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ECONOMIC ANALYSIS:

Thinking about Truth and Illusion

by Fred Cederholm
I am totally befuddled by what is happening in the context of my own perceptions of what is reality...versus what “should” be the case based upon my understanding, my studies, and my analysis.
I’ve been thinking about truth and illusion. Actually I've been thinking about what is real, the stock markets, the news, housing, the dollar, Iraq, and Edward Albee's Martha. “Reality” does not seem to be based in truth, but rather it seems to be based in individual (and collective) perceptions. While truth should be a philosophical constant, perceptions are transitory and tend to change over time as new information surfaces. The old adage “time will tell” truly applies.

You see as I surfed the web last week, following the leading news stories/ developments that are shaping our world; I was totally befuddled by what was happening in the context of my own perceptions of what is reality, what is the truth-in essence . . . what I see happening versus what “should” be the case based upon my understanding, my studies, and my analysis. Concerns covered the gamut of topics-investments, finance, economics, and politics.

The stock market benchmark averages stumbled over themselves setting new record highs-one after another. But . . . typical news stories headlined Foreclosures Dip, But That Won't Last, Retailers Struggle with Sluggish June, Trade Gap Up on Higher Oil, Trade Deficit Widened as Expected in May, Forecast: Housing Slump Not Going Away Soon, Bernanke Says Inflation Expectations Still Remain 'Imperfectly Anchored', U.S. Housing Sales Seen Tumbling to Six-Year Low on Rates, Defaults, Refinery woes push up Midwest gas prices, Oil surges to new 11-month high above $77, Dow Soars to Record Highs, Mortgage Demand Climbs in Spite of Rising Interest Rates, Buying American? It's not in the bag, Consumer Borrowing Jumps in May. Once again many of the explanations given by mainstream pundits were a ludicrous grasping at straws and bore no real cause to effect relationship. While Wal-Mart may shown a recent 2% increase in comparable (same store) sales over a year ago, most retailers saw their sales decline. Consumer confidence was anything but rosy. If you factor-in only a 3% inflation rate over the 12 month period even the super-seller behemoth Walmart's sales were down.

Housing stagnation was a central theme as rating agencies downgraded scores of the mortgage backed securities, CDO's, and Real Estate Investment Trust vehicles. The problem here is “knowing” what adjustment to book value should be. Since any house is only worth what someone will pay for it, how do you mark-it-to-market when few are buying what homes are being offered. Each day more come onto the market-be they offered by owners or the lenders.

The US Dollar continued its slide South in its relative valuation to other world currencies. This is theoretically confusing as other fiat currencies are being “printed” at a higher % rate than the Buck. But since there are already Mega TRILLIONS of dollars out there, the qualified, or relative %, increases of other currencies are by default (no pun intended) bigger. The dollar was further shaken last week when Iran (who provides a significant share of Japan's energy imports) requested that the Japanese henceforth pay for their purchases in Yen-not in US Dollars.

Iraq made the news, but not for what was actually happening with the troops in the Middle East. The headlines focused on the growing list of senior Republican Congressmen and Senators who were “defecting” to the growing “its time to cut our losses, and set a timetable to get out” camp on Capitol Hill. An interim report on progress since the SURGE began cited minimal progress in only 8 of the 18 criteria areas. (And . . . 478 more US troops were killed.) Bush called a special press conference to solidify support for his “no change in policy” until General Petraeus reports on September 15. It didn't work as Senator Warner and Senator Lugar “defected” the next day. Even Iraqi Prime Minister Al-Malaki said it's time for US/us to get out.

Edward Albee's play “Who's Afraid of Virginia Woolf?” deals with four individuals who try to come to grips with what is real in their world(s). Each one deceives themselves in a comfortable/ lapsed-into fantasyland. The Martha character summed things up by finally confronting her husband at the turning point in the play with the words: “Truth or illusion, George (you should insert/substitute “America” here), doesn't it make any difference to you at all?”

I'm Fred Cederholm and I've been thinking. You should be thinking, too.
Copyright 2007 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.

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This story was published on July 16, 2007.