A Picture is Worth a Thousand Words

Here's a picture of yesterday's market courtesy of FINVIZ. I generally like to find a pic and quote to share, but sometimes we need to step out of our rhythm.

I read a statement from a utility company, CH Energy (CEO quoted):

“During the second quarter, several challenges combined to depress our results. First, there were fewer degree days than last year. Secondly, we had much more storm activity and higher costs to restore electric service following storms. Third, higher energy costs induced our customers to use less energy. Fourth, the weakening economy has further induced our customers to use less energy and has also caused us to increase our allowance for doubtful accounts. . . the impact of high energy costs and the weakening economy are likely to continue and even perhaps intensify over the rest of the year and into 2009. As a result, we believe it is necessary and prudent to take two actions. First, we are reducing our earnings guidance for 2008, and second, we are filing a utility rate case to bring our revenues into line with the costs to serve our customers.”

I still reflect back on the interview in Barron's (I could not find it, but I did see my April 2008 post where I warned about warehouse clubs), by a money manager who was concerned about a consumer led recession. Also, there is a J. Mauldin "Outside the Box" about de-leveraging. I've been surprised that in all of this 'talk' about where we are, that we've not seen MORE discussion about the two "C's", Capitalism and Consumerism that got us here.

Now, this post is not a knock against capitalism--but when you hear the arguments about how important a free market is and how awful regulation of any sort is, I think it would do us all well to remember that what we are experiencing now is capitalism run amok. And run amok it will because of its ruthless efficiency in finding return. It's that efficient, predatory nature that makes it especially good at funding innovation and the like--but along the way it can takes some nasty turns.

And capital would likely not run amok so much if it were not for our collective consumerism. Isn't it the appetites of the many that gets us to this point as well? There's plenty of blame to spread around. Nevertheless, while we want to point the finger to Greenspan, the government, the HBB's, and any others that may have a glancing culpability, would it not be a worthwhile reflection to consider our individual contribution?

Saving v. Spending? While the virtues of saving over spending are very apparent, dollars in circulation--NOT dollars in the bank is what creates commerce and spreads wealth more broadly. Individuals are not any different than banks other than individuals and businesses are at the front end. It's a pyramid of leverage--and individuals and businesses are the support.

If there is broad over-leverage at that level, it only gets magnified as one goes up the pyramid levels. The banks used to be the gatekeepers of that leverage--ensuring that money did not get lent beyond reasonable expectations of repayment. If we can be comforted by any notion, it is this: it will get worked through. The question, though, is how much pain will be experienced.

I suspect that even though our inter-relatedness with other markets may have amplified the problem, that inter relatedness will garner a great interest on the part of many of getting it solved. I don't consider myself an irrational optimist--but rather a pragmatist. Households get combined; communities pull together and strengthen their bonds; gardens get planted; firewood gets cut and burned. People will eat, will be sheltered and kept warm--they just might be doing it under different guises.

Is that the end of the world? Most assuredly not.