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In my capacity as cartoonist, I feel an obligation to simplify complicated discussions until two things happen simultaneously:

1. Absurdity is achieved.

2. The reader feels as if it all makes sense.


My comic from Saturday illustrates that principle.



According to Google Alerts that comic has been posted to more blogs than any comic I have ever created. It inspires me to more fully explain the theory of finance in this blog.

Think of financial theory as a stool. The stool is supported by three legs, or truisms.

  • History always repeats.
  • Past performance is no indication of future returns.
  • Asshats are trying to steal your money.

These three truisms can explain any financial phenomenon. For example, if your financial advisor suggests that you invest in a market bubble that is about to burst, he will explain that the past is no indication of future results. Just because a Price/Earnings ratio of 45 has never been sustainable in the past doesn't mean it won't be perfectly safe in the future.

And when the bubble bursts and you lose half of your money, your advisor will explain it's because history always repeats. In other words, he's an asshat trying to steal your money.

This stool also explains the housing situation. Financial experts knew that making loans to hobos had never been a good idea in the past. On the other hand, past performance is no indication of future returns. Maybe this time would be different. Then history repeated and asshats stole your money. As a bonus, they even stole each other's money this time. You have to admire their thoroughness.

One last thing you need to know: People who say it is a good time to invest are called bulls. The bulls are at the center of all financial problems.

In summary, if you want to understand financial markets find a bull and look at his stool.

 
Rank Up Rank Down Votes:  +16
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-4 Rank Up Rank Down
Dec 23, 2008
uh a pe of 45 is sustainable when your computer os or coffee stand is expanding exponentally.

schwab pobably has a bunch of notes outstanding, asshat. thats where the extra capital came from.

the value of a company's assets = equity plus liability. finance 101. they dont teach economists that. called leverage. man you are a big d....ss

most companies cant borrow hence they are jammed up

gm has assets of about 150b but a market cap of only 1.8b hence they are going bankrupt. got no cash either.

you really dont have a clue about finance, do you?
 
 
-1 Rank Up Rank Down
Dec 16, 2008
I can't help but think that investor expectations play a large part in why companies are flopping and firing off employees as fast as they can to get stock prices up. (Which is just a stupid idea when you look at it no matter what - Whose going to run the machines when all you have left is a CEO and a diversity director? - to paraphrase a previous Dilbert book)

All the investing is being controlled by one guy - whose getting downsized because the computer asks fewer questions - and he works(worked) for an investment company that represents tens of thousands or more people, and unlike the now-extinct individual investor, doesn't give a rat's ass about market fluctuation. Your stock dropped by one tenth of a percent, we're moving on! Sell sell sell!

WHEN the economy turns back upwards (i'm cynically optimistic about that, and if you don't know what I mean, I expected as much) I'm hoping that companies return to the ideal of customer service that actually involves having employees around to do stuff. I'm stick of this "U Scan" crap at retail stores, all the while hearing managers !$%*! and moan that customers are leaving and theft is on the rise, after they fired everyone in the front to make ME do their old work.

(On an unrelated note, when a store manager asked why I wasn't using the U Scan lanes, that they were there for my convenience, I responded: "If you cared at all about my convenience, you would have taken my shopping list at the front of the store, picked up everything, ran it through the checkout lane yourself, while the cute girl at the front desk gave me a back massage. You fired the cashiers to make more money for the owners, you don't care about the customers." - Several people left the self-scan lanes for the regular ones. It may have been annoying for the cashiers still employed, but it might have helped save their job for another week or two. I encourage everyone who reads this to give this same treatment where ever you go that has 'U Scans'.

Maybe if enough of us rebel, it might get a couple more jobs back, even if they're crummy minimum-wage deals. It's not like it's convenient for you to use those lanes, except in very limited situations where you only need to buy a pack of condoms, a gallon of bleach, an economy sized pack of toilet paper, and you don't want to have a person watch you buying it.)
 
 
Dec 16, 2008
Great post and one with alot of comedy mileage I imagine. It also explains pretty much every bad decision I've made in the past 5 years. Still, not to worry- I've wired the release funds to the Nigerian finance minister so I'm expecting the cash in my bank account any day now.
 
 
Dec 15, 2008
Giving money to hobos? This looks like a good opportunity for me to promote my idea about what would happen if Ayn Rand had a baby with Carl Marx.

Redistribute the Wealth Investor's Charity:
http://www.halfbakery.com/idea/Redistribute_20the_20Wealth_20Investor_20Charity
 
 
Dec 15, 2008
As its said, "Take your money to an experienced financial advisor, and he gets your money and you are left with the experience.
 
 
+1 Rank Up Rank Down
Dec 15, 2008
I can accept that we all need to sit on the stools of global finance, but why are the middle class stools always turned upside down?
 
 
Dec 15, 2008
It would be incredibly funny if it weren't my life's savings going into the crapper...
Oh what the hell -- it's incredibly funny anyway.
 
 
0 Rank Up Rank Down
Dec 15, 2008
masterful post
awesome comic

encore
 
 
Dec 15, 2008
you had me at "Asshats" LOL :)
 
 
0 Rank Up Rank Down
Dec 15, 2008
Pretty lofty commentary here. I just wanted to say that I have to love anyone who uses the word "asshat." It's one of my personal favorites.
 
 
Dec 15, 2008
Which leg of the stool would the federal monetary policy fall under? I am unsure about the US system but in Canada inflation figures do not take into account housing and oil prices. That being said, lowering the federal lending rate(like what was done in 2001) lowers bank mortgage rates(and therefore mortgage payments so now more people have access to property) the prices of housing goes up and inflation figures do not detect that rise....

The lower interest rates are a major contributing factor in this housing bubble.... Alan Greenspan share the blame with many others who contributed.
 
 
Dec 15, 2008
So I guess the old saying is true, if you try to milk the bull, you get the horns...

If you want to play in the stock market, the only thing you have to remember is: Buy low, sell high.
 
 
Dec 15, 2008
That is, undoubtedly, one of your best Dilberts. It points out that there is no strategy of financial planning that can keep your money safe when there is a general downturn. It's true that this period is virtually unprecedented; every asset class has gone down in value. The usual hedges (those things that go up when another asset class goes down) are not working. Gold is down at the same time as stocks. Bonds are also down at the same time as stocks - very unusual. Real estate is down, again contrary to what happens when stocks go down.

The hope is that our economy is fundamentally sound, and the recession will be short-lived and matched by a commensurate rise in all sectors. If you look at P/E ratios, they're ridiculous right now. Take Charles Schwab, for example. The market cap of Schwab is now down to about $24B. However, the company has $27B in cash. That means if you could somehow buy all the company's stock, and then shut it down, you'd walk away with $3B for your efforts. That's insane.

One can only hope that the government's recent inventing of $700B to give to financial institutions will be ignored by the market. Otherwise, belief in anything financial will be a fairy tale - inflation in the medium term will make the Carter administration's look like a walk in the park.

We shall see.
 
 
Dec 15, 2008
So, Warren Buffet is part of the problem? I'd like to have that one explained in detail. You're so close to making sense, it would be great to see if you could finish this out.
 
 
Dec 15, 2008
Good stuff! However, I have to comment on the housing thing.

Financial experts didn't want to lend money to hobos regardless of whether they had ability to pay or not. You can lay the blame for that of the work, primarily, on Democrats in congress who mandated that loans be made in the name of "Affordable housing" via Freddie Mac and Fannie Mae. Republican attempts for more oversight were rejected on more than one occasion most recently by the likes of Chris Dodd and Barney Frank.

It's quite likely that this problem spawned the lion's share of the economic downturn not just for the USA but for the entire world.

Naturally the so called "bailout money" they passes has had negligible effect on the problem as pork barrel spending was part of the bill, random selection of which !$%*!$%* were entitled to be bailed out.

Finally, surprise, surprise... even though those that didn't pay mortgages before now have reduced rates and another chance... they still aren't paying!

I like the bull-stool comment! True True!
 
 
 
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