Thursday, November 20, 2008


In 1990 the Dow Jones began flirting with 3,000 for the first time ever. The internet and the computer revolution led the market to heights of euphoria, and the Dow Jones passed 10,000 for the first time in 1999 - a stunning rise from less than 3,000 to over 10,000 in less than ten years.

It took over a hundred years for the Dow to go from 100 to 10,000. It went from less than 3,000 to over 10,000 in less than ten years (1990-1999). This is an unsustainable rise in stock prices, just like during the first depression - and since then we added more than 4,000 more points, reaching the peak in October of last year.

The Great Depression saw similar markets before the '29 crash. It took nearly 22 years for the Dow Jones Industrial Average to rise from 100 to 200. But it took barely over a year for the average to vault the next hundred points. The industrial average hit precisely 300 on the last day of 1928. It had soared 48% that year, making 1928 one of the best in history. The only better have been 1915 and 1933 - until now, of course, when the market tripled from 1990 to 1999, and then added another 4,000 or so.

The market added more value from 2000 to 2008 than the worth of the entire market in 1990. Thus the stock market has proclaimed that from 1990 to 2008 (before this crash), the worth of American companies has gone from an index of less than 3,000 to over 14,000 - that is to say, it doubled, then doubled again, and then some more. This did not make sense in the 1920s, and it does not make any sense now - but unfortunately, the reasons for the rise in the '20s - the adoption of electricity for mass production - undoubtably had more impact on society than the adoption of computers and the internet in our time, but our market went crazier than it did back then. The first doubling of the Dow Jones took 22 years, and the last time the market doubled in less than a decade led directly to the Great Depression. This time we tripled the market in less than a decade and kept going. While market crashes are not the only reason for a depression, there is a real possibility that this Depression may be worse than last time, just as WWII was worse than WWI despite how much humanity thought it had learned from the World War, now called the First World War.

The Dow Jones website asks:

Why the huge increase in the 1920s? ''I call it the final fling upward,'' says Richard Stillman, a former professor and author who has written a book on the DJIA. ''This was a great era of euphoria. Prosperity was an explosion: Automobiles were in mass production, radios were in mass production,'' and telephone and aerospace industries were taking off.

And I would add that the rise of easy credit led Americans to add more debt in the 1920s than ever before, resulting in a large part of the American market being rooted in loans that were unlikely to ever be paid. Sound familiar? No-money down for cars, washing machines, telephones, you name it. And Americans bought and bought, and then the bottom fell out. It was the 20th-century version of the "sub-prime mortgage mess." Except we have more debt than Americans did then (in % terms and per capita) and that debt is not for things we could do without back then - phones, cars, etc. - but for our HOMES. In other words, this time the data looks worse.

Dow Jones' website adds

Professor Stillman thinks that Herbert Hoover's victory over New York Governor Al Smith in the 1928 presidential race also helped the Dow industrials surmount 300. ''The political climate continued to be highly favorable to business,'' he says. Mr. Hoover favored ''rugged individualism,'' and the less interference in business, the better.

This is strikingly similar to "compassionate conservatism" and the withdrawal of government regulations since 1990 and especially since the beginning of the Bush era.

Dow Jones provides that "after hitting 300, the Dow industrials would soar further in 1929, peaking at 381.17 in September. But in the crash of 1929 and the Depression, they would plummet. It would take a quarter century -- until 1954 -- before they would surmount the 300 barrier again." We peaked at 14,093 on October 12, 2007. Today the market closed at 7,552. We don't know when the market will again reach the peak of 14,093, but it is not unreasonable, even though we hate to think it, that it will take another quarter century to return to that valuation. That would be the year 2033.

Most people know that "the Dow Jones Industrial Average did miserably during the Depression of the 1930s. It began the decade at 248.48, down from a high of 381.17 before the crash of 1929. By July 1932, the depths of the Depression, the industrial average was crawling at 41.22. It ended 1939 at 150.24." If we apply the same percentage drops, the peak of 14,093 would reach all the way down to 1,524 if it dropped as much as the market did in what we may begin calling the First Great Depression. That is, 41.22 to 381.17 is the same percentage drop as 1,524 to 14,093.

If the market merely should have doubled from 1990, then it would be at a mere 6,000 today - perhaps not an undervaluation. In terms of market history, doubling the market from 3,000 to 6,000 in 18 years is a good performance. We moved from 3,000 to over 14,000 in that time. In short, it does not make sense.

Those investing now at 7,552 hoping to game the market when it reaches "bottom" should reconsider and perhaps protect their own bottom instead. We don't know where the bottom is, and by that I mean WE WON'T KNOW WHERE THE BOTTOM IS UNTIL AFTER WE GET THERE. If this Second Great Depression is only half as bad on stock market prices as the last one, then the bottom will be 3,048. The market is more than twice as high today. WE DON'T KNOW.

We keep telling ourselves "it won't be as bad as back then" but few economists or reporters can explain WHY. I don't see why it should be easier this time, and as discussed above, many factors look worse.

From the Dow Jones website:

What many investors don't know is that the 1930s were also the most volatile decade on record for stock prices. Investors, their nerves rubbed raw by the Depression, were prone to fits of euphoria and despair. Thus, the industrial average plunged 52.7% in 1931 and 32.8% in 1937, but it rose 66.7% in 1933 and 38.5% in 1935. Daily volatility was also intense. Strange as it may seem, seven of the 10 biggest up days in history, on a percentage basis, occurred during the 1930s.

The volatility we have seen in the past few months is the most volatile in the history of the market. We have seen day after day of triple-digit gains or losses - usually losses - and we are now almost halfway down from the peak. The idea that the bottom is near is comforting, but it is not supported by the evidence.

This kind of turmoil led to the rise of fascism and world-wide conflict last time. This kind of turmoil (albeit on a lesser scale and not world-wide) led to the fall of the Soviet Union. What will this kind of world-wide turmoil lead to now? Add in global warming and corresponding famine/massive migration, the end of the age of oil, our staggering national debt (which we should not even worry about balancing at this point, not right now), and the fact that many nations now possess nuclear weapons, and we are in for quite a ride.

I want to believe those pundits and economists who say that this time won't be as bad as the 1930s, that this is a "bad recession, possibly worse than the one in 1981-1982." I want to believe them. But I saw this coming long before they spoke out about it, and they have been wrong, consistently wrong, and they give no reasons for their belief that this time it won't be as bad, that we are not due another Depression on the scale of the 1930s. They believe that, but they believed the "fundamentals of our economy are sound" long after I saw the fundamentals were clearly indicating otherwise.

I want to believe those who tell me it won't be as bad, but at this point I don't. Buckle up, it will be rougher ride than any of us have ever taken in our lifetimes, and most people don't have any idea how bad it is going to get.

[I took much of my information on the 1920s and 1930s from the Dow Jones website found at]

Friday, November 07, 2008


I wept with joy on Tuesday night. I expected President-elect Obama to win, yet I was surprised at how much emotion I felt when, finally, the minute the polls closed here in California I heard Jim Lehrer call the election. Expecting it all night, I was prepared to shout my joy aloud.

Instead, and to my surprise, as the words "Obama wins" scrolled across the screen, I sat down and found myself out of breath, dizzy, overcome with emotion that I did not expect to feel. "It really just happened" I kept saying to myself. My wife was popping champagne, but I had to take a moment first.

Thanks to Phil Carter for making it possible for me to play a small part in this defining moment in history. And thanks to him for continuing to serve the Republic with his work on the most impressive and professional campaign in a generation, possibly in history. But the joy I felt was not partisan. It was more than that. It was not about red versus blue, or even defeating the movement that gave us George W. Bush, the most despised president in our history. It was not even about the majesty of a nation founded upon slavery electing a black man as our leader in a time of crisis. It was all of those things, yes. But it was even more than that. It was about, as the campaign slogan said, HOPE.

I have been reading about FDR and the Great Depression recently, from William Manchester's The Glory and the Dream. As an employment attorney I knew the market crash was coming for some time. Many of my peers knew it too. We began to use the phrase "over the cliff" last year when referring to the economy. We knew the house of cards was coming down.

We face the very real possibility of the Second Great Depression. There is sure to be much more pain to come. Even with the hyperbole of the 24-hour cable networks, the true extent of the economic disaster is not yet fully understood by most. It will be worse than most people fear.

But with smart, honest, dedicated and idealistic people working to make America better, we will come through this challenge stronger, and with more freedom, than before. It will not be easy. All of us will sacrifice. But I am confident in the United States of America. I have hope.

Nobody knows what the future will bring. We face economic catastrophe, xenophobia, isolationism, famine, global climate change, resultant mass migrations on a scale never seen in human history, and the age-old scourge of war. Not the "war on terror." WAR. War between nation-states. Not because we want it. Not because others want it. Because when resources become scarce and people become afraid and xenophobic, when people are hungry and angry, they tend to fight. It is a flaw in human nature - an evolutionary survival mechanism gone awry in our modern industrialized world. There will be war - hopefully not involving us, but probably it will. World War I appeared to many at the time to have put an end to war. Europeans, people knew, had learned how horrible war was and were determined to avoid such disaster in the future. As the "Lost Generation" came to power they knew better than others how terrible war truly is, and they would not repeat the mistakes of the past. And then came the Great Depression. And then came xenophobia, instability, revolution, nationalism, and eventually the bloodiest conflict in the history of man. And only a generation after the previous bloodiest conflict in the history of man.

Now we face the Second Great Depression, global climate change, the end of the age of oil, and most of all, fear. Fear in third world nations. Fear in modernized, western nations. Hatred of the "other." Changing climate patterns resulting in famines in some areas, bounty in others. And a power vacuum left over by the end of the Cold War that has yet to be filled. And America herself, the "hyper-power," is facing the same scale of economic crisis that led to the demise of the Soviet Union.

But given the tears of joy on November 4th as our system gave voice to a people choosing hope over fear, I expect we will remain true to the ideals of our Revolution. As we did on Tuesday, as we did in 1941, as we did in 1932, and in 1860, and in 1776, the People of the United States will choose the hard right over the easy wrong. We just did so again. We will address the many challenges we face and we will come out stronger. Better. Of course not all of us. In 1860 many of us chose the path of tyranny. But as a People we will choose to reform ourselves and to do what must be done. Democracies don't necessarily make better decisions than other forms of government. Our strength is that we can change without blood in the streets. We can experiment. We can change our minds. We can replace our most powerful leaders simply by choosing to do so. And on Tuesday, the 4th of November, 2008, we did just that. Our Revolution again impressed all of humanity. We changed.

Shortly before the economic crisis became news I decided to re-read Manchester and see what we did right, and what we did wrong, the last time we faced a crisis similar to what we face now. And it was exactly on point. And scary. And yet, with the election of Barack Hussein Obama, comforting. He is not FDR, but he may be in the same league. And he needs to be. And I think he can do it. But if not, we will be ok. Because if he can not be transformative figure that FDR was, if he can not do what FDR did, we will simply get somebody who can. That is the magic of democracy. It is not about any one person. It is about the power of all of us.

If George Washington had fallen in battle, our Revolution would simply have replaced him. The People fought our Revolution, not just General Washington. He had only the power we gave him to do what we were ordering be done. WE can. Not just president-elect Obama. All of us, the American People, can and will do what we need to do. We recognize the greatness in our greatest presidents, but all power comes from the People, and if presidents, or Congress, fail us, we replace them. Our nation has decided on a different path, and we have chosen president-elect Obama to lead us there. And he will lead us there. Or we will get somebody who can. Yes we can.

In 1932 FDR was the president-elect of a bankrupt nation. As he took office the foes of freedom gathered enormous strength and prepared to attack. And we were attacked. The entire world went up in flames and evil appeared to triumph. Democracy was seen as weak and inept - because some democracies were weak and inept. Yet by the time he died in office in 1945 our nation was the richest, most powerful nation in human history - and for the most part we held true to our ideals in the midst of the worst crisis since the threat of the traitorous Confederacy. We came out better than before. We defeated Nazi Germany and Fascist Italy and Imperial Japan - and the Depression. We had the New Deal rewrite the social contract and improve the lives of the average American. The cost was staggering, in pain and in blood and in money, but we came out better than before. Yes we did.

This current crisis, while certainly the worst in our lifetimes, is not on a par with what FDR faced, nor Lincoln, and certainly not George Washington. The next few years will be terrible in many ways - many of them unforeseen and horrible - but we will come out of this crisis better than before. We will hold true to our ideals. The nation spoke on Tuesday, and our experiment with self-government passed yet another test. There will be more to come, and we shall pass those tests as well - and with flying colors.

With flying colors.

I put out the American flag today. I haven't done that for a while. Too many people attempted to make that flag stand for something I did not believe in - hate, fear, jingoistic nationalism, xenophobia. I became reluctant to fly that flag I love because it appeared to send a message I was not in agreement with.

But today it seemed to stand for only what I always thought it should stand for all along: the Republic, one nation, indivisible, with liberty and justice for all.

I am flying that flag today. Long may she wave.

Saturday, November 01, 2008

Attorney - Client Privilege ?

In the never ending saga of warrantless wiretaps by the Bush administration, a federal judge has ordered the Justice Department to produce White House memos that provide the legal basis for the Bush administration's post-Sept. 11 warrantless wiretapping program.

What I find amazing, is the claim of attorney - client privilege by the Justice Department as the rationale to withhold release of these memos. Am I wrong in thinking that the clients of the Executive Branch are We, The People? While it was the President who requested a legal opinion, and the Justice Dept who rendered same, the notion that the Justice Dept represents the President to the exclusion of the people is a rather unique twist. Had Bush sought legal advice from in house counsel, perhaps he would have a legitimate case, but when Justice provides this counsel and then seeks to hide it from the people, is that not a conflict of interest of mammoth proportions? In a situation such as this, who then, represents the people? Do I, as a citizen, have the same protection in my communications with a Justice Dept lawyer? I would seriously doubt it.

I guess the approach is to start by claiming "National Security". Then claim "Executive Privilege". Now, "attorney - client privilege". Next, perhaps, we will hear that these memos were exchanged using personal Yahoo e-mail accounts, and are thus private, personal communications, not governmental ones.

In the broadest and most extreme of views, this reeks of a government that has turned upon its people.