The Satisfaction Conundrum

Well I was movin' down the road in my V-8 Ford
I had a shine on my boots, I had my sideburns lowered.
With my New York brim and my gold tooth displayed
Nobody give me trouble 'cause they know I got it made
I'm bad, I'm nationwide.

-ZZ Top

No matter how much I am around technology, I am continuously amazed. As a truly non-technical person myself, it all seems like magic.

Currently, I am moving at 524 mph at 39,405 feet linked not only to the Internet, but to Silicon Valley Bank's internal network where I have access to everything I do at the trading desk. I can swipe a credit card and order a drink, a meal or a movie on my personal screen. Best of all, when I land I am assured my BlackBerry will not go crazy with new messages as I can clean my in-box in between thoughts as I write this.

My farmer grandfather would never understand the above paragraph - and he only passed some 35 years ago. What will the next 35 years look like?

Thinking back, it is easy to see that most recent innovation came without any government regulation attached. Indeed, almost by definition innovation is generated in the mind of the innovator, unnoticed by others including the government. Perhaps this is what gives me pause about last week's focus on the regulatory environment.

There is a price for everything - there is no free lunch as they say. And the price of innovation is risk. Entrepreneurs know this well on the individual level, but it also exists on a societal level. As a society, we can allow free thinkers to explore the outer limits of their imaginations, perhaps finding a nugget of additive creativity among many of Charlie Brown's rocks stored up from Halloweens past. The benefits of the nuggets run for decades, while the costs of the rocks end quickly. But regulate the bounds of our activities and those nuggets will never be discovered.

It is hard to disagree that Wall Street went a little crazy in the past decade or so, especially when it comes to the mortgage market, CDS or other financial creations. But is the answer increased regulation?

Don't the investors share any of the responsibility? Certainly the shareholders of these companies should have been more in tune. After all, most equities are held by institutional ... ahem ... professional investors who should know their vote counts. On the other hand, there are other end-investors who never read the prospectuses of the esoteric investments they may have heard about on the cocktail party circuit and never ensured their investment advisors followed their investment directives. When did caveat emptor come to mean government bailout?

I think much of the problem stems from our evolution as a "hard earned pay" society to a "grab a cheap buck" philosophy. The phrase "immediate satisfaction" used to be rarely heard and now it's met with shrugs and acceptance as one of our society's major obstacles.

Investors would benefit from remembering that the value of hard work includes watching over one's own dollars and cents instead of relying on implicit guarantees or potential, future lawsuits. If they have neither the time nor inclination to do so, they have other options, such as avoiding complex strategies in their self-directed investments or hiring fiduciaries to perform them.

Today's "immediate satisfaction" mentality has surely driven much recent innovation and improvements in production efficiencies. Broader regulation is designed to decrease the downside of such risk taking to the taxpayer, but at the expense of more efficient products and services that add to life quality. Balancing these two is key to guiding toward a better tomorrow.

Anyway, I have to stop writing now and find out why my movie keeps cutting out and where that cabernet I ordered might be.

Key Developments

April's international flow statistics revealed a net selling of U.S. securities by foreigners to the tune of $2.6 billion. Taking a closer look, foreign-based investors swapped short-term bonds for longer-term, although total holdings of short-term Treasury bills remain near their all-time high at just over $800 billion. As U.S.-based consumers slow their foreign purchases of goods, expect foreign-based investors to pull back their U.S. investment holdings.

Inflation remains well-contained even as inflationary expectations are on the rise as evidenced by increase TIP breakeven yields. On a year-over-year basis, the CPI dropped 1.3 percent driven primarily by decreased energy costs from one year ago. This was the lowest annual reading since 1950, which really only reflects the extreme price volatility we are facing today.

Weekly initial jobless claims rose slightly, while continuing claims fell for the first time since the January 2 release. The sharp and extreme increase in joblessness will weigh on various economic statistics over the next several months or even quarters. Though the rate of decline has slowed, the economy continues to deteriorate.