All Bubbles and Manias Leave Something Undervalued

By: Mike_Shedlock

Inquiring minds are taking a close look at point number five, A Revaluing of Intangible Assets in today's Five Things by Kevin Depew.
“It's kind of funny, but I feel much more satisfied with the things money can't buy, like the well-being of my family, I'm just not seeking happiness from material things any more”

New York Times, " Conspicuous consumption, a Casualty of Recession ," March 9, 2009

If the 90s and most of the first half of the 2000s were about accumulating and displaying "wealth," the next decade will continue the mean reversion toward something altogether more austere, if not more sensible. Debt reduction and the rejection of (and guilt projection toward) materialism will continue as meditations on not just doing more with less, but doing less... period.

All manias leave something undervalued. What has been undervalued for a long time now - reflection, quietude and time, to name but a few of the things "money can't buy" - will now enter their own bull market, which entails a different ordering of priorities and a more challenging view of what it means to "possess wealth."

While this may seem refreshing and positive in the way I've oversimplified it, the difficulties we face going forward will lie in how capitalism seeks to commoditize things that are difficult to measure and quantify, and what mediums of exchange compete for primacy in the market for these intangibles.

More Times Excerpts

Carol Morgan, who teaches law at the University of Georgia and whose husband has a private law practice, said she felt a responsibility to cut needless spending. “That is probably something that is a prudent thing to do in any event, but particularly now I see it as the right thing, as the moral thing to do,” she said, adding that she also hoped to increase her charitable giving. “Before, extravagance and opulence was the aspiration, and if we can replace that with a desire to live more simply — replace that with time with family, or time for spirituality — what a positive outcome to a very negative situation.”

Kim Gatlin, a novelist who lives in Park Cities, in the Dallas area, said some of her friends had urged their husbands not to give them jewelry over the holidays. “They were like, you know, ‘There's nothing I'm dying for right now — let's just wait,' ” she said. “It makes them feel like they're participating, although they don't contribute to the income stream.”

Even some of the very affluent said they were reluctant to be conspicuous in their spending.

“It's disrespectful to the people who don't have much to flaunt your wealth,” said Monica Dioda Hagedorn, 40, a lawyer in Atlanta who is married to an heir of the Scotts Miracle-Gro fortune. “I have plenty of dresses to last me 10 years.”

Craig Robinson, 34, a manager at a real estate investment firm in Atlanta, agreed, saying that he was not tempted to join those who were scooping up deals at department stores. “There's one guy to the right of me showing me this great deal he got on his tie,” he said, “and there's four guys to the left of me who got laid off and can't find a job.”

It's tough to want to flaunt wealth when so much wealth has vanished.

45 Percent of World's Wealth Destroyed

The CEO of Blackstone says 45 percent of world's wealth destroyed .

"Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime."

Schwarzman said problems were then exacerbated by mark-to-market accounting rules. Those rules ask banks and other financial institutions to price assets at a value related to how they would be sold in the open market.

Mark-to-Market Scapegoat

Schwarzman and Blackstone are attempting to blame poor investment decisions on Mark-to-Market accounting.

I disagree.

It was the excessive leverage that destroyed Bear Stearns, Lehman, Citigroup, AIG, Bank of America, Merrill Lynch, etc., not mark to market rules, evil short sellers, or hedge fund bets via Credit Default Swaps as discussed in Is Debt the Lifeblood of the Economy?

Furthermore, the only way 45% of the world's wealth could vanish in a year is if it was a mirage in the first place. That wealth was perceived, not real, and it vanished right along with a forced reduction of leverage that is still underway.

Moreover, neither leverage nor earnings are coming back anytime soon because attitudes of banks towards lending and consumers towards borrowing and spending have changed for good.

Role Of Changing Attitudes

Changing attitudes are what Bernanke faces in his battle to inflate. Flaunting wealth is out. Frugality is in. I have been talking about frugality for quite some time. A Google search of this blog for the words Frugal, Frugality pulls up 88 instances (soon to be 89). I am quite sure this is not the end of it.

Memories of Consumer Recklessness

Let's review the pertinent snip from Peak Credit

That final wave of consumer recklessness created the exact conditions required for its own destruction. The housing bubble orgy was the last hurrah. It is not coming back and there will be no bigger bubble to replace it. Consumers and banks have both been burnt, and attitudes have changed.

It took nearly 80 years for people to get as reckless as they did in 1929. 80 years! Few are still alive that went through the great depression. No one listened to them. That is the nature of the game. The odds of a significant bout of inflation now are about the same as they were in 1929. Next to none.

Children whose parents are being destroyed by debt now, will keep those memories for a long time.

Those preaching inflation simply do not understand the role attitudes play on the the Fed's ability to inflate, nor do they understand the Fiat World Mathematical Model that also hinders the Fed's ability to inflate.

In the meantime, take one more look at the key sentence from "A Casualty of Recession" because this is what the Fed is fighting :

“It's kind of funny, but I feel much more satisfied with the things money can't buy, like the well-being of my family, I'm just not seeking happiness from material things any more.”

All manias leave something undervalued. In this case, that something has nothing to do with seeking happiness from material things.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

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