According to the Wall Street Journal, high gasoline prices have once again driven consumers to seek more fuel-efficient vehicles. In particular, Chrysler had its strongest month since March 2008.  General Motors also sold over 100,000 cars that average 30+ miles per gallon, its best showing ever in this category. Light vehicle sales for Ford were also at their highest level in five years.

A combination of pent-up demand and a slowly improving economy appear to be fueling sales, according to USA Today.  The average age of automobiles on U.S. roads recently reached a new milestone at 10.8 years.  Concerns over a shaky economy and unemployment have kept many people from making big-ticket purchases in recent years.  As these cars age and wear out, consumers must begin replacing them eventually.

“It’s going to take the good economy several years of very high sales again, and people being willing to let go of those older vehicles that they’ve been holding onto,” according to Mark Seng, vice president at Polk Research.  Even a 1 million-per-year sales increase would have little impact on the average vehicle age, because there are more than 240 million cars and trucks on the road in the United States.

The Week Ahead

Europe – Spain in particular – caused most of the upset in financial markets this past week.
•    The market will be keeping a watchful eye on European bond auctions in coming weeks.
•    When euro-bond auctions of peripheral eurozone nations garner so much attention, this cannot be good news.
First quarter earnings season unofficially begins April 10.
•    Negative pre-announcements outweigh positive news by a ratio of 3-to-1. The word of the day may be “lackluster.”
•    Profits of five out of the 10 sectors are forecast to be lower than one year ago.
•    S&P forecasts operating earnings per share to be unchanged from the 4th quarter and up just 5.1% from one year ago.
Economic data
•    The Fed’s Beige Book, which is heavy on anecdotal data, will offer the latest look at the economy.
•    Wholesale and retail inflation data comes out next week, along with April’s first report on consumer sentiment.

Gas Pump Pain Blame Game

The worries about rising gas prices

It's not that we were not warned often that this would happen

We are just barely into spring, and the typically higher summer gas prices are already here. Although some tend to blame politicians or “big oil” for our pain at the pump here in the U.S., the truth behind rising gas prices can be a bit more complex.

Recent gas prices in Fernandina Beach have risen to $3.89 a gallon, a bit higher than the national average of $3.81.  In some states, prices have already passed $4 a gallon and have surpassed the all-time high of $4.11 set back in July 2008.  Some are predicting $5 gas before the end of the year.  As our blood pressure rises along with the cost of oil, we naturally are looking for someone to blame.

A recent survey by the Pew Research Center shows just where all the fingers are pointing. When asked who is most to blame for rising gasoline prices, 18% of respondents pointed to the president, 14% identified the big oil companies, 11% blamed tensions in the Middle East, and 4% suggested excessive trading on Wall Street and/or among oil speculators.

Generally, there is no single cause for rising gas prices, other than good old supply and demand. With rapidly expanding economies in China, India, Brazil, and Russia, the world demand for oil continues to rapidly push upward.  Supplies, on the other hand, are becoming more expensive to tap. This high demand and tight supply means that single events – hurricanes, refinery fires, Iranian sabre-rattling – can have an immediate effect on prices.

Psychologically, rising gas prices have a significant effect on our spending habits as consumers.  Although less than 5% of the typical household’s take home pay goes toward fuel costs, we are constantly reminded of the rising price of gas.  How many gas station signs did you pass along your daily commute?  Once gas prices pass a psychological hurdle, say $4 or $5 per gallon, Americans will start to consciously cut back on spending in other areas. Not so long ago, this psychological price hurdle was $2 or $3 per gallon.  Further cutbacks in consumer spending could have a very real dampening effect on the current fragile economic recovery.

Where will gasoline prices actually go from here?  The answer likely lies in the Middle East, more so than with any other factor for now.  Assuming the Iranian situation does actually mature into a shooting conflict, we can likely expect to see the world price for a barrel of oil rise to $130.  Recent prices have oil trading at around $106 per barrel. A more protracted conflict may send prices upward to $150 or more.  With so much uncertainty, however, it is impossible to predict accurately.

We saw a similar situation with rising gas prices last year, when the “Arab Spring” led to speculation of wide-spread instability throughout the Middle East.  The difference this year is the stakes are higher (a nuclear armed Iran), and the possibility of an actual military confrontation appears much greater.  In the meantime, all we can do is watch, wait, and debate “staycation” vs. “vacation.”

$23 million sold at 2012 Concours d’Elégance

searchamelia.com Concours d'Elegance Amelia Island 2012

A snapshot of history surrounded by beauty

This was the second year in a row that in the final end I didn’t make it to the Concours d’Elégance. Too much to do on the home front that made both my wife and I collapse when the moment came to say OK let’s drive down, park the car half a mile away, fight the sell out crowd and see some of the most awesome automobiles ever put together by mankind.

But we are happy to report that Judie and Lawrence and Ally at the Desk did some beautiful and funny coverage work as did our micro photography expert Helmut Albrecht – once again with a feature from sunrise to sunset of an event that attracted record numbers once again this year.

Concours d’Elégance 2012 Main Event

Concours d’Elégance 2012 Prepping and Auctions

The Concours showcased 300 cars and motorcycles, including a dozen 1960s Ferrari GTOs estimated to be worth about $90 million together.

In the end, the 14th annual RM Auctions sale generated more than $23 million in sales Saturday   (an 87% sell through) and the massive climate-controlled tent on the Ritz Carlton’s beachfront actually withstood the up-to 35 mile wind gusts that ripped through the island that day.

Top Producer at 2012 RM Auction on Amelia Island

and the Winner is......

The top seller was this stunning one-off 1929 Cord L-29 Hayes Coupe, its shapely blue low-slung design by Count Alexis de Sakhnoffsky, build for a reported $20,000 during the start of the 1929 depression, fetching $2.42 million.

Down the road at the Gooding & Co. auction at the Omni Amelia Island Plantation, taking advantage of the attraction the Concours d’Elégance has become over the years, a 1973 Porsche 917/ 30 Can-Am Spyder race car sold for a record $4.4 million.

Top Ten RM Auction Results

1. 1929 Cord L-29 Special Coupe – $2,420,000
2. 1956 Ferrari 250 GT Coupe Speciale – $1,430,000
3. 1965 Aston Martin DB5 Vantage Convertible – $1,210,000
4. 1972 Ferrari 365 GTB/4 Daytona Spyder – $1,210,000
5. 1967 Ferrari 275 GTB/4 Berlinetta – $1,100,000
6. 1930 Bugatti Type 46 Superprofile Coupe – $1,017,500
7. 1960 Mercedes-Benz 300SL Roadster – $990,000
7. 1937 Squire 1½-Liter Drophead Coupe – $990,000
9. The Lalique Mascot Collection of Ele Chesney – $805,000
10. 1929 Duesenberg Model J Convertible Berline – $803,000

Are the BRICs Crumbling?

Are the Brics Crumbling on SearchAmelia.com

BRICs: Brazil, Russia, India and China

The economies of Brazil, Russia, India, and China (known as the “BRICs”), may be starting to pull back from a long period of robust growth.  Brazil recently reported that gross domestic product (GDP) in that country pulled back from 7.5% in 2010 to only 2.7% in 2011.  To help stimulate spending, Brazil cut interest rates this week.

India also reported that GDP slowed to 6.1% as of the end of 2011.  China symbolically cut its annual 8% GDP target to 7.5% for 2012.  This is noteworthy, since it is the first such cut for China since 2005.  Perhaps it is an attempt at managing expectations?  All of this news arrives on top of  Europe’s mild recession, with eurozone growth down 0.3% in the fourth quarter.

Following the huge run-up in shares since October, global economic angst stimulated a round of profit taking on Tuesday.  This sent the Dow on its first triple-digit slide this year – off 204 points to be exact.  By last Friday, the index had recovered most of that lost ground, however.

U.S. Economy Expands Modestly

Despite Europe’s recession and the tumbling BRIC economies, the U.S. economy appears to be expanding modestly. The latest reading from the Institute for Supply Management (ISM) is showing modest acceleration within the service sector.  This could lend significant support to earnings as global moderation detracts.

Perhaps the most exciting news of the past week comes from the Conference Board’s Consumer Confidence Index.   The Index now stands at 70.8, up from 61.5 in January.  This is a significant increase, and the Index is now close to levels it was at almost one year ago.  According to Lynn Franco, Director of The Conference Board Consumer Research Center, “Consumers are considerably less pessimistic about current business and labor market conditions than they were in January.  And, despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects, and their financial situation.”

Traders are betting that U.S. growth continues, no other major credit hiccups from Europe emerge, and the Greek bailout gets done.  For the most part, Greece is an economic sideshow.  Italy, the world’s third largest bond market, is the one to watch.  For the moment, all appears to be relatively calm.

The Week Ahead

Looking into our crystal ball (if only we had one!), we see the following significant events unfolding for the week ahead:

•    At Tuesday’s Federal Open Market Committee (FOMC) meeting, we do not foresee a new round of bond buying by the Fed, but the tea leaves do suggest something could be in the works. As always, the Fed chairman’s language will be carefully parsed for underlying meaning, and we expect him to acknowledge modest firming in U.S. economic activity.
•    Look for data regarding the Consumer Price Index (CPI) and retail sales to come out next week.
•    Speaking of CPI and inflation, this bane to purchasing power has not been as tame as the Fed suggests. The most recent CPI showed that core inflation (which removes food and energy prices) increased 0.2%.  This puts closely watched core prices up 2.3% from one year ago, which is above the Fed’s long range target rate of 2.0%.
•    Globally, keep a weather eye for additional signs of moderating activity.
•    Crude oil prices were generally kept in check this week, but Iran and oil remain on the radar.

Reducing Corporate Taxes Won’t Create More Jobs

And everyone has an opinion

And everyone has an opinion, mostly without an educated guess

As Tax season is in full swing and the 1099’s are criss-crossing the United States, in a last ditch attempt to safe the Postmaster General, there are a couple of political tax observations, that are falsely projected as economic stimulants.
Most people these days have given up on being tax savvy and just take up mainstream opinions as economic fact. In public they express the opinion that good citizenry is happy to pay taxes and in private discussions they hate the government’s guts to forcefully collect taxes.
Although I am staunch libertarian, I do not support the idea that mankind can naturally and spontaneously form a balanced well-behaving society without a leadership setting the basic standards of co-habitation. If you like you can call these standards rules and regulations, or even laws to abide by. I’d call them respect and decency.

And because of the potential of conflict that comes natural to the human animal, some form of taxation and collection authority will be necessary, even if only to hire some people to reinforce the accepted values.  If you don’t want to get into the same pickle as the Eurozone, where they “forgot” to give the Euro Parliament the power to tax its member states and citizens, you need more than just market forces to guide humanity into a responsible future.

I was not going to make this a long essay, especially since taxation, even though very young in the eyes of history, has grown in the last hundred year beyond our comprehension. The plethora of taxes we pay today is never ending, and it all began by “the need to finance wars”.
If you are interested in one of the more blood pressure raising chapters of our history you may want to start with Investopedia’s Income Tax 101 (http://www.investopedia.com/articles/tax/10/history-taxes.asp#axzz1o9CN1xJM)

Today I’m only going to discuss the ridicule of the argument that reduction in Corporate Taxes would Inevitably lead to Job Growth. Not true and here is why not!

The main argument for lowering the corporate tax rate is that it supposedly will stimulate hiring, and, thereby, drive economic growth. That’s what politicians and some economists want you to accept. Well, the corporate tax burden on average in 2011 was 12.1% of profits, the ABSOLUTE LOWEST since 1972, in 40 years!!!  Yet officially sanctioned  Bureau of Labor Statistics unemployment figures still stand at just over 8% (as of January 2012), so clearly the low corporate taxes are not having an impact on jobless rates.  One possible reason for this, some suggest, is that the largest corporations in the country are accelerating the outsourcing of jobs to other countries, especially in the manufacturing, technology and customer service areas. This expatriation of tax savings does nothing to stimulate the American economy. There is truth in that and I already wrote recently about the $1.5 trillion these large corporation are keeping in offshore bank accounts. Yet, pointing an accusing finger at the corporate bad boys is useless and idiotic. The world is now their marketplace and with the same capitalistic principles that they outgrew this country’s marketplace, they are now conquering the world. They  are not really going to get concerned about politicians in Washington trying to muzzle them, because they have options and alternatives.

Lowest Corporate Tax Rate in 40 years has not stimulated the economy much in recent years.

Another reason why our domestic economy is still sputtering as it moves forward is that America is not as entrepreneurial anymore as it once was. Small businesses used to employ the majority of American workers. But when it became more attractive for college graduates to get government jobs with more security, equal or higher pay than in the corporate world and more health care, more entitlements and power, the urge and passion to build a business ebbed away, except for a small group of hi-tech company, which per definition can operate from anywhere in the world.

Bottomline, America’s educated talent doesn’t go into business for themselves anymore. They take a cushy job with fringe benefits and entitlements and watch sports and party. And I can’t really blame them because being bright and talented as they are, they recognized that opposite to almost all of the rest of world, Passive Income in the US is Taxed at a Lower Rate than Earned Income.

Again politically I am against big government and I’m squarely against double or triple dipping by the government, but if you need to raise funds to pay for some societal essentials and jumpstart economic activity, then you may want to put a higher burden on dormant capital than on earned income. I know, not a popular thought with the Amelia Island Citizenry where most wealth is concentrated in investment income. But the logical economic thought is that when taxes on investment income are higher than taxes on earned income, investors will more easily turn to stimulate inputs into the economy (labor). In the U.S. however, just the opposite is the case. In the higher tax brackets, parking money in investments attracts less tax than employing it directly into the economy. And all the back and forth talk about reducing tax rates across the board will not change this marketplace dynamic.

A Global Village of Collaborative Consumption

Collaborative Consumption is rapidly on the rise

Collaborative Consumption is rapidly on the rise

A dozen years ago my brother Thom and I acquired the web domain name www.GlobalVillage.com as we foresaw that technology over time would enable the trust that is needed between strangers to conduct transactions over the internet. The world was then and still is now, turning into a Global Village because of technology.

Our business plan was strong, yet monetization models of internet companies were  still in the very early stages, a realization that ultimately led to the dot.com bust in 2000. No-one in those days saw Google or Yahoo’s monetization model. Network TV and major Newspaper conglomerates were still collecting 99% of all advertising dollars spend across the globe. Therefore we learned quickly that traditional funding was not available. A dozen years ago Facebook would not be able to create any excitement with JP Morgan or Goldman Sachs when mentioning the possibility of going public. And the Nasdaq was 0nce again a stepchild on Wall Street. So in order to find funding to attract and relocate some whizz kids, we joined another then-new cyberworld initiative called FirstTuesday to connect with Angel Investors, much in the same way as Facebook, eBay, Amazon and many other powerhouses of today’s internet initially came about. The idea for FirstTuesday was great and global as well, but unfortunately for them and us about 5 to 10 years too early. Pretty much the same as with our GlobalVillage.com

Thom and I sank a small fortune into the development before we had to admit that we were not only too far ahead of the adoption curve but also a couple of thousand miles removed from the epicenter of the powers that move viable ideas online and push successfully into the future on the pure mention of stakeholder equity. At the time we were living and working on a small island in the Caribbean, magnificent for creative pioneering but bad for successfully monetizing online concepts.

GlobalVillage.com was all about what today is making waves as the concept of Collaborative Consumption. It describes the rapid explosion in re-applying traditional sharing, bartering, lending, trading, renting, gifting, and swapping, as all those “ancient” practices are now being reinvented through network technologies on a scale and in ways never possible before.

How Collaborative Consumption works:

An organization purchases products and manages inventory and checkout Members pay a low monthly or per-use fee to have access to the product. Members check out or reserve the product when needed and return it so another member can have access to it. Many items are usually available so lack of availability is not a strong concern. The organization cleans and maintains returned items.

The benefits of collaborative consumption

Lower cost of ownership by having expenses shared among a group. Higher quality of good. When cost and use is spread throughout a group, the item must (and can) be of higher quality for durability and ease of use. Lower risk. Instead of maintaining an item yourself it is kept functional by the company leading the organization. Lower environmental impact. Instead of buying an item that is only used four or fives a year and thrown away each shared item is of higher quality, lasts longer, and constantly used.

From motherload exchange marketplaces such as eBay and Craigslist to emerging initiatives such as social lending (Zopa), peer-to-peer travel (Airbnb) and car sharing (Zipcar or peer-to-peer RelayRides), Collaborative Consumption is disrupting outdated-last-century modes of business and distribution and reinventing not only what we consume, but also how we consume and share.

The Governmental Danger Zone

The danger of exchange and barter is that this global development is taking financial control away from federal and state taxation opportunities, this last one probably being an important reason why so many governments have their minds set on controlling the Internet. Governments do not shy away from taxing a product every time it changes hands. A car has a substantial life cycle, and every time it is resold through a commercial entity the seller is required to charge and pay sales tax. To picture this process, imagine a $50,000 car is charged a 7% sales tax or $3,500; two years later the car is resold at $31,000 collecting $2,170 in sales tax (assuming the sales tax has not gone up). Another two years later the car is sold again for $18,000 and once again the government collects 7% or $1,260 bringing the total sales tax collected for this one vehicle up to almost $7,000 so far.

Now multiply this by the millions and you see why new exchange markets such as TaskRabbit, ParkatmyHouse, Zimride, Swap.com, Zilok, Bartercard and thredUP are not only enabling “peer-to-peer” to become the default way people exchange, they are also forcing the hand of society to come up with new ways to co-habitate. Whether it’s unused space, goods, skills, money, or services — and exchange, sites like these are sprouting up everyday, all over the world.
Even in our little corner of the world exchange sites are sprouting up on general social sites. For example the navy wives in Kingsland have several complete Camden County sale and barter sites set up on Facebook, an effort being duplicated right here on Amelia Island.

Some of the early Players

For a list of some of the hottest start-ups in the Collaborative Consumption space, check out this Snapshot of Examples from the website http://www.collaborativeconsumption.com.

The infographic below summarizes the essence of
• the three major systems of Collaborative Consumption,
• the four key principles that make it work and
• the key socio-cultural drivers that have caused the movement and is moving it forward

collaborative consumption

This is how the system works in the time of technology

Business models of the future are anchored by and in our connections to each other, rather than how we traditionally exchanged goods and services and the lessons we learn from this new Exchange Market Model is that

1. a Framework of Trust needs to be in place (eBay Feedback, Tripadvisor, Angie’s List etc)
Since the ‘collaborative’ in collaborative consumption is powered by strangers, middlemen need to guarantee peace of mind between everyone else. Brands are worth much more if they offer some way to measure and review business transactions, and if they are able to leverage reputational ratings and social capital to keep users in line.
Airbnb for example, which helps homeowners rent their spaces to travelers around the world, is a prime example. Airbnb users can tailor their experience to fit their needs, from managing listings to researching reservations to pre-approving guests. Hosts are even protected from theft and vandalism with $50,000 worth of insurance coverage.

2. for a business to be successful it needs scaleability. Technology allows us to connect fragmented markets.
Collaborative consumption is all about networking around offers and needs. So you need a niche. Look at your market and examine the pieces that don’t fit together as well as they could. Ask yourself: “Could there be a meaningful connection between fragmented parties? Could I facilitate a transaction that would be complementary to their core product or service?” Years ago, when the internet made its first inroads I was surprised to learn that a car junk places were inter-connected on parts availability. If the junkyard in Lake City couldn’t help you with a particular part, the one in Live Oak or High Springs or MacClenny probably could. Quick, cheap and easy.

Innovators who identify the missing links can take advantage of service gaps with long-tail business strategies, the way Netflix and Amazon have done. If you find a way to serve everyone who wants to rent a Gibson Les Paul for a weekend or a Sony Handycam HDV or a car with the steering wheel on the opposite site of the norm, or a last minute Scalpel Ticket exchange etc., you’ve got a business that can scale.
Zipcar is an example of collaborative consumption in action. It recognized a need for on-demand vehicles that are billable by the hour, particularly in major cities and college campuses. Chase introduced an affordable alternative to traditional car ownership, providing people with shared wheels at a fraction of the cost of a long-term purchase or even rental.

3. Geography matters less and less
Technology reduces geographic boundaries to commerce, opening the door to ventures such as Freecycle, a global grassroots network with almost nine million members who swap unwanted items free of charge. Members not only get free stuff, whether they’re in Tucson, Arizona or New Delhi, India, but also help reduce waste and save resources. Collaborative consumption can be good for consumers, for business and for the community at large. The only entity that has not been able yet to move outside of the box of the past is a government that sees a part of their tax revenue dwindle.

Collaborative Consumption. Check it out. It’s going to be a household word soon.

As the Pigs are Pushing the Eurozone to the Cliffs

searchamelia.com: German press about Greece

German Press: ConMen in the Euro Family. Is Greece Killing our Currency? And what about Spain, Portugal and Italy?

One of the perks in our decision to accept the offer to manage Amelia Oceanfront Bed and Breakfast late last year, was interaction with our guests. Bed and Breakfast guests are often decidedly different from Resort Guests. They appreciate an informal glass of wine on the beach patio in the sunset and a good happy hour conversation
They are inquisitive, eager to immerse in local color information and on average well read and knowledgeable about many different topics. We have not been disappointed so far.

Friday afternoon we had an unscheduled walk-in from a nice Canadian couple with a successful fashion store on the shores of beautiful Lake Huron in the city of Southampton, just northwest of Toronto  and over Happy Hour with a good glass of wine we found ourselves in an interesting conversation that ranged from the Florida primaries to whatever happened to Greece and the Eurozone.
This coupled was very well traveled on both sides of the Atlantic with frequent shopping trips to the fashion capitals of the world, so it surprised me a little that even they had lost track of the ongoing Euro crisis. Truth be known so are most people here, since the media only report financial news in a classical way, which means covering extremes between the good guys and the bad guys. They’re not interested in what’s happening in the margins or in the middle, because that is not news to them, even though that’s where the telltales in society give perspective to what lies ahead of us.

And in the middle is where Europe’s problems are escalating beyond just the pigs. Northern and Western Europe have in recent decades been following the exact same path as Greece, Portugal, Spain, and Italy – “the notorious bad guys.” In the entire Eurozone (as in the USA) it’s the same story of excessive spending programs, disastrous labor laws, and widespread government interventions. No I’m not talking about socially supported entitlements. Personally I think any government that picks up a weapon to defend its citizens, should first and foremost provide healthcare as a priority for its citizens wellbeing. Both are about providing the country with welfare and protection.

When countries like the ones in Northwestern Europe spend only a relative pittance on defense, a lot of money becomes available to bring well-being to the margins. After the second World War Northern European countries for decades did not spend on the military complex and therefore amassed enough money to provide healthcare to its citizens and when the Eurozone initially became a potential opportunity for political grand standing, there was money available to embrace the southern European region into the fold of charity and entitlement. The Eurozone was ultimately going to be like the United States, the United States of Europe. That was the plan; thankfully executed ass backwards.
What did the politicians do? They gave the Eurocrats in Brussels the power to regulate, but without the power to tax, the formation of the Empire was doomed from the early days on. Just a matter of time. To create a Euro currency without the power of a European Treasury behind it, is absolutely ludicrous.

Personally I’m happy that they omitted to close the loop because it would only have lead to the formation of a European army and more meddling and there is really no telling what that would have brought to the global escalation of armed conflicts.

So here is the historical picture in a nutshell: the power to tax is an essential, defining characteristic of the nation-state, absence of which is the reason why the EuroZone initiative is collapsing.
Since WorldWar II, large amounts of economic revenues in especially North and Western European Countries have been alloted for Social Welfare, Education and occasionally rather stupid entitlements (in Holland there was a time you were paid to be a student) rather than purchasing armaments. Having witnessed the horrors of war on their own land, Europeans were not to excited about the US-USSR Cold War antics. So while the US built a military empire, western Europe built a social welfare empire. Both turned excessive with dangerous side effects of which we will see the unfolding in the next 5 to 10 years. Will we become a reflection of Europe with some country specific mutations or will we go down as an empire that could not strike a balance between conservative polarization and welfare foolishness, or will we finally learn what government is supposed to guide and protect, versus the excessive meddling into affairs that is essentially none of government’s business.

My Canadian friend, remember this story originated on our beach patio, voiced the media impression that if Greeks would simply start paying their taxes, the problem would quickly go away. Not so. Greece, in an important way the birthplace of our democracy, has many libertarian tendencies that demand small government and very limited meddling. In a perverse way, even the Junta Military Governments of the past were hardcore conservatives who preferred small government.

People is Greece are at a lunar distance from the people in Scandinavia. Nothing really makes them compare to a Norwegian or German. Not their lifestyles, not their homes, not their wardrobes, not their eating culture, not their educational, religious or culture history. Who on earth, except for idiot politicians, would ever try to force congruence into these opposites, rather than let time take its course.

The difference for Northwest Europe is, their economies have been much stronger as a result of historically different productive mentalities. Yet there is no doubt in my mind that if you’re following the same stupid policies, you should expect the same bad results. It’s logically inconsistent to assume that certain Eurozone policies are absolute failures in Greece, but magically work in France or Germany. Since becoming part of the Eurozone, Greece essentially tried to mimic Western European policies on an Eastern European budget when they became part of the Eurozone, but that doesn’t work.

The financial pressures of the Eurozone is now forcing the rest of Europe has to start walking a fine line when it comes to implementing more social programs, because the entitlement cracks are getting visible in all of Europe.

Greece is a lost case for the Eurozone and the Canary in the Coal mine where the future of the Eurozone is concerned. Italy, Spain and Portugal are next in line and obviously pro Euro politicians do not want to end up with the black eye of a failed and very costly experiment. Which is why in a last ditch effort printing presses are heating up to preserve the Euro currency (and only temporarily at best) as the European Parliament will try to secure the power to tax. Good luck with that one!

But as far as the press is concerned, some countries are racing for the cliffs and others are walking. When the first ones go over the cliff they’ll be frontpage news again; for a short while at least. Than there will be a period of anger with the politicians for having “forced” the people into the historically unnatural alliance of a Eurozone and then life will go back to affordable vacations in Greece, Italy, Spain, Portugal and even France and a return to making nature’s best wines and cheeses instead of Airplanes and other Industrial manufacturing that requires focus and precision to the extend of OCD.

The Eurozone will vanish into the history books as another experiment in “one size fits all” mediocrity, a philosophy that wrongly assumes that what works in one location, also will work somewhere else. It assumes that the German production mentality can be injected into the Greek population with their morning cereal or Happy Hour Ouzo. It won’t work. And before some readers with Greek roots start shooting of angry emails at me, they should realize that their ancestors moved away from Greece for the reason of being different than the age old accepted culture of leisure and laissez-fair.

The Eurozone will ultimately collapse because it became a forced alliance of very different cultures being regulated
by the same “one size fits all” philosophy and with the intention to prevent future wars.

Here in America we’re on the exact same path however, gravely underlined by the fact that last Wednesday Bernanke and the Feds announced that they would keep the federal funds rate between 0 and 1/4% at least through 2014, which also translates to cranking up the printing presses again. Of course the empire called USA has the power to tax, in contrast to Europe, but much of the federal revenues in last century have been “wasted” on unprecedented military build up, instead of welfare of its citizens, like in Europe.

So here is the bright side of the equation, Europe can’t really afford an army, having spend fortunes on entitlements and social programs. America can’t really afford an arms race any longer, unless the republic accepts that we become like North Korea, where every privilege belongs to the military and the rest of its citizenry are second hand citizens.
As a lifelong peace activist I consider the bright side of all these governments being bankrupt: They spend so much on welfare and debt service that they are unable to afford much warfare… And that makes welfare and debt good things, in a perverse way. Maybe US Secretary of the Treasury Tiny Tim Geithner should keep that in mind when he pressures Europe to increase its crisis firewall and boost bailout funding. There are always at least two sides to every story.

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