Logical Thinking Is in Short Supply

Maybe it's always been that way, but logical thinking seems to be in severely short supply nowadays.

Take, for example, those investors who've been piling into municipal bonds. Even though it's clear that the finances of state and local governments across the country are in a death spiral and the likelihood of large-scale defaults grows by the day, many people seem to believe that munis, which depend in one form or another on the economic wellbeing of the muniipalities that issue them, will escape unscathed.

And what about those large crowds diving headlong into Treasurys? True, U.S. government bonds are probably a less risky short-term bet than their Greek, Italian, and Portuguese counterparts (which explains, of course, why some foreigners are happy to invest in a country that does a better job of feigning solvency than the PIIGS have done). In the end, however, wreckless borrowing and spending, relentlessly bad policymaking, and a tsunami of future supply will wreak havoc on the value of those securities, even with the full faith and credit of America behind them.

Then there's the equity market. Aside from stock investors' general lack of understanding of basic economics and political realities, they don't seem to grasp that no matter what happens on the bottom line, if a company's top line isn't growing than there's no point in owning the shares for any reason other than as a greater fool trade. They can act like P/E ratios and certain other metrics of value matter, but that doesn't change the fact that sales are the true lifeblood of any business, especially in a world as competitive as ours.

If the following New York Times report, "Industries Find Surging Profits in Deeper Cuts," is any guide, it would appear that there's a sizeble contingent of delusional bulls trampling through the equity market who haven't quite figured out what's really going on.

By most measures, Harley-Davidson has been having a rough ride.

Motorcycle sales are falling in 2010, as they have for each of the last three years. The company does not expect a turnaround anytime soon.

But despite that drought, Harley’s profits are rising — soaring, in fact. Last week, Harley reported a $71 million profit in the second quarter, more than triple what it earned a year ago.

This seeming contradiction — falling sales and rising profits — is one reason the mood on Wall Street is so much more buoyant than in households, where pessimism runs deep and joblessness shows few signs of easing.

Many companies are focusing on cost-cutting to keep profits growing, but the benefits are mostly going to shareholders instead of the broader economy, as management conserves cash rather than bolstering hiring and production. Harley, for example, has announced plans to cut 1,400 to 1,600 more jobs by the end of next year. That is on top of 2,000 job cuts last year — more than a fifth of its work force.

As companies this month report earnings for the second quarter, news of healthy profits has helped the stock market — the Standard & Poor’s 500-stock index is up 7 percent for July — but the source of those gains raises deep questions about the sustainability of the growth, as well as the fate of more than 14 million unemployed workers hoping to rejoin the work force as the economy recovers.

“Because of high unemployment, management is using its leverage to get more hours out of workers,” said Robert C. Pozen, a senior lecturer at Harvard Business School and the former president of Fidelity Investments. “What’s worrisome is that American business has gotten used to being a lot leaner, and it could take a while before they start hiring again.”

And some of those businesses, including Harley-Davidson, are preparing for a future where they can prosper even if sales do not recover. Harley’s goal is to permanently be in a position to generate strong profits on a lower revenue base.

In some ways, the ability to raise profits in the face of declining sales is a triumph of productivity that makes the United States more globally competitive. The problem is that companies are not investing those earnings, instead letting cash pile up to levels not reached in nearly half a century.

“As long as corporations are reinvesting, the economy can grow,” said Ethan Harris, chief economist at Bank of America Merrill Lynch. “But if they’re taking those profits and saving them, rather than buying new equipment, it hurts overall growth. The longer this goes on, the more you worry about income being diverted to a sector that’s not spending.”

Comments

[francismarion]

The reason people are in the financial markets buying things that are manifestly not worth what they are paying is because we are in the last stages of a craze. It is completely logical to behave in an illogical manner by the logic of a craze. By continuous indoctrination people have become convinced that the tulip bulb they have traded their house for is really a sack of magic beans and their house is really an ATM.

Individuals afflicted by this pathology exhibit alternate moods of smugness and anxiety. They often can be seen simulating climbing bean-stalks or, in the parlance of their sub-culture "trading on the floor of the market."

Another behavior frequently observed that has been dubbed the "strumming the magic harp" motion, is universally referred to as "calling my broker for advice" by sufferers.

When confronted with a therapist's remonstrances refuting their obsolete world-view, their usual responses run a gamut from deriding the credentials of the therapist to outbursts assuming a "Your brother and his wife bought the same bonds last year and I didn't hear you say anything about it then, why is that?" tenor.

A successful recovery requires a complicated process of reconditioning involving the usually involuntary purchase of precious metals and or large amounts of munitions and the fortuitous "discovery" of a milk cow in their yard. Divestment of the spurious notes usually follows within a few days.

Run, Jack, run. See Jack run. Program over.

[marty]

Hmmm.... And yet, almost every day, I can hear some stupid-ass Republican politician tell me that the reason businesses aren't hiring or expanding is because they are afraid of higher taxes, already crushed under higher taxes, burdened by govt regulations, or in need of another tax cut to "incentivize" them...

It seems that many of our businesses along with the banksters have found a way to keep profits flowing to themselves without any need for employees or customers...

[gabe olmstead]

Am I the only one on the planet noticing what’s going on around here? Sure, I’m a little paranoid but not overly so. What’s happening is this: the only people who are thriving right now are government workers; public servants, teachers, police and so on. In other words, unionized democrat types who follow our present administration blindly with utter disregard for capitalism and free enterprise. These are the people buying new cars, keeping up with their mortgages, taking vacations and paid sick days.

On the other hand, those who believe in free enterprise, entrepreneurs and capitalistic thinkers, generally Republicans, are being systematically wiped out from the face of society. These are the poor souls who are losing houses, failing in business and generally declining from the ranks of America.

Of course I’m speaking here of generalized trends. Those few free enterprisers left as token success stories that keep us from suspecting something’s fishy with our country.

But the majority or aggregate of my statements can be applied all across the country, I

n Colorado, where this paper originates, those bold enough to enter the medical marijuana marketplace and sell pot to “sick” people are making good incomes. Growers, vendors and dispensaries are pulling in tens of thousands of dollars every week. Good times for pot suppliers. And what of the “patients” they serve? They now have endless supplies of their medicine. Legal Beagles protect their rights to obtain their medicine because they’re deserving of it. And, for the most part, patients are doped up, shuttered in and tuned out of the world.

Whether or not legal pot is at issue, the end result is the same: people on dope are sitting on the sidelines and don’t give a hoot about anything but having access to their meds. Count them in the ranks of “dumbed down” Americans who couldn’t fight their way out of a wet paper bag. The question is, is there a deeper reason why the dumbing down qualities of pot have been legalized for users? Lets face it, most of the people applying for and getting their medical marijuana cards don’t have a legitimate reason, they just want to smoke dope. Its a wonderful excape mechanism that makes you forget how bad things really are.

But back to the original statement. What I am seeing is the progressive decline of higher thinking in this country, punished in a sense, being replaced with something out of a 1984 novel. The bottom line is this: if you’re a pigeon-holed blinder wearing government worker, you’re safe. Nevermind the increasing propaganda droning from your government workplace’s loudspeaker or compulsory mandatory memo that gets inserted into your (e) mailbox. You are destined to be mired in red tape, procedural doctrine, always needing to take the long path towards doing what you need to do because of “policy” dictates so for your job.

Housing is of the utmost importance here. Just today I was perusing through state assessor records available online listing recent foreclosures. The really interesting thing is that foreclosures are coming in at record levels. Know who’s losing their homes more often than not? Enterprisers, entrepreneurs, business owners, small time consultants, but not pot sellers or firemen. Does this really mean anything more than someone answering “steady employment” is the reason why. I don’t know. But what I do know is this wasn’t the case just a while back. Another interesting fact about these foreclosures is that most of the foreclosures happen fairly quickly. The aged common houses are put on the market right away. But those houses that foreclose which have added value, meaning those with something special like large property size, small balances to finish the mortgage, or generally undervalued are not showing up on the market. Why are these special properties being excluded from foreclosed properties listed on real estate maps?

I think Rome is starting to burn and Nero’s fiddling. I think things are bad and the only way to rectify the badness is to tear down the system thats in place and don’t be blinded by the little snippets of success stories coming out of Washington. I think that elected officials and government workers are not being held accountable to the American public who pay their ever rising salaries and are not grateful for the positions they hold but are rewarded for poor performance. I think that high level elected officials are two faced liars who seek only to propagate their own interests while casting an air of confidence. And most importantly I think that there is real suffering going on in this country with those who are not on the government payroll being hit the hardest. The message seems to be that you need to conform to survive. What’s up with that?

[BobLyons]

You nailed it on logical thinking. My father is a Physics teacher and I inherited a logical perspective on many things. I still struggle with decisions that make no sense, but mostly I win with logic.

[Marion Shaw]

There seem to be two concurrent views often expressed
on this blog. One is that the wealthy elites live
in a fairytale world and have no idea what is
happening on the street,as it were. The other is that
thousands are unemployed, are living under stressful
conditions and the republic is sinking to its knees.
I believe both of those views have some truth in them,
but in my little town, the majority of people are not
public servants. Many are on foodstamps so they are
public receipients of taxpayer dollars. However, hundreds of trucks bring food, gas, medical supplies,
clothes, etc to the markets still opened and functioning ostensibly normally. What is noticable is
the number of closed stores in the malls. If you are
the one near the street, the worst thing to do is panic.Pending dangers require sharp wit, wise counsel,
an understanding of what resources you do have left,
both close-by and far off (ie.friends and relatives)and patience. Staying stonned won't be cheap, however, if that becomes the solution. I hear one joint in this area,
of high use, costs fourty dollars.

[Roscoe]

City of San Jose, CA is proposing a 10% tax on medical pot.
If cities are going to allow it, tax the H out of it.

[name]

@ the wall of text. Democrats aren't much different than Republicans when one puts their biases aside and the mass media propaganda. Both parties are huge corporatists. Dem vs Repub is just a chicanery for the most part. The healthcare bill preserves free enterprise. It actually gives companies MORE customers. Financial reform was just a slap on the wrist. there are no major structural changes like the 1930s reforms. Who even knows how great the loopholes will be for companies in the 2,000 pages or whatever. Corporations own the government. they work together. supreme court says so too.

[name]

of course government workers are doing well. The ponzi is still going. but if/when the government defaults and/or there is major austerity it will be the executives and upper management at the companies who fund politicans campaigns that will come out of this the best. They all will be the ones who can preserve their jobs and have their assets they have collected from stock options and bonuses in Chinese Yuan or Aussie Dollars.

[roger]

Logical Thinking Is in Short Supply.
Thinking that is logical and coherent must face
a material reality that threatens the confort zone
of a weak mind and we humans have an uncanny ablity
to create a fantasy world in our minds.
Also to be taking into consideration,people have been
burnt a the stakes for logical scientific thinking,
to day you may loose your job for heretic behavior.

[sharonsj]

There isn't enough info in the article to know if Harley-Davidson is making money just on letting go more staff. What about their sales figures? Are they selling more cycles or are they selling less, and where are those cycles being sold? If they are making money ONLY by firing workers, then their company is in deep shit and cannot recover.

As for gabe olmstead, he is overgenralizing. This is not a matter of Democrats making money and Republicans going down the tubes. First of all, only 9% of the workforce belongs to a union. However, teachers, firemen and police are mostly union and therefore have jobs in demand but also have better wages and perks. As long as they have jobs, they can pay mortgages and buy things.

Nearly every rich person I know is a Republican. They're doing fine. It's the rednecks who vote Republican who are not; that's because the Republican party has always favored large corporations over people. Lost your job and can't find another? The Republicans say it's your own fault and you're lazy.

You're old and disabled? You can't earn enough to feed your kids? Too bad. Republicans tell you to suck it up and eat less. Can't pay for health insurance? Republicans don't care if you die. So much for family values....

The rest of the problem is the Democrats, who are cowards and have turned out to be Republican Lite. I don't trust the White House or Congress to do anything for American citizens--they're too busy bending over for the corporations. That's why it could turn out to be every man (and woman) for him/herself.