With the economy crashing down around us, I recently felt the need for some good advice from someone who really understands what is happening and how to get through it all. I called my bridge-playing, bird-watching friend, Eric Swanson, and asked him who he knew that might be able to give me some quality financial advice.
“Why don’t you call Sunny Bal?” Eric suggested. I’d known Sunny informally for the past five years. He owns the bridge club where Eric and I play. I also knew that Sunny was a successful, upbeat, self-made business man. I soon realized that I didn’t know the “real” Sunny Bal.
I called Sunny and asked if we could get together because I was in need of some financial advice. He immediately invited me to join him the next day at his finely appointed home perched high on the south side of the Catalina Mountains in Tucson, Arizona.
When I arrived at his house late in the afternoon, I was greeted by Sunny, still wearing a long sleeved dress shirt and a tie cinched tightly over the top button of his shirt. He was accompanied by Baxter, his three-year-old security guard—a one hundred pound, crotch sniffing, playful bundle of energy. He directed me to his office where we enjoyed an excellent bottle of Francis Ford Coppola red wine paired with dainty tomato and cucumber sandwiches. The first fifteen minutes passed quickly.
But I was on a mission and it wasn’t to make small talk. I wanted to get deep into Sunny’s head and perhaps hear some pearls of wisdom. He didn’t disappoint me.
I hope you will find his sound bites on the current economic problems, our potential for recovery, and his general philosophy, as insightful as I did:
- The current economic meltdown that we are experiencing was a long time in building with a successive series of deregulations fueling the excesses of financial and real estate speculations. There’s a lot of blame to go around, shared by financiers, governments, and investors alike. The fact is that we are here and our focused attention should be centered on asking and answering the question: What do we do? Traditionalists take a militant view that we should “let them fail” and then go in afterward and clean up. That is tough medicine that could kill the patient. The cost of doing nothing is too much to bear: Economic misery for the have-nots could lead to social unrest or worse. These very problems have already started in Eastern Europe. Let’s pray we don’t get infected too.
- I believe we need to arrest the “domino effect.” This will require that people work in concert, not at cross purposes. We need to give our young, charismatic President our support in this tough challenge. President Franklin D. Roosevelt tried many things, keeping what worked and discarding what didn’t. We find ourselves in similar but uncharted waters. Extinction is not an option – evolution to the next level is!
- Fred Mishkin says, “If Wall Street falls apart, Main Street collapses.” I believe Ben Bernanke and the U.S. Secretary of the Treasury have it right by trying to stabilize the financial system to prevent it from seizing up. I only wish they had started several months ago.
- The stimulus package will have a powerful effect in stemming our weakening economy. I do believe it is the right medication for a very sick patient. I only question if the dosage is sufficient. The credit markets are thawing rapidly. Capital markets all around the world are regaining their footing and the banks are lending again. If we can find solutions to the foreclosure crisis, we will have made considerable progress in getting back on the road to recovery. Survive we will!
- It is in periods of chaos that great opportunities are frequently born. Fear leads to panic selling. The market has been cut in half over the last eighteen months. Great stocks have been thrown down with the bad. In the meantime, a flight to safety has also driven Treasury, Money Market, and CD yields to less than 1% for short-term maturities, well below the cost of inflation. The price of all this stimulus spending, financed through borrowing and the copious printing of money, risks future inflation when the economy finally recovers. Survive we will, but the price we pay could be higher inflation.
- I believe “efficient markets” are a myth. The efficient market hypothesis is based on critical assumptions that human behavior is “rational” and that the markets are “free.” In fact, neither assumption is even remotely accurate. Any study of the behavior of crowds will show that human behavior is anything but rational and competent. Advertisers and public relations consultants have developed and practiced the skills of being able to quickly and decisively alter our impulses and opinions. While our markets are supposedly “free,” the regulations that were designed to keep them free and fair are often thwarted because regulators are frequently seduced by the regulated.
- The need for security is almost always driven by fear. Fear of both the known and unknown; fear that can be rational or irrational. Fear clouds our judgment, stifles creativity, and prevents us from serving mankind; it makes us suspicious of the motives of our neighbors. Security comes from the will of society at large. You can keep your wealth only if society lets you. When the very rich flaunt their wealth or abuse their power, the will of the majority soon acts to deprive them of both. True security cannot come at the expense of your neighbor, but through a collective feeling of well-being. Thus to preserve wealth, and the security it offers, you have to share it.
- Each individual is responsible for living his own life and for finding himself. If he persists in shifting this responsibility to somebody else, he fails to find out the meaning of his own existence. Bill Moyers says, “When you get to be older and the concerns of the day have been attended to, and you turn to the inner life—well if you don’t know where it is or what it is, you will be sorry!”
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Dick- A very interesting and informative post. One of the best I’ve read in a while. I do love the fact that it confirms (or agrees with) some of the things Peter Schiff stated early on.
A new economic reality is dawning and great changes are coming, whether we like it or not. Those who adapt, and work together, will survive and prosper. Over the next few months, we will see who truly loves America.
Craig and Bob, I found today’s Josh Funk’s AP news release interesting. In part, he reported, “Warren Buffett remains confident that America’s best days are ahead, but the nation likely will face higher unemployment and eventually inflation because of the current economic crisis. The nation’s leaders need to emphasize a consistent message, and they should support President Barack Obama’s efforts to repair the economy because fear is dominating Americans’ behavior. Buffett also predicted that unemployment will climb a lot higher before the recession is done, but reiterated his optimistic long-term view: ‘Everything will be all right. We do have the greatest economic machine that man has ever created.’
Fear and confusion have been driving consumer and investor behavior in recent months. The nation’s leaders need to clear up the confusion before anyone will become more confident, and all 535 members of Congress should stop the partisan bickering about solutions. Politicians should also stop trying to use the current economic crisis to force through other policy changes.
Buffett believes patriotic Republicans and Democrats will realize the nation is engaged in an economic war. ‘What is required is a commander in chief that’s looked at like a commander in chief in a time of war.’”
Dick – Interesting observations and collection of thoughts. The recession (now being referred to as a depression by some) has multiple causes. However, one that is underestimated is the upswing in oil prices over the summer of 2008 and the effects of oil prices leading up to and through that time. As oil prices had moved up, our nation looked to the alternate source of fuel in Ethanol. This drove up the cost of food on the American table while oil prices continued to skyrocket. This started an inflationary rise felt in the pockets of everyday Americans, even if the price of consumer goods was stable or dropping holding the perception of inflation down, as the cost of putting dinner escalated quickly.
Last summer we saw the price of oil spike to an all time high and the gas price at the pump follow right along. As we pumped $4.00 gas into our SUV’s and $5.00 diesel into semi-tractors (our main transit system for goods), we as consumers started the recoil we are escalating today. At that point consumers abandoned the American truck and SUV and for the most part the car offerings of the big three as they we not prepared for the sudden shift in American buying habits of the new economy. At the same time we saw surcharges and price increases for the nation’s product manufacturers and distributors. All in all, we faced increased costs and lower demands in order to pay the price at the pump. This is where consumer confidence was broken. We may have been able to with stand the mortgage crisis and banking scandals, as it only affects a portion among us. But once our confidence as consumers was broken we barricaded ourselves in and expected the worst.
Move forward nine months and the economy is sliding with no stop in sight. Today’s problems require a new solution that two years ago may have prevented some (if not all) of the current lack of consumer confidence. Today’s challenge is job creation, to put wealth, to even the smallest extent, back into the hands of the American worker. We need American workers to become American consumers. We cannot spend our way out of this situation without consumer confidence, and we will not have that until we have stability in the employment market.
Once we have consumer confidence, we will see the increase in spending and the economy will start back on the road to recovery. We will probably see the inflationary spike that the leading economists now predict, but we will continue to grow as a nation.
So, how do we get there?
Spend. Spend as a government today in creating an economy that is sustainable and employs people providing services and producing (and consuming) products on our shores. The stimulus passed through Congress met some of this challenge, but it could have done more to this effect. Extending welfare benefits is a short term solution. Providing employment to a recipient of welfare creates a consumer. Would you buy a new car (or even a few extra groceries) when you are on welfare? Someday, we will all feel comfortable again as consumers to spend within our means.
Congress could have done more, and still should, in terms of creating jobs. There are failing industries that need to be retooled immediately to meet the challenges of yesterday that we call tomorrow. GM could be building wind turbines with a subsidy. Chrysler could build solar panels. Why not? We are currently bankrolling these companies to produce products that are obsolete in today’s economy. Let’s subsidize the industries necessary to make our nation independent and wealthy again. Subsidize the development of these emerging technologies. Employ legions of field workers to install the equipment and infrastructure needed to power the nation anew. This will employ people, who will become consumers, will buy affordable housing and ultimately pay taxes to reimburse this nation for the debt we are incurring today.
The other failure in the stimulus bill is the tax breaks that were wrapped up into this bill to appease the conservative base. Tax breaks for those with jobs can not come anywhere near to restoring confidence as creating a tax paying job. The model of old, where tax breaks will create jobs, is obsolete as I have argued here before. Tax breaks to the wealthy create portfolios that are guided to make a quarterly profit based on cash flow and expenses. This profit is at the expense of the hourly worker and in many cases going against the thoughts of tax breaks creating jobs by trimming wages as an expense.
Don’t think I enjoy paying taxes. I think that everyone should be paying taxes, and I would rather pay to create employment to someone who shares in my tax burden than to see someone spending the morning in the unemployment offices and the afternoon on the couch watching Oprah on my dime.
So, in a nutshell, subsidize jobs today that cut our dependence on other nations, while creating tax paying workers that can someday help pay our way our of the mess we are in today. All the while, these new workers become consumers and restore the confidence we as consumers need to guide us back to prosperity. Go into debt as a nation one more time, but this time for the right reasons (as opposed to unjust war, which is a rant for another day). Simple enough.
I look forward to hearing your personal opinion on the way out of this recession. Where are the opportunities for the future? What will the social landscape look like in the future? Will the middle class exist for working America?
Mr. Waalkes,
I personally agree with your way of thinking. To me, your opinion post is as good as the original “Sunny Point of View” story by Richard. And Richard, I’m not wanting to take anything away from your post either because it covers some very valid points too but, you have to admit, Jon’s reply might just be right on the money.
Maybe JOO should consider making him part of your writers staff.
Mr. Graham,
As Senior Editor I can assure you that you are correct: Jon Waalkes is a very good writer and JOO would be honored to have him join us as a regular contributor. He has already had one article submitted. Even though that article was published under Richard E. Kelly’s byline, it was clearly identified as being Mr. Waalkes’ contribution.
How Realistic is a Green Collar Economy
Jon Waalkes has my open invitation to to join our team of regular contributing writers. If he has the time, the energy, and the desire to do so, I’m know that we’ll find space to print his articles.
Likewise, Mr. Graham, the same invitation is open to you. You seem to be able to present your ideas in an organized manner and it appears that you might have some sincere personal beliefs about the state of the country that you would like to share with our readers. If so, go to the Contact JOO page and simply email me or fill out the simple contact form. Either Dick Kelly or I will be glad to get back to you and explain the process.
In any case, my thanks to both Jon Waalkes and Randy Graham for taking an active interest in Just One Opinion. I hope to hear more from both of them in the near future.
Randy, thank you for your comment about the Jon Waalkes’ post. Like you, I think he has zeroed in on this issue and I hope he will give us more of his thoughts on JOO in the future.
Randy, I am not a little surprised to find myself agreeing completely with your assessment of Jon’s Waalkes comment. I usually agree with Jon too. Welcome!