The Question: Can the US economy recover without the US consumer?

This is an interesting question, and it cuts basically to the heart of the current issue. People generally believe that we are in a better place today than we were a couple of quarters ago. That much is understood. What isn't understood, and what is frequently asked, is whether or not this is sustainable. Have we been doing a lot of things that aren't repeatable in the coming quarters, or are we truly just getting warmed up? In the past, the consumer has made up about 70 percent of the overall economy, if we define "past" as the past 25 years of economic expansion. How has this occurred?

Note the following:

-Rising Asset Prices (house, stock market, etc)

-Low cost of borrowing and easy access to credit

-Decreased financial regulations that, in some ways, made access to money even easier than it otherwise would have been

These three main ideas, along with others, combined to make people very willing and very able to do one thing: SPEND MONEY. The key question to ask is, is what's going on today going to inspire people to spend money more freely? The government spending and Fed policy can help, but there is no economic force powerful enough to completely replace and regenerate the effect of the general population spending money. Note the following points relating to today:

-People are still WAY down in their investments relative to 2007 peak prices

-Home prices (depending on area) are depressed or still deteriorating

-Unemployment and under-employment are still on the rise

-Increases in regulations will tighten access to credit

-Securitizations are way down relative to recent past

-Bank Lending continues to be tight

-Savings rates have increased and are projected to increase further as consumers de-leverage their balance sheets

Maybe something will happen to turn things around, but these general facts, and probably some others, make a case that it is very tough to expect consumers to just jump right back in and start spending just as much as they were. Therefore, it makes sense to consider other ways in which the overall economy can grow. Consumer-led growth is a Keynesian principal, meaning, economic growth is catalyzed by the money consumers are spending. There is another view, the classical view, founded upon the idea of economic growth being centered around business invested and technological innovation. Ultimately, this innovation improves society and standards of living, and, while early in the cycle it does not lead to very much consumer spending, as the picture changes going forward, sparks ignite in a few distinct corners of the economy that lead to an overall larger and more sustainable recovery. A way to think of it is as though we had a pie, and the filling of this pie was depending upon factors that made people spend lots and lots of money. If people were spending, we had a nice, filling, tasty dessert. When they stopped, we were left with an empty crust.

When faced with an empty crust, there are two options:

1. Go back to doing the same things and trying to find the same sources of filling.

2. Create an entirely new dessert: Creating something new is definitely tougher to conceptualize, but that doesn't mean that it isn't possible.

Consider the following: Corporate balance sheets (ex autos and financials) are in fantastic shape. Companies are cutting costs and have more cash than during any prior economic down turns. The table is set for investment, especially with recent increases productivity and efficiency. As long as government policy is not too stifling, there is a significant chance of economic expansion, just not in the ways that it has been driven in the past 25 years.

This view was inspired from one of John Maudlin's pieces, Thoughts From the Frontline. What really grabbed me was that, instead of simply re-hashing all of the ways in which growth as occured in the recent past and trying to fit a square peg into a round hole, it takes what is currently going on and finds a theoretical framework that fits better than anything currently being proposed. There is no way to pull out a crystal ball and truly know. I just think it's nice to think that the recovery can come from sources and be driven by factors that no one truly knows at this time. If we can be so surprised by the crisis itself, who's to say we can't be equally, if not more surprised by the recovery?

Rising Cost or Rising Quality?

Every single day, the media is consumed with the question concerning how we as a nation plan to go forward in a world where the healthcare system is reformed, revamped, and reconstructed. You cannot turn on CNBC, read the New York Times, or even just show up at work without being faced with some sort of opinion. A couple things that most people seem to take as fact:

• The current system is too expensive

• Healthcare costs rise way too quickly

• The government has to do something

• Everyone deserves to be covered

The end goal is more noble than what it costs to get there...
I can't solve all of these problems. Actually, I don't think I can solve any of these problems. I did, however, read an interesting perspective the other day that took the discussion and thought process beyond a simple restatement of fact or a political analysis as to the timing and scorecard in the current Congress. I want to focus on the issue of cost, and specifically, how we measure rising cost.

Rising costs. Sometimes this is known as inflation. Inflation would be too few dollars chasing too few goods. It is easy to remember the last time you heard that healthcare costs rise faster than basically any other costs in this country. Health expenditures make up somewhere in the neighborhood of 16% of GDP. So, through time, the article that I read thought it important to ask one thing. Why? Why is healthcare so expensive? Why does the cost rise?

The assumption seems to be that costs are rising and this is unequivocally a horrible thing. Think of cars. Movie tickets. Almost anything. Have costs risen over time because these goods are exactly the same as they were? Have costs risen because of an overall rising of prices? Has it been a little bit of both? Examine the following argument.

I pose the following question: Has healthcare improved in the last 20 years? The last 10 Years? The last few years? Does this justify a higher cost? I mean, why do things improve in the first place? True, some people just believe in healthcare and in improving medicine for its own sake, and that's a nice ideal. But, that isn't going to keep drug companies making better drugs. It also isn't going to keep attracting the best doctors who want to push the envelope with new research and new procedures. At the end of the day, there has to be some type of economic motivation to keep a system improving itself. No one will keep improving a system to the maximum degree if they don't have an monetary gain at stake.

So, is healthcare and the cost of healthcare, rising too quickly? Maybe it is, maybe it isn't. But, the thing is, I think it's important to think of why costs rise. I think it's important to make the connection to how rising costs yield resources entering industries and attempting to find ways to make them better. The next time you or a relative gets sick...think about it. Do you want to take it on faith that your team of doctors is completely selfless and all about medicine for its own sake? Or, would you feel a little more comfortable if you knew that your team of doctors was just like any one else...trying to be the best that they can be all the time because they always have something to also gain for themselves and their own families? Socialism is a nice idea. But, can it work?

Jitlada Hollywood: The Real Taste of Thai

Earlier this week a friend of mine sent me an LA Times review of Jitlada, a small little restaurant off of Sunset- nestled into a strip mall (oh Hollywood, how I love you). Though I consider myself a semi-sophisticated epicurean, I confess that I have never tasted "Southern Thai" food before. Southern Thai cuisine is known for its use of turmeric (the fresh kind) and just overall pungent, spicy, dishes unlike anything I have ever tasted.

First order of business: read that review. It has every directive you will want to know before you enter that restaurant.

Three things we want to reiterate:

-DO NOT ORDER from ANY part of the menu besides the very back, the "specials" menu.

-If you like spice (and not just that 'hits you immediately' pepper spice but the kind of spice that creeps up on you after a few bites, the spicy that makes you feel like you may be on hallucinogenics), you will LOVE Jitlada's vast array of southern thai dishes- so try a few! .

-Make sure you enter knowing you will be spending the better part of your evening

there. Yes, service can be a little spotty...but it is well worth the wait. Here's why...

Our first dish was a perfect summery salad: deep fried catfish (though very light and airy to taste, despite the way it was cooked) over a bed of julienned mango and greens. This was actually my least favorite dish of the night- a testament to how amazing the meal carried on.

The simple glass table tops are those you will find in many Chinese restaurants all over the area; for Jitlada, they serve as free publicity. Among the four magazine excerpts underneath our table top was one from LA Weekly voting the steamed muscles as one of the Top 10 dishes in LA in 2007. That was our next dish- duh. Though simply cooked, the broth the muscles were served in was absolutely deep, rich, and divine. That broth took my breath away by combining the savoriness of the broth in a good bowl of Pho, with a spicy kick I've only tasted before in Indian cooking.

Finally, the pièce de résistance: Sator Bean with Lamb (No. 121). If you have a tolerance for a bit of pain, this dish is quite possibly on my list of Top 5 dishes I've ever had. In my life. The lamb: cooked to perfection. The sator beans and that spicy sauce is what made it, though. Upon first taste, both my friend and I thought it was one of the most flavorful mouthfuls we had ever come across. Three bites later, both our eyes were watering in gleeful pain, our bodies not knowing if we wanted more or if it this reaction was our bodies telling us to stop eating.

Oh, one more thing: beer, water (lots of it), and some brown rice make this meal much more pleasant. Go with friends, be ready to sweat (think of it as a culinary form of detox), and engage with Jazz (the owner) to make sure you are getting the best Jitlada has to offer.

An exquisite experience...

We have always seen the meal as a center of the human experience. -ChezPanisse Commitment to Sustainability

Thursday night we had the pleasure of dining at Alice Waters' famed Chez Panisse in Berkeley. We had made the reservations two months in advance, studied up on Alice Waters' philosophy on food, and had the tasting menu up on our screens the entire week leading up to this night: we were ready to rock. What was to follow was an evening of epic proportions (to be taken both figuratively and literally); an experience that changed the way I view, eat, and enjoy food.

Chez Panisse's core philosophy lies in the underlying belief that every segment of a meal- from the choosing of locally grown ingredients to our waiter capping the night off with hot mint tea- is inextricably linked to the human experience. I can say with absolute certainty that every individual we met who worked that evening personified these firmly held beliefs.

The wait staff: impeccable in execution. From the moment we stepped into the dining room, Gianni welcomed us with open arms. I am an incredibly curious person (especially when it comes to subjects of intense interest), and I peppered him with every question that came to mind. He answered them all, with no hesitation, in a way that conveyed the utmost passion for what he does. Even better yet, he dug our inquiries and gave us a personal tour of the kitchen in addition to giving us tastes of wines he felt went really well with our dishes. I would go back to Chez Panisse simply for the service I received from Gianni.

The food: fresh, seasonal, local DOES make a difference. Home made ravioli, squab liver, perfectly prepared duck, every dish appeared refreshingly simple while tasting absolutely divine. After meeting the chef and cooks in the back, you could tell the care used in the preparation contributed to how well these plates worked together.

In conclusion (and even though my fave Tony Bourdain despises the woman) we loved Alice Waters, Chez Panisse and the entire experience surrounding this little Berkeley eutopia. Go there...as fast as you can...and savor every minute!!

In response...

USA 2009 = Argentina 2001?
My response to that article is this: Pure sensationalism. Economics is such where you can pretty much draw almost any conclusion that you would like and then graphically and fundamentally support that conclusion. I see this article, and I think back to what I have read and studied relating to Argentina. It is my rudimentary understanding, as I am not an economist, that Argentina had a currency board. What does this mean? Well, in short, it means that they did not have monetary policy. Their central bank, if I remember correctly, was forced to maintain a dollar peg and currency speculators eventually pressured and succeeded in forcing a devaluation of the currency relative to the dollar. Combine this with the fact that many debts were in dollars and the Argentinian currency, with a devaluation, was worth substantially less of them per constant unit, and you can see the significant potential for problems. However, for the following reasons, I think that this conclusion and subsequent comparison is ill-founded for the long term, as many, MANY very bad things would have to occur prior to its ever coming to actual fruition.

First, the United States has a central bank and independent monetary policy. Is it perfect? Of course not. But, did Argentina have the TALF, the TLGP, or any of the other major programs put into place to help to stabilize confidence in its debt markets? This alone does not and will never ensure that major issues can't ever occur...not in the slightest. But, a comparison to Argentina, at this point, to me, completely discounts the effectiveness of many of the programs that were instituted quickly and efficiently during the early stages of crisis.

Second, the United states economy is clearly not comparable to the Argentinian economy in any major or measurable way. True, the case can be made that both economies had larger measures of their populations borrowing more than they should be borrowing. That's kind of a subjective rather than objective point, but the whole idea of credit contraction advanced in the article is certainly true. However, look at some relatively common economic indicators. I won't bore you with too many details, but, just think about per capita GDP. Per capita income. Things that compare the purchasing power of the average US citizen to that of the average Argentinian. I'm not saying that Argentina is a backward nation, not by any means. I am merely saying that they two are far from comparable. Types of jobs, training, education, standards of living...two vastly different countries...and this cannot and should not be discounted.

Thirdly, look at the causes of crisis. Argentina was a country that attracted a lot of foreign investment that, at the first sign of trouble, turned on its heel and ran out of there as quickly as possible. What does that tell you? Well, to me, again, based on my experience in looking superficially at the crisis, it says that there were a lot of short term projects looking for a quick return, and there was less real, long-term focus on value creation. The United States is a service-based economy depended, at least in recent past, on its consumers. Foreign investment is nice, and it does currently finance a massive fiscal deficit and a massive trade deficit. This cannot and should not be overlooked. If all of that money turned on its heel quickly and flew out of the country tomorrow, we would be in SERIOUS trouble as a nation. But, look at this logic. If money is running out of Argentina, where can it go? If money runs out of the United States, where can it go? It's true, China has been talking, Russia has been talking, and the IMF is in the early stages of what seems like bond issuance. In the near term, will this market be sizeable enough and liquid enough to replace the treasury market as the most liquid and most safe market in the world? It's just not possible to think of it at this point as a near-term alternative. The Euro, the Yen? Again, not possible. A country like China has a simple problem. Had it invested in Argentina, this country and investment opportunity was never large enough to be "significant." It was a diversifier...a diversion of some reasources, but one that could be easily written off and backed away from. The US market? The US market is not at the point of being a diversion. No major player invests in treasuries to "diversify." It is the most liquid and safest market in the world. Bonds of almost any maturity are offered, and, the key, the BIG key, is that you know when and what you are getting back at all times.

Fourthly, look at the lead up. Securitization...financial innovation...banking or mortgage malfeasance, etc. But, in Argentina, an important question to ask is simple. Did they have the FDIC? Where customer deposits safe? I'm not talking about loans...I'm talking about the savings of citizens. I'm talking about the need for people to make "runs" on banks. With US policy, this hasn't happened? I believe it did happen in Argentina, and I believe, but might be incorrect, that citizens in some cases lost everything even if they weren't taking risks and simply leaving their money at the bank. This is a big deal, and, in the United States, it has mitigated many potentially disastrous effects.

There are many other points and questions that can be brought up, but they all point back towards the same point. The article is interesting, the title grabs you, but it's the same as comparing the US to Zimbabwe, which was another article that came out 2-3 weeks ago when the yield on the 10-year increased "dramatically." It's pure sensationalism. Government and FED policy cannot and will not be perfect as we navigate forward. The Deficits could cause rather significant problems. But, saying that we are in danger of being similar to Argentina, Zimbabwe, or any other country in the developing world is an extreme leap and cannot yet be supported. Extreme negatives such as those might be just as likely to happen as extreme positives, but, no one writes about those. I guess they aren't as interesting to read.

As I signed into facebook on May 23rd, I contemplated the fact that this weekend was not like other weekends. It was memorial day! Nothing beats that extra day off. So, already in a great mood, I saw a reminder pop up. Oh! It was my friend's birthday that evening and I was set to go to a club. Admittedly, I am nowhere near the biggest "clubber" on the block, but when certain people your friends with invite you to things, I've learned you kind of don't have a choice. So, as I polished off the dancing shoes, I realized that there was an upside. I was part of the "pre-party", and the pre-party had the privilege--at least I thought so at the time--of dining together before hand at the restaurant of Justin Timberlake. The place is called Southern Hospitality, and it's located on the upper east side of NYC. I joked with a couple of people that maybe we'd be sitting in the back corner of some swanky, dark, stylish joint complete with hints of N'Sync playing in the background. I wouldn't have even minded actually. Couple drinks, good company, music that takes you back to, well, around junior high...good times. I couldn't have been more mistaken.

I arrived on time (which is impressive because I had the 4, 5, and 6 trains to pick from, and I think I went from the 4, which was the express, to the 6, which I thought was the express). Ok, I'm not great at subways either, but I'm better than I was the time on my birthday when I was waiting with my girlfriend at the wrong track entirely. She still makes fun of me for that one. I saw the place immediately from the across the street. Southern Hospitality in bold letters and a completely open front. I'm not a fan of the completely open front. I like a door, a wall, keep the light out, make it dark inside. Maybe really exclusive, velvet ropes and the feeling like you couldn't get a reservation if you called 30 times because the line would be busy every single one. Hey, if you've ever eat in NYC, you know it's crazy expensive. I want the whole expensive look and feel. I walked in and was greeted with TVs...as FAR as the eye could see. There was even one of the big, 10 feet across screen projection things on the wall. That, combined with the wall of noise and commotion (I guess in place of the physical wall), precluded me from finding anyone, so I did the awkward walk in, looked around, and, not finding ANYONE at all, walked back out and got on the phone, only to walk BACK in 2 minutes later all the way to the back to find my group. Seating was kind of TIGHT, even by NYC standards, and the crowd was of the more "I'm here to watch sports and get hammered" variety. I think there was a Mets game on...I know this because there was some yelling throughout the meal to that effect. So, overall, not the atmosphere that I was expecting.

Possibly, this was due to the fact that it was Ultimate Fight night. For 50 dollars, I could stay from 10-1 and have open bar AND I could watch the ultimate fighting championships. Maybe some people enjoy that...I'm not one of them. For 20 dollars I could just "be there" to watch the ultimate fighting championships. Hmmmmm, it made me wonder...were the food and drinks that I was ordering free, or would I have to buy a meal, and then ALSO pay another admission fee on top of that meal? What?

The food and drink itself was lackluster. If anyone reading this has been to a Chili's, an Applebees, a Cheesecake factory, or any version of a similar place...where you basically get reasonably priced food with REALLY GOOD and REALLY BIG specialty drinks, they would be better served heading in that direction. My margharita was not all that impressive. True, they had the mango, which was good. True, it was sizeable. True, they were LIBERAL on the tequila, which was nice. But, I don't know. I've had better. The cornbread was good, but, I can buy muffins at my grocery store. This is going to be a food and drink combined 35-50 dollar experience. Cornbread, to me, isn't part of that experience. I tried the fried tomatos, which had absolutely no seasoning at all, I actually had to pour some tabasco all over them just to give them some LIFE. And I had the fried chicken, all white meat for my meal. Chicken was very good, but, considering I was paying 20-25 dollars to have it, it wasn't any better than a wendy's spicy chicken would have been. Scratch that...Wendy's spicy chicken is AWESOME. This place...it's like the chef would fry the stuff and then just stop. Bro, where's the seasoning? And, anyone who has eaten with me knows, I am the LAST person to complain about the seasoning...so it HAD to be lacking.

Overall-if you like sports and want to get hammered, visit southern hospitality. If you want to have a nice meal on the upper east side of NYC, then, I might recommend a number of other options. I could have gone to Chilis, spent half as much and gotten two times as many drinks.

La Costena

Over the weekend, our favorite Silicon Valley burrito stop made it into the travel section of the New York Times!! La Costena, or as we so lovingly call it, "La Co", was recently featured as one of three restaurants that one must ABSOLUTELY check out if visiting the Silicon Valley. For more, read the article: http://travel.nytimes.com/2009/04/17/travel/escapes/17Amer.html