PureWest - Wade Dokken Observations

Michael Burry: Famous for "Big Short" Moves Into Farmland

Wade Dokken — Mon, 13 Dec 2010 12:12:00 GMT

Seeking Alpha, the most read investment blog, has a fascinating story on Dr. Michael Burry’s current investment strategy. If you’re not familiar with Dr. Burry, read “The Big Short”, the mesmerizing tale of Burry and the mortgage bond market. He is commonly viewed as the first predictor of the debacle that followed. Inherent in his current picks is a move toward hard assets, and implicitly, a hedge against inflation. This is our common theme–index annuities protect your principal, even in rising interest rate market and allow you to capture the “up” years.

In Burry, Predictor of Mortgage Collapse, Bets on Farmland, Gold, Bloomberg has a great profile on Dr. Michael Burry and his recent investments. Says Bloomberg:

Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge, said he is investing in farmable land, small technology companies and gold as he hunts original ideas and braces for a weaker dollar.

“I believe that agriculture land — productive agricultural land with water on site — will be very valuable in the future,” Burry, 39, said in a Bloomberg Television interview scheduled for broadcast this morning in New York. “I’ve put a good amount of money into that.”

Burry points to market correlation as “problematic”:

Burry, who now manages his own money after shuttering the fund in 2008, said finding original investments is difficult because many trades are crowded and asset classes often move together.

“I’m interested in finding investments that aren’t just simply going to float up and down with the market,” he said. “The incredible correlation that we’re experiencing — we’ve been experiencing for a number of years — is problematic.”

He likes Asian tech stocks:

Still, it’s possible to find opportunities among small companies because large investors and government officials focus on bigger ones, he said. He is particularly interested in small technology firms.

“Smaller companies in Asia, I think, are neglected,” he said. “There are some very cheap companies there.”

And gold:

Gold is also a favored investment as central banks issue debt and devalue their currencies, he said. Governments haven’t adequately addressed the causes of the financial crisis and may be sowing the seeds for future problems by borrowing, he said. In the U.S., lawmakers showed they didn’t understand how to prevent another crisis when they gave the Federal Reserve and Chairman Ben S. Bernanke additional authority, he said.

“The Federal Reserve, in my view, hadn’t seen this coming and in some ways, possibly contributed to the crisis,” he said. “Now, Bernanke is the most powerful Fed chairman in history. I’m not sure that’s the right response. The result tends to tell me they’re not getting it right.”

Read the post.

Burry continues to be a very popular topic on Greenbackd (for more, see my posts Michael Lewis’s The Big Short, the Vanity Fair articleBetting on the Blind Side, Burry’s techstocks.com “Value Investing” thread and Burry’s Scion Capital investor letters)

http://wdokken.posterous.com/the-big-short-investor-is-moving-into-farmlan http://wdokken.posterous.com

http://www.wealthvest.com/blog/wade-dokken/the-big-short-investor-is-moving-into-farmland-and-gold-observations-by-wade-dokken/

Great Depression vs. the Great Recession: Comparing Two Great Economic Downturns

Wade Dokken — Mon, 13 Dec 2010 11:38:00 GMT

I am attempting to accumulate a library of commentary on the Great Recession vs. the Great Depression. This powerful comparison by Barry Eichengreen and Kevin H. O’Rourke is comprehensive in its review of the distinct differences between these two calamities.

http://www.wealthvest.com/blog/wade-dokken/great-depression-vs-great-recession-devaluation-unemployment-global-trade-everything/

http://www.voxeu.org/index.php?q=node/3421

Barry Eichengreen Kevin H. O’Rourke
8 March 2010

This column updates the original Vox columns by Barry Eichengreen and Kevin O’Rourke comparing today’s global crisis to the Great Depression. The three previous columns have shattered all Vox readership records with over 450,000 views. This latest edition covers up to February 2010 showing that, while there is cause for optimism, there is no room for complacency.

Editor’s Note: This column updates the original Vox columns by Barry Eichengreen and Kevin O’Rourke comparing today’sglobal financial crisis to the Great Depression. The previous columns have shattered all Vox readership records with over 450,000 views (O’Rourke and Eichengreen 2009). The latest data cover up to February 2010.

Global output

Global industrial production continues to recover – something for which policy deserves considerable credit (as we have argued on this site, see Almunia et al 2009 and O’Rourke and Eichengreen 2009). But before indulging in self-congratulation, policymakers should note that the level of industrial production is still 6% below its previous peak (figure 1). (At the trough it was 13% below its previous peak.) It follows that considerable excess capacity remains in a number of important economies. Exiting now from policies of stimulus in those countries would therefore be premature.

Figure 1. World industrial production, now vs. then

World trade

World trade also continues to recover but remains 8% below its previous peak (figure 2). (At the trough it was 20% below its previous peak.) The roots of this collapse of trade remain to be fully understood, although recent research has begun to shed light on some of the causes (see Baldwin 2009 and Chor and Manova 2009).

Figure 2. Volume of world trade, now vs. then

Equity markets

World equity markets are now 25% below peak (figure 3). (At their trough they were 50% below peak.) There was a break in the upward trend in January 2010 that may signal investors’ growing concern about the danger of a double dip – although if the crisis has taught us anything, it has taught us that too much should not be made of the forecasting ability of financial markets.

Figure 3. World equity markets, now vs. then

Editor’s note: The original Vox column by Barry Eichengreen and Kevin O’Rourke shattered all Vox readership records (30,000 views in two days, over 100,000 in a week, now fast approaching 350,000). Here the authors provide updated charts, presenting monthly data up through June 2009 (or latest).

What do the new data tell us?

Global industrial production now shows clear signs of recovering.

This is a sharp divergence from experience in the Great Depression, when the decline in industrial production continued fully for three years. The question now is whether final demand for this increased production will materialise or whether consumer spending, especially in the US, will remain weak, causing the increase in production to go into inventories, leading firms to cut back subsequently, and resulting in a double dip recession.

Global stock markets have mounted a sharp recovery since the beginning of the year. Nonetheless, the proportionate decline in stock market wealth remains even greater than at the comparable stage of the Great Depression.

The downward spiral in global trade volumes has abated, and the most recent month for which we have data (June) shows a modest uptick. Nonetheless, the collapse of global trade, even now, remains dramatic by the standards of the Great Depression.

Figure 1. World industrial production, now vs then

Figure 2. World stock markets, now vs then

Figure 3. Volume of world trade, now vs then

Figure 5. Industrial output, four big Europeans, then and now

Figure 6. Industrial output, four non-Europeans, then and now

Figure 7. Industrial output, four small Europeans, then and now

Start of first update (published 4 June 2009); original column (published 6 April 2009) appears below

Editor’s note: The 6 April 2009 Vox column by Barry Eichengreen and Kevin O’Rourke shattered all Vox readership records, with 30,000 views in less than 48 hours and over 100,000 within the week. The authors will update the charts as new data emerges; this updated column is the first, presenting monthly data up to April 2009. (The updates and much more will eventually appear in a paper the authors are writing a paper for Economic Policy.)

New findings:

World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots’.
World stock markets have rebounded a bit since March, and world trade has stabilised, but these are still following paths far below the ones they followed in the Great Depression.
There are new charts for individual nations’ industrial output. The big-4 EU nations divide north-south; today’s German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.
The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.
Japan’s industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March.

The facts for Chile, Belgium, Czechoslovakia, Poland and Sweden are displayed below; note the rebound in Eastern Europe.

Updated Figure 1. World Industrial Output, Now vs Then (updated)

Updated Figure 2. World Stock Markets, Now vs Then (updated)

Updated Figure 3. The Volume of World Trade, Now vs Then (updated)

Updated Figure 4. Central Bank Discount Rates, Now vs Then (7 country average)

New Figure 5. Industrial output, four big Europeans, then and now

New Figure 6. Industrial output, four Non-Europeans, then and now.

New Figure 7: Industrial output, four small Europeans, then and now.

Start of original column (published 6 April 2009)

The parallels between the Great Depression of the 1930s and our current Great Recession have been widely remarked upon. Paul Krugman has compared the fall in US industrial production from its mid-1929 and late-2007 peaks, showing that it has been milder this time. On this basis he refers to the current situation, with characteristic black humour, as only “half a Great Depression.” The “Four Bad Bears” graph comparing the Dow in 1929-30 and S&P 500 in 2008-9 has similarly had wide circulation (Short 2009). It shows the US stock market since late 2007 falling just about as fast as in 1929-30.

Comparing the Great Depression to now for the world, not just the US

This and most other commentary contrasting the two episodes compares America then and now. This, however, is a misleading picture. The Great Depression was a global phenomenon. Even if it originated, in some sense, in the US, it was transmitted internationally by trade flows, capital flows and commodity prices. That said, different countries were affected differently. The US is not representative of their experiences.

Our Great Recession is every bit as global, earlier hopes for decoupling in Asia and Europe notwithstanding. Increasingly there is awareness that events have taken an even uglier turn outside the US, with even larger falls in manufacturing production, exports and equity prices.

In fact, when we look globally, as in Figure 1, the decline in industrial production in the last nine months has been at least as severe as in the nine months following the 1929 peak. (All graphs in this column track behaviour after the peaks in world industrial production, which occurred in June 1929 and April 2008.) Here, then, is a first illustration of how the global picture provides a very different and, indeed, more disturbing perspective than the US case considered by Krugman, which as noted earlier shows a smaller decline in manufacturing production now than then.

Figure 1. World Industrial Output, Now vs Then

Source: Eichengreen and O’Rourke (2009) and IMF.

Similarly, while the fall in US stock market has tracked 1929, global stock markets are falling even faster now than in the Great Depression (Figure 2). Again this is contrary to the impression left by those who, basing their comparison on the US market alone, suggest that the current crash is no more serious than that of 1929-30.

Figure 2. World Stock Markets, Now vs Then

Source: Global Financial Database.

Another area where we are “surpassing” our forbearers is in destroying trade. World trade is falling much faster now than in 1929-30 (Figure 3). This is highly alarming given the prominence attached in the historical literature to trade destruction as a factor compounding the Great Depression.

Figure 3. The Volume of World Trade, Now vs Then

Sources: League of Nations Monthly Bulletin of Statistics, http://www.cpb.nl/eng/research/sector2/data/trademonitor.html

It’s a Depression alright

To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.

That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response.

Policy responses: Then and now

Figure 4 shows a GDP-weighted average of central bank discount rates for 7 countries. As can be seen, in both crises there was a lag of five or six months before discount rates responded to the passing of the peak, although in the present crisis rates have been cut more rapidly and from a lower level. There is more at work here than simply the difference between George Harrison and Ben Bernanke. The central bank response has differed globally.

Figure 4. Central Bank Discount Rates, Now vs Then (7 country average)

Source: Bernanke and Mihov (2000); Bank of England, ECB, Bank of Japan, St. Louis Fed, National Bank of Poland, Sveriges Riksbank.

Figure 5 shows money supply for a GDP-weighted average of 19 countries accounting for more than half of world GDP in 2004. Clearly, monetary expansion was more rapid in the run-up to the 2008 crisis than during 1925-29, which is a reminder that the stage-setting events were not the same in the two cases. Moreover, the global money supply continued to grow rapidly in 2008, unlike in 1929 when it levelled off and then underwent a catastrophic decline.

Figure 5. Money Supplies, 19 Countries, Now vs Then

Source: Bordo et al. (2001), IMF International Financial Statistics, OECD Monthly Economic Indicators.

Figure 6 is the analogous picture for fiscal policy, in this case for 24 countries. The interwar measure is the fiscal surplus as a percentage of GDP. The current data include the IMF’s World Economic Outlook Update forecasts for 2009 and 2010. As can be seen, fiscal deficits expanded after 1929 but only modestly. Clearly, willingness to run deficits today is considerably greater.

Figure 6. Government Budget Surpluses, Now vs Then

Source: Bordo et al. (2001), IMF World Economic Outlook, January 2009.

Conclusion

To summarise: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.

The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column.

References

Eichengreen, B. and K.H. O’Rourke. 2009. “A Tale of Two Depressions.” In progress.

Almunia, Miguel, Agustín S Bénétrix, Barry Eichengreen, Kevin H O’Rourke, Gisela Rua (2009), “The effectiveness of fiscal and monetary stimulus in depressions”, VoxEU.org, 18 November.

Baldwin, Richard (eds) (2009), The Great Trade Collapse: Causes, Consequences and Prospects, VoxEU.org Ebook, 27 November.

Bernanke, B.S. 2000. Bernanke, B.S. and I. Mihov. 2000. “Deflation and Monetary Contraction in the Great Depression: An Analysis by Simple Ratios.” In B.S. Bernanke, Essays on the Great Depression. Princeton: Princeton University Press.

Bordo, M.D., B. Eichengreen, D. Klingebiel and M.S. Martinez-Peria. 2001. “Is the Crisis Problem Growing More Severe?” Economic Policy32: 51-82.

Chor, Davin and Kalina Manova (2010), “Off the cliff and back? Credit conditions and international trade during the global financial crisis”, VoxEU.org, 15 February.

Paul Krugman, “The Great Recession versus the Great Depression,” Conscience of a Liberal (20 March 2009).

Doug Short, “Four Bad Bears,” DShort: Financial Lifecycle Planning” (20 March 2009).

Interest Rates are at Historic Low: 10 Year Treasury at 50 Year Low Levels

Wade Dokken — Mon, 13 Dec 2010 11:32:00 GMT

Spend a little time looking at the two accompanying tables and charts. I’d like to draw your attention to the similarity of yields in 1954 and today for the 10 year Treasury Bond. Now, look at the graph below the table and the steep 26 year rise in bond yields.

I’m working on the numbers now, but the simple conclusion is that history would suggest that from today’s bond prices to bond prices in the future is an treacherous road for bond investors.

Bond buyers lost a tremendous level of their principal between 1954 and 1981.

Can rates go lower today (hence bond prices higher)? Yes, and in fact bond buyers today may in fact be experiencing very positive returns. If deflation were to happen, and in some portions of economic analysis (wages), deflation is occurring. Even 0% yields in that environment produce positive returns, since purchasing power of the principal is being enhanced.

However, when the cycle turns, bond principal can be devastated. Americans are funneling billions of dollars in to bond funds today. The yields quoted are illusory and their recent experience with equities disconcerting.

The value of fixed annuities should be obvious. Insurance companies take the underlying risk of the bond portfolio and in the case of index annuities, the investor is credited interest rates linked in equity market indices.

http://www.wealthvest.com/blog/wade-dokken/10-year-treasury-yields-and-50-year-yield-history/

Ten Year Treasury Rate Table History

Ten Year Treasury Rate 45 Year History

Fareed Zakaria's" Restoring the American Dream

Wade Dokken — Mon, 13 Dec 2010 03:47:00 GMT

I have shared this essay with my boys, because I believe the macro-economic forces highlighted in Fareed's essay are at the heart of our current long-term economic predicament. We need to fundamentally adjust our domestic priorities and expectations on ourselves; willing to study longer, harder and accept less consumption and greater savings. We need to look carefully at how much we are willing to spend on defense, entitlements and be honest about the level of government we support and are willing to pay for.

I'm terribly pessimistic on our ability to do some of these things and therefore, I believe are in for a long-term inflationary cycle. Great for real estate. Bond for stocks and bonds. It make sense. We have a great run in financial assets. Those days are likely done.

However, we live in Montana, ski at Big Sky, hike the Spanish Peaks, fish the Yellowstone River. Life is still great.

His weekly show is the most thoughtful, rationale news show on TV, and his weekly recommended book--well it's a real challenge to keep up. Here's his book list.

http://www.wealthvest.com/blog/wade-dokken/fareed-zakaria-book-of-the-week-list-noted-wade-dokken/

http://www.wealthvest.com/blog/wade-dokken/fareed-zakarias-view-of-renewing-the-american-dream/

books_of_the_week_2010 (3)

The American dream for me, growing up in India in the 1970s, looked something like the opening credits of Dallas. The blockbuster TV series began with a kaleidoscope of big, brassy, sexy images — tracts of open land, shiny skyscrapers, fancy cars, cowboy businessmen and the very dreamy Victoria Principal. We watched bootlegged copies of the show, passed around on old Betamax cassettes. America (certainly the CBS soap-opera version of America) seemed dazzling and larger than life, especially set against the stagnant backdrop of India in the 1970s. Everyone I knew was fascinated by the U.S., whether they admitted it or not. Politicians who denounced the country by day would go home in the evenings and plot to send their kids to college in "the States."

Of course, the 1970s were actually tough times in America — stagflation, malaise, the aftermath of Vietnam and Watergate — but they were brutal in the rest of the world. Hyperinflation racked most third-world countries; coups and martial law were familiar occurrences, even affecting staunchly democratic India, where emergency rule was enforced from 1975 to 1977. Set against this atmosphere of despair, the U.S. looked like a shining city on a hill.

A few years later, when I got to America on a college scholarship, I realized that the real American Dream was somewhat different from Dallas. I visited college friends in their hometowns and was struck by the spacious suburban houses and the gleaming appliances — even when their parents had simple, modest jobs. The modern American Dream, for me, was this general prosperity and well-being for the average person. European civilization had produced the great cathedrals of the world. America had the two-car garage. And this middle-class contentment created a country of optimists. Compared with the fatalism and socialist lethargy that was pervasive in India those days,Americans had a sunny attitude toward life that was utterly refreshing.

But when I travel from America to India these days, as I did recently, it's as if the world has been turned upside down. Indians are brimming with hope and faith in the future. After centuries of stagnation, their economy is on the move, fueling animal spirits and ambition. The whole country feels as if it has been unlocked. Meanwhile, in the U.S., the mood is sour. Americans are glum, dispirited and angry. The middle class, in particular, feels under assault. In a Newsweek poll in September, 63% of Americans said they did not think they would be able to maintain their current standard of living. Perhaps most troubling, Americans are strikingly fatalistic about their prospects. The can-do country is convinced that it can't.

Americans have good reasons to worry. We have just gone through the worst recession since the Great Depression. The light at the end of the tunnel is dim at best. Sixteen months into the recovery, the unemployment rate is higher than it was in the depths of all but one of the postwar recessions. And as government spending is being pared back, the economy is showing new signs of weakness.

Some experts say that in every recession Americans get gloomy and then recover with the economy. This slump is worse than most; so is the mood. Once demand returns, they say, jobs will come back and, with them, optimism. But Americans are far more apprehensive than usual, and their worries seem to go beyond the short-term debate over stimulus vs. deficit reduction. They fear that we are in the midst of not a cyclical downturn but a structural shift, one that poses huge new challenges to the average American job, pressures the average American wage and endangers the average American Dream. The middle class, many Americans have come to believe, is being hollowed out. I think they are right.

Going Global
For a picture of the global economy, look at America's great corporations, which are thriving. IBM, Coca-Cola, PepsiCo, Google, Microsoft, Apple, Intel and Caterpillar are all doing well. And they share a strategy that is becoming standard for success. First, technology has produced massive efficiencies over the past decade. Jack Welch explained the process succinctly on CNBC last September. "Technology has changed the game in jobs," he said. "We had technology bumping around for years in the '80s and '90s, and [we were] trying to make it work. And now it's working ... You couple the habits [of efficiency] from a deep recession [with] an exponential increase in technology, and you're not going to see jobs for a long, long time." Welch gave as an example a company owned by the private-equity firm with which he is affiliated. In 2007 the business had 26,000 employees and generated $12 billion in revenue. It will return to those revenue numbers by 2013 but with only 14,000 employees. "Companies have learned to do more with less," Welch said.

Next, companies have truly gone global. The companies on the S&P 500 generate 46% of their profits outside the U.S., and for many of the biggest American names, the proportion is much higher. You might think of Coca-Cola as the quintessentially American company. In fact it is a vast global enterprise, operating in 206 countries. "We have a factory in Ramallah that employs 2,000 people. We have a factory in Afghanistan. We have factories everywhere," explains Muhtar Kent, the CEO of Coke. Nearly 80% of Coca-Cola's revenue comes from outside the U.S., and an even greater percentage of its employees are in foreign countries. "We are a global company that happens to be headquartered in Atlanta," says Kent.

America's great corporations access global markets, easy credit, new technologies and high-quality labor at a low price. Many have had to cut jobs at home, where demand is weak, and have added them in the emerging markets that are booming. They are not "outsourcing" jobs. That word makes little sense anymore. They simply invest in growth areas and cut back in places where the economy is weak. None of them will ever give up on the American market — it is too large, too profitable and too central to their businesses — but the marginal dollar is more likely to be invested abroad than in the U.S.

While businesses have a way to navigate this new world of technological change and globalization, the ordinary American worker does not. Capital and technology are mobile; labor isn't. American workers are located in America. And this is a country with one of the highest wages in the world, because it is one of the richest countries in the world. That makes it more difficult for the American middle-class worker to benefit from technology and global growth in the same way that companies do.

At this point, economists will protest. Historically, free trade has been beneficial to rich and poor. By forcing you out of industries in which you are inefficient, trade makes you strengthen those industries in which you are world-class. That's right in theory, and it has been right in practice. As countries have traded with one another over the past two centuries, they have prospered, and average living standards in those countries (primarily in the Western world) have soared. Those places that kept themselves protected (mostly communist and third-world nations) found that they had crappy industries, shoddy goods, massive corruption and slow growth.

And yet something feels different this time. Technology and globalization are working together at warp speed, creating a powerful new reality. Many more goods and services can now be produced anywhere on the globe. China and India have added literally hundreds of millions of new workers to the global labor pool, producing the same goods and services as Western workers at a fraction of the price. Far from being basket-case economies and banana republics, many developing economies are now stable and well managed, and companies can do business in them with ease. At some point, all these differences add up to mean that global competition is having quite a new impact on life in the U.S.

Two weeks ago, for example, I sat in a Nano, the revolutionary car being produced by Tata Motors in India. It's a nice, comfortable midgetmobile, much like Mercedes-Benz's Smart car, except that rather than costing $22,000, it costs about $2,400. Tata plans to bring it to the U.S. in two to three years. Properly equipped with air bags and other safety features, it will retail at $7,000. Leave aside the car itself, whose price will surely put a downward pressure on U.S. carmakers. Just think about car parts. Every part in the Nano is made to global standards but manufactured in India at about a tenth of what it would cost in America. When Ford orders its next set of car parts, will they be made in Michigan or Mumbai?

This is not a hypothetical. Steven Rattner, who helped restructure the automobile industry, tells the story of getting a new General Motors plant online in Michigan by bringing management and unions together. "The unions agreed to allow 40% of the new plant to operate at $14-an-hour wages," he says, "which is half of GM's normal wages. The management agreed to invest in this new plant. But here's the problem: workers at GM's Mexican operations make $7 an hour, and today they are as productive as American workers. And think of this: $14 an hour translates into about $35,000 a year. That's below the median family income. The whole experience left me frightened about the fate of the American worker."

Alan Blinder is also worried. A distinguished economist and Princeton professor, Blinder is a former vice chairman of the board of governors of the Federal Reserve. In a now famous essay in Foreign Affairs, he argues that while we recognize the pressures placed on manufacturing jobs by international competition, technology ensures that service jobs are now similarly exposed. Since the service sector is a much larger part of the economy, Blinder estimates that 28 million to 42 million jobs will be "susceptible" to being shipped offshore — jobs such as customer-service representative and stock analyst, which we tend to think of as local. Blinder understands the benefits of free trade but worries that the new wave of offshoring is so big and fast that Western societies will have difficulty adjusting. The crucial distinction for the future, he argues, might be not between highly educated and less educated workers but between those jobs that can be done abroad and those — such as nurse or pilot — that cannot.

You can divide the American workforce in many ways, but any way you slice it, you see the same trend. People who get paid a decent wage for skilled but routine work in manufacturing or services are getting squeezed by a pincer movement of technology and globalization. David Autor, an MIT economist, has done an important study on what he calls "the polarization of job opportunities" in America. Autor finds that job growth divides neatly into three categories. On one side are managerial, professional and technical occupations, held by highly educated workers who are comfortable in the global economy. Jobs have been plentiful in this segment for the past three decades. On the other end are service occupations, those that involve "helping, caring for or assisting others," such as security guard, cook and waiter. Most of these workers have no college education and get hourly wages that are on the low end of the scale. Jobs in this segment too have been growing robustly.

In between are the skilled manual workers and those in white collar operations like sales and office management. These jobs represent the beating heart of the middle class. Those in them make a decent living, usually above the median family income ($49,777), and they mostly did fine in the two decades before 2000. But since then, employment growth has lagged the economy in general. And in the Great Recession, it has been these middle-class folks who have been hammered. Why? Autor is cautious and tentative, but it would seem that technology, followed by global competition, has played the largest role in making less valuable the routine tasks that once epitomized middle-class work.

Recapturing the Dream
So what is the solution? It's easier to identify the wrong answer than the right one. It would be pointless and damaging to try to go down a protectionist route, though polls show a stunning drop of support for free trade, even among college-educated professionals, its usual cheerleaders. But technology is a much larger driver of the hollowing out than trade. You cannot shut down this new world. How would you stop people from sending one another e-mails, which is what a lot of offshoring comes down to these days? Nor can you help a modern economy by shielding industries from world-class competitors, which just encourages greater inefficiency. I grew up in an economy made up of those kinds of industries, all tightly protected from "foreign exploitation and domination." It added up to stagnation and backwardness.

There are solutions, but they are hard and involve painful changes — in companies, government programs and personal lifestyles. For more than a generation, Americans have been unwilling to make these adjustments. Instead, we found an easier way to goose the economy: expand consumption. During the early 1950s, personal consumer expenditures made up 60% to 65% of the U.S.'s GDP. But starting in the early 1980s, facing slower growth, we increased our personal spending substantially, giving rise to new economic activity in the country. Consumption grew to 70% of GDP by 2001 and has stayed there ever since. Unfortunately, this rise in consumption was not triggered by a rise in income. Wages have been largely stagnant. It was facilitated, rather, by an increase in credit, so that now the average American family has no fewer than 13 credit cards. Household debt rose from $680 billion in 1974 to $14 trillion in 2008. This pattern repeated itself in government, except on a much larger scale. People everywhere — from California to New Jersey — wanted less taxes but more government. Local, state and federal governments obliged, taking on massive debts. A generation's worth of economic growth has been generated by an unsustainable expansion of borrowing.

That is why the current economic debate between another stimulus and deficit reduction is frustrating. Right now, there is a strong case for government stimulus, since no one else is doing much spending. But then what? What happens after another year of federal spending? Consumers still might be cautious; do we really want them to spend like they did in the old days? Is the strategy simply to reinflate the housing bubble? In recent years, the left and the right in America have conspired in feeding consumption spending. The left expands government, much of which means more consumption (pensions, health care). The right focuses obsessively on tax cuts, which have a similar effect. The political system, pandering to today's constituents, encourages both tendencies. But when will we invest for our children's economy?

What We Need to Do Now
Ultimately American jobs are created from the bottom up by companies, not from the top down by government fiat. But there are measures we can take that will encourage the process. Here are the key ones:

Shift from consumption to investment. Fundamentally, America needs to move from consumption to investment. Everyone agrees that the best way to create good jobs in the U.S. is to create new industries and companies and to innovate within old ones. This means large investments in research, technology and development. As a society, this needs to become our strongest focus.

Despite substantial increases and important new projects under the Obama Administration, the federal government is still not spending as much on R&D as a percentage of GDP as it did in the 1950s. I would argue that it should be spending twice that level, which would be 6% of GDP. In the 1950s, the U.S. had a huge manufacturing base that could absorb millions of semiskilled workers. Today, manufacturing is a small part of the economy and faces intense global competition. The only good jobs that will stay in the U.S. are jobs related to knowledge and innovation. Additionally, in the 1950s, America was the only research lab in town, accounting for the vast majority of global scientific spending. Today, countries around the world are entering the arena. Two weeks ago, South Korea — a country of just 50 million people! — announced plans to invest $35 billion in renewable-energy projects. We should pay for this with a 5% national sales tax — call it an American innovation tax — which would be partly offset by a small reduction in income taxes. This would have the twin benefits of tamping down consumption and yielding some additional funds. All the proceeds from the tax should be focused on future generations, because we need to invest massively in growth.

The often overlooked aspect of investment is investment in people. America has been able to create the future in large measure because it has tapped into the energies and work of immigrants. It has managed to invest in human capital by taking smart, motivated people from around the globe, educating them in the planet's best higher-education system and then unleashing them in a dynamic economy. In this crucial realm, the U.S. is now disinvesting. After training the world's best and brightest — often at public expense — we don't find ways to make sure they stay here by giving them a green card but rather insist that they leave and take their knowledge to another country, where they will invent, inspire, build and pay taxes. Every year, we send tens of thousands of the smartest Indians and Chinese back home, which is a great investment — in the future of those countries.

Training and education. "Most jobs that will have good prospects in the future will be complicated," says Louis Gerstner, the former CEO of American Express and IBM. "They will involve being able to juggle data, symbols, computer programs in some way or the other, no matter what the task. To do this, workers will need to be educated and often retrained." We need more and better education at every level, especially job retraining. So far, most retraining efforts in the U.S. have not worked very well. But they have worked in countries that have been able to retain a manufacturing base, like Germany and parts of Northern Europe. There, some of the most successful programs are apprenticeships — which cover only 0.3% of the total U.S. workforce.

There are advantages to the U.S. system. We don't stream people too early in their lives, and we allow for more creative thinking. But the path to good jobs for the future is surely to expand apprenticeship programs substantially so industry can find the workers it needs. This would require a major initiative, a training triangle in which the government funds, the education system teaches and industry hires — though to have an effect, the program would have to be on the scale of the GI Bill.

Fiscal sanity. To pay for such initiatives, the government needs to get its house in order. The single most important aspect of this is getting health care costs under control, followed by other entitlement programs, especially pensions at the state level. Government today spends vast sums of money on current consumption — health care and pensions being a massive chunk of it — which leaves little money for anything else. We need a radical rebalancing of American government so it can free up resources to fund future growth.

Benchmark, benchmark, benchmark. There is now global competition for growth, which means the U.S. has to constantly ask itself what other countries are doing well and how it might adapt — looking, for example, at what other countries are doing with their corporate tax rates or their health care systems and asking why and where we fall short. Americans have long resisted such an approach, but if someone else is doing tax policy, tort litigation, health care or anything else better, we have to ask why.

There are things the U.S. does well. Most new jobs in America are created by start-ups and small companies, so the ease of doing business is crucial — and there's good news there. The World Bank has a ranking of countries measured by the "ease of doing business," and the U.S. is No. 4. That's very good, but there's a catch. Those rankings are divided into several categories. In most, like "starting a business," the U.S. does well. But in one category it's only 61st in the world, and that is "paying taxes."

The American tax code is a monstrosity, cumbersome and inefficient. It is 16,000 pages long and riddled with exemptions and loopholes, specific favors to special interests. As such, it represents the deep, institutionalized corruption at the heart of the American political process, in which it is now considered routine to buy a member of Congress's support for a particular, narrow provision that will be advantageous for your business.

The Work Ahead
My proposals are inherently difficult because they ask the left and right to come together, cut some spending, pare down entitlements, open up immigration for knowledge workers, rationalize the tax code — and then make large investments in education and training, research and technology, innovation and infrastructure. But the fact that it is a solution that crosses political borders should make it more palatable, not less. And time is crucial. The U.S. has considerable advantages, but every day other countries try to find ways to attract growth within their borders. People often note that America's political system is broken. Perhaps the truth is more awkward: America needs radical change, and it has an 18th century system determined to check and balance the absolute power of a monarchy. It is designed for gridlock at a moment when quick and large-scale action is our only hope.

When I left India, the marginal tax rate was 97.5%, corporate taxation was punitive, and business was stifled or went underground. Were I to move from New York City to Mumbai today, my personal tax rate would drop, as would every other rate, from corporate to capital-gains taxes. (The long-term capital-tax rate in India is zero.) Singapore now ranks as the No. 1 country for ease of doing business, with a top tax rate of 20%. I know permanent residents working in the U.S. who are thinking of giving up their green cards to move to Singapore. To an Indian of my generation, this would have been unthinkable. The green card was a passport to the American Dream. But for young Indians, there are many new dreams out there, and new passports.

But there are reasons for optimism. The U.S. faces huge challenges, but it also has enormous advantages. "I've always been bullish on America," says Coke's Kent. "It's the largest, richest market in the world. Look at the demographics alone. North America is the only part of the industrialized world that will be growing in people. It now has a higher birthrate than Mexico, for the first time in history." Or listen to Alcoa's German-born Klaus Kleinfeld, previously the head of Siemens: "I know the things that America has that are unique. The openness, the diversity, the dynamism — you don't have it anywhere else. If you keep all these things, build on them, I still believe in the American Dream."

The term American Dream was coined during the Great Depression. The historian James Truslow Adams published The Epic of America in 1931, in an atmosphere of even greater despair than today's. He wanted to call his book The American Dream, but his publishers objected. No one will pay $3.50 for a book about a "dream," they said. Still, Adams used the phrase so often that it entered the lexicon. The American Dream, he said, was of "a better, richer and happier life for all our citizens of every rank, which is the greatest contribution we have made to the thought and welfare of the world. That dream or hope has been present from the start. Ever since we became an independent nation, each generation has seen an uprising of ordinary Americans to save the American Dream from the forces which appear to be overwhelming it."

Today, those forces really do look overwhelming. But challenges like them have been beaten back before — and can be again.

Muhtar Kent: Rekindling Growth and Innovation in America (huffingtonpost.com)
Fareed Zakaria: Restoring The American Dream (huffingtonpost.com)
Tom Vander Ark: Restoring the American Dream (huffingtonpost.com)
Muhtar Kent: This Century Goes to the Women (huffingtonpost.com)
How to Restore the American Dream (time.com)

History of What Things Cost in America: The Good News is Deflation does not Linger

Wade Dokken — Mon, 13 Dec 2010 03:33:00 GMT

This is a blog that I posted on another site. The point was slightly different and whimsical. However, their is a different point for a real estate blog. We have had minor deflation in the U.S. last year, which was the first year in nearly 50 years of declining prices. In real estate, we have seen three years of declining prices, and I can't believe they can continue. Housing costs are around 2003 cost levels--even though overall inflation for the past decade was nearly 30%. The dates do not make a perfect match, but the point remains. Houses are below replacement cost. The population of our country is growing and as a nation our GDP is growing, which means we are becoming wealthier. Moreover--and perhaps most importantly, the Federal Reserve and the U.S. Congress/Executive remain focused on a series of fiscal and monetary strategies to inflate the money supply and prime the pump.

Once this process successfully gains hold, the prices of homes will rapidly snap back. Already, interest rates rose 36 basis points last week. In my mind, the announcement of a bi-partisan agreement on a $900 billion stimulus package, combining further tax cuts with other stimulative spending was the catalyst. The 29 year bull market in bonds has come to an end. I don't believe we are going to allow deflation, which means housing has reached its nadir.

For homeowners selling at Yellowstone Club, Spanish Peaks, Moonlight Basin and Big Sky this is good news. For buyers, this means act now if you have real desire.

http://www.wealthvest.com/blog/wade-dokken/the-history-of-what-things-cost-in-america-1776-to-today-247-wall-st-wade-dokken/

In 2009, the U.S. experienced a -0.36% inflation rate (mild deflation), and the previous year of deflation was 1955 (-0.37), 1949 (-0.96%) and previous to that was 1938 (-1.88%) and 1939 (-1.42%). Overall, we experienced 15 years of deflation in last century, but only one year in the second half of the century. However, in the first half of the 20th century, our nation experienced deflation nearly once every three years.

The 19th century was brutal, with deflation occurring in 48 years, or nearly 50% of the time. Again, in the last 25 years of the 18th century, our nation's infancy, the U.S. experienced deflation in 12 of those first years.

With this frequency of deflation, it should't surprise the reader that inflation averaged on 1.45% since 1775 until today. However, from 1950 until today, the inflation rate averaged 3.78% in the final 60 years of our history.

The actual history of inflation in America shows great variability until the 2nd half of the 20th century. The public policy institutions and programs put in place as a reaction to the Great Depression had two principle impacts upon inflation. First, they had a strong anti-deflation bias. The terrible human cost of the Great Depression instilled in public policy a bias toward full employment and the institutions of unemployment benefits, Social Security, a larger federal/state role in the economy, and a Federal Reserve more focused upon full employment. These monetary and fiscal tools have effectively reduced the risk of deflation to it's lowest level of threat in U.S. history. These same programs have escalators, and coupled with stronger labor laws and our energy dependency and national reluctance to run balanced budgets, well, we have an inflation bias in our public policy. This Wikipedia graph shows the bias:

: History of Inflation in America since 1670's

The net impact 234 years is a 29-fold increase in the cost of goods. What cost a dollar in 1775 would cost $29 dollars today. If you earned $1,000 in 1775, then you would need to earn about $30,000 today to have the same purchasing power.

However the actual goods vary wildly according to demand, productivity increases, and changes in technology. Here's an interesting walk through two centuries of what things cost in America.

History of American Inflation since 1776: What Things Cost

: 1776 King George Guinea

Charles B. Stockdale, Michael B. Sauter, Douglas A. McIntyre developed a great blog piece in 247wallst.com focused on how the real changes in what things cost--inflation--in America since the Declaration of Independence. I have used their original research “The Value of a Dollar: 1600-1865″ and “The Value of a Dollar: 1860-2004,” published by Grey House Publishing and having an uncomfortably high price of $155 through Amazon. So $310 before shipping just to get started.

Stockdale, Sauter and McIntyre go on to write, "The cost of living in America has gone up about fifteen fold since the Declaration of Independence was signed in 1776. Of course, not all prices have risen at the same rate.

The value of coffee has increased fifteen times from its price 234 years ago. This is a similar increase to the value of the dollar, based on the purchasing power of a dollar and the consumer price index.

The value of land has risen a great deal in certain parts of the country – particularly those areas that were rural and now are parts of big cities. It was impossible to know 150 years ago that land in New York’s Central Park would be worth several thousand times what it was in 1776. Conversely, products like whale oil, once used to light homes, now have no legal value at all. Powdered wigs have almost certainly dropped in value now that they are out of fashion.

Inflation is amazingly variable from decade to decade, from product to product, and service to service. 24/7 Wall St. set out to illustrate this by looking at the costs of a number of items which were, and in some cases still are, a part of everyday life in America. We examined prices of common goods every 25 years, beginning in 1776. Some items could not be tracked over the entire timeline. Levi Jeans were not available until the 1870s. Similarly, most Americans do not own horses now, but many did in the late 18th and early 19th Centuries. In this way, the goods and services we examined changed over time.

Many economists and Governors of the Federal Reserve argue that inflation is dead. They are worried that America could enter a period of high unemployment and falling prices, like the deflationary era that ruined the Japanese economy nearly 20 years ago. And these experts might be right. However, they are likely to only be right briefly.

Low interest rates, high joblessness, and a faltering housing market may keep the prices of many of the things Americans buy and sell in everyday life low for the next few years, but economies recover and occasional shortages of critical products like oil can turn periods of modest price increases into times of hyperinflation. Rapidly rising prices for oil and other goods drove inflation up by 15% in 1980. Mortgage rates were 18%. Some of this was due to the tremendous increase in the price of oil which began with the twin oil import crises of 1973 and 1979. Petroleum was such a crucial part of American consumer activity and industrial production that the entire cost of living and doing business was affected in the late 1970s – almost overnight.

If the 24/7 Wall St. analysis of 234 years of the cost of living in America shows anything, it is that the prices of goods and services can rise rapidly for a number of years, and then, quickly, a once-important item becomes of no use at all. That is the “buggy whip” phenomenon. The horse and carriage were rapidly replaced by the automobile just after the beginning of the 20th Century. On the other hand, the value of commodities like land and gold can rise almost indefinitely. This is because they are virtually finite assets, unlike oil, and therefore are perfect hedges for when the GDP turns lower and stays troubled for a number of years.

In our analysis, we relied on “The Value of a Dollar: 1600-1865″ and “The Value of a Dollar: 1860-2004,” considered to be among the the definitive sources for how the value of the dollar fluctuates and, looking at historical prices of goods and salaries, how it impacts the economy. We also referred to measuringworth.com , a site dedicated to making available “the highest quality and most reliable historical data on important economic aggregates.” Finally, we conferred with the Commodities Mercentile Exchange in order to evaluate historical prices of commodities and to determine which commodity would best reflect inflation over time.

In our description of each period, we provide a historical background and a list of some of the more interesting prices. To give perspective, we provide the price of coffee for each year across the timeline, as well as the estimated historical purchasing power of a dollar in that year.

1776

: 1775 Continental Seven Dollar Bill

-A daily wage of a bricklayer, without board, $47 in Providence, R.I. 1776

-One ton of iron cost $63.73 (Philadelphia, 1775)
-Twenty gallons of orange peel cordial cost 3 pounds (Richmond County, VA, 1776)
-One checkerboard with pieces cost 2 shillings, 6 pence (Richmond County, VA, 1776)
-One double-barreled gun cost 3 pounds (Richmond County, VA, 1776)

-One pound of coffee cost 0.13 silver dollars (Boston, 1775)

-$1 in 1775 = $29 today

At the time of the American Revolution, the United States was still primarily using the British pound as its currency. As the war dragged on, the colonies began printing a vast amount of paper money (about $450 million) to cover costs, causing extreme inflation. This, combined with shortages resulting from British blockades, made the prices of many goods rise significantly.

1800

: Circa 1800 Clock

-$1 in 1800 would be worth 17.60 at the end of 2009

-Wages for ship captain for one month $40 (1805)

-Average wage of a day laborer $1 (1800)

-Annual salary for a physician $500 (1803)

-Whiskey, gallon $0.39 (1822)

-Best gentleman’s boots $4.00 (1810)

-Men’s fur hat $3.50 (1815)

-Cotton gloves $0.125 (1817)

-Box seats at John Bull Theater $1 (1810)

-Clock $0.125 (1822)

-Annual wages for a physician $500 (1808) This is $8,810 in today’s dollars

-One dictionary cost $0.50 (1797)

-One 12-volume encyclopedia cost $20 (1820)

-One chest of drawers cost $2 (1802)

-Cost to make a coffin $2.50 (1812)
-One cow cost $10 (Charles County, MD, 1804)
-Total cost to build the President’s house for South Carolina College was $8,000 (1806)

-One Pound of Coffee Cost $0.25-$1 in 1800 = $17.60 today

In the early nineteenth century, the United States still has a immature economy. The country’s money supply did not exceed $30 million, which was less than $6.00 per citizen and only $20 million more than the combined amount held between all of the colonies twenty-five years earlier. The price of many goods increased due to the country’s poor infrastructure. It cost $9.00 to ship a ton of goods 3,000 miles from Europe to America. To move the same amount of goods 30 miles from America’s coast inland, it cost the same amount.

1825

: 1825 Blue China

-Ten pounds of sugar cost $0.20 (1822)
-One acre in a tract of land of over 400 acres cost $2.00 (Sumter, SC, 1823)

-Pot $1.00 (1831)

-Stove $18 (1836)

-Pan $.75 (1829)
-One bushel (35.2 liters) of potatoes cost $0.12 (1829)

-Silver watch $8.00 (1834)

-Flower vase 16.5 cents ((1841)
-One set of blue china cost $8.00 (1828)
-One cow cost $12.00 (1829)

-Wagon $27.50 (1831)

-One Pound of Coffee Cost $0.17

The US economy of 1825 was marked by innovation and expansion. The development of canal systems and railroads opened access to the country’s interior and, as a result, mass-produced goods became available to many who lived away from the industrial cities and domestic trade increased. In addition to this, about 100,000 Europeans were immigrating to the United States each year around this time, many of whom were skilled artisans, thereby stimulating the economy greatly.

Vintage 1850 Piano

1850

-One bottle of port cost $0.11 (Greenville County, SC, 1847)
-One piano cost $195 in 1847

-Keg of brandy $3.00 (1859)

-Gallon of whiskey $16.00 (1860)

-Fine hat $2.00 (1860)

-Children’s shoes $0.26 (1853)

-Whale oil gallon $0.44 (1850) (think of it as kerosene or gasoline)

-100 pounds of fish $2.62 (1850)
-A routine doctor’s visit cost $2 (Florida, 1852)
-A new home in Brooklyn, NY cost $2,500 (1853)

-One pound of coffee cost $0.80

-$1 in 1850 = $28.30 today

By 1850, the United States’ economy was doing extremely well thanks to the success of agriculture in the South and manufacturing and commerce in the the North’s. The nation’s population grew about five times its own size from the beginning of the century and, furthermore, labor productivity increased dramatically. Between 1840 and 1860, the country more than doubled its agricultural output. Its mining and manufacturing industries approximately tripled their worth over this time period.

1875

: 1875 Gold Dollar

-A necktie “designed to supersede all other methods for fastening the bow to a turndown collar” cost $0.10
-A dozen pairs of Levi Strauss blue jeans cost $13.50 (1874)
-One pair of shoes cost $0.98 (1875)
-One suit cost $10.00 (1875)
-One opera ticket for “The Marriage of Figaro” cost $1 (San Fransisco, 1875)

-One pound of Coffee cost $0.25

-$1 in 1875 = $20.20 today

Following the Civil War, there was an unprecedented boom in US production compared with. This growth, however, was stalled by the Panic of 1873, a major economic recession. Apart from this downturn, the country underwent rapid expansion as the population over doubled from 1860 to 1890, from 31.5 million to 76 million. Most professions required a 60 hour work week, which paid anywhere between $1.60 per day (a fireman in Massachusetts) to $4.64 per day (a glassblower in New Jersey.)

_________________________________________________________________________________________________________________________________________

1900

: 1904 Oldsmobile

-Milk 1 quart 5 cents (1900)

-Fresh pork, per pound, $0.1475 (1900)

-Fresh fish, per pound, $0.12 (1900)

-Coal miner $.20 per hour (1900)

-Teacher $328 per year (1900)

-Farm labor $247 year (1900)

-Lawn dress $1.50-3.50 (1900)

-Refrigerator $27.50 (1904)

-”Tooth soap” cost $0.25 (1896)
-Board at Clemson College for 40 weeks cost $59 (1896)
-A home on Flatbush Ave in Brooklyn, NY cost $7,000 to $12,000 (1901)
-One Oldsmobile cost $650 (1904)

-One pound of coffee cost $0.15

-$1 in 1900 = $26.40 today

The beginning of the 20th century is known as the Progressive Era. The lower classes got fed up with the abuses of the trusts and the railroad companies and pushed for legislation against corruption and poor working conditions. During this period, the United States continued to see a growth in industry, and thenumber of non-farming jobs increased from 800,000 million to 2.2 million from 1900 to 1920. Similarly, disposable income rose from $20 billion to $71.5 billion.

: 1900 Kodak Brownie Camera

Kodak released its famous “brownie” camera in 1900. It cost $1. The Brownie revolutionized photography, marketing the camera as a photography vehicle for "everyman" and particularly targeting young school children. Film cost only 15 cents and the camera could be loaded in daylight. No longer did photographers need a darkroom, because the film was daylight safe after the photos were shot and the amateur could have the film developed at local photo labs--or they could send the film away to Kodak. Yes, this was before cell phone which took photos.

As a kid I developed film, photos, and all with a normal non-digital camera. I even bought an antique Brownie camera to try it (not so great). The simple development of the concept of photos is a classic element that is difficult to capture in straightforward inflation analysis.

Are photos cheaper to print today on an inflation-adjusted basis. I believe so. More importantly, is the quality, ease, accessibility, and all of the other intangibles better? Unquestionably so. The light meters are embedded in all cameras. The lens quality is exceptional. The immediacy of seeing your results has significant value. The same is true of cars. They last longer, have more features and they are dramatically safer. These intangibles escape the simple inflation analysis.

1925

: 1925 Electric Coffee Percolator Advertising

-Coffee Pot, percolator, Empire pattern, 4-14 cups $4.50-6.00 (1929)

-Heating stove, coal $51 (1928)

-Total annual cost of Cornell University, including living expenses was $1,400 (1927)

-Beef, rib roasts, per pound $0.388 (1925)

-Eggs, dozen $0.629 (1925)

-Cheese, pound $0.374 (1925)

-Milk, quart $0.148 (1925)

-Coal miner $0.72 per hour (19225)

-Average all industries annual salary for workers $1,434 (1925)

-School teacher annual salary $1,299 (1925)
-A Harley-Davidson motorcycle cost $235 (1927)
-A camera cost $80 (1928)

-Shoes, kids shoes Keds converse sneakers $1.25-4.50 (1925)

-Mens fur felt hat $3.45 (1928)

-Women’s bra corset $3.50 (1925)

-Women’s shoes, snakeskin $22.50 (1925)
-A Chrysler Imperial Sedan cost $2,995 (1928)

-One pound of coffee cost $0.47

-$1 in 1925 = $12.20 today

In 1925, America found itself in the midst of the “Roaring Twenties,” which saw a heavy emphasis on rampant business growth and consumerism. In 1925, more than 40 million Americans went to the movies each week, there were 20 million cars on the road, and owning a radio was, for most Americans, as important as owning a television is today.

: Spam Canned Meat Magazine Advertisement

In this year, Chesterfield Cigarettes began marketing to women, and Hormel introduced its first processed meat in a can, which would later be called “Spam.”

Although, many today enjoy mocking Spam, this too is an example of technology enhancement and superior quality for a lower price.

Hormel managed to create a meat product that could easily be transported, stored, and displayed. Spam could sit on your shelf, and without refrigeration, await the meal that you wanted a meat taste--without the time of shopping, preparation, or defrosting.

It became a staple of many homes, at a very reasonable cost.

Spam Canned Meat Advertising

1950

: 1950 Monopoly Game

-Monopoly the game cost $4 (1950)

-Average wage, all industries $3,255 per year (1950)

-Coal miner, annual wage $3,255 (1950)

-Teachers, public school $2,794 (1950)

-Beef, rib roasts, per pound $0.753 (19500

-Cheese, per pound $0.55 (1950)

-Milk, quart $0.219 (1950)

-Eggs, dozen $0.671 (1950)

-Whiskey, Scotch $4.50 (1952)
-One bottle of aspirin cost $0.54

-Men’s shoes, kids $3.39 (1952)

-Women’s dress, $23.00 (1950)

-Hair dryer, $21.50 (1952)

-Refrigerator 17” high $1.98 (1951)

-Vacuum cleaner $14.95 (1954)
-A Chevy Corvette cost about $3,000
-A one-way flight from New York to California cost $88

-One pound of coffee cost $0.79

-McDonald’s hamburger $0.15 (1954)

-$1 in 1950 = $8.91 today

In the 1950’s the American industrial economy was changing after World War II. With millions of American soldiers now back from the war and settling down with the aid of the G.I. bill, as well as the new 40-hour work week resulting from the New Deal, the economy saw the American middle class heavily bolstered, and a mass migration to the suburbs. In 1950, there was one car for every 3.7 Americans and 5 million homes had television sets, with only 45 million still containing radios. In this year, Coke owned 69% of the cola market.

1975

: Apple iie 1975

-Executive secretary $1,200 per month (1977)

-Golfer, Nancy Lopez annual earnings $197,488 (1981)

-Public teacher $11,182 (1975)

-Coal miner $15,924 (1975)

-Farm labor $5,073 (1975)

-Beef, rib roasts $1.77 pound (1975)

-Cheese, per pound $0.77 (1975)

-Eggs, dozen $0.846 (1975)

-Milk, quart $0.416 (1976)

-Mens shoes $10.99 (1975)

-Freezer, 8.3 cubic feet $199.98 (1975)

-Calculator $29 (1975)

-Movie ticket $4 (1975)

-Airplane fare, NY to San Francisco $229 (1977)

-An Apple II computer cost $1300 (1977)
-A six-pack of beer cost $1.49 (1978)
-A microwave cost $168 (1978)
-One movie ticket cost $1 (Chicago, 1978)

-One pound of coffee cost $1.40

-$1 in 1975 = $3.98 today

In in the mid-1970’s, the United States was experiencing one of its worst economic crises since the Great Depression. Oil prices skyrocketed and, in 1978, the price of regular gasoline went above $1.00 per gallon for the first time. In 1975, 120,000 Americans declared bankruptcy and unemployment hit 9.2%. That same year, McDonald’s opened its first drive-thru restaurant.

2000

-A 12 pack of Bud Light bottles cost $8.99 (2003)
-A Samsung 42” television cost $999 (2004)
-One movie ticket in Chicago cost $7.50 (2004)
-One year’s tuition at St. John’s College cost $30,570 (2004)

-One pound of coffee cost $3.54 (2000)

-$1 in 2000 = $1.25 today

When the United States entered the 21st century, the economy was booming thanks to a “dot-com bubble.” Unfortunately, conditions took a turn for the worst as the tech bubble burst in 2001. The period is marked by many other characteristics however, such as the fact that 60% of American households owned a personal computer. 2000 also saw the beginning of the modern “green” movement, and Honda released its first hybrid vehicle.

-Charles B. Stockdale, Michael B. Sauter, Douglas A. McIntyre

Stocks for the Long Run: The Great Inflation Hedge

: Real Return Growth of Stocks: The Inflation Hedge

Somewhere around 1990 I purchased some video tapes (movies before DVD and before iTunes, Vudu, Hula, and Netflix) from Wharton University. I would watch the videos while working out on a Nordic Trac (before so many things), and on the videos was a professor Jeremy Siegel. There are few people with a more distinctive voice, and even rarer was the man to have caught the zeitgeist so perfectly as did Dr. Siegel.

Siegel had been doing research into the history of equity returns and comparing them to bonds and Treasury Bills. The stock market had begun to rise in August of 1982--nearly two years after bonds had begun their historic bull market (like the WSJ, I must mention that rising bond prices means falling bond yields).

Dr. Siegel's conclusion was simple. Stocks--despite the public's perception of their risk--were the safest investment choices over the long run (generally Dr. Siegel was speaking of 20 year periods). Stocks outperformed bonds and Treasury Bills with great consistency.

Most importantly, the real rate of return, which is the return after the subtraction for illusory cost increase due to inflation, average around 6% or higher. This 6% inflation premium was also relatively constant. Dr. Siegel's breakthrough research created equity proxies starting in 1802 and continuing to current day.

He divided this broad history of equity returns into three periods; 1802-1875, 1875-1925 and 1925 to modern day. His first book was published in 1994, just prior to six extraordinary years in the equity market and his has updated the book at least three additional times, I believe.

A study of inflation is fun, but a key purpose of this blog is to attempt to put some frivolous connection to the very serious impacts of inflation, real cost of living standards and the value of our money. This is because of a significant debate within the U.S. currently, on the nature of public policy to end our current severe recession, and the potential impact upon our long-term inflation prospects. I believe much of this debate is purely partisan, but at it's core is a real debate about whether some deflation is better than some inflation, and the proper role of government to end our current recession.

I believe that inflation (above recent experience--so suggesting 2-5%) is healthy and necessary. The average American and in fact most citizens of the current most developed countries (the OECD), have been severely hurt by price deflation, principally in the value of their home. A home that may have cost $300,000 in 2005 and may in fact have a mortgage of $275,000-$300,000, could easily have a value in many markets of $200,000-250,000. Historically, homes are one of the greatest stores of value for middle-class Americans. Yes, without a doubt, the speculation in housing and the ensuing housing inflation over a two-decade period--as well as a general increase in America's total national leverage--is the cause of our current recession. This debt overhang is now greatly suppressing general consumer confidence and spending.

Inflation is not a cure, but moderate inflation, defined as 1-3% over the Federal Reserve targe of 2% inflation, would give consumers greater confidence in wages and home indebtedness, and is in all likelihood, essential to getting our economy moving.

And, by the way, if you are going to invest, and if you learn anything from this inflation primer--invest in stocks, for the long run. Thanks Jeremy, for this great inflation lesson.

via 247wallst.com

http://wdokken.posterous.com/the-history-of-what-things-cost-in-america-17 http://wdokken.posterous.com

The History Of What Things Cost In America: 1776 to Today (247wallst.com)
The History Of What Things Cost In America From 1776 To Today: 24/7 Wall Street (huffingtonpost.com)
24/7 Wall St.'s Corporate Power Rankings: Week 36 (247wallst.com)
24/7 Wall St.'s Corporate Power Rankings: Week 35 (247wallst.com)
The 24/7 Wall St. Fifty Least Trustworthy Companies in America, A Look Back (247wallst.com)

Swiss Billionaire Puts $35M into Montana Conservation: Key to Plum Creek Conservation

Wade Dokken — Sun, 12 Dec 2010 18:09:00 GMT

We often do not connect the dots--between the preservation of our precious state and the reality that those who are attracted to come here to vacation, travel, recreate, and live part of their life, base their decisions on the high quality of our wild spaces and the abundance of our great wildlife resource. Big Sky's luxury buyers are also people who are keenly focused on helping to preserve the wild spaces of their new Montana home; whether that is at the Yellowstone Club, Big Sky, Spanish Peaks or Moonlight Basin.

By MATTHEW BROWN Associated Press

Posted: 12/12/2010 09:36:57 AM PST

Updated: 12/12/2010 09:44:51 AM PST

BILLINGS, Mont.—Philanthropist Hansjorg Wyss grew up in Switzerland and now spends the bulk of his time outside Philadelphia, but it is the wild landscapes of the Rocky Mountains where he could leave his most lasting mark.

In recent years the publicity-shy billionaire has quietly donated tens of millions of dollars to the preservation of pristine areas of Idaho, Nevada, Utah and other states.

Now, what appears to be his most ambitious project to date has come to fruition as conservation groups this month closed a deal to purchase vast tracts of Plum Creek Timber Co. land in western Montana. Backers say the deal—which included $35 million in donations from Wyss—could shield an estimated one million acres from future development.

In an exclusive interview with The Associated Press, Wyss, 75, said he first became enamored of the Rockies as a college student who toured the region in 1958. And he defended his actions against those who chafe at the prospect of an outsider buying up land that in some cases has been logged, ranched or farmed for generations.

"Look, these are beautiful landscapes," Wyss said. "There was controversy when Yellowstone (National Park) was created and when they declared the Grand Canyon as a National Monument. But there are areas in the United States that must be protected."

Wyss's fortune—estimated by Forbes magazine at $6.1 billion—came largely from Synthes, the medical devices company he

ran for three decades and still oversees as chairman.

He has donated to a range of causes, with the largest single gift apparently a $125 million donation two years ago to create a bioengineering institute at Harvard University.

But Wyss said the Rocky Mountains have offered a particular allure since he took a summer job with the Colorado highway department during a break from college.

He went on to Harvard Business School and founded Synthes USA in 1974, returning to the Rockies frequently over the last several decades to hike and climb.

"I know the West like my back pocket," he said.

Lots of billionaires and megamillionaires have come to Montana and decided to claim a piece of it as their own—from media mogul Ted Turner and software entrepreneur Tom Siebel, to former Defense Secretary Donald Rumsfeld, who all bought ranches in the state.

While Wyss has a daughter in neighboring Wyoming, he has never lived in the region. And the land he helped buy in the recent Montana transaction will not become a private estate.

Instead, most of the 310,000 acres of former Plum Creek land are being transferred to the U.S. Forest Service and Montana's Fish, Wildlife and Parks Department. Because the land ownership was "checkerboard"—meaning the private property was interspersed with public parcels—its preservation will keep intact a much larger swath of the so-called Crown of the Continent, a region anchored by Glacier National Park.

The deal is one of the largest private conservation purchases in the nation's history. It was arranged by the Nature Conservancy and the Trust for Public Land and also involved $65 million from the state of Montana and $250 million from the U.S. Department of Agriculture lined up by Montana Democrat Sen. Max Baucus.

Nature Conservancy president Mark Tercek said it might not have happened without Wyss, whose initial $25 million contribution spurred participation from other donors. When extra closing cash was needed, Wyss chipped in $10 million more.

Montana Gov. Brian Schweitzer said he met Wyss several years ago, when the Plum Creek purchase was first suggested by conservation groups.

At a lodge in Condon, Mont., Schweitzer said he told Wyss and other potential donors that their names might not be remembered by future generations, but their work would be.

"Near as I can tell, he (Wyss) is a citizen of the planet that was interested in protecting some of its last best places," Schweitzer said.

Such praise is not universal.

Wyss's foundation has given $1.5 million to the American Prairie Foundation to build a grasslands reserve in eastern Montana where bison can roam free. The project has stirred deep resentment in surrounding agricultural communities, where it is seen as a move to boot ranchers from land they've stewarded for generations.

"The fact that they're coming from all over with these big bucks—who do they think feeds them?" asked Vicki Olson, a rancher south of Malta, Mont. "Their feeling toward us is they don't care that they are ruining our economy and our area."

Wyss said he is not opposed to cattle grazing on public lands, but said it must limited to protect the land from destruction. He said the biggest threat is when ranches are bought by developers, opening the door to residential "ranchettes" and golf courses in environmentally sensitive stream valleys.

As for why he's targeting his money in the American West, Wyss said it was too late to do much good for his native landscape in the Swiss Alps: "Too many ski lifts, too many resorts, too many hotels."

In Montana, he added, there is still room for grizzlies, wolves and other iconic species to thrive.

"In the United States, we have a chance to protect some of them, not only for Americans but for people all around the world to benefit," he said.

Montana's Rep. Rehberg Discusses the Problems of Earmarks

PureWest Blogger — Sun, 12 Dec 2010 18:09:00 GMT

HELENA — Newly empowered congressional Republicans, elected on promises to rein in federal spending and eliminate oft-criticized spending “earmarks,” are working on how to do that while still ensuring local needs are met.

“Congress doesn't need to earmark money to direct it to states if we write funding requirements for programs with greater care,” Rep. Denny Rehberg, R-Mont., wrote on Twitter on Thursday.

Rehberg has been critical of earmarks — the numerous amendments to spending bills that direct money to specific projects — in the latest federal budget cycle, joining other Republicans in abstaining from such requests.

Conservative critics of spending say the incoming Congress could be backsliding on the no-earmarks pledge, and Democrats who support the practice of earmarks say some of the Republican plans amount to earmarks by another name — with possibly with less transparency than in the current system.

“Thanks to the reforms we passed in 2007, all earmarks are public, including who asked for them and who's benefiting,” Sen. Max Baucus, D-Mont., said in a statement. “Unlike other tools legislators can use to deliver for their home states, earmarks force folks to lay all their cards on the table, out in the open for everyone to see.”

Rehberg disputes that claim.

“In fact, it's just the opposite,” he said in a statement. “If you want to spend tax dollars, you ought to have to debate it. Earmarks get buried in huge bills that contain thousands of other earmarks, so the vast majority pass unnoticed. Requiring lawmakers to defend and pass a separate piece of legislation to fund a project in their home state is just good government.”

He also countered an argument by Sen. Jon Tester, D-Mont., that eliminating earmarks gives more control to federal bureaucrats, who have less understanding of states' needs.

“It's an interesting claim, considering that these same establishment politicians then point out that earmarks only make up a tiny part of overall spending,” Rehberg said in the statement. “Are they so eager to cede decisions for the remaining spending? With or without earmarks, Congress should be taking a much more active role in all spending decisions. That's the problem with earmarks; they not only take up a completely disproportionate amount of time and effort, but they sustain the appearance that Congress is controlling spending when in reality it is not. It's intellectually dishonest to say the only way to fund a project is through earmarks.”

Rehberg points to a bill he sponsored directing the Office of National Drug Control Policy to fund methamphetamine prevention.

“It passed the House and Senate and was signed by the president,” he said. “That's precisely how you can fund a Montana priority without an earmark. It's not as easy as an earmark, but it's the right way to do it.”

Both parties claim to have led the charge for transparency in earmarks, and Montana lawmakers have prodded one another to release more information.

Tester recently sent a letter to Rehberg, asking him to reveal all the earmarks he's promoted since entering office in 1985.

Rehberg, who now posts all requests his office receives for earmarks, has challenged Tester and Baucus to do the same. Tester and Baucus post the earmarks they endorse, but not all the requests they receive.

In November, Baucus highlighted standalone bills introduced by Rehberg for Montana projects, calling the bills “loopholes” in the earmarks ban.

Lawmakers of both parties have also directed funds to their constituents another way — by making their case to federal agencies, through letters, phone calls, or invitations to visit key infrastructure. But that practice, often done proudly by the lawmakers, is also under scrutiny from spending critics.

The Washington, D.C.-based Cato Institute, a frequent critic of government spending, attacked incoming House Appropriations Committee Chairman Hal Rogers, R-Ky., pointing to a request he made to get a project in his district included in the health care package passed this year.

“No earmarks? No problem for Hal Rogers. He can just go the time-honored route of policymakers heckling federal agencies for pork,” Cato wrote. “Earmarks represent just one of many ways that parochial-minded members steer benefits to their districts at the expense of taxpayers and the general public good.”

Washington, D.C.-based watchdog Citizens Against Government Waste also had a warning for the new Congress.

“Any move by Republicans to weasel out of the earmark ban or game the system will be seen for what it is, a self-interested, blatant and unnecessary violation of their most important pledge for the new Congress,” said CAGW President Tom Schatz in a press release.

Mark Madoff Commits Suicide: The Aftermath of a Terrible Family Financial Scam

Wade Dokken — Sun, 12 Dec 2010 15:05:00 GMT

I have reprinted this entire article from the Wall Street Journal. It is unfathomable to you or I the pain that must be felt by Bernie Madoff's victims--to wake up one day and realize that your entire financial plan is a mirage--all your savings evaporated. My six degrees of separation is three degrees. A very good friend is in the business of placing money with hedge fund managers. He could not get capacity to place money with Bernie Madoff--and I can't remember how hard he tried. In his town of Fairfield, Connecticut, another family was in the same business and could get hundreds of million of capacity in Bernie Madoff's fund.

They and their investors have been wiped out, like everyone Bernie's criminal activity.

Today it is his own son. Dead from suicide. i don't know if he was complicit or not complicit. Others will determine this in due time, but regardless, so tragic.

Some in our local area would categorize Tim and Edra Blixseth, or perhaps Tim Blixseth, in the same role as Bernie Madoff. This is our Big Sky Luxury home version of Madoff's New York hedge fund life. In this case it was largely the bankers from Credit Suisse who play the role as "fleeced" investors. They hardly elicit the same level of sympathy, so the the story-lines fail to connect.

I'm not in a position to make that comparison. However, I know that the economic devastation has touched so many, and in this instance many at Big Sky who own homes or owned homes, and the businesses that revolve around the resort, the building of new homes and the tourism which drives our economy.

There seems little doubt that luxury homes have now severely over-corrected. The purchases are in some cases less than construction value and the land is free. This will not continue. Our nation is growing, both in population and wealth. We have recovered much of the wealth lost, and our recovery is still in the nascent stages.

This era will reside with our memories always, framed by names such as Madoff, the banks and other players who all seemed to make so much leading up to the fall.

By JAMIE HELLER and JOANNA CHUNG

Reuters

The Mess He Made: Bernard Madoff orchestrated the financial fraud of the century.

Two years ago, Bernard Madoff told his two sons that his multi-billion-dollar investment business was "one big lie," according to authorities.

That dramatic confession, and Mr. Madoff's arrest the next day, unleashed one of the biggest fraud investigations in history. He is now serving a 150-year sentence in a North Carolina federal prison.

Otherwise, the wheels of justice have turned slowly. Though some victims have recovered money, as a group they haven't seen much redress. Of seven people arrested besides Mr. Madoff, five were lower-level employees of his firm. The most senior figures charged have been his his lieutenant and his accountant.

THE MADOFF FRAUD: 2 YEARS LATER

Irving Picard, the court-appointed trustee recovering assets for the victims, this week filed a rash of lawsuits seeking funds from people or firms he alleges were close to the scheme or unwittingly profited at the expense of others.

On Friday, he sued Austrian banker Sonja Kohn, her relatives and related entities for $19.6 billion, the largest suit he's launched to recover money for victims of the decades-long fraud.

On this second anniversary of Mr. Madoff's arrest, nearly every life touched by the scandal has in some way been upended. Many of his victims remain bitter; one calls December 11, 2008, when the fraud came to light, "the day I lost my life."

Mr. Madoff's family is having trouble adjusting to life after his disgrace, with one son getting into a fist-fight after being accosted by a former employee on the street. As for the imprisoned Mr. Madoff, says his lawyer, Ike Sorkin: "Under the circumstances, he's O.K."

Here is a look at how others from Bernard Madoff's world are faring in the wake of the fraud of the century:

Ruth Madoff

In the hectic days after Bernard Madoff's fraud came to light two years ago today, his wife, Ruth, was constantly trailed by paparazzi and television crews. She was shown venturing from their Upper East Side apartment on visits to the grocery store or to the federal jail in lower Manhattan where her husband was held for a time.

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Associated Press

Ruth Madoff

Since he was sentenced in June 2009, Ms. Madoff, 69, has tried to stay out of the glare. It is important to her husband that she not be hounded by the stigma of his crime, people familiar with her situation said.

Ms. Madoff was allowed to keep about $2.5 million in cash in an agreement with federal prosecutors last year, in exchange for giving up her claims to about $80 million in assets held in her name. She also was given back her passport, which she had surrendered as part of her husband's bail package.

According to a person familiar with the matter, federal investigators last year concluded there was no evidence that she actively participated in or concealed her husband's fraud. Mr. Picard, the court-appointed trustee, sued Ms. Madoff last year, seeking $44 million. There have been discussions to possibly settle the case, Mr. Picard said in an October report, but no resolution has been announced.

In January, Ms. Madoff registered a 1996 white, four-door Infiniti G20 Touring in Florida, listing her sister's home address in Boca Raton, Fla., as her mailing address. The New York Post reported this summer that she was living in Florida with friends and relatives and delivering meals to people who are homebound. A call to her sister's home wasn't returned.

— Chad Bray

Peter and Shana Madoff

Peter Madoff, Bernard's 65-year-old brother and the former chief compliance officer at the firm, is not working; today he spends most of his time in the New York area between a home in Old Westbury on Long Island and a Manhattan apartment on Park Avenue, a person familiar with the matter said. Most of his assets are frozen pending the outcome of litigation.

Peter Madoff's attorney said in a January court filing as part of a civil lawsuit in New Jersey that he is under criminal investigation. In a deposition for the suit, filed by the Lautenberg Foundation and members of the family of Sen. Frank R. Lautenberg (D., N.J.) for investment losses, Peter Madoff cited his Fifth Amendment right against self-incrimination more than 250 times.

Peter Madoff's lawyer, Charles Spada, said in an email: "Peter Madoff had no knowledge of Bernard Madoff's Ponzi scheme and for the past two years has suffered enormous, irreparable harm from the consequences of his brother's fraudulent conduct." He added: "Peter's wife lost millions of dollars that had been invested with his brother and any suggestion that Peter was aware of his brother's fraud is absurd."

Shana Madoff, Peter's daughter, who was a compliance lawyer at the Madoff firm, lives with her husband and two children in a lower Manhattan apartment and isn't working either, a person familiar with her situation said. "She's doing pretty well, she's adjusting to a different life, and being a stay-at-home mom," the person said.

With her father and others, Ms. Madoff, 40, is fighting a suit filed a year ago by Mr. Picard seeking about $200 million in what he said were ill-gotten gains. He has alleged that Ms. Madoff and her father were derelict in their compliance duties.

Her lawyer, Mark W. Smith, didn't respond to a request for comment. He has previously said she has done nothing wrong and was unaware of the fraud.

— Michael Rothfeld

Mark and Andrew Madoff

(UPDATE: Mark Madoff was found dead Saturday of an apparent suicide, according to law-enforcement officials.)

Bernard Madoff's two sons are adjusting to a world that no longer revolves around their charismatic father.

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Gregory Mango

Andrew Madoff

Mark Madoff tried unsuccessfully for a few months to get a job in trading, then turned to working to develop new applications for iPads, according to one friend who spoke with him earlier in the year.

Andrew Madoff is working with his fiancée, Catherine Hooper. His title is head of operations at Black Umbrella, a consulting firm Ms. Hooper started after the Madoff scandal broke to help families prepare for emergencies. He mainly stays behind the scenes and doesn't deal with clients, said a person familiar with the company.

Last year, Mark and Andrew were sued by one of their former employees over bonus money he said he lost because of the Ponzi scheme. When Andrew Madoff ran into that individual, the former trader insulted Mr. Madoff and the two men scuffled, according to a person familiar with Mr. Madoff's version of events. Andrew Madoff punched the former employee the face, according to the person. A lawyer for the former employee didn't respond to a call for comment.

Mark Madoff, 46 years old, lives in Manhattan's Soho neighborhood with his wife, Stephanie, who changed her last name from Madoff to Morgan after Bernard Madoff's arrest. The couple bought a $6.5 million home in Nantucket, Mass in mid-2008. It's currently for sale, according to a person familiar with the sons' finances.

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Getty Images

Mark Madoff

"Mark remains unalterably bitter about his father's deception and the injury his father has caused," said a spokeswoman for the two men. "Andy was also deeply impacted by his father's deception."

Neither has talked with his father or mother in two years, mostly out of personal choice and also because of legal sensitivities, a person familiar with the matter said. Mark Madoff recently has been using an email address that doesn't include his first or last name, a friend noted.

This week Mr. Picard, the trustee, sued children of Andrew and Mark, alleging that Ruth and Bernard Madoff transferred funds to them. A spokesman for Mark and Andrew and their wives declined to comment, as did Mark Madoff's ex-wife.

Andrew Madoff, 44, cycles about 125 miles each week in and near Manhattan, according to a person familiar with the matter. He's separated from his wife, Deborah Madoff, who filed for a divorce around the time the scandal broke. That proceeding has been held up by legal complications from the Bernard Madoff Ponzi scheme, according to people who have been in touch with the family.

Andrew and Mark, who were trading executives at Bernard L. Madoff Investment Securities LLC, say they didn't know about the fraud. Both were sued by Mr. Picard, the court-appointed trustee recovering assets for Mr. Madoff's investors. A lawyer for the brothers has called the complaint baseless and has sought to have it dismissed.

The brothers have agreed with Mr. Picard not to transfer or sell certain assets.

The Wall Street Journal reported in February that federal prosecutors in Manhattan are pursuing criminal tax-fraud cases against the two sons. No charges have been filed. A spokeswoman for the U.S. attorney's office has declined to comment.

— Aaron Lucchetti

J. Ezra Merkin

J. Ezra Merkin—art collector, former chairman of GMAC and the financier behind funds that funneled over $2 billion of charities' and other investors' money into the Madoff scheme—is mired in litigation.

Civil suits brought by the New York Attorney General and investors in his funds allege that he placed the bulk of the funds' money with the Madoff firm without investors' knowledge.

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Associated Press

J. Ezra Merkin

This week, in the attorney general's case, Mr. Merkin's lawyer filed reams of documents and correspondence between Mr. Merkin and his clients in an attempt to show that some knew his funds were largely "feeders" to Madoff. Mr. Merkin is also engaged in settlement discussions with the attorney general, said a person familiar with the matter.

"This has been a horrendous two years for Mr. Merkin and his family," said Mr. Merkin's attorney Andrew Levander. "He continues to do what he can to maximize the remaining assets for his investors and hopes someday to put this all behind him."

Mr. Merkin still lives at his duplex at 740 Park Avenue—the storied Manhattan apartment building that was the girlhood home of Jacqueline Kennedy Onassis and has boasted high-profile residents such as ex-Merrill Lynch chief executive John Thain and designer Vera Wang.

Last summer, he sold his massive collection of Mark Rothko paintings and Alberto Giacometti sculptures for $330 million, money that may help pay back investors, depending on the outcome of litigation. Authorities secured a freeze on Mr. Merkin's assets, including those funds, last year.

Mr. Merkin is no longer the president of the elite Fifth Avenue Synagogue on New York's Upper East Side. Members of his Jewish community still value his input on philosophical questions, said people who know him.

He's also been spotted dining out for lunch at the famed eatery Michael's with hedge fund manager Bill Ackman, and he attended financier and philanthropist Michael Steinhardt's 70th birthday party last Saturday at the Four Seasons restaurant. Mr. Steinhardt, who lost about $2 million through his investment in one of Mr. Merkin's funds, said he sees Mr. Merkin about once a month.

"He feels great remorse in a lot of ways," said Mr. Steinhardt. "Whatever happens in the future, this will be a permanent scar and there is very little he can do about that."

— Liz Rappaport

The Cohns

Maurice "Sonny" Cohn, his daughter, Marcia Cohn, and their firm, Cohmad Securities Corp., drew a lot of attention after Mr. Madoff's arrest.

The firm got paid more than $100 million for referring investors to Madoff, according to the Securities and Exchange Commission. It also had multiple links to the Madoff operation. Messrs. Cohn and Madoff were longtime friends. Cohmad shared office space with the Madoff firm. Mr. Madoff partly owned Cohmad, which represented a combination of the two families' names.

Recently, the Cohns came close to putting the scandal behind them. Without admitting or denying wrongdoing, they agreed to settle in November with the SEC over allegations of negligence in making statements to potential Madoff investors as well as not keeping accurate books and records. They agreed to refrain from violating certain securities laws. The SEC is considering steps that could include a suspension or bar from the securities industry, a spokesman said.

"The Cohns have decided that resolving this matter with the SEC and avoiding lengthy litigation is in the best interest of their family," said Steven Paradise, their lawyer.

Mr. Paradise pointed out that the SEC didn't allege in its amended complaint that the Cohns sought to deceive anyone or knowingly participated in the Ponzi scheme. Earlier, a judge had dismissed the SEC's civil fraud allegations against them.

Cohmad has stopped doing business. Ms. Cohn now lives in Miami with her three Shih Tzu dogs and trades commodities for her own account, people familiar with her activities say. She has looked for jobs, but has yet to land anything, one of these people said. Mr. Cohn splits time between Long Island and Florida and spends time with grandchildren, the person said.

— Aaron Lucchetti

Harry Markopolos

Many of those caught up in the Madoff affair came out with their reputations ruined or their wallets thinner.

Not Harry Markopolos.

PRNewsFoto

Harry Markopolos

Before the Madoff Ponzi scheme came to light, Mr. Markopolos was an unknown, and very frustrated, financial-fraud investigator living outside Boston. He had all but given up hope that the SEC would take action against Mr. Madoff, despite warning officials there for years that Mr. Madoff was a fraud.

That all changed when Mr. Madoff confessed his scheme. Mr. Markopolos became a star, a symbol of the inability of regulators to police financial markets. He testified before Congress about ways to improve the SEC, was interviewed by CBS's "60 Minutes" program, and became a hot ticket on the lecture circuit.

Though he once disavowed any interest in book or movie deals, Mr. Markopolos has since written a best-selling book, "No One Would Listen," and is the focus of a soon-to-be-released documentary.

Mr. Markopolos is also back to chasing financial crimes. He says he's brought two cases to the SEC and is working on others. If the SEC takes action, he might receive a reward from the agency's post-Madoff whistle-blower program.

"This is not the same agency as two years ago—the SEC is back," says Mr. Markopolos. "Now the government actually takes me seriously."

— Gregory Zuckerman

Howard Siegel

More than a decade ago, Howard Siegel wanted into the Madoff funds.

The lawyer and accountant was approaching retirement, and the steady returns Mr. Madoff was so famous for were just the kind of investment he sought.

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Alexia Fodere for The Wall Street Journal

Howard Siegel supports tax relief for victims such as himself.

Through a friend, Mr. Siegel tried to get into Madoff directly. But like many who approached the firm, he was rebuffed. He turned to an asset management company that connected him with a fund that was substantially invested with Mr. Madoff, known as Beacon Associates. Mr. Siegel, now 70, signed on.

On Dec. 11, 2008, he returned to his home in Palm Beach Gardens, Fla., to four phone calls from friends who knew he was with Mr. Madoff.

Thus began a legal odyssey that continues today. Managers for the Beacon fund first told investors they aimed to close and liquidate by summer 2009, with the non-Madoff assets being available for distribution then.

Then they sought court approval for what they believed to be the correct methodology for distributing those assets, a matter that continued through this summer, when a magistrate judge approved that approach.

Mr. Siegel got a check for his share of non-Madoff assets in the fund. But some funds are set aside in case of any litigation with Mr. Picard. This week Mr. Picard sued the fund.

Mr. Siegel supports a lawsuit that aims to hold the SEC responsible for Madoff investors' losses, as well as proposed tax legislation aiming to ease the burden on Madoff victims.

He's also a vocal advocate of Mr. Picard's view that recovered assets should go to investors who put in more than they withdrew, rather than to "net winners" who withdrew more than they put in. Says Mr. Siegel: "It's a matter of fair play."

— Jamie Heller

Harry Pech

In the years before Bernard Madoff was exposed, December 11 was the day Harry Pech celebrated his granddaughter's birthday. Now, he calls it "the day I lost my life."

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Rob Bennett for The Wall Street Journal

Harry Pech, who owns an exterminating company, is being sued by the trustee to repay "fictitious profits."

"I have a good day and a bad day forever," said Mr. Pech, 68 years old, an exterminator in Brooklyn, N.Y.

The account Mr. Pech had in Bernard Madoff Investment Securities with his son held $874,000 at the time of the Ponzi scheme's collapse, they thought. But Mr. Picard denied their claim.

Instead, in a lawsuit filed on Dec. 2, Mr. Picard demanded that the Pechs repay other victims $642,000, the amount he says they withdrew from the Ponzi scheme above their initial investments.

That makes them "net winners," says Mr. Picard. He has demanded that such investors must repay what they earned in "fictitious profits," instead of having their final account balances honored.

"Here is a guy who lost everything two years ago," said Mr. Pech's lawyer, Barry Lax. "And on the two-year anniversary of the money that was stolen from him, he is being sued by the trustee. It's just insult to injury."

Mr. Picard's stance toward net winners has been approved by a federal bankruptcy judge. That decision is on appeal.

Mr. Pech said he got into Madoff in the early 1980s, because a friend's father was an early investor. He said much of the money he withdrew went to his wife in their divorce settlement, and her sister and others who had invested money through his account.

He says if he repaid, he wouldn't be able to meet his mortgage. Most of all, he resents still having to work, climbing up and down stairs.

"I can't do things I used to do," he said. "I would go and travel and eat and go to the best restaurants, because I always had that as a back-up. When you have a million dollars there and all of a sudden it's gone, then what do you do?"

— Michael Rothfeld

Washington Post Lambasts Montana Senator Max Baucus

Wade Dokken — Sat, 11 Dec 2010 22:04:00 GMT

By Steven Pearlstein

Washington Post Staff Writer
Thursday, December 9, 2010; 10:45 PM

Like it or hate it, one thing you can say about the tax deal that President Obama struck with Republicans is that it sure beats the one hammered out by Democratic leaders in Congress. That's because Democratic leaders never actually produced one that had a chance of being enacted.

For that, of course, Democratic leaders blame Republicans. They blame the Senate rules. They blame the president. They blame uncooperative colleagues. They blame everyone but themselves - not just for this, but for Congress's overall inability to tackle pressing problems.

So it should be no surprise that when the new Congress takes office next month, the lineup of Democratic leaders in both chambers will be pretty much the same. Why shake things up when everything is going so well?

For my money, there's no better example of the failure of the Democratic leadership than the chairman of the Senate Finance Committee, Max Baucus - and, in particular, his performance on the president's deficit-reduction commission.

It's a mystery that Max was appointed to the panel in the first place, given that he had led the fight against its creation. His beef was that by establishing a mechanism that required Congress to vote up or down on an austerity plan it couldn't amend, lawmakers were turned into mere bureaucrats. More to the point, it also threatened Max's power and prerogatives as Finance Committee chairman. So when Senate Majority Leader Harry Reid chose Max for one of his three slots on the commission - bowing, as Reid always does, to Senate hierarchy and tradition - he had to know that Baucus would vote against any plan that might emerge.

Max did not disappoint. According to panel members and staff, Max had one of the commission's worst attendance records and contributed little to formal or informal discussions. In talks with the commission chairmen, he declined to say what he would need to see in any final report in order to vote for it.

Perhaps most telling was Max's contribution to the debate over what to do about looming shortfalls in Social Security. Never mind cutting benefits or increasing the retirement age. His solution was simple and painless: a crackdown on waste, fraud and abuse.

While Max's vote against the plan surprised nobody, even commission members were surprised by his ludicrous explanation that it was bad for rural America. Of particular concern to the senator from Montana were a proposed 15-cent increase in the gas tax, cuts in farm subsidies and the transfer of coal mine cleanup funds from Western strip-mine states to Pennsylvania and West Virginia.

While voters and politicians from rural states talk a good game about cutting the government down to size, it turns out they are the biggest beneficiaries of the federal tax-and-spend machine. The conservative Tax Foundation calculates that the most rural states receive somewhere between $1.50 and $2 in federal spending for every dollar of federal taxes they pay; urban states receive 60 cents to 90 cents. But never mind the facts - Max was not going to stand by while rural America was forced to share in budget-balancing sacrifice.

And what was Max's solution to the deficit problem? "We need to look for common-sense ways to help businesses create jobs and grow our economy." Alone among serious policymakers in Washington, he still thinks we can grow our way out of the deficit.

There are two possibilities. One is that Max is so parochial that he can't get behind anything that might jeopardize his popularity with the Montana Cattlemen's Association or the Billings Chamber of Commerce. In that case, he has no business chairing a committee that handles issues of national and international significance.

The more likely possibility is that he played the rural card simply as convenient political cover for his real motive, which was to prevent any challenge to his own authority. In that case, he has revealed himself as too petty to be a serious national leader.

It is telling that Max was the lone senator on the commission in voting against the deficit plan. Democrats Dick Durbin, the majority whip, and Kent Conrad, chairman of the Budget Committee, along with Republicans Tom Coburn, Mike Crapo and Judd Gregg, all managed to see beyond their personal objections to keep the process alive. So did John Spratt, the Democratic chairman of the House Budget Committee.

Max's defenders like to point out the splendid job he did last year shepherding the final health-reform bill through the Senate. My recollection is a bit different. Max wasted four crucial months that summer in seemingly endless discussions with two Republican members of his committee who never could say what they wanted, were never going to bring other votes and, in the end, could not withstand pressure from their caucus to vote yes. Significantly, it was during those four months of rope-a-dope that the bill's opponents were able to undermine public support enough that it took heroic efforts by the White House to push it to final Senate passage.

Max's other famous bout of dealmaking came in 2001, when George W. Bush was trying to push his famous tax cuts through the Republican Congress. The first member of the Senate Finance Committee to break from unified Democratic opposition was none other than its ranking member, Max Baucus. It was, therefore, a bit ironic Saturday when Max took the Senate floor last to lead the Democratic effort to prevent extension of the very same Bush tax cuts for upper-income households. That effort failed as well.

It is a fantasy to think that Democrats will be able to rebound from this year's election losses without coming up with a credible effort at deficit reduction and tax reform. And it is no less a fantasy

Case-Schiller Announces Broad-Based Home Decline in 3rd Quarter--Big Sky Prices at 2003 Levels

Wade Dokken — Fri, 10 Dec 2010 18:53:00 GMT

New York, November 30, 2010

Home Price Indices, the leading measure of U.S. home prices, show that the

U.S. National Home Price Index declined 2.0% in the third quarter of 2010, after having risen 4.7% in

the second quarter. Nationally, home prices are 1.5% below their year-earlier levels. In September, 18 of

the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were

down; and only the two composites and five MSAs showed year-over-year gains. While housing prices

are still above their spring 2009 lows, the end of the tax incentives and still active foreclosures appear to

be weighing down the market.

The chart above depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City

Composite Home Price Indices. The S&P/Case-Shiller U.S. National Home Price Index, which covers all

nine U.S. census divisions, recorded a 1.5% decline in the third quarter of 2010 over the third quarter of

2009. In September, the 10-City and 20-City Composites recorded annual returns of +1.6% and +0.6%,

respectively. These two indices are reported at a monthly frequency and September was the fourth

consecutive month where the annual growth rates moderated from their prior month’s pace, confirming a

clear deceleration in home price returns. The 10-City Composite posted a +1.6% annual growth rate in

September, versus the +5.4% reported four months prior in May, and the 20-City Composite was up

0.6%, versus its +4.6% May print.

“Another weak report; weaker than last month. The national index is down 1.5% from the third quarter of

last year and 15 of 20 cities are down over the last 12 months. Other than Tampa, FL, there are no new

lows this month but many analysts will argue that a double dip will be confirmed before Spring.

While some of the bad numbers may reflect the end of the government’s tax incentive for first time homebuyers, there are other problems weighing on the housing market.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. “The national economy is certainly the number one issue for

housing. Additionally, there is a large supply of houses on the market and further, hidden, supply due to

delinquent mortgages, pending foreclosures or vacant homes. New construction is running at less than

half the pace needed to meet normal demand, so a sustained recovery could be a ways off.”

“Looking deeper into the data, in the monthly indices, 18 MSAs and both Composites were down in

September over August. This is worse than August when 15 were down month-to-month. The only two

which weren’t down in September were Las Vegas, which managed to stay a touch above the low set in

July, and Washington DC. Overall, there are few, if any, good numbers in this month’s data.”

The chart above shows the index levels for the U.S. National Home Price Index, as well as its annual

returns. As of the third quarter of 2010, average home prices across the United States are at similar levels

to what they were in the middle of 2003. The 2010 third quarter values fell by 2.0% over the second

quarter, with a corresponding annual rate of return of -1.5%. Since its 2009 Q1 trough, nationally home

prices have only grown by +4.9%.

From their peak in June/July of 2006 through the trough in April 2009, the 10-City Composite is down

33.5% and the 20-City Composite is down 32.6%. Through September, they have recovered by +7.2% and +5.9%, respectively. The peak-to-date figures through September 2010 are -28.7% and -28.6%,

respectively.

Both the 10-City and 20-City Composites saw slower annual growth. The 10-City Composite was up

1.6% in September, versus +2.5% in August, and the 20-City Composite was up 0.6% in September,

versus August’s +1.7%.

Looking at the monthly statistics, both the 10-City and 20-City Composite were down in September over

August, by -0.5% and -0.7%, respectively. Eighteen of the 20 metro areas declined in September

compared to August – Las Vegas was up 0.1% and Washington DC was up 0.3%. Washington has shown

the most resilience against the recent contraction. It has been up for six consecutive months, beginning

in April. Thirteen of the MSAs were down by 1.0% or more in September, with Cleveland posting the

largest decline of 3.0%.

The table below summarizes the results for September 2010. The S&P/Case-Shiller Home Price Indices

are revised for the 24 prior months, based on the receipt of additional source data. More than 23 years of

history for these data series is available, and can be accessed in full by going to

Data through September 2010Since its launch in early 2006, the S&P/Case-Shiller Home Price Indices have published, and the markets

have followed and reported on, the non-seasonally adjusted data set used in the headline indices. For

analytical purposes, Standard & Poor’s does publish a seasonally adjusted data set covered in the

headline indices, as well as for the 17 of 20 markets with tiered price indices and the five condo markets

that are tracked. A summary of the monthly changes using the seasonally adjusted (SA) and nonseasonally adjusted (NSA) data can be found in the table below.

The S&P/Case-Shiller Home Price Indices are published on the last Tuesday of each month at 9:00 am

ET. They are constructed to accurately track the price path of typical single-family homes located in each

metropolitan area provided. Each index combines matched price pairs for thousands of individual houses

from the available universe of arms-length sales data. The S&P/Case-Shiller National U.S. Home Price

Index tracks the value of single-family housing within the United States. The index is a composite of

single-family home price indices for the nine U.S. Census divisions and is calculated quarterly. The

S&P/Case-Shiller Composite of 10 Home Price Index is a value-weighted average of the 10 original

metro area indices. The S&P/Case-Shiller Composite of 20 Home Price Index is a value-weighted

average of the 20 metro area indices. The indices have a base value of 100 in January 2000; thus, for

example, a current index value of 150 translates to a 50% appreciation rate since January 2000 for a

typical home located within the subject market.

These indices are generated and published under agreements between Standard & Poor’s and Fiserv, Inc.

The S&P/Case-Shiller Home Price Indices are produced by Fiserv, Inc. In addition to the S&P/CaseShiller Home Price Indices, Fiserv also offers home price index sets covering thousands of zip codes,

counties, metro areas, and state markets. The indices, published by Standard & Poor's, represent just a

small subset of the broader data available through Fiserv.

For more information about S&P Indices, please visit www.standardandpoors.com/indices.

PureWest - Wade Dokken Observations

Michael Burry: Famous for "Big Short" Moves Into Farmland

Great Depression vs. the Great Recession: Comparing Two Great Economic Downturns

Global output

World trade

Equity markets

What do the new data tell us?

Start of first update (published 4 June 2009); original column (published 6 April 2009) appears below

Start of original column (published 6 April 2009)

Comparing the Great Depression to now for the world, not just the US

It’s a Depression alright

Policy responses: Then and now

Conclusion

References

Interest Rates are at Historic Low: 10 Year Treasury at 50 Year Low Levels

Fareed Zakaria's" Restoring the American Dream

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