Friday, June 18, 2010

The Monkey, The Supermodel, and the Expert: Yin Yang Economics Part 2

You know what's interesting?



 The more I learn about investing and economics, the more I realize that the people with the least education and/or money tend to have a much better handle on the health of our economy than most economic experts.   The same is true for supermodels and monkeys.  They may not necessarily be able to use fancy facts and big words to explain why the economy is not doing well, but they just know that it is and in the end that's all that matters.  For supermodels a bad economy means less money, for monkeys it means less bananas (more on monkeys in a moment). The people who seem to be the least aware of what's going on is the ever shrinking middle class who are too busy working to pay their bills to wonder why the economy is in the crapper. 



The reason why I say this is because if your income is based upon how healthy the economy is you are likely on the extreme end of the wealth spectrum (extremely rich or extremely poor).  Because of that, you are going to be much more attune to what's going on.   Let's take the poor people for example. If you only make $5 a day you would have noticed that the price of Iron Kid's White Wheat bread has more than doubled over the past 3 years.   I remember it being only 0.99 cents a few years ago.  It's now $2.49 in 2010.  What used to only cost you 20% of your paycheck, is now practically half your paycheck.  Most people would have noticed that jump in price especially if their salary has not doubled over the past 3 years unless...... you make substantially more than $5 a day.


This is true for the middle class. They usually make a lot more than $5 a day, which would explain why they are not as concerned about the price jump in bread as they are over the cost of health care and gasoline.  Of course, the lower middle class Americans are becoming increasingly aware now. 


Take a famous example of super model Gisele.   A financial news article a few years ago said "Even super model Gisele has taken notice of the falling dollar and has since been demanding to be paid in Euros."   I'm sure the article was not trying to insult Gisele's intelligence but the public often thinks of super models as being airheads, so to hear that a super model was aware of the global crisis was shocking at the time.  However, if you think about it there really wasn't anything shocking about it at all.  The reason why Gisele appears incredibly smarter than your average monkey or (INSERT favorite expert/animal/amoeba) is because she often shuttles back and forth from Europe to the US to work and gets paid accordingly to where she is.  Because her paychecks are very sensitive to the gyrations in the purchasing power of the euro and the US dollar she is keenly aware of the global financial crisis.  My guess is that she's now demanding to be paid in US dollars ever since the Euro fell by half relative to the USD since May 2010!  


This reminds me of a TV documentary a few years back where they were comparing how well a seasoned Wall Street analyst fared in picking stock winners compared to a bunch of school kids and a monkey.   The subject picked their stocks according to their skill level.  They had the analyst do his technical analysis, the kids do their elementary school analysis, and had the monkey throw darts at a page with stock companies on it.  At the end of the show when they compared the results, the monkey actually came out on top!  So if you were to take a cute hairy monkey and have him model clothes on the runways of Paris and New York and pay him paper money that he could exchange for bananas, I bet you would find that the monkey would also be trading out his euros for dollars because the monkey knows he can buy more bananas with a USD than a Euro on June 18, 2010.



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