Sunday, November 20, 2011

Resentment Math vs. Capital Growth

The supposed causes for the Occupy Wall Street (OWS) events and the inability of political leaders around the world to respond effectively are really very simple concepts that most young children understand. The occupiers want something they do not have and that others possess. The way this should be taught is that the demonstrators see themselves with an abundance of minuses (--) and the other side with an abundance of plusses (++). The political types generalize this perception of young children by seeing a mass of people who they support, with self-perceived (--) and some other group in their country or in another country having the (++). The challenge is to arrange a transfer arrangement. Some believe that it is only "fair" to make this swap. Others harken back to the failed French Revolution’s slogan of “Liberty, Equality, Fraternity” which was the forerunner of the Russian or more correctly, the Communist Revolution. These concepts rest on the belief that equality is a natural occurrence. Any series of observations of nature will see individuals or groups adding or losing assets, but almost never holding at an equal level with another individual or group. While the (++) and the (--) exist in nature, the = does not. As resentment (or if you prefer the Wall Street term, greed), is something that we all have to some degree, the question the occupiers should ask is: “How do we arrange a transfer of a portion of the (++) to us?” The growth of capital can be an answer to both the resenters and the investors.

The solution is in the numbers

Unless there is a perceived advantage, people will not willingly give up their (++), or assets. As all of life is encompassed in a trading world, we need to see some present (perhaps future) advantage for a trade. Multiplication, or if you will, “fast addition,” changes the size of a quantity by some factor, in effect, increasing the size of the pie. Now back to OWS and the political dilemma. All of their focus is on an immediate transfer of assets that are owned by someone else, with nothing offered in return. They are not looking for a multiplication factor, for in their minds, they have nothing of value that anyone else would want.


All too often the term capital brings up the image of monetary capital, e.g., the capital of a given bank is x or y billion or a city or country of z trillion. People think of capital in terms of the present ownership of an asset that can be readily sold. The true nature of capital is the aggregation of human capital. Human capital is the work that can be done by individuals which includes physical and intellectual efforts. Human capital can and is often leveraged to do many worthwhile things. For example, instead of creating garbage, the OWS demonstrators could volunteer to go to many communities that have an excess of trash that is a health hazard to the inhabitants and is beyond the limits of the local waste removal people; offering to quickly remove the danger. In a more global example, educated people all over the world could provide educational assistance to the multitudes of children who are in failing schools or worse, no schools at all. These and similar work efforts can be arranged in ways that would not take away from the gainfully employed. In many parts of the world an organized military force that can effectively separate warring factions could bring peace to areas that desperately need it. While we live in an ultra-modern world, much work can and is paid for in different forms of barter. Thus, the limitations on the recognized cash flow should not limit the work that can be done and paid for in an alternative fashion.

The current investment dilemma

After solving the global problems driven by resentment, we must turn to our day jobs of managing money to pay for goods and services far into the future. Currently the financial press is focused on the inability to close the deficit gaps of both countries and families. The popular solution is to buy bonds, which is in effect, loaning money to the very groups who have proven that they cannot manage to pay off their debts. The current mood is most pessimistic in spite of the reality that bit by small bit, at least in the US, Japan, China, Canada, and perhaps the UK, things are getting better, ever so gradually.

We should be investing for capital growth

Just as the OWS crowd and the stressed governments should be looking to leverage their existing capital bases, we should do so as investors. We should be investing in the creators of future capital. Think for the moment of capital that has been and will be created through cell phones and the Internet. In the US, next Friday is the official opening of the Holiday Season. Traditionally retail stores become profitable for the year on “Black Friday” due to waves of buyers who will shop to take advantage of sales items. I would not be surprised to learn at some point that the Internet sales next weekend will equal or surpass Black Friday’s in-store sales total. This is just an example of the growth capital that is occurring in our society. Similar such examples are being created in the healthcare field and even the ancient and ailing automobile business. If one looks out long enough, the future appears to be bright, at least that is how I am investing for my institutional and high net worth clients, both domestically and beyond the US.

What are you doing?


A number of the members of this blog community tell me that they regularly email copies to a list of friends. We can cut your labor if you send us your list; we will add the names and email addresses to those who automatically get these posts. This will aid us in answering questions, which we love to do, and will also let us know how a questioner saw a particular post.

For those in the US realm, Ruth and I wish you a very Happy Thanksgiving. We hope you are able to celebrate this harvest festival with family and friends.

Did you miss last week’s Blog from Mike Lipper? Click here to read.

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