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The Flim-Flam Men
The Flim-Flam Men
I suspect if average Joe or Jane were asked to identify modern examples of ‘Flim-Flam Men’, many would point to Bernie Madoff or Allen Stanford. (Remember them from the last “Great Financial Crisis” of 2008?) Or even to a long list of Too Big To Fail bank CEO’s past and present, plus various corporate, government and Federal Reserve officials who’ve graced our lives over the last twenty or more years.
And you know what? I couldn’t argue with them for a second because they’d be correct. But do those examples really illustrate the deeper, more mundane meaning of the common street hustle or financial confidence game? And are we in denial of our own critical role in ‘The Big Con‘?
Madoff and Stanford (and the Federal Reserve of course) would fall into the category of ‘The Big Con’ since they successfully roped thousands, even tens of thousands, of people into their web of deceit. More importantly, they fleeced their ‘marks’ for years, decades even, and every single mark was smiling right up until the end. Why? Because everyone thought they were on the inside track to a sweet heart deal that paid better than average returns. In other words, they were ‘chosen’ (usually because of their own self described brilliance) and thus they had a leg up on everyone else. That is, until reality rushed in to fill the vacuum and their glorious illusion imploded.
What I wish to explore here is some of the emotional and psychological components of the common confidence game (professional money management subdivision, three-card Monte category) perpetrated on the public by the political and financial ‘industry’ in general, and some of our local money managers/financial advisors in particular. It’s one thing to run a onetime financial con on an individual or small group of people and another entirely to do so consistently, ‘professionally’ and as an accepted member of society.
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DiMartino Booth: “Remember, This Is A Confidence Game”
DiMartino Booth: “Remember, This Is A Confidence Game”
- In the past two weeks, led by those in the Midwest, renters, part-timers and those making $50,000 or less, the Bloomberg Consumer Comfort Index has declined 4.3 points, its steepest decline since 2011; its Personal Finance Index sunk to a 10-month low despite peak stocks
- Since June, households have built more cash than credit, a.k.a. de-levered; this coincides with three of the last four months’ declines in revolving credit with the two months through September marking the first back-to-back declines in more than seven years
- The Bloomberg Consumer Comfort Index’s two-week fall led by those making $50,000 or less occurred alongside two weeks of continuing claims rising over the prior 12 months, the first of the cycle; a third week of deterioration in these two indicators would establish a trend
It helps to be familiar with your source of inspiration. Suffice it to say Hugh Cregg III qualified on this count despite a well-to-do upbringing in San Francisco’s Bay Area and being carted off to a private prep school in New Jersey. As artists tend to, Hugh forged a different path than pedigree suggested of the bookish student athlete who earned a baseball scholarship. Somehow, he ended up working as a truck driver, a carpenter, a short order cook, a partner in a landscaping business and even a street corner singer in Europe before finally making a name for himself. Though it wasn’t his first hit, with a breadth of experience as inspiration, Huey Lewis would one day hit it big with “Workin’ for a Livin’.”
Working men and women have been among the most content Americans in recent years. As we’ve written extensively in recent months, CEO confidence has been cascading downwards while that of the lowest income earners has held at some of the highest levels.
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The CONfidence Game
The CONfidence Game
The global economic landscape remains weak yet there appears to be no concern on the side of bulls and investors alike, so firm is the belief that the earnings recession that is unfolding is temporary, so firm is the belief that dovish central bankers can once again prevent any downside.
I get it, it has worked for 10 years and it’s worked again seemingly since the December lows. Why pretend it is anything but central banks?
After all Jay Powell is rapidly proving to be the market’s biggest thrust driver to the upside in 2019:
From my variant perch it’s a sign of deep underlying weakness. There is no bull market without central bank intervention or jawboning. Plain and simple.
The underlying premise of it all:
Praet: As a central bank, we can create money to buy assets #AskECB
There. They print money and buy assets and in process they distort the entire global price discovery process. Why? Because they have to in order to keep confidence up.
The world is one sell-off away from a global recession because market performance translates directly into consumer confidence and spending. Don’t believe me? Check this out:
In Q4 household financial assets dropped hard for the first time in a long time.
Why? Because markets dropped hard. What else dropped? Retail sales dropped 1.6% in December the biggest decline since September 2009.
Coincidence? You tell me:
Is it the economy that’s leading the horse here? Or is it the other way around? Q1 GDP is much worse than Q4 yet retail spending is higher in January. The case can be made that it is market performance and related confidence that leads spending. No accident then that retail sales bounced back a bit in January, after all we saw a massive rally following the big global central bank flip flop.
The Confidence Game Is Ending
The Confidence Game Is Ending
I’m not saying the Fed’s rate hike is what caused the negative market reaction Thursday and Friday. The die for the economy has likely already been cast and right now it doesn’t look like a particularly promising roll. Raising a rate that no one is using by 25 basis points is not the difference between expansion and contraction. And a bit over a 3% drop in stocks isn’t normally much to concern oneself with; a 700 point move in the Dow ain’t what it used to be.
The pre-existing conditions for the rate hike were not what anyone would have preferred. The yield curve is flattening, credit spreads are blowing out and the incoming economic data is not improving. Inflation is running at a fraction of the Fed’s preferred rate and falling oil prices have been neither transitory nor positive for the economy, at least so far. The Fed is not unaware of this backdrop – they may not like it or acknowledge it publicly but they aren’t blind – but seems to have decided the financial instability consequences of keeping rates at zero longer are greater than any potential benefit. A sobering thought that.
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