tv [untitled] December 28, 2012 4:30pm-5:00pm EST
good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for friday december twenty first two thousand and twelve today is a good time to reflect on this mayan calendar which predicts. on the twenty first this year. that will be today and the world didn't end i think it's fair to say so we will reflect on what may lie ahead in the coming new year or reflect on this year in economic trends dave column is a cornell chemistry professor but he's known in finance for his annual year in review which is out today and he is here in studio to talk about it plus you wes stocks drop as house republicans cancel a vote on the fiscal cliff political disarray hit stock markets those were how the headlines read today when i came into work but is this just white noise we'll talk
about signs of a broken market that go far beyond the day to day news purportedly moving them plus from market scandals to our very own we'll break down what you loved and hated this week and your feedback let's get to today's capital account. well the world didn't end today as some argue the mayan calendar predicted but this millennial error can at least teach us a thing or two about the pitfalls of prediction something fitting given the nature of financial forecasts and also fitting as our guest references it in a small way in his two thousand and twelve year in review he writes this review
every december and this year it covers the gamut from broken markets to broke students saddled with more debt than those charging up their credit cards it's out today you can read it chris martenson is web site which is pretty peak prosperity dot com and you can hear him talk about it now on our show because david columns here he's the betty are miller professor of chemistry at cornell university and author of the year in review out for two thousand and twelve today so first thanks for being on the show it's my pleasure second let's talk about why you as an organic chemistry professor or are known for writing a financial economic investment year in review that's out today why does anybody care about your views on on this subject. it's an excellent question actually. i'm pretty good at distilling complexity down to simplicity so i take a weed whacker to these complex markets we have and it's a hobby of mine. and at the end of each year i summarize what i see. and
i i try to find the plotline within the noise and so there's huge numbers of offense that. occur during the year but i kind of michael lewis' way i attempt to figure out where there's actually a theme occurring and where the most interesting one is sort of a wise guy so i was a bit of a wise guy people always appreciate that before we get into what some of the main themes are for this year do you think your investment track record as an individual investor just managing your retirement savings has anything to do with it because you've done pretty well on your own you know actually this year was a tough year for a hard ass the guy. yeah golden get over get batted around a bit but it did but i guess the selling point is that i did since january first of two thousand i've been able to accrue eleven percent a year and somehow that i guess that speaks volumes i think i have always felt the case all right and we'll talk more about the last year and precious metals
a little later but first i want to talk about student debt because you are a professor and this is an issue that you touch on in your report this year and many interesting ways and let's bring up you talk about the growth in student loans which is far outpaced the growth of household debt excluding student loans and our viewers can see right there that huge difference now we've seen that number go from two hundred billion dollars in student loans to more than a trillion surpassing credit card debt some have called this a bubble which remains to be seen how that will pop because it's difficult to discharge student debt at the same time we've seen wages stagnate we've seen unemployment stay in the high single digits higher if you look at different numbers and we think college tuition costs continue to increase so you as a college professor for thirty three years have some interesting ideas about why college tuition costs continue to rise. there's a lot of layers to the sun and colleges have got more complicated they're much more interconnected there's interactions between the universities and the federal and
state governments that didn't exist so if you go down to the local high school you'll see all sorts of things down there that you didn't see when your kid universities have those too and so what do you mean you know how does that translate to higher tuition costs while it adds bureaucratic costs right there's a lot of people on the campus who do stuff that don't involve teaching and so that's expensive the student loan. complex which which which is happy to give students loans because they can't discharge them this is a demographic who's happy to borrow money and not realize what they're doing and to bring larger amounts because the parents are all broke now. parents are the boomers who got us in this mess in the first place the guaranteed payer virtually guarantees an inflationary price tag and then and then and i think i think they're going to be better consumers going forward to better consumers and you've said that the libertarian in you says cobbett mto are when people are taking out student
loans but you also say that this is a demographic that they're prefrontal cortex is not fully developed which means they've got impaired judgment potentially physiologically so you actually have some creative ideas about how student loans could could possibly be structured in more of a venture capitalist way what is that i don't know how to fix our current problem because on the one hand i'm not a big fan of jubilees which basically is for giving in i know why they put in the backstop to prevent students from going bankrupt at twenty two but it's also anathema to the us system to leave someone in debt servitude for the what could be the rest their life and with these huge spiking interest rates and and penalties and so there are kids who are in a hopeless situation going forward i have some thoughts and i don't i don't know if they're new i would like to see for example a system where the where the where the loans are given based on some percentage of earned salary going forward and if if if for example the schools too expensive for
the kids who are not earning enough for the or or or the tuitions too high then those are bad investments and some of the free market can sort it out i i personally would love to take a slice of an mit. and at the right price i would happily buy into a percentage of these mit kids salaries writer cornell yeah that's interesting but then does that mean that if you are going into say being an engineer you're likely to get a loan but if you want to go to school for theater you're maybe going to be out of luck i wouldn't refine it that much. i would like to bury that because for one thing kids. change i was a buyer major i was going to going to go to med school or vet school and ended up going into chemistry and so what they say freshman year is meaningless yet. what i'd like to see is the trench across all of all of the school what i would do is it would force schools to provide a better product to bribe students who are more quipped to succeed actually get
jobs and it might like them or the school goes under yeah yeah well yeah you could argue that some universities may be too big to fail because they're not held to standards of any kind of company long as the kids keep borrowing the same business and that brings me to another of your analyses which when you look at the earnings of young adults with bachelor's degrees they're not keeping up with the cost of four year institution which we have right there and you can see that discrepancy between two wish and earnings now you are not in the camp that says college is a waste you know people shouldn't go you have a more nuanced view that sounds to me a little bit like a cost benefit analysis when students there are thinking about whether or not to go in school is that fair. not all schools are created equal not all majors are created equal and not all kids are created equal and so. my advice to parents is if your kid's not doing well in school i want to take time off and it sounds like
i'm telling the parents are in charge but oftentimes the parents are in the way of a of a sabbatical for the kid savior imo until the kids showing some signs of using that education i think i think kids going forward are going to have to going to have to take school seriously and it's an expensive way to hold a kid until they mature. you're better off my for my youngest son thomas he took a year off went to aspen worked in a hotel for a year and he's doing fantastically now and my older son did an extra in shift these these are great you know parents should encourage their kids to take off they're afraid they won't come back i said to my youngest son yeah you don't come. back i'm going to kill you the wall there that's a way to kind of enforce. some incentives there before i get more into other aspects because i wanted to start with student debt because your professor what do you think is kind of the biggest seymour the biggest difference or major takeaway from your year of your year in review this year versus say last year. my year
reviews a little bit of a misnomer in that it's a combination of of looking at what happened in the year again with this idea of telling a narrative so a lot of stuff gets left on the cutting room floor so also i i get something that i that i feel passionate about i just start talking about it and so there's you know i pick a fight with the roth ira and go after eric holder quite a bit yeah you know let's talk about the roth ira you have a major gripe with the roth ira what is it and why did i hear two well what are they the first one is that the original ira is a very forward looking thing and they said the government basically says if you want to put the money away tax free and accrue a tax exempt at the end future generations will get the revenue and we'll get our cars but it will be later and boy governments don't do that very often right that's a pretty good pretty pretty far sighted thing the roth which was put into place while we were attempting to balance the budget i'm not sure that's a coincidence says give us the revenue now in fact roll it over from regular we
really want revenue now and we'll worry about future generations later right so it's government taking their cut at the front that's my minor and you think that that's kind of that was the incentive for the roth ira what forgot you know that precedent question i can't rule it out but the big gripe is actually i think the taxation on the rocks is being missed i've been all over the web i can't find an analysis that makes sense to me why they're here that why why why it's important this year. because i finally figured it out ha ha ha i gotta say that that's a good read i'm bothering me yeah well despite the fact that you know some of the traditional investments bother you and you think bonds are a bubble you are still bullish precious metals even though you said that last year they haven't been so hot for you and you say that precious metals equities has been a widow maker if i lasted a year or so why phyllis. i got an argument with one a wall street finest one he said he said. he said i think precious metals are
overpriced so i said i can one up you on that i haven't a clue how to price what i can do is i can evaluate the competence of central bankers and i think this is a fact. if you're all i want to know they're there doing things that would make romans blush right this is bad is bad momentary policy month and so you continue to be bullish based on the follies of central bankers a reality that they're going to keep printing i'm going to keep holding ok we're going to get a break when we come back there's so much more i want to get into more on the year in review with professor david color of cornell university also still ahead we're seeing some strong responses to our car to go c.e.o. interview this week i'll respond to your comments both good and bad today's viewer feedback but first your closing market numbers.
news on markets on the economy let's just look at a couple. dime sandy is still taking its toll on the economy mortgage applications falling last week even with rates still well below four percent the fiscal cliff is finally getting some love it's an economic storm of our own making that could trigger another recession and kill. and that fear of cliff is really consuming that the minds of people consuming the news but how relevant really is it to the economy and to markets let's ask our gas because he is very critical of how much it matters in his your view so david column this kind of day to day topical news is that white noise or is it really what's driving markets in your view. right even big events are white noise you look at market behavior when war starts serious wars and they flutter for a while and then they seem to dust themselves off and move on so then what does
matter because you talk about the markets being broken you talk a lot about high frequency trading. i think that i think the debt loads that we're facing right now are going to drag on us for enormous freedom so that is what you think is the biggest bearing on what markets or the economy or both everything you know the markets economy so they talk about the resilient consumer and the central bankers are always trying to get people to spend more and people shouldn't be spending more they should be spending wow so resilient consumer shouldn't be resilient they should be hunkering down and getting their balance sheets in order right because they're still indebted which brings me to another one of the charts from your report where you show personal consumption versus compensation and so what we see is that people are consuming more than they earn to a greater extent over the years and one thing you point to one reason why you're right about accelerated depreciation what role is that playing on that's a pet peeve yeah accelerated depreciation is is i think it's being missed by the inflation hawks around the world that is that the example i use in the in the
review as i talk about a blender that was forty years old the bloke broke and i replaced it with a blunder which which you know the inflation guys say this is cheap because it's got more buttons we should account for that but the new blunder lasted two years and so the fact america if you want to compare the price of the two blunders you have to multiply the new one times twenty and you realize one thing so i think that's killing the consumers. i have a house full of goods that are that are in a perpetual state of replacement so that there are none of them are durable nothing we buy is durable and so we're in a vortex so you're in for tax where you have to keep consuming just to replace the things that are breaking yeah yeah yeah maybe even the ones that are when you look at a lining up for a new i phone yet so then another area debt we hear so much about how corporations are not sitting on record amounts of debt that are sitting on record amounts of cash is a common refrain we have heard over the last year let's play a little bit of it corporate c.e.o.'s are simply sitting on their hands you're
seeing u.s. corporations with more money on their balance sheet than they've had in years but i know you in your report actually disagree with this notion why well a couple of reasons why there's a very simple calculation you can do if you go to the dow thirty and you you you add up all their debt you had all their cash there their five hundred billion in the hole so this idea that the corporations are flush with cash this is now maybe five hundred billions a low level of debt but but but the idea that they're sitting there with mountains of cash in the bank now what they have are credit lines and that five hundred billion includes a major chunk for j.p. morgan which i think there's people who question whether that was a valid chunk of cash or the shenanigans they play with their accounting rules speaking of shenanigans you do talk about banking shenanigans in your review for anybody that needs a review we have some clips if we do have those handy let's roll on.
the misuse of customer money by a brokerage firm m.f. global was. on the hill today no market for manipulation scandal grows hundreds of trillions of contracts are tied to waterboard short term interest rate the former head of sales brokerage firm p f g best pleaded not guilty to lying to regulators the big. c. they laundered money for drug cartels. so what is the takeaway for you looking at the last year and looking ahead from these shenanigans the take away is that organized crime did an i.p.o. then. you know the. scandal they talk about how h.s.b.c. was affiliated with organized crime and i look at the cycle that they are organized crime best i can tell there and when it when a company gets caught doing things right laundering drug money it's not small potatoes and one of the world and they did find a quantity of the round numbers is usually about five percent of the profits they made off the illegal activity that's
a small surcharge right yet so then what do you think is the takeaway is this organized crime has done an i.p.o. and is just continuing to bamboozle people that are investing or people that are customers or do you think this is going to change directions next year as we do see at least a little bit more incremental coming from the d.o.j. and some of these settlements but maybe at least i don't see to use the you know to i see no ten you see the lack of teeth continuing i've seen your guest come on and supposedly have teeth and i'm not naming names but i disagree with. william if you guess that would make that claim so i think that our our our viewers could read between the lines let's talk about municipal debt because this is one that meredith whitney of course made her claim back in two thousand and ten that two thousand and eleven is when we would see these disastrous state and city. budgets really come to a head and the debt come to a head and see a bunch of defaults now we didn't see those. you said that as the mayans taught us
when you make predictions you don't predict what and when which was her pitfall here is what kate long who covers municipal debt she writes about operators said recently about the reality of the unions will take a lesson. so generally it's a strong bright picture but there are these kind of dark spots that are isolated but it doesn't equal what meredith whitney believes was a massive wave of defaults for for the mare for the country ok so then i know you're very bearish in your year of reviews so maybe you want to pick the what or the when and tell me what your. this one i'm someone i got sick on but i do know that meredith whitney predicted that this year would be it and the fact that we got to the end of one year is is a is is not data to me everything takes longer than you think it's going to take and i don't know why she said this year because we can just keep putting it off for a long time but but they're there and pull examples of cities that are just broken
their states that are that are have their pension plans that are forty percent underfunded and you know i did the math and i point out the thirty you have to pay thirty thousand dollars per taxpayer in the contrary to bring the state pension plans up to speed so there's just there's problems everywhere and there's still people who are overpaid and still so i could be wrong kate could be right but i'm betting on america you're betting on america ok and then quickly before we go i guess just to sum it all up what do you think is your biggest concern moving into two thousand and thirteen because you are kind of a perma there and the thing you're most excited about. i'm excited about natural gas is still you give it away. or still cheap and and here's a sector that are born everyone seems on interested in and at the same time in the same mouthful will say this is this is the energy that's going to fuel the future of the united states so i'm buying the equities right that seems pretty simple ok
and i don't i going while the least exciting thing to me is it appears as though there's no mechanism to pull the fingers of the banking system and the people who are doing these benefits off of politics i can't see any mechanism to get them because you know if you try to stop the flow of capital into politics they'll just be met with more capital to fight the fight and i don't see how we get out of this until you know edmund burke an eighteenth century predicted the french revolution you know no one believed them. and yeah well we'll have to see how this plays out heading into two thousand and thirteen but i certainly appreciate you being here and sharing your views thanks so much you're well.
ok it's friday let's wrap up with your feedback earlier this week we interviewed the main man behind gatorade the gold antitrust action committee here's just one issue we covered. the law authorizing the united states to train stabilization fund to train she quickly in the gold markets and any other market that the treasury secretary decides he wants to get into but because we don't know it. and to that richard pal on facebook said i hope you air this comment on your feedback on friday's show which we are we've got is bill murphy and chris powell warned you had this what on earth are you talking about look when chris was explaining about the treasury's exchange stabilization fund and why the u.s. government is able to manipulate gold silver in all markets as they choose this surprises me because max kaiser has been saying this for years j.p. morgan and u.s. governments over manipulation of the treasuries etc as i watch other shows on our t.'s network i would suggest you do you'll learn an ocean full of financial info from the brilliant max kaiser now of course i agree with you you can learn an ocean
full of financial info from max kaiser we respect his program so much another option though in terms of learning about the treasury's exchange stabilization fund so that i don't look so confused is perhaps watching this show on say august seventh two thousand while the legal basis of the e.s.f. is the gold reserve act of nine hundred thirty four which you just talked about chris paul as amended in the late seventy's the act provides in part that the department of the treasury has a stabilization fund consistent with the obligations of the government and the international monetary system to fund an orderly exchange of arrangements in an orderly system of exchange rates the secretary with the approval of the president may deal in gold there you have it foreign exchange and other instruments of credit and securities. that was when we had chris murphy on from gap last time i don't think i looked as confused when i was explaining what it was you couldn't see me but you go look at that now this week we tried something
a little different we interviewed the c.e.o. of a company that we thought was interesting and we did a story in the field somewhere in their reviews were mixed nordic patriots that i think it's wrong for a capital account to interview the c.e.o. from car to go in to show the logo of the company it makes the show look like a promotional platform for private companies rather than one about financial issues keep your eyes on the ball please meanwhile shiloh's said love the new business segment you guys keep making the show better and better big fan always so you know you can't win them all it's important to try new things sometimes they're ahead sometimes a mess but we figure anything is better than being stagnant so you've got to take some risks and that hopefully it works on the end and on the note of some of the ridiculous taxicab regulations i profiled in that episode i like kurt howland's reaction he said the complete deregulation of taxi services is the answer of course certification agencies will rise as people demand a way to know that prices are fair and people need a quick second job can put in
a meter and go win win i definitely hear you i mean i think that something could happen where there are some certified cows where people can choose if they want to know that they're safe and maybe some people can do the wild wild west thing and go with an unregulated driver but interesting thoughts baseline ace tweeted me this week and asked myself and our producer has everyone forgotten about student loans no we haven't we just covered them so i hope you watch today's show and steve to the three to three z. x. remarked on our you tube channel thing congratulations for getting twenty thousand subscribers on you tube this show is getting more and more popular basho on our t.v. thank you that's very sweet and byron five said lauren and dimitri you guys are the best thanks for all of your awesome work and thanks to all of the capital account staff and crew happy holidays thank you happy holidays to all of you our viewers who we respect and appreciate. so much with that we should tell you we are off next week through new year's day we're going take a little break but we will see you in the new year with live new shows and we can't
wait until we do that for now that's it for our show thank you so much for watching be sure to come back in the new year in the meantime you can follow me on twitter at more or less your you can like our facebook page there it is you can give us feedback catch any shows you missed it you tube dot com slash capital account you can catch us on h.d. and hulu and you can have a great night. when you take three. or charge three. three. three. three. load free blog videos for your media project c.e.o. don carty dot com.