Category: Commentary/Editorial, General Nonsense, Pointless Digressions || By

My friends, as a famous man once said, economics is something that I've really never understood as well as I should. In fact, I haven't had any economics education since about 11th grade.

I'm pretty sure that the equilibrium price is set wherever the supply and demand curves intersect, but it might also have something to do with the Smoot-Hawley Tariff and "54-40 or fight."

So, what I'm about to say should be taken with an entire shaker of salt.

. . .

A couple of people have asked me recently what they should do about their 401(k) retirement plans. They're watching stock prices tank and seeing their pension funds tank, too.

I don't know what to do with mine, so I'm doing nothing.

As I understand it, if your 401(k) plan purchases certain equities --- say, 10 shares of XYZ Corp. at $10 each --- your retirement plan then has $100 worth of XYZ Corp.

If XYZ stock goes up to $12 per share this quarter, your retirement fund's investment is now worth $120 --- a $20 gain. Hooray! But you don't actually get that $20 to spend until you retire.

Conversely, if XYZ stock flops down to $2 a share, you also didn't lose $80, unless you're retiring today. You still have 10 shares of XYZ Corp.; they're just worth less money.

. . .

Eventually, assuming the XYZ Corp. stays in business, the share price could go back up, and hopefully your 10 shares will have increased in value over the long term.

Or, if LMNOP Inc. takes over XYZ Corp. for $16 per share, your retirement fund makes a profit.

Or, if LMNOP Inc. swaps its shares for XYZ Corp's stock, then the fund's shares are converted into LMNOP stock, which can also rise and fall on the market. Hopefully, they go up. Either way, your original 10 shares are still there somewhere.

Er, unless XYZ Corp. or LMNOP Inc. files for bankruptcy. In that case, you're hosed. Your shares of stock are worth as much as that share of G.C. Murphy Co. stock at the top of the page: Nothing.

. . .

For instance, when Ames took over G.C. Murphy Co. in 1985, the McKeesport company's stock was $48 per share.

Murphy stock, under the ticker symbol "MPH," had been trading at between $12 and $16 per share during most of the 1980s. If you were a Murphy shareholder and you took the cash from Ames in 1985, you were in good shape.

But if you took Ames stock instead of cash, you could soon use the stock certificates to blow your nose. Ames filed for bankruptcy the first time in 1990; its shares were selling for pennies and were kicked off of the New York Stock Exchange.

Anyway, if you're watching your retirement fund go down, down, down, there's really no point in frantically rearranging your allocations now.

It's too late; you'll throwing good money after bad, and it's better to wait things out. Of course, it's also likely that I have no idea what I'm talking about.

. . .

To me, the more worrisome problem is the lack of credit. Let's say XYZ Corp. does most of its business during the summer and fall.

During those months, XYZ has enough profit to pay its employees and its vendors. During the winter, it starts ordering supplies for the summer and fall, and it uses short-term lines of credit to carry it through the lean times.

If the banks can't extend that credit to XYZ, it either has to dip into its savings, raise its prices, or lay off employees. If it can't do any of those things, it can't sustain its usual business.

. . .

Those kinds of problems can quickly turn into a death spiral that pushes XYZ Corp. into bankruptcy --- or at best, into a merger on unfavorable terms.

Now, imagine XYZ is a major multi-national corporation with thousands of suppliers that it can't pay. And imagine that each of those suppliers has hundreds of employees. You see where I'm going with this, and it ain't pretty.

Or imagine XYZ is your local city, borough or township. Last week, for instance, I noted that McKeesport city council is worried that it might not be able to get its usual tax-anticipation loan. Well, in case you missed the story that broke over the weekend, the entire state of California is worried about the same thing.

And where a city of McKeesport's size, for instance, might be looking for a tax anticipation loan in the neighborhood of $2.5 million, California needs $7 billion.

That's what really motivated the so-called "financial bailout" --- the need to keep some credit available while regulators and bankers try to untangle the mess (that they made, but that's a topic for another time).

. . .

What can you or I do about it? As the famous economist Morey Amsterdam might say, "bupkis."

Personally, I'm leaving my retirement plan alone, because --- as I mentioned before --- I don't know what the hell I'm doing, and I'm not going to panic into doing something stupid.

And I'm also not going to worry about it, because what can I do about it? Right. Bupkis.

Which is also probably what's left in my retirement plan, but I'd rather not look right now.

. . .

Speaking of Bupkis: If you'd like to see me demonstrate that I know bupkis, come out to the McKeesport Heritage Center at 2 p.m. Sunday.

I'll be delivering the Founder's Day Address, and my topic is (surprise!) the G.C. Murphy Co. Rumor has it that Sunshine Produce on Walnut Street will be supplying leftover tomatoes for throwing at the podium.

According to legend, British army officers wore red coats in battle so that if they were shot, the blood wouldn't show.

That's why on Sunday I'm wearing brown pants. (Rimshot. Apologies to Garrison Keillor.)