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A Conversation with Juli Niemann

She follows the money

Photograph by Kevin A. Roberts

At 7 a.m., Juli Niemann turns on Bloomberg TV and CNBC while she reads London’s Financial Times and The New York Times and scans The Wall Street Journal’s online edition. When she’s saturated with caffeine and data, she moseys into her colorful office at Smith, Moore & Co., where she works as a financial analyst. She also broadcasts and blogs for American Public Media’s Marketplace Morning Report. I ask whether she had a fascination with money even when she was a girl. “None whatsoever,” she says. “I was going to be a cowgirl until I was 35.”

I was one of those people who graduated with a double major and double minor—economics and history majors, philosophy and theology minors at Fontbonne [then College]. My parents wanted me to attend a small all-girls college. My dad saw that I was competitive, and they were concerned I might get squashed in a university atmosphere.

I gather you were at the top of your class.
Yeah. But I was also a class clown. We’re talking about the ’60s. Smart girls were not valued. But if you say something in a funny way, people listen, and you get your point across. So it was either become a stand-up comic or an analyst.

Or law. There’s always law.
I went to law school for a week. Corporate law, tax law, and business law all looked interesting, but I would have been totally out of it. Everyone was going to be the next F. Lee Bailey; they were all into trial law.

So you went to work for United Mutual Funds and found out you loved finance. Why?
It’s constantly changing. When I got into the business, average daily trading volume was maybe 4 or 5 million shares. We’re talking billions now. Huge markets. It used to be just the New York Stock Exchange; now it’s global.

What happened?
People started getting more money. You had a whole period in the ’50s and ’60s where people made good wages, they were in unions, and they had retirement plans. People had extra money, so they started saving and investing.

And then it fell apart?
We’ve been through a period of 20 years where wages haven’t increased at all. And people kept spending. They started using their home as an ATM. “Unlock the equity in your house” was the catchphrase: Use that money for toys, games, and prizes. Americans spent like crazy and got over their heads in debt, so nobody could weather this downturn.

You mean the 2008 one that’s still with us?
Yes. The 2000 downturn, the dot-com one, didn’t do nearly the damage, because it wasn’t backed by all the debt. The recent one was the biggest recession we have ever had, and when all the analysis is done, they will say this was a depression.

A depression.
Except we don’t say that [she mock-whispers]. They didn’t in the ’30s, either, you know. It took over four years for them to call it a depression. This one is different, though, because we do have safety nets, and they’re holding. We came very close to civil war and riots in the ’30s. Today, there’s a lot of pain out there, but you don’t have starvation and soup lines.

Yet the gap between the rich and poor is just as wide.
Here’s the psychology behind it. You’re stuck in traffic and frustrated. You see one lane inch ahead, then another—OK, you have a little patience now. But if you have the express lane where everybody is zooming right through, that’s when the rage builds. When the privileged get to move ahead in front of everybody else, that’s what will provoke violence.

So is Occupy Wall Street the beginning?
It is expressing the rage of the average American about how unfair it all is. It is starting the movement. I see a progressive movement coming, because we have become basically a plutocracy, and without a solid middle class, democracy evaporates.

Is there any way to close the gap between rich and poor?
Americans have been delusional enough to hope and pray and vote for things that are totally against their economic self-interest. People do it regularly: They vote to preserve the privileges of that tiny percentage of people. Guess what, folks? Nothing trickles down except sewage. So if you were to start with one thing, how about looking out for your own economic self-interest?

Well, if we are a capitalist—
This is not capitalism. This is plutocracy. True capitalism means you invest and you take the risk, and if it works out, you get the rewards. We have socialism at the top and capitalism for the rest of us.

I’m gathering you weren’t in favor of the bailouts. Wouldn’t everything have collapsed without them?
Our bankruptcy courts are excellent, some of the sharpest in the world. They are very good at reorganizing debt and assets. If the company is toast, they will liquidate it. If not, they reschedule everything. It really is almost biblical. You owe $1 million? We are going to write that down to half a million. Everybody takes the haircut. Everybody suffers the pain. As for the people who loaned money to the corporation, they knew there were risks.

What should people know before they invest?
What’s the risk? What’s the potential reward? Why is this a good fit for me? And how much does it cost? Doesn’t mean you have to be an analyst. You have to understand what this is, why it works, and does it sound reasonable. I am all about investor education. This is what I’ve fought for in my 44 years in the business. And it’s not watching Kramer on TV or checking your investments on Yahoo every day. You start out by reading a good basic investment book. Go to your local college and find out what they are using for freshmen and sophomores. It will be readable, because they want to keep the students engaged.

We shouldn’t just consult a media guru?
Everybody loves Suze Orman, but she’s said a few things that I went [she clutches her chest and gasps]. Like telling people, I want you to clean out a kitchen drawer, take your financial statements and put them in there and don’t look at them. I nearly died. No, Suze, no. In every financial crisis, you will have opportunities to hit the road. In this one, there were about three opportunities to get out.

But everybody said not to!
A number of the younger advisors, it’s been inculcated in them that you use this opportunity to average down, to buy more at a low, low price. But for the last 11 years, the stock market has gone nowhere. It did nothing from the ’60s to ’82, then it started going up up up to 2000 then took a sharp plunge to 2003, then a huge rise to 2007, then a sharp plunge, and we’re not even back to where we were in 2000. So don’t ignore the obvious. This time there is a catastrophe.

And what is it?
It’s debt. Every time is different. That’s what the analysts have to get. Before, if you bought more in a bear market, you recovered. But those were normal bear-market cycles. This is a catastrophe.

I thought we weren’t supposed to panic.
Don’t panic doesn’t mean go to inaction. It means put a cool cloth on the forehead and then take a look rationally at your current situation. Be very realistic. Are your priorities together? Do you have way too much debt? Pay it down. All of it, except your home mortgage. If you pay your charge card off, you’ll be getting a guaranteed 30 percent return just by not having to pay interest charges. Make sure you have good retirement funds available. Do a budget. If these are things you can’t do, then get some help.

Why did people handle these things better in the ’50s?
Because those people had been through hard times and remembered. I’m a baby boomer, and the people in my generation are the ones who got in trouble. It’s all “Take care of me now”—the old instant-gratification thing. Our parents were always planning for the future.

Explain the recent past.
The economy tends to run in big 20-year cycles, because it’s triggered by innovation, by big changes. In 1982, we had a big honking recession, then an almost 20-year bull market that didn’t end until 2000. There was a big expansion in industry and globalization. From 2000 to the present, we’ve gone nowhere. There was a huge growth boom and productivity kick because of Y2K—everybody was buying new technology ahead of time to fix it. From 2000 to now, all we’ve had is one big real-estate bubble.

Will we get back to real economic growth again?
Yes, we will. But we’ve done so much damage this time. Anytime you have any correction or economic pullback triggered by debt, it always collapses.

So what do we have to do?
Pay off the debt, restructure all the debt, clear the decks. Housing’s the biggest asset anybody has, but for many people who bought houses after 2004 or 2005, the value is less than what they are paying, so they are inverted. Most people are renegotiating their mortgages, but a lot of people are throwing the keys at the bank. Jingle mail. Here you go, boys, it’s yours. Until that whole process is over, we really can’t move forward. The banks have to write off their bad debt. Which they are doing s-l-o-w-l-y.

Just how rational is our economic behavior?
It’s not. Everybody’s using prayer as a portfolio management tool. They are hoping the economy will start to grow, but it can’t until you get rid of the debt. You can’t grow your way out of trouble. What we went through in 2008, Europe went through this fall, and they did the same thing we did in 2008. “Helicopter Ben” [Federal Reserve chairman Ben Bernanke] said he would fly all over the country dumping dollars out before he let the U.S. go into a depression. Europe did the same thing, reduced interest rates to zero. The taxpayers, of course, are paying for this.

Sum up what went wrong in Europe.
Imagine you have a neighborhood association with 17 neighbors, and you all decide, let’s have one checking account. How does that work out? Here we have 50 states, and we are all tied to each other. But these are 17 neighbors who agree on nothing except they have the same currency.

So they’re not just paying for our problems?
No, theirs actually are different. There’s a huge advantage to those countries all having the same currency; different currencies are a real impediment to trade. So they came up with the euro, but they left out one key thing, and that’s having the same fiscal base. We have the same budget process: It’s called the U.S. Treasury. They have the northerners who are industrious, and the southerners who are Club Med, who have sunshine and olives and not much else.

If you were Secretary of the Treasury right now, what would you do?
One thing you don’t do right now is focus on the budget deficit. We are focusing on the wrong thing at the wrong time. The issue is getting the economy back on its feet, because you are not going to have an increase in the revenue in the Treasury until people are making money again. That, and get rid of ridiculous tax cuts. The Bush tax cuts made no sense at all.

You said we’re a plutocracy—who’s at the top?
We are controlled by four industries: agriculture, pharmaceuticals and health care, energy, and financial services—banks, brokerages, and insurance companies.

So you’re right up there.
Oh, yeah. We’re to blame. The four of us. Because we spread the money all over Congress, and get all the enabling legislation we need. The game’s rigged.

What’s the solution?
Campaign election finance reform. McCain-Feingold had it right; it only had to go further. But when you have 11 percent turnout in the primaries where all the mischief is made, what do you expect? We’ve got the best government money can buy.

Did the meltdown come as a shock?
No disaster happens instantly. There are always warning signs. Big warning signs. In early 2007, Ben Bernanke said the subprime problem has been contained. All-righty then. In the case of Lehmann Brothers, the day before they blew up, they said, we have sufficient liquidity; we’re in fine shape. That’s almost a perfect negative indicator of what’s going to happen, when you have the CEO out there saying, “We are fine.”

Kind of like the government saying we have no inflation?
We don’t. This is buyflation. The biggest components of inflation are wages and real assets. Wages aren’t going anywhere. Real-estate values are still going down. There are pockets of some growth, but just that. And productivity is still very, very good.

Yeah, but everybody’s doing the work of three people.
You got it. And machines are doing it too; they are replacing people. That’s why inflation looks so honkingly good. Meanwhile, everything you buy is going up. Food, education, fuel, medicine. So here you are, caught in the worst possible situation. Everything you own is going down in value, and everything you have to fork out for is going up.

Until now, our economy’s been based on growth in spending. Is it possible for us to stabilize without spending more and more?
It will be at a significantly lower level. Right now, Americans are doing what they should have been doing years ago: They are paying off their debt and becoming thrifty. We don’t buy anything unless it’s the 50 percent off red tab sale at Macy’s with a coupon. We’re spending, but our money’s going into the gas tank, not the shopping cart. We’re doing wonderful prudent things that will put us in good shape for the long run but will hurt us in the short term. Look at what happened on Black Friday: high sales for Nordstrom, Needless Markup, Saks—the high-end and then the low end. The guys in the middle had lower sales.

It echoes the class structure.
Yeah. And the only thing that’s really defied everything is the iPhone, iPad, iMac, iWant. Everybody wants the latest in communications.

What do you make of Warren Buffet?
Ah, Uncle Warren. Everybody loves Uncle Warren. The truth be known, he speaks out of both sides of his mouth. He’s obviously a very smart man, and he amassed a huge fortune by understanding contrarian investing. You buy things out of favor and things of value. But he’s made some bad investments. He bought Useless Air—I mean U.S. Air. His famous quip was that capitalism would have been well served if someone had shot Orville and Wilbur out of the sky. That’s an industry that has never made money.

So Uncle Warren’s made mistakes.
He’s learned from all of them, and he’s used time to his advantage. He buys things with a very long time horizon. But when he called derivatives “weapons of mass destruction”—his company had massive exposure to them. Warren Buffet is almost a religious cult. I don’t mythologize him.

Have you noticed we’re obsessed with China?
As we should be. They’re gaining on us. They’re our closest worst friends. On the other hand, they are very concerned about us. It’s because of China that our inflationary rate is so low—the cost of everything has plunged. A lot of jobs did leave here. But what we also exported was prosperity. Many of the Chinese are moving up to middle income, and they want to buy our stuff.

Which is?
Intellectual property. Our technology is absolutely superior. Machinery, jets, cars—thanks to the cleansing effect of the last recession, we are making cars much better now. We have gone toward intellectual manufacturing. What we export now is stuff that has big value added. Not just sweat.

That sounds almost optimistic.
Except the problem in the U.S. is, people are not educated enough to get these jobs.
As the rest of the world becomes more educated, our architects, accountants, engineers, lower-level medical people are at risk. Because of telecommunications, we can use expertise elsewhere. A huge number of companies in the U.S. buy architectural plans abroad. We’re having X-rays read by foreign doctors. All kinds of mid-level jobs have been exported via telecommunications. You can get that product back at a lower cost.

Where did we go wrong?
We always go through a period of resting on our laurels. You have to keep retraining. There are a lot of jobs available in the U.S. right now if you are a miner, an oil-rig worker, an over-the-road truckdriver. It’s a bad mismatch. But you know, the life’s blood of this economy has always been the entrepreneur. It’s not the corporations that give you the jobs, it’s the small and medium businesses that grow. We’ve forgotten that. And who’s bearing the whole burden of everything right now? The small and medium-sized businesses.

You’ve complained about that locally…
It’s my biggest beef with St. Louis City and County. We have the business prevention department, better known as licensing and inspections. We have 92 municipalities, and the only thing uniting us is MSD! The rules are not consistent. There are overlapping makework jobs instead of one department to work for all the suburbs. The cost of doing business in St. Louis is just idiotic, and Franklin and Jefferson and St. Clair counties are eating our lunch.

What about all our efforts with China?
The China hubbub? It speaks for itself. China uses contracts as suggestions. Until their feet are held to the fire, they simply are not going to honor them. Westerners think a contract is absolute. They don’t.

What should we do?
Nurture and cultivate small and medium-sized businesses. That is our growth. That is our future. Is it as prestigious? Do you get to shoot your cuffs because you are the home of McDonnell-Douglas or Ralston or the May Company? No. But it works.

What’s the first step?
We need the right structure. The city has to be admitted into the county. When Gene McNary pushed for it as county executive back in the ’80s, I campaigned for it. We forgot one key thing. The 92 police chiefs, fire chiefs, and dog-catchers who would lose their jobs succeeded in terrorizing their local populations that they would never again have any kind of service.

Are any more headquarters leaving St. Louis?
Nobody is imminent. We were quite the Fortune 500 town for a while, but with the mergers and acquisitions, yes, a lot of them left. For some, it never made any sense to be here, like General Dynamics. They needed to be in D.C. The only reason they moved here was that their CEO liked it here. But that was back when we had an airline based here, and you could get back and forth easily.

Have the departures hurt us?
Tremendously, because of the huge number of support and services around them. May Company hurt us the most. All their corporate buying was here, all the purveyors would come here. A.G. Edwards, when you had this huge financial services firm, and people flying in for meetings… Every time a major corporation merges, that whole surrounding business structure collapses.

The airport’s been a sad story.
In the year 2000, the guys at Channel 4 and Channel 2 asked me if we needed the runway, and I said, “We don’t, and here’s why. We are going to see mergers and acquisitions, and St. Louis is going to lose. What we need is money to renovate the old barn, the terminal.” Oh my gosh, you would have thought I’d just badmouthed God, mother, and country. I said TWA was going to go bankrupt, and we would not have airline traffic that would justify the runway. I said American Airlines will de-hub us. All those promises they made? Let me set the watch now when they will be broken. American Airlines doesn’t need a backbone.

How come you were the only one that figured that out?
Oh, I pride myself on grasping the obvious. These are obvious things. So why does everybody put blinders on? Money. We got a little bit of federal money to build that dadgum runway, and by golly, we were just going to go full speed ahead, build it and they will come. Well that was a movie.

Are your predictions ever wrong?
Oh, sure. The most embarrassing moment was when the St. Louis Business Journal—or was it the Post?—used to have a lineup of stock pickers versus a psychic. The reporter rounded up five or six of us. And the psychic beat us all.

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Old to new | New to old
Jan 22, 2012 08:45 am
 Posted by  UCityDweller

What a voice of reason! We need more people out there speaking the truth like you Juli.

Feb 8, 2012 08:35 am
 Posted by  HPPRTexasWoman

I hear Juli Niemann every Tuesday on NPR's MarketPlace Morning. She always impresses me with her good sense and no-nonsense commentary on our financial system. I went looking for more of her insight and found this great article. I'll be sharing it with a number of friends. Thanks!

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