Brian Gongol Show on WHO Radio - December 12, 2014
Filling in for Simon Conway

Brian Gongol


The Brian Gongol Show can be heard on WHO Radio in Des Moines, Iowa on 1040 AM or streaming online at WHORadio.com. The show airs from 2:00 pm to 4:00 pm Central Time on Saturday afternoons. Podcasts of show highlights are also available.


Please note: These show notes may be in various stages of completion -- ranging from brainstormed notes through to well-polished monologues. Please excuse anything that may seem rough around the edges, as it may only be a first draft of a thought and not be fully representative of what was said on the air.

Money

The economy isn't exactly terrible right now, but nobody is breaking out the party hats and confetti, either. The kazoos? Definitely not.

We're experiencing a very special kind of stimulus right now in the form of remarkably low oil prices. It's a bonanza -- a temporary boom brought about by a big force that isn't really under control. And that means it can (and very likely will) evaporate at any time.

One way to get rich is to know what's extraordinary about your times -- and acting on it. Right now, there are lots of very extraordinary things happening. The petroleum bonanza is just one of them. But it's an important one, and how we treat the boom is going to decide whether we have a hangover later.

Big stimulus events don't happen all that often, nor do they behave predictably. Remember the Bush-era stimulus checks? We got them in 2001 and in 2008. The 2008 checks mostly got used to pay down debt. So did the 2001 checks. That squares with my own expectation that they would effectively serve as stealthy bank recapitalization plans.

So, experiencing an unexpected stimulus today, are we going to act wisely and squirrel some of the benefit away so that we can profit later? CNBC is touting a documentary that highlights how Chinese companies are investing in US domestic manufacturing. The documentarist says, "Who knew the Chinese economic pendulum would swing back to revive the very manufacturing sector it had a part in decimating?" The answer: Anyone who was paying attention. We run a huge trade deficit -- on the order of more than $40 billion a month. That means we're shipping out about $500 billion a year, either as a balance on the national "credit card" (that is, we're borrowing it), or by selling off our assets. And to a country that produces about $17 trillion a year (or $17,000 billion) in stuff, that's no small matter. You can't get 3% more stuff from the rest of the world than you make indefinitely. Eventually, the other parties are going to cash in on your extravagance and come to claim some portion of your assets. In this case, Chinese companies are likely to continue being very significant net buyers of American companies and net investors in American factories and offices. There's no other way for them to get something of value out of all the cash they hold.

And that's being compounded by a couple of factors: Remember, by the way: about 25% of China's economy runs through state-owned enterprises. The government has been trying to get private investment into some of those state-owned enterprises, but that doesn't change who ultimately controls them.

And in the news...

Threats and Hazards Russia's "unprecedented" behavior in the Baltic
It's not unprecedentedly friendly. Meanwhile, the White House insists that there is no plan to send ground troops back to Iraq. While that may be superficially satisfying, it's probably not a great idea to telegraph to our enemies what we just won't do.

Business and Finance Oil prices fall and stocks go along for the tumble
It's been a whole lot of pain on paper this week. There's speculation that world oil demand will be down in 2015, and that has people worried that the global economy may be headed for trouble.

Business and Finance Cheap energy provides a temporary economic stimulus to the economy
We'll miss it when it's gone. This is a bonanza and should be recognized for what it is.

In case you missed it