2/9/2009
By Charles Payne

More Articles by Charles Payne

The Fuel of Self-Belief

Learning What Not To Do FromThe Europeans

Respect Yourself

Text of Charles' speech from Saturday at "Mind Your Own Business" in Costa Mesa, CA

I wanted to start this speech off with a pithy comment like "here we are at the crossroads", but that might not be dramatic enough because while there is an unusual fork in the road with many paths, all seem to be pointing to falling off a cliff.  Robert Frost had the choice of taking the road not traveled, but in his famous poem it was a leafy option where the only risk was the unknown.  The risk facing the nation now is a little direr.  On one hand, everyone agrees that stimulus is a worthwhile pursuit while few agree on what is stimulating.  Moreover, there is serious disagreement over what is urgent. There is little argument, however, that something has to be done.  Unfortunately, the toughest decision will be what pork gets cut and what pork makes the final plan.  Knowing Congress and a blank check, it's likely that most of the stuff that is obviously egregious will be cut for now but replaced with spending that is equally asinine. 

Therein lies the problem...the stimulus plan is mostly a spending plan even after the late night compromise that now lifts tax cuts to as much as 42% of the plan.  While it will line a few pockets, because it always does, I'm not sure that it's going to be bold enough to pull the nation out of its tailspin.  Having said that, the nation will come out of this economic tailspin at some point, as long as we don't take the road of socialism which smacks of self-defeatism and yields to the temptations of politics of envy and class warfare.  They say that the measure of a man is the actions taken during a crisis.  The measure of our nation will be whether we disintegrate under internal pressure and a need for a pound of flesh.  We are going to have to resist:

• Undermining capitalism in an effort to punish and not to make the system work better
• Go into a shell through protectionism
• Panic if things don't improve as fast as we'd like...there will be pain
• Being unrealistic...we are going to be on fossil fuels for decades, we live in a dangerous world and need a strong defense, our education needs beefing up from kindergarten on through twelfth grade

There was the World According to Garp and there is America According to Payne:

The way I see it, America is a big-hearted and arrogant country that got caught flat-footed and has become a victim of its own success.  While many people make the comparison of America and Rome, I see some similarities, but mostly with the demise of the world's first great republic.  Their double whammy that led to the fall was a sense of comfort that all roads led to Rome.  It meant great financial opportunities, but as its military vigilance faded Rome's enemies were able to take advantage of those very same roads.  Then, there was the sense of entitlement that came from an entre nation that was well-off by global standards.

And then there was greed, which no doubt played a role in the demise of Rome whose wealthier citizens frequently partook in dinners that involved eating so much food and drinking so much wine the diners would have to throw up at the table to make room for the additional wine, pheasant, wild boar, and other delicacies.  While all this revelry was going on, slaves sat under tables and cleaned up the spew.  I don't think that America got anywhere near that level, and the fact is there are super rich around the world that engage in behavior that suggests a serious question and answer period with Saint Peter one day.

Just so we get it straight the super-wealthy are different from me and you no matter what country they live in.  There is a guy in India building a 60-story home on the outskirts of a town that has one of the poorest urban populations on the planet.  Mukesh Ambani will live in the tower with his wife, three children, mother, along with 600 servants/employees.  I'm sure that they will not be throwing up in the joint but the spirit of decadent Rome lives in the same town that brought us the movie "Slum Dog Millionaire."  

The point is that this stuff happens and it's not unique to America. 

Yet, there is a legitimate beef in this country with respect to the super wealthy and the plight of the middle class that has masked the otherwise success of the middle class.  When people make more money than their parents, grandparents, and great grandparents but feel less successful because they hear stories of people making more in a day than they make in a year, it is a shame.  It's really sad when a family has a roof over their head, a car, flat screen televisions, the children play on the hockey and baseball teams, and their neighborhood is safe and yet the breadwinners feel like losers.

The reason for this comes from the media's relentless pushing of an ideology that has always been at odds with capitalism, basic human jealousy and the person in the mirror that has allowed envy to mitigate what should be self satisfaction. The public mood has gone way beyond unjustified personal disappointment at this point; now the masses want to act to punish others.  It may be a crime against God to own a 60-story home but for the most part, it's not illegal and should never be illegal.  I don't subscribe to the theory that successful people only get that way through exploitation of the less fortunate.  The vast majority of people that rise up and enjoy success have coattails that bring others along for the ride.  If I focus on what Bill Gates has I may never adequately appreciate my own story and my children may never see the pride in my eyes that once came from a man just being able to bring home a bag of groceries and get a hot meal on the table.

Still, there are many that want to strip Gates and others in his economic bracket of their wealth because they feel it's too much for any single person to have.  While it may make people feel better if the government took all of Bill Gates' money, would that change the financial situation of anyone in the crowd?  Likely it wouldn't, and yet anger and envy, so thick in the air, makes for a potent Molotov cocktail that could explode and destroy our way of capitalism.  That would mean a major blow to one of the foundations of our greatness.  I'm worried that this kind of thinking could make matters worse as we pass regulations designed to punish and erect barriers to business designed to hurt and promote animosity against success while promoting mediocrity.
 
Of course, we need to revamp the regulatory bodies if for nothing else to make sure they are enforcing rules that already exist.  As for greed, it always eventually feeds on itself.  Right now, the average CEO makes 344 times what the average worker makes.  Two years ago it was 411 times more, and believe it or not the number peaked in 2000 at 525 times.  However, it wasn't a reflection of George Bush because it followed a trend under Bill Clinton that saw the number start at 142 times when he became President and ratchet higher each year.  The fact is that as the nation did better, the stock market did better; CEOs made more...much more.  My goal for this country is not to hammer the upper-end of the range lower in a bid to extract some kind of cosmic justice but instead get the bottom end of the economic ladder higher.  Somehow the average worker has to get into the stock market the same way that CEOs are in the market, with stock options and bonuses and taking a proactive view.  In other words, just buying and holding until the cows come home is a faulty strategy.  If you haven't learned by now that you must pay attention to your personal stock market holdings at least four times a year or suffer the consequence of being fooled and abused over and over again.  The point is that while each year Forbes Magazine come out with its list of the 400 richest Americans some folks use it as a lightening rod for greed (others like me use it as inspiration), the fact is the majority of these people are on the list because they started their own businesses and took them public.  I can relate to the animosity over someone born with a silver spoon never having to work a day in their lives, but millionaires in this country are overwhelmingly self-made.

By the way, the next salvo in the move to socialize the nation will come in the form of rules that make companies more accountable to the public than employees, management, or shareholders.  Talk about dissuading risk-taking.  I don't buy the notion of public/private corporations that work for the greater good, but I know it's coming from the White House soon and the longer the recession the more folks will jump on the bandwagon.  I believe that corporations should be good citizens, but they're goal should be to make money for shareholders and provide quality salaries and working conditions for employees.  It would be wise for corporations to make sure employees were shareholders, too.

On that note, the boards have to get much better.  Without a doubt they are shams that rubber stamp salaries and dumb decisions.  There is no place in any competitive environment for cronyism, elitism, favoritism, racism, and there is just a tiny place for nepotism (you could give the nephew a job but don't put him in charge of anything). 

I say let's get the pay of the average worker higher.  I'm not talking higher minimum wage or protecting jobs that are paying salaries that are simply too high for the end product to be competitive in the free market.  With that in mind, we must focus on education of adults with more than so-called "job banks" but with real multi-year educations.  (By the way, the educational stocks, Corinthian Colleges, Apollo, ITT, and Devry have been on fire.)  It does no good for high school dropouts or folks that lack advanced degrees to press their noses against the glass of opportunity looking in as foreigners grab those plum jobs.

The skill sets required of these good jobs will not change no matter how loud the demands of folks that wonder why they can't get a shot.  I've spoken to young high school dropouts that say they wouldn't work in McDonalds (MCD) because it is beneath them.  These are the same people that will vote on rules for greater redistribution of wealth that others worked hard to attain.

In the meantime, we can't let that jealousy or xenophobia stop the best and brightest from around the world from bringing their genius to America.  On that note, that same open door will also bring people whose main skill set is a hunger that most Americans cannot relate to.  It's rather odd that many Americans are actually willing to keep out brilliant people that want to live here mostly because they fear the non-skilled worker will come here and work so hard as to threaten the job of the average American.

I know that it's politically incorrect to say Americans aren't hard workers because they are, but they used to work harder and not only expect less but appreciate what they got even more.  So there is an urge to close the door so we don't lose more jobs to people whose only advantage over us is their willingness to hustle.  While we light our torches and descend on evil Wall Street because the inventions they created that brought us wonderful lives, with flat screen televisions, time shares, new cars in the drive way, have now mutated and all that stuff is being taken away from us. 
My mother use to always say that it takes two to tango.  As long as we were doing great, we were complacent in the game of easy come...but now we only want to place blame as the other inevitable part of the equation, easy go, comes to fruition.  We had fun spending money we didn't have and few bothered to complain.  In the meantime, few find it odd that the government, even the new government, is devising ways to get us to go out and spend money.

I keep hearing about the tired plans of the past that got us into this mess as if the crisis of the last two years should nullify decades of prosperity.  Moreover, it doesn't seem to matter which party is in office as they want you to go out and spend your money...all of your money and then borrow more and spend that too.  So it's out with the tango and in with the cha-cha.  But, the goal is the same except when it fails (at some point the business cycle means slower growth and a recalibration of the system that always gets ahead of itself); next time there may not be convenient scapegoats to offload all the blame.

During this recovery process, we must resist the urge to erect barriers to trade.  Consider the history of China and how advanced that nation was throughout the years.  They've always had the manpower and for centuries they had the technical know-how to rule the rest of the world but instead erected a great wall that kept outsiders at bay but opportunities, too.

The world is galloping ahead at breakneck speed and trying to catch America.  Now is the worst time not to take advantage of potential customers around the world as they have taken advantage of our spending (imagine if you live in Kentucky and make a product that retails for $100.00, would you like to sell it to a population of 300 million people or would you like to sell it to a population of 3 billion people?) Protectionism is one of the moves made during the Great Depression that all economists agree was a huge mistake.

As for being realistic, folks this economy is in deep trouble and there is no way it can turn on a dime.  Even though I think that the stock market will make several major rallies by the time the economy has hit bottom and has begun to turnaround, the fact is that I can't imagine the economy rebounding this year.   The best we could expect is that at some point we'd find a bottom.

Bill Gates says that this malaise will last another three to four years as it was 50-years in the making.  I think that we'll come back sooner than that but no matter how long it takes; we need a game plan that goes beyond hiding in a bunker. That is where almost all would-be investors, former investors, and folks that have said "never again" have gone wrong. You MUST play the market to recover monies lost and to make monies needed in the future.
I'm advocating a combination of buy and hold and buy and make money.  For years, Wall Street convinced folks that taking profits was a bad thing if it happened too fast.  The "Fat Cats" in the ivory towers that block out the sun in the canyon of downtown Manhattan made you feel stupid and amateurish if you made money in a day, week, or even a  couple of months.  They called you a day trader.

The nutty thing is that so many people still buy into this notion to this day even after they now know these same Wall Street gurus that worked at these white shoe firms and looked impeccable and responsible were doing more and more dangerous things with that money you gave them than you could ever dream of.

While you felt like an idiot and often would let big gains die on the vine because your investment professional told you its how the smart guys do it, his firm was taking so-called "assets" with no financial heft and packaging them with other dubious assets and selling them to other firms.  Of course, these guys also forgot the golden rule that any street level crack dealer learns the first day on the job...not to get hooked on your own product.

Now, so many firms are saddled with the same kind of stuff that they were selling to other dopes.  Now, the government wants to use taxpayer money, whether directly or indirectly, (guarantees) to suck up all that bad paper because (A) it will be good again (just like Confederate money), and (B) it poses too much of a risk to the equilibrium of the entire fabric of our economy.

Maybe reasons A and B are true, but it doesn't mean that we should prop up insolvent banks, keeping them alive in a twisted fashion so that like the gods that hated Prometheus for giving man fire and so made him immortal, chained him to the edge of a cliff where vultures would rip out his guts each day, we too can punish these banks over and over again.    In the process, we will be punishing ourselves financially and spiritually, too.  Let the failed banks fail, let the smart banks prosper, and let's move toward true healing.

Finally, I want to say that while we have a certain disdain for people born with a silver spoon in their mouth to a large degree that would describe all Americans.  The median income in America is $55,000...the average income in the world is $2,000.  We are blessed, but that blessing has become a curse.  We have a soft underbelly and want an instant fix on everything.

When we fight an enemy at their homes, whether it's the jungles of Vietnam or the streets of Bagdad, it's going to be hell because the human instinct for survival is a greater weapon than sound strategy, superior weapons, and intimidation.  There is no quick fix for winning wars.  There are no quick fixes for turning the economy around, and there are no quick fixes to instant prosperity.  We want to push a button and win wars, flip a switch and heal the economy, and make investments that appreciate in value overnight. Some of us want to take a pill and immediately lose weight, too.   We cannot get away from hard work, pain, and some suffering if we want to keep our children safe, protect the world, turn the economy around, and yes even lose weight. 

Charles Payne
Wall Street Strategies