My seven speculative stock picks with sector and price as of 4/1/09 opening.
China Medical Technologies - medical- 13.77- CMED
Nucor- steel- 38.17- NUE
Tata Motors- auto- 4.93- TTM
Diamond Foods- foods products- 27.93- DMND
Suntrust Bank- banking- 11.74- STI
Adobe Software- software- 21.39- ADBE
Chesapeake Energy- energy- 17.06- CHK
No guarantees, just my picks for a group that is diversified among sectors. I will keep you posted.
Tuesday, March 31, 2009
GM Questions
First we give GM several billion dollars.
Then we hint on letting them go bankrupt. That would make the U.S. Government one of the largest creditors affecting influence over the bankruptcy process.
How would such political influence affect the process? Would other creditor's rights be subservient to the union interests?
The pres said the GM proposal was too little too late. If they had closed mills years ago when they should have, would we have been critical of that effort at that time? State laws protected dealers at great expense to GM. If GM had disposed of thousands of dealers years ago as they should have would they have received any support from the federal government then? If GM had bargained hard to constrain union pay and benefits how would the politicos that now propose to force unions down our throat have reacted?
Perhaps GM's management was just weak and arrogant and could never envision themselves in bankrupcty court; or perhaps GM was just an earlier version of political capitalism- a company subverting its own economic self interest, and the interests of its shareholders to satisfy political interests.
By the time the government sees fit to bail out a business, it is probabaly too late. And they likely would have fought any of the steps that would have prevented it.
Then we hint on letting them go bankrupt. That would make the U.S. Government one of the largest creditors affecting influence over the bankruptcy process.
How would such political influence affect the process? Would other creditor's rights be subservient to the union interests?
The pres said the GM proposal was too little too late. If they had closed mills years ago when they should have, would we have been critical of that effort at that time? State laws protected dealers at great expense to GM. If GM had disposed of thousands of dealers years ago as they should have would they have received any support from the federal government then? If GM had bargained hard to constrain union pay and benefits how would the politicos that now propose to force unions down our throat have reacted?
Perhaps GM's management was just weak and arrogant and could never envision themselves in bankrupcty court; or perhaps GM was just an earlier version of political capitalism- a company subverting its own economic self interest, and the interests of its shareholders to satisfy political interests.
By the time the government sees fit to bail out a business, it is probabaly too late. And they likely would have fought any of the steps that would have prevented it.
The Berlusconi Effect
Media power is political power. Berlusconi is the prime minister of Italy and the owner of the dominant media outlets in the country. He can control his image in the press as few people can.
Michael Bloomberg, the mayor of New York, is the very successful owner of Bloomberg Media and he also has the advantage of a significant media outlet although there is more media competition in the United States.
It is hard to control the political benefit of media power without interfering with our cherished freedom of the press.
Critics have accused Rupert Murdoch of printing several similar editorials making the case for the war in Iraq in his 160 plus newspaper outlets. It is reminiscent of Randolph Hurst using his newpapers to influence the call to the Spanish American War.
Tips to Mark Deuze in the media department at Indiana University.
Michael Bloomberg, the mayor of New York, is the very successful owner of Bloomberg Media and he also has the advantage of a significant media outlet although there is more media competition in the United States.
It is hard to control the political benefit of media power without interfering with our cherished freedom of the press.
Critics have accused Rupert Murdoch of printing several similar editorials making the case for the war in Iraq in his 160 plus newspaper outlets. It is reminiscent of Randolph Hurst using his newpapers to influence the call to the Spanish American War.
Tips to Mark Deuze in the media department at Indiana University.
Monday, March 30, 2009
Partisanship Renamed
I hereby declare that political partisanship now be referred to as 'Political Contingency Operations'.
There; problem solved.
There; problem solved.
Political Capitalism
Cries of socialism obfuscate our political dilemma. Are we a capitalistic country with a 36% tax rate and a socialistic one at 39-1/2% rate? Truthfully we crossed the socialistic divide some time ago; now it is just a matter of degrees.
We have long outgrown the labels used to describe our political conflicts. We have long grown beyond the left and the right, the conservative and liberal, the red and the blue. But we are seeing a change in the relationship between our government and our business community, the producers who generate the tax revenue that supports our country.
We are rapidly moving from the economic capitalism that has grown the economy to political capitalism that seeks to harvest it. This change is not surprising considering the damage to our economy from the financial sector. Complicated derivative instruments, reckless lending standards, irresponsible leverage, outrageous compensation, and delusional confidence in unrealistic models have done worse than destroy people’s wealth. They have destroyed the public’s confidence in the business community and our financial stewards.
This recession has shown gaping holes in our regulatory system. New financial products escaped the jurisdiction of the SEC, the FDIC and the Treasury. Congress itself exempted Fannie Mae from oversight of the regulatory agencies and fought efforts to restrain and over see this agency at the center of the mortgage crisis.
While receiving campaign contributions from the agency they regulated Congress became outraged over voices of concern over the systematic risk posed by the agency that fulfilled their political goal of universal home ownership. Resistance was on practically straight party lines.
This should be a loud warning of the dangers of political capitalism. When business seeks to serve political self interest instead of economic self interest the engine of economic growth will come to a grinding halt. Atlas Shrugged will be read as prophecy.
My employees and I have a relationship based on mutual economic self interest. My customers and suppliers also serve each other’s economic self interest. Economic self interest brings clarity and consistency to the business model. These two values are essential for a business to assume the financial risk to make a long term investment and commitment.
Politics are notoriously unclear and inconsistent. Tax rates go up and then come down. Regulations, tax deductions, depreciation schedules, and a host of other concerns are anything but stable.
But when a business’s priority becomes to serve the political self interest rather than stakeholder’s economic self interest, the incentive to grow and invest dies. When businesses are required to serve the government’s purpose of increasing unionization (clearly a political payoff), funding health insurance, funding cobra extensions, or extending legal claims they will quietly and steadily redeploy their capital elsewhere; perhaps the safety of secure investments without the risk, perhaps another country where economic self interest is still respected.
I would much rather trust my future to my employees, my customers and my suppliers than to a political hack who got elected promising my assets to someone with no interest or knowledge of my business.
A political cynic once defined an election as an advanced auction of stolen goods. If we advance the replacement of economic self interest with political self interest this will become our reality.
We have long outgrown the labels used to describe our political conflicts. We have long grown beyond the left and the right, the conservative and liberal, the red and the blue. But we are seeing a change in the relationship between our government and our business community, the producers who generate the tax revenue that supports our country.
We are rapidly moving from the economic capitalism that has grown the economy to political capitalism that seeks to harvest it. This change is not surprising considering the damage to our economy from the financial sector. Complicated derivative instruments, reckless lending standards, irresponsible leverage, outrageous compensation, and delusional confidence in unrealistic models have done worse than destroy people’s wealth. They have destroyed the public’s confidence in the business community and our financial stewards.
This recession has shown gaping holes in our regulatory system. New financial products escaped the jurisdiction of the SEC, the FDIC and the Treasury. Congress itself exempted Fannie Mae from oversight of the regulatory agencies and fought efforts to restrain and over see this agency at the center of the mortgage crisis.
While receiving campaign contributions from the agency they regulated Congress became outraged over voices of concern over the systematic risk posed by the agency that fulfilled their political goal of universal home ownership. Resistance was on practically straight party lines.
This should be a loud warning of the dangers of political capitalism. When business seeks to serve political self interest instead of economic self interest the engine of economic growth will come to a grinding halt. Atlas Shrugged will be read as prophecy.
My employees and I have a relationship based on mutual economic self interest. My customers and suppliers also serve each other’s economic self interest. Economic self interest brings clarity and consistency to the business model. These two values are essential for a business to assume the financial risk to make a long term investment and commitment.
Politics are notoriously unclear and inconsistent. Tax rates go up and then come down. Regulations, tax deductions, depreciation schedules, and a host of other concerns are anything but stable.
But when a business’s priority becomes to serve the political self interest rather than stakeholder’s economic self interest, the incentive to grow and invest dies. When businesses are required to serve the government’s purpose of increasing unionization (clearly a political payoff), funding health insurance, funding cobra extensions, or extending legal claims they will quietly and steadily redeploy their capital elsewhere; perhaps the safety of secure investments without the risk, perhaps another country where economic self interest is still respected.
I would much rather trust my future to my employees, my customers and my suppliers than to a political hack who got elected promising my assets to someone with no interest or knowledge of my business.
A political cynic once defined an election as an advanced auction of stolen goods. If we advance the replacement of economic self interest with political self interest this will become our reality.
Sunday, March 29, 2009
In Praise of Chaos
Mark Steyn wants more chaos and choice- me too.
from National Review
Obama's False Choice
by Mark Steyn
March 28, 2009
Excerpts:
Borders give you choices. Your town has a crummy grade school? Move ten miles north and there’s a better one. Sick of Massachusetts taxes? Move to New Hampshire, as thousands do. To modify the abortionists’ bumper sticker: “I’m Pro-Choice And I Vote With My Feet.” That’s part of the self-correcting dynamism of capitalism: For example, Bono, the global do-gooder who was last in Washington to play at the Obama inauguration, recently moved much of his business from Ireland to the Netherlands, in order to pay less tax. And good for him. To be sure, he’s always calling on governments to give more money to Africa and whatnot, but it’s heartening to know that, when it comes to his wallet as opposed to yours, Bono — like Secretary Geithner — has no desire to toss any more of his money into the great sucking maw of the government treasury than the absolute minimum he can get away with. I’m with Bono and Tim: They can spend their money more effectively than hack bureaucrats can. We should do as they do, not as they say.
If you listen to the principal spokesmen for U.S. economic policy — Obama and Geithner — they grow daily ever more explicitly hostile to the private sector and ever more comfortable with the language of micro-managed government-approved capitalism — which, of course, isn’t capitalism at all. They’ll have an easier time getting away with it in a world of “global oversight” where there’s nowhere to move to. Unfortunately, even then it won’t work. Think about it: It takes extraordinary skill to create and manage a billion-dollar company; there are very few human beings on the planet who can do it. Now look at Obama and Geithner, the two men currently “managing” more money than any individuals in human history: not billions, but trillions.
Notwithstanding the Treasury secretary’s protestations that the Yes/No prompt buttons of Turbo Tax were too complex for a simple soul such as himself, it’s no reflection on the hapless Geithner that he’s unable to fix the planet. When the Bolsheviks chose to introduce Russians to the blessings of a “command economy” 90 years ago, they were dealing with a relatively simple agricultural society largely contained within national borders. Obama and Geithner are trying to do it with a sophisticated global economy in which North American consumers, European bankers, Asian suppliers, Saudi investors, and Chinese debt-holders are more tangled than an octopuses’ orgy. Even with “global oversight” — with the Toxic Tims of Germany, Argentina, and India all agreeing on how to fix the game — it can’t be done.
from National Review
Obama's False Choice
by Mark Steyn
March 28, 2009
Excerpts:
Borders give you choices. Your town has a crummy grade school? Move ten miles north and there’s a better one. Sick of Massachusetts taxes? Move to New Hampshire, as thousands do. To modify the abortionists’ bumper sticker: “I’m Pro-Choice And I Vote With My Feet.” That’s part of the self-correcting dynamism of capitalism: For example, Bono, the global do-gooder who was last in Washington to play at the Obama inauguration, recently moved much of his business from Ireland to the Netherlands, in order to pay less tax. And good for him. To be sure, he’s always calling on governments to give more money to Africa and whatnot, but it’s heartening to know that, when it comes to his wallet as opposed to yours, Bono — like Secretary Geithner — has no desire to toss any more of his money into the great sucking maw of the government treasury than the absolute minimum he can get away with. I’m with Bono and Tim: They can spend their money more effectively than hack bureaucrats can. We should do as they do, not as they say.
If you listen to the principal spokesmen for U.S. economic policy — Obama and Geithner — they grow daily ever more explicitly hostile to the private sector and ever more comfortable with the language of micro-managed government-approved capitalism — which, of course, isn’t capitalism at all. They’ll have an easier time getting away with it in a world of “global oversight” where there’s nowhere to move to. Unfortunately, even then it won’t work. Think about it: It takes extraordinary skill to create and manage a billion-dollar company; there are very few human beings on the planet who can do it. Now look at Obama and Geithner, the two men currently “managing” more money than any individuals in human history: not billions, but trillions.
Notwithstanding the Treasury secretary’s protestations that the Yes/No prompt buttons of Turbo Tax were too complex for a simple soul such as himself, it’s no reflection on the hapless Geithner that he’s unable to fix the planet. When the Bolsheviks chose to introduce Russians to the blessings of a “command economy” 90 years ago, they were dealing with a relatively simple agricultural society largely contained within national borders. Obama and Geithner are trying to do it with a sophisticated global economy in which North American consumers, European bankers, Asian suppliers, Saudi investors, and Chinese debt-holders are more tangled than an octopuses’ orgy. Even with “global oversight” — with the Toxic Tims of Germany, Argentina, and India all agreeing on how to fix the game — it can’t be done.
A Brief History of Federal Power
The founding of our country was mired in a battle over the strength of the federal government. Hamilton became the center of a strong mercantile federal government, and Jefferson fought for very limited federal government. It is ironic that Jefferson is considered the father of the Democratic Party.
The balance has been a challenge but our national history has been a progressive shift to a stronger federal government. The three biggest moves n that direction were:
The War Between the States decided once and for all that the United States was not a voluntary confederation of states where one state could freely withdraw. While the states rights issue has become synonymous with civil rights there is more to it. Even the civil rights issue, however, established the idea of moral purpose as a justification of subverting the prerogative of the states.
The income tax gave the federal government access to the private wealth of its citizens. Many are amazed to realize that we had no permanent income tax until 1913 (we had a small temporary one during the Civil War). We somehow managed to win the war of independence, the War of 1812, The Indian Wars, the Civil War, reconstruct the South, build the transcontinental railroad, acquire and settle land to the Pacific, grow to a world power – all without an income tax.
While the original income tax seems paltry by today’s standard, it gave the government America’s growing wealth. It thus alleviated the need to make choices based on funding limits. Many believe this income tax was the lubricant that allowed us to get in involved in foreign affairs and wars.
The Great Society under Lyndon Johnson established the Welfare state as we now know it (Some may originate this with FDR and the New Deal). This established the power of the federal government to take money from one person and give it to another. It also dramatically furthered the idea of the federal government to become the moral equalizer. This extended beyond civil rights to education, welfare, health care and any other moral imperative that the federal government thought was being neglected.
Obama’s radical budget is an extension of a long history of the growth of federal power. In a financial crisis it seeks to solve every major problem at once. Since America has grown and prospered through these major federal power shifts, our President may feel comfortable that we will grow and prosper though his changes as well.
Those of us concerned about the huge growth in government proposed under Obama may seek the warnings of catastrophe during these other shifts.
Will Obama’s growth in Federal Power be just another phase in our country’s history, or does it risk the death of the golden goose?
The balance has been a challenge but our national history has been a progressive shift to a stronger federal government. The three biggest moves n that direction were:
The War Between the States decided once and for all that the United States was not a voluntary confederation of states where one state could freely withdraw. While the states rights issue has become synonymous with civil rights there is more to it. Even the civil rights issue, however, established the idea of moral purpose as a justification of subverting the prerogative of the states.
The income tax gave the federal government access to the private wealth of its citizens. Many are amazed to realize that we had no permanent income tax until 1913 (we had a small temporary one during the Civil War). We somehow managed to win the war of independence, the War of 1812, The Indian Wars, the Civil War, reconstruct the South, build the transcontinental railroad, acquire and settle land to the Pacific, grow to a world power – all without an income tax.
While the original income tax seems paltry by today’s standard, it gave the government America’s growing wealth. It thus alleviated the need to make choices based on funding limits. Many believe this income tax was the lubricant that allowed us to get in involved in foreign affairs and wars.
The Great Society under Lyndon Johnson established the Welfare state as we now know it (Some may originate this with FDR and the New Deal). This established the power of the federal government to take money from one person and give it to another. It also dramatically furthered the idea of the federal government to become the moral equalizer. This extended beyond civil rights to education, welfare, health care and any other moral imperative that the federal government thought was being neglected.
Obama’s radical budget is an extension of a long history of the growth of federal power. In a financial crisis it seeks to solve every major problem at once. Since America has grown and prospered through these major federal power shifts, our President may feel comfortable that we will grow and prosper though his changes as well.
Those of us concerned about the huge growth in government proposed under Obama may seek the warnings of catastrophe during these other shifts.
Will Obama’s growth in Federal Power be just another phase in our country’s history, or does it risk the death of the golden goose?
Saturday, March 28, 2009
Obama's Critical Mistake
Obama’s lack of business experience and his lack of investment participation make him oblivious to the investor class. Unlike most of Americans, Obama owns very few stocks or equity stakes in any profit producing enterprise.
56% of Americans fit into the “investor class” and they are fiscally conservative, regardless of their race, religion or sex. This is the most significant voting block and Obama is not a member- by choice.
Obama’s policies in only his first 100 days is a significant threat to small business interests and to the investor class. His strong pro union stance, his unprecedented imposition into business strategy through ‘czars’ reporting to the president, his tax increases on the investor and entrepreneurial classes, all bode very poorly for the future of American businesses and investors.
A farmer understands that you can only reap what you sew. A business man understands that wealth must be created, that customers have choices, and that debt increases risk. An investor understands that risk is manageable and can be avoided, but taking less risk means slower growth. When investors seek safety over growth the wealth creating machinery that will be desperately needed to pay for the dramatically expensive programs will grind to a halt.
As bright as Obama and his sycophants thinks he is, he seems to be oblivious to these fundamental truths. These are truths commonly learned through experience, and he has little experience in these realms.
Neglect of the investor class may be his critical political mistake.
56% of Americans fit into the “investor class” and they are fiscally conservative, regardless of their race, religion or sex. This is the most significant voting block and Obama is not a member- by choice.
Obama’s policies in only his first 100 days is a significant threat to small business interests and to the investor class. His strong pro union stance, his unprecedented imposition into business strategy through ‘czars’ reporting to the president, his tax increases on the investor and entrepreneurial classes, all bode very poorly for the future of American businesses and investors.
A farmer understands that you can only reap what you sew. A business man understands that wealth must be created, that customers have choices, and that debt increases risk. An investor understands that risk is manageable and can be avoided, but taking less risk means slower growth. When investors seek safety over growth the wealth creating machinery that will be desperately needed to pay for the dramatically expensive programs will grind to a halt.
As bright as Obama and his sycophants thinks he is, he seems to be oblivious to these fundamental truths. These are truths commonly learned through experience, and he has little experience in these realms.
Neglect of the investor class may be his critical political mistake.
Friday, March 27, 2009
Political Positioning
I am a devotee of the marketing concept of positioning. It is derived from the marketing classic “Positioning” by Reis and Trout. While the concept is simple it is rarely followed, and is in my less than humble opinion is the reason most marketing strategies fail.
The essence of positioning is that the marketplace is so crowded with messages that in order to be remembered you must have a unique and distinguished place in the mind of the consumer. This usually means that you must fine tune your mission and purpose to be valued and remembered.
Fortunes thrown at poor or unpositioned concepts fail to create memorable impressions. Cleaver ads or dramatic graphics with no compelling reason to buy a product or service are wasted creative orgies.
Effective positioning is as much about what you are not as it is about what you are. In order to focus you must shed the less important to focus on the critically different. In a very crowded market place there is just no time to make multiple points.
In the midst of one of our greatest financial crisis, our new president has focused on too much. We are not in the terrible position he inherited because of our health care problems, global warming, or the lack of universal college education. These may or may not be real problems but it is ludicrous to insist that “we are paying for the sins of our past” and then insinuate that somehow our current problem is directly related to not addressing those problems.
This is not problem solving; this is shameless political opportunism. It may be politically convenient to insist that every political ill must be resolved to address our problem but it is not true or effective.
The best way to address our crisis is to identify it and focus on it, not to tie it to every issue and completely change the foundations of our government and economy.
In fact that is the certain path to failure.
The essence of positioning is that the marketplace is so crowded with messages that in order to be remembered you must have a unique and distinguished place in the mind of the consumer. This usually means that you must fine tune your mission and purpose to be valued and remembered.
Fortunes thrown at poor or unpositioned concepts fail to create memorable impressions. Cleaver ads or dramatic graphics with no compelling reason to buy a product or service are wasted creative orgies.
Effective positioning is as much about what you are not as it is about what you are. In order to focus you must shed the less important to focus on the critically different. In a very crowded market place there is just no time to make multiple points.
In the midst of one of our greatest financial crisis, our new president has focused on too much. We are not in the terrible position he inherited because of our health care problems, global warming, or the lack of universal college education. These may or may not be real problems but it is ludicrous to insist that “we are paying for the sins of our past” and then insinuate that somehow our current problem is directly related to not addressing those problems.
This is not problem solving; this is shameless political opportunism. It may be politically convenient to insist that every political ill must be resolved to address our problem but it is not true or effective.
The best way to address our crisis is to identify it and focus on it, not to tie it to every issue and completely change the foundations of our government and economy.
In fact that is the certain path to failure.
Thursday, March 26, 2009
Charitable Reality
2008 started out as a record year for our businesses but came to an abrupt halt in the last quarter. Seeing a very dim near term in the new few quarters we reassessed our cash needs and quickly made necessary changes, including layoffs.
Like many businesses we had accrued funds to give to charities, but we realized that we may need those funds for the business in the uncertain climate we foresaw. Should we pay the taxes on the income we had accrued but not spent, or go ahead and just give the money to charity anyway?
One of us (I won’t say who) quickly posed the problem; “we can either give $10,000 to charity or $4,000 to the government (in taxes).”
The purpose of retelling this story is to illustrate that taxes do affect charitable giving. That is the way the world is.
It may be nice to imagine an altruistic world where giving is 100% from the heart and pedestrian concerns such as taxes are irrelevant. Perhaps if we had never allowed a deduction for charity we would be at that place, but I doubt it.
In my dream world I envision the same tax system supported by Ed Koch; no mortgage deduction, no charitable deduction and a simple low straight percentage tax on income. But both Ed and I realize that our dream tax will never be enacted in a country where both parties see the tax code as a social engineering game, much as Mortimer and Randolph Duke’s little game in “Trading Places”.
President Obama believes that reducing the tax deduction for charitable contribution will have little or no effect on charitable giving. He sees the world as it ought to be rather than the world as it is. Such thinking makes for great philosophy but bad politics. We must deal with the world as it is.
Obama’s example and rationale was that a high tax bracket rich person should not get a bigger DOLLAR deduction than a poorer contributor with a lower tax bracket on the same dollar contribution. This is the elevation of class warfare to a level that will impede charitable contributions. It is hard to comprehend the cavalier attitude the leader of the country can use to defend and explain such nonsense. Some perverted sense of social justice is more important than charitable contributions.
Charitable organizations have lost fortunes in endowments in this bear market, and individuals’ losses have made giving much harder. In this environment the President chooses to discourage charitable giving?
I would propose precisely the opposite. I would offer to double the deduction from the applied tax rate: if you are at the 30% tax rate you could deduct charitable gifts at a rate of 60%. This would encourage more giving at a time that charities need it the most.
Few of us would argue that this would strongly encourage more charitable giving. If we concur that this tax incentive encourages more giving then we must disagree with Obama’s claim that tax incentives do not matter when giving to charity. If a higher deduction encourages more giving then a lower deduction would discourage giving.
That is the way the world is. It is the result that matters, not the intention.
Like many businesses we had accrued funds to give to charities, but we realized that we may need those funds for the business in the uncertain climate we foresaw. Should we pay the taxes on the income we had accrued but not spent, or go ahead and just give the money to charity anyway?
One of us (I won’t say who) quickly posed the problem; “we can either give $10,000 to charity or $4,000 to the government (in taxes).”
The purpose of retelling this story is to illustrate that taxes do affect charitable giving. That is the way the world is.
It may be nice to imagine an altruistic world where giving is 100% from the heart and pedestrian concerns such as taxes are irrelevant. Perhaps if we had never allowed a deduction for charity we would be at that place, but I doubt it.
In my dream world I envision the same tax system supported by Ed Koch; no mortgage deduction, no charitable deduction and a simple low straight percentage tax on income. But both Ed and I realize that our dream tax will never be enacted in a country where both parties see the tax code as a social engineering game, much as Mortimer and Randolph Duke’s little game in “Trading Places”.
President Obama believes that reducing the tax deduction for charitable contribution will have little or no effect on charitable giving. He sees the world as it ought to be rather than the world as it is. Such thinking makes for great philosophy but bad politics. We must deal with the world as it is.
Obama’s example and rationale was that a high tax bracket rich person should not get a bigger DOLLAR deduction than a poorer contributor with a lower tax bracket on the same dollar contribution. This is the elevation of class warfare to a level that will impede charitable contributions. It is hard to comprehend the cavalier attitude the leader of the country can use to defend and explain such nonsense. Some perverted sense of social justice is more important than charitable contributions.
Charitable organizations have lost fortunes in endowments in this bear market, and individuals’ losses have made giving much harder. In this environment the President chooses to discourage charitable giving?
I would propose precisely the opposite. I would offer to double the deduction from the applied tax rate: if you are at the 30% tax rate you could deduct charitable gifts at a rate of 60%. This would encourage more giving at a time that charities need it the most.
Few of us would argue that this would strongly encourage more charitable giving. If we concur that this tax incentive encourages more giving then we must disagree with Obama’s claim that tax incentives do not matter when giving to charity. If a higher deduction encourages more giving then a lower deduction would discourage giving.
That is the way the world is. It is the result that matters, not the intention.
Wednesday, March 25, 2009
Distance Utilization of Military's Best
We are no longer going to call it the 'War on Terror' but it will now be called the 'Overseas Contingency Operation' (OCO).
I wonder what it will be contingent upon.
I have a few alternative suggestions:
The Political Distraction Quest (PDQ)
The Alternate Employment Intelligence Operation and Undertaking (AEIOU)
Playing in Sand Seriously (PISS)
Diplomacy By Other Means (DOM)
Distance Utilization of Military’s Best (DUMB)
I wonder what it will be contingent upon.
I have a few alternative suggestions:
The Political Distraction Quest (PDQ)
The Alternate Employment Intelligence Operation and Undertaking (AEIOU)
Playing in Sand Seriously (PISS)
Diplomacy By Other Means (DOM)
Distance Utilization of Military’s Best (DUMB)
How to Use a Secret Ballot
One has to wonder why the card check proposal is so important to Democrats. Less than 20% of the workforce is unionized and union membership has dramatically fallen over the years. Businesses have relocated to right to work states and the most successful and growing businesses are typically non union.
The largest steel company in the country, Nucor, is non union, in an industry that used to boast strong union participation. The strongly unionized auto industry is on financial life support.
The card check bill would eliminate the secret ballot allowing the unions to intimidate their potential members into signing cards to allow a union without a free election and without hearing counter arguments from their employers. The secret ballot was in place because the unions used to accuse the employers of harassment; now they want the freedom to intimidate.
I have dealt with unions and they did not hesitate to lie and intimidate potential members to get into their pocket books.
Yet the elimination of free elections was not the worst part of this bill. Before the two parties were on their own to negotiate a contract after the union won an election. The union could call a strike if they wanted to force the employer to comply.
Under this bill the two parties would have 60 days to negotiate a contract. If they did not reach an agreement the employer would have been subject to binding arbitration from a federal mediator. This means an independent business man would have had a federal bureaucrat dictate wages and benefits.
Most small employers barely earn their cost of capital in a good year, much less in the deep recession we are in. But if you knew anything about independent business people you would know that few would have stood for this kind of interference in their business; many would simply shut down. I have had several conversations with business owners with this response when they heard what this bill contained.
This bill is the biggest job killer to yet come from the new administration. It was destructive to even propose this fiasco; just the possibility that we live in a country that would even consider such intrusion will make a prospective new business stop and reconsider.
To bring this job killer to a vote during the worst business climate in decades with unemployment rapidly growing shows how out of touch this administration and Congress is. Arlen Specter should have been ashamed to have ever considered this Orwellian bill, yet he should be praised for finally withdrawing support.
Anyone who thinks that forcing unionization down our throats is conducive to an economic recovery should be voted out of office, with a secret ballot.
The largest steel company in the country, Nucor, is non union, in an industry that used to boast strong union participation. The strongly unionized auto industry is on financial life support.
The card check bill would eliminate the secret ballot allowing the unions to intimidate their potential members into signing cards to allow a union without a free election and without hearing counter arguments from their employers. The secret ballot was in place because the unions used to accuse the employers of harassment; now they want the freedom to intimidate.
I have dealt with unions and they did not hesitate to lie and intimidate potential members to get into their pocket books.
Yet the elimination of free elections was not the worst part of this bill. Before the two parties were on their own to negotiate a contract after the union won an election. The union could call a strike if they wanted to force the employer to comply.
Under this bill the two parties would have 60 days to negotiate a contract. If they did not reach an agreement the employer would have been subject to binding arbitration from a federal mediator. This means an independent business man would have had a federal bureaucrat dictate wages and benefits.
Most small employers barely earn their cost of capital in a good year, much less in the deep recession we are in. But if you knew anything about independent business people you would know that few would have stood for this kind of interference in their business; many would simply shut down. I have had several conversations with business owners with this response when they heard what this bill contained.
This bill is the biggest job killer to yet come from the new administration. It was destructive to even propose this fiasco; just the possibility that we live in a country that would even consider such intrusion will make a prospective new business stop and reconsider.
To bring this job killer to a vote during the worst business climate in decades with unemployment rapidly growing shows how out of touch this administration and Congress is. Arlen Specter should have been ashamed to have ever considered this Orwellian bill, yet he should be praised for finally withdrawing support.
Anyone who thinks that forcing unionization down our throats is conducive to an economic recovery should be voted out of office, with a secret ballot.
Tuesday, March 24, 2009
Riot at the Shawarma King
A riot ensued at the Shawarma King Restaurant over a non kosher hot dog.
Read the story here.
You can bet your ass I won't order a cheese burger here.
Read the story here.
You can bet your ass I won't order a cheese burger here.
Monday, March 23, 2009
A Model Worth Ignoring
Growth and economic prosperity are a product of culture and trends. In education growth must be related to reason and scientific inquiry. Rapid innovation often requires a healthy disrespect for the old and the status quo. Some believe Japan is hindered by strict loyalty to the elderly. In America a couple of college dropouts in a garage can unseat IBM and the computer leader.
Our culture rewards innovation and change, but as we know very well, change comes with choices and often with pain. In order for the pie to grow, companies and institutions decay and die and are replaced by new institutions and companies.
Bookstores are shuttered as Amazon grows. Microsoft and Apple prosper; Digital, NEC, and Burroughs no longer exist. Nucor is the biggest steel producer (and non union); Bethlehem, LTV and Republic are ghosts. In our economy this is repeated endlessly.
The danger of institutional growth in the government sector is that the old are rarely allowed to die. Obama has promised to rid our government of outdated programs and institutions, but so have nearly every president before him since Carter. Even if he did rid us of old programs he is growing the government sector so much and so fast that it will strangle the private sector.
We already have a culture of growth and change. Growth is also tied to a growth in population, either by birthrate or immigration or both. Europe’s is suffering from low birthrate as much as big government socialism, and its immigrants are marginalized in a semi apartheid state. This is a very dangerous brew.
The irony is that if anything near this huge budget is passed we will need a huge growth in the economy to pay for it. Yet nothing will slow the economic growth machine down like the government usurping the private sector in a huge European style government.
Europe has been mired in a stagnant economy and high unemployment for many years. It is not a model worth emulating.
Our culture rewards innovation and change, but as we know very well, change comes with choices and often with pain. In order for the pie to grow, companies and institutions decay and die and are replaced by new institutions and companies.
Bookstores are shuttered as Amazon grows. Microsoft and Apple prosper; Digital, NEC, and Burroughs no longer exist. Nucor is the biggest steel producer (and non union); Bethlehem, LTV and Republic are ghosts. In our economy this is repeated endlessly.
The danger of institutional growth in the government sector is that the old are rarely allowed to die. Obama has promised to rid our government of outdated programs and institutions, but so have nearly every president before him since Carter. Even if he did rid us of old programs he is growing the government sector so much and so fast that it will strangle the private sector.
We already have a culture of growth and change. Growth is also tied to a growth in population, either by birthrate or immigration or both. Europe’s is suffering from low birthrate as much as big government socialism, and its immigrants are marginalized in a semi apartheid state. This is a very dangerous brew.
The irony is that if anything near this huge budget is passed we will need a huge growth in the economy to pay for it. Yet nothing will slow the economic growth machine down like the government usurping the private sector in a huge European style government.
Europe has been mired in a stagnant economy and high unemployment for many years. It is not a model worth emulating.
Sunday, March 22, 2009
Understanding Economic Behavior
Economics is more about people’s behavior than about money. This is why economic behavior is so difficult to control and often difficult to quantify in a usable way.
A tax rate of 25% is neither high nor low. It is relative to comparative tax rates in other countries; if you can get the same risk adjusted return in a different country with less taxes then capital will move to that country, along with the wealth, social capital, talent and tax revenue that goes with it.
It would be irrelevant to argue that we have not raised our tax in years if during that period other safe countries have substantially lowered their tax rate. Tax generating wealth will still move overseas even if our own tax rate has remained stable.
A 25% tax rate is different if taxes were recently cut to 25% from say 35%. Such a downward change may generate new investment, especially if it is now competitive to rates obtainable overseas. If it is still high compared to overseas rates then such a cut may have very little impact or change in economic behavior.
If we just raised the rate from 20% to 25% then it may have a curtailing effect on economic activity. A 25% rate achieved by a decline in the rates may have the opposite effect.
But our behavior is also determined by our emotions. Lower mortgage interest rates should increase mortgage lending yet many home mortgage holders paid of their mortgage debt when rates were very low. The reason is that there were fewer perceived safe alternatives in the investment world. The best investment was “not paying” 6% or whatever mortgage rate prevailed at the time.
With investment returns slaughtered in the last several months, people are sitting on cash with little return because it is safe. If inflation is expected people will be less inclined to invest and more inclined to spend on longer term items that will likely cost more in the future. We have not seen the second part of that yet because we still sense the deflation of lower fuel and house prices. In fear people are sitting on cash. We are awash in liquidity that every one fears spending.
The government program to force spending through the Stimulus Act will inject the liquidity into the economy, but unless the psychology of fear and lack of confidence is countered the velocity of this money will remain slow and the stimulus effect may be very short lived. If the construction worker and the truck driver and the teachers who benefit from the largess of the so called Stimulus Act do not have confidence in the future they will be less likely to invest for the future. They will hoard cash and pay down debt.
When inflation becomes obvious this behavior may change. People will buy to avoid higher prices later. This means they will invest less and further drain the investment capital.
A tax rate of 25% is neither high nor low. It is relative to comparative tax rates in other countries; if you can get the same risk adjusted return in a different country with less taxes then capital will move to that country, along with the wealth, social capital, talent and tax revenue that goes with it.
It would be irrelevant to argue that we have not raised our tax in years if during that period other safe countries have substantially lowered their tax rate. Tax generating wealth will still move overseas even if our own tax rate has remained stable.
A 25% tax rate is different if taxes were recently cut to 25% from say 35%. Such a downward change may generate new investment, especially if it is now competitive to rates obtainable overseas. If it is still high compared to overseas rates then such a cut may have very little impact or change in economic behavior.
If we just raised the rate from 20% to 25% then it may have a curtailing effect on economic activity. A 25% rate achieved by a decline in the rates may have the opposite effect.
But our behavior is also determined by our emotions. Lower mortgage interest rates should increase mortgage lending yet many home mortgage holders paid of their mortgage debt when rates were very low. The reason is that there were fewer perceived safe alternatives in the investment world. The best investment was “not paying” 6% or whatever mortgage rate prevailed at the time.
With investment returns slaughtered in the last several months, people are sitting on cash with little return because it is safe. If inflation is expected people will be less inclined to invest and more inclined to spend on longer term items that will likely cost more in the future. We have not seen the second part of that yet because we still sense the deflation of lower fuel and house prices. In fear people are sitting on cash. We are awash in liquidity that every one fears spending.
The government program to force spending through the Stimulus Act will inject the liquidity into the economy, but unless the psychology of fear and lack of confidence is countered the velocity of this money will remain slow and the stimulus effect may be very short lived. If the construction worker and the truck driver and the teachers who benefit from the largess of the so called Stimulus Act do not have confidence in the future they will be less likely to invest for the future. They will hoard cash and pay down debt.
When inflation becomes obvious this behavior may change. People will buy to avoid higher prices later. This means they will invest less and further drain the investment capital.
Saturday, March 21, 2009
The Rush Factor
I thought it was a mistake for President Obama to focus so much attention on Rush Limbaugh in his first few weeks. Why empower an enemy that you just defeated? If Rush had any real power Obama would not have won.
I am beginning to think that I was wrong and that Obama’s political genius was right. By selecting the most frictional and divisive face to put on the opposition party he has in effect neutered the Republican opposition to his budget and his policies. The Republicans are playing into Obama’s hands like warm clay.
Obama has diverted attention away from Michael Steele and Mitch Cantor, the new Black and Jewish leaders. Pawlenty, Jindal, Sanford, and even Romney have also been forced in to the back seat.
Rush, Newt and Sarah are the old and voters have clearly wanted a change. The party needs new faces to distance the failure of the past, and they are in an incredibly poor position if they let the opposition define them.
It is not that I disagree with many of the ideas of Newt or Rush, it is just that they will not attract new voters to the party as other capable leaders will.
I am beginning to think that I was wrong and that Obama’s political genius was right. By selecting the most frictional and divisive face to put on the opposition party he has in effect neutered the Republican opposition to his budget and his policies. The Republicans are playing into Obama’s hands like warm clay.
Obama has diverted attention away from Michael Steele and Mitch Cantor, the new Black and Jewish leaders. Pawlenty, Jindal, Sanford, and even Romney have also been forced in to the back seat.
Rush, Newt and Sarah are the old and voters have clearly wanted a change. The party needs new faces to distance the failure of the past, and they are in an incredibly poor position if they let the opposition define them.
It is not that I disagree with many of the ideas of Newt or Rush, it is just that they will not attract new voters to the party as other capable leaders will.
Friday, March 20, 2009
Arbitrary and Capricious
The move to tax the bonuses paid to AIG managers at 90% is so arbitrary and capricious that it should be struck down by the courts. While the outrage is understood, the idea that Congress can direct such a punitive tax at the targets of a single company is absurd and should be worrisome to any citizen.
Who could they target next; the executives of fast food companies or alcohol companies? How about the executives of oil companies, or health insurance companies, or firearms manufacturers?
What about the executive of Fannie Mae who got a 90 million dollar bonus as they drove that federally protected behemoth into the ground; Where is the outrage there?
It would have not been unusual to have made the bailout contingent on subordinating loans and getting management to renounce existing bonus structures. The was forced on Long Term Capital when the Fed engineered a bailout of the disastrous hedge fund. Not to do so implied incompetence on the part of Geitner or Dodd or the administration, or possible corruption on the part of the two largest recipients of AIG campaign largesse.
Dodd has still not answered lingering questions about his favored status loans with Countrywide while they were subject to Congressional scrutiny.
It is more than ironic that New York is lamenting the loss of tax revenues on the sharply reduced bonuses on Wall Street. Are we to bail out state and municipal governments that suffer from the loss of tax revenues as a result of punitive confiscatory taxes from the federal government?
Does this ever end?
Who could they target next; the executives of fast food companies or alcohol companies? How about the executives of oil companies, or health insurance companies, or firearms manufacturers?
What about the executive of Fannie Mae who got a 90 million dollar bonus as they drove that federally protected behemoth into the ground; Where is the outrage there?
It would have not been unusual to have made the bailout contingent on subordinating loans and getting management to renounce existing bonus structures. The was forced on Long Term Capital when the Fed engineered a bailout of the disastrous hedge fund. Not to do so implied incompetence on the part of Geitner or Dodd or the administration, or possible corruption on the part of the two largest recipients of AIG campaign largesse.
Dodd has still not answered lingering questions about his favored status loans with Countrywide while they were subject to Congressional scrutiny.
It is more than ironic that New York is lamenting the loss of tax revenues on the sharply reduced bonuses on Wall Street. Are we to bail out state and municipal governments that suffer from the loss of tax revenues as a result of punitive confiscatory taxes from the federal government?
Does this ever end?
Thursday, March 19, 2009
Selective Outrage - Again
Franklin Raines and Jamie Gorelick ran Fannie Mae into the ground and then collected bonuses of $90 million and $24.7 million, yet we did not seem to be nearly as outraged as we are by the bonuses paid to AIG, facilitated by the biggest recipients of their campaign largesse.
Dodd and Obama were the only Senators getting over $100,000 in campaign contributions from AIG and they appear to have direct culpability in overlooking these pending bonuses when the bailout money was released.
Are to believe that Dodd and Obama were unaware of six figure contributions? Dodd also received favored loans from Countrywide pending their crisis. He has yet to release the documents he promised.
How long will the party loyalists tolerate such corruption and incompetence.
Dodd and Obama were the only Senators getting over $100,000 in campaign contributions from AIG and they appear to have direct culpability in overlooking these pending bonuses when the bailout money was released.
Are to believe that Dodd and Obama were unaware of six figure contributions? Dodd also received favored loans from Countrywide pending their crisis. He has yet to release the documents he promised.
How long will the party loyalists tolerate such corruption and incompetence.
Anything But Fair
President Obama was wise to say he does not intend to pursue reenactment of the fairness doctrine. It should defuse the right wing blogosphere at least on this issue.
It does not go to say that they may not try to achieve the same result by other means, but it never made any sense anyway.
If the right wing radio talking heads had that much influence then how do you explain the Democrats’ success in both houses and the White House? Obama was foolish attributing as much power and credit to Rush Limbaugh as he did.
And how do you enforce fairness? Is Rush’s competition ONLY radio or is he also competing with television, print media and the internet. Will other media also be expected to be fair? Will Newsweek have to balance column inches based on political criticism? Will I be forced to balance my criticisms in my blog?
What about foreign media that has American access? Will Al Jazeera or the Guardian (for those who can tell the difference) have to be fair and balanced? (Wouldn’t that be nice?)
What if there are more than two sides to an argument? Will every side have to be covered equally, regardless of merit?
We have a wide competition of ideas and they will gravitate to the most receptive media. There is a competition of not only ideas and views, but of media portals and outlets.
With this widespread proliferation there is widespread misinformation and bias, but the open market has also humbled old media. Ask Dan Rather. Who broke the story on Monica Lewinski and John Edwards? How many such stories never saw the light of day in the days of old media domination and “fairness”.
The widespread market of ideas has its problems, but ideas are like toothpaste and it is impossible to get it back in the tube.
The only way to enforce the fairness doctrine is to be anything but fair.
It does not go to say that they may not try to achieve the same result by other means, but it never made any sense anyway.
If the right wing radio talking heads had that much influence then how do you explain the Democrats’ success in both houses and the White House? Obama was foolish attributing as much power and credit to Rush Limbaugh as he did.
And how do you enforce fairness? Is Rush’s competition ONLY radio or is he also competing with television, print media and the internet. Will other media also be expected to be fair? Will Newsweek have to balance column inches based on political criticism? Will I be forced to balance my criticisms in my blog?
What about foreign media that has American access? Will Al Jazeera or the Guardian (for those who can tell the difference) have to be fair and balanced? (Wouldn’t that be nice?)
What if there are more than two sides to an argument? Will every side have to be covered equally, regardless of merit?
We have a wide competition of ideas and they will gravitate to the most receptive media. There is a competition of not only ideas and views, but of media portals and outlets.
With this widespread proliferation there is widespread misinformation and bias, but the open market has also humbled old media. Ask Dan Rather. Who broke the story on Monica Lewinski and John Edwards? How many such stories never saw the light of day in the days of old media domination and “fairness”.
The widespread market of ideas has its problems, but ideas are like toothpaste and it is impossible to get it back in the tube.
The only way to enforce the fairness doctrine is to be anything but fair.
Wednesday, March 18, 2009
Losing the Center
There were a lot of centrists who supported Obama. There is a rapidly growing list who are publicly regretting it. For the first installation noted in American Thinker read here.
A Lesson from Uncle Milton
I recently viewed this old interview of Milton Friedman by Phil Donahue. See the interview here.
Note that Friedman smiles, speaks softly and makes his point brilliantly by turning questions back to Donahue. There is no yelling or interrupting. You are largely left reaching your own conclusions, and it is a far less threatening way to teach the strength of the free market principles.
Friedman has an obvious command of the subject and has thought it through thoroughly, but he is as friendly as your favorite uncle giving you sage and friendly advice.
"Is the puruit of political self interest any nobler than the pursuit of economic self interest.?"
Compare this to the harshness of talk radio today. The ideas may be sound, but they can learn a lot about the delivery from Uncle Milton.
Note that Friedman smiles, speaks softly and makes his point brilliantly by turning questions back to Donahue. There is no yelling or interrupting. You are largely left reaching your own conclusions, and it is a far less threatening way to teach the strength of the free market principles.
Friedman has an obvious command of the subject and has thought it through thoroughly, but he is as friendly as your favorite uncle giving you sage and friendly advice.
"Is the puruit of political self interest any nobler than the pursuit of economic self interest.?"
Compare this to the harshness of talk radio today. The ideas may be sound, but they can learn a lot about the delivery from Uncle Milton.
Tuesday, March 17, 2009
In Search of Doubt
Robert Rubin wrote about his experience as Treasury Secretary to President Clinton in a memoir presciently titled “A World of Uncertainty.”Rubin rose through a distinguished career on Wall Street by understanding risk and uncertainty. On Wall Street nobody was absolutely certain about any outcome and managed risk accordingly. When he came to Washington he expressed his concern about how certain everyone was about the outcome of policies that could have significant outcome on every American.
The fact that his company, Citicorp, under his leadership did about the worst among the dreadful indicates that the collapse was about more than mere greed; it was about technicians who exchanged a philosophical understanding of risk with a delusional sense of mathematical certainty. The results were catastrophic.
Yet this mistake is about to be repeated in President Obama’s atrocious budget.
Obama inherited the worst financial and economic problem since WW II. If he did nothing but guide us successfully through this mess he would achieve a well deserved place among our greatest presidents.
But he has also decided to guide private industries through czars and panels. With the bailout money comes power and control. He has decided to solve the health care problem, extend government control over the energy sector, make college education universal, promote broad unionization, and promote extensive infrastructure development and improvement.It is too much and it comes at too high a price. Few would question the desirability of these programs, but the crux of government is to say ‘no’ to worthwhile programs that we can not afford. You can achieve anything but not everything.
Change is easy, choices are hard.
We have benefited from large scale government programs from the Louisiana Purchase to the highway system to the Pell grants that educated out soldiers returning from WWII. But President Obama is trying to do all of these at once in the middle of a financial crisis with sharply declining tax revenues. This is unprecedented and extremely risky. His defense budget even discounts any potential foreign threat, and may be unduly optimistic on future revenues. Are we that certain that he is that good?
Yet pundits express with certainty that the Bush tax cuts caused this problem, or Wall Street greed, or Greenspan’s monetary policy, or whatever you want to believe. Yet economists argue over the causes of the Depression after 75 years of diligent study.
It may have been necessary to support the banking system through the first TARP program. As unpopular as it was, it focused the money in the most vulnerable area. But once we stabilized the system we would be wise to slow down and understand the problem before we spend trillions we do not have to solve them. The debate on the unprecedented so called Stimulus package was minimal. Nancy Pelosi noted, “We won the election, we wrote the bill.”
The one area of most urgent concern, the banking and financial system, is still waiting on action from empty desks at Treasury. The budget seeks resolution of every problem except the most serious and urgent.
But the most worrisome is the tone of certainty from the President that his budget must solve all of these major problems NOW. Certainty in the markets comes at a very high premium.
Replacing the blind certainty of Wall Street with the blind certainty of Washington is not a solution but an extension of the problem.
James Madison noted, “A crisis is the rallying cry of the tyrant.” Rahm Emanual confirmed that we can not waste this crisis and should use it to enact the administration’s agenda.
Like Icarus who flew to close to the sun, Obama’s ambition can be counterproductive. We can use a big dose of doubt and skepticism. The principles of addition and subtraction do not change just because the numbers are larger.
You can achieve anything but not everything; at least not at the same time.
Change is easy, choices are hard.
The fact that his company, Citicorp, under his leadership did about the worst among the dreadful indicates that the collapse was about more than mere greed; it was about technicians who exchanged a philosophical understanding of risk with a delusional sense of mathematical certainty. The results were catastrophic.
Yet this mistake is about to be repeated in President Obama’s atrocious budget.
Obama inherited the worst financial and economic problem since WW II. If he did nothing but guide us successfully through this mess he would achieve a well deserved place among our greatest presidents.
But he has also decided to guide private industries through czars and panels. With the bailout money comes power and control. He has decided to solve the health care problem, extend government control over the energy sector, make college education universal, promote broad unionization, and promote extensive infrastructure development and improvement.It is too much and it comes at too high a price. Few would question the desirability of these programs, but the crux of government is to say ‘no’ to worthwhile programs that we can not afford. You can achieve anything but not everything.
Change is easy, choices are hard.
We have benefited from large scale government programs from the Louisiana Purchase to the highway system to the Pell grants that educated out soldiers returning from WWII. But President Obama is trying to do all of these at once in the middle of a financial crisis with sharply declining tax revenues. This is unprecedented and extremely risky. His defense budget even discounts any potential foreign threat, and may be unduly optimistic on future revenues. Are we that certain that he is that good?
Yet pundits express with certainty that the Bush tax cuts caused this problem, or Wall Street greed, or Greenspan’s monetary policy, or whatever you want to believe. Yet economists argue over the causes of the Depression after 75 years of diligent study.
It may have been necessary to support the banking system through the first TARP program. As unpopular as it was, it focused the money in the most vulnerable area. But once we stabilized the system we would be wise to slow down and understand the problem before we spend trillions we do not have to solve them. The debate on the unprecedented so called Stimulus package was minimal. Nancy Pelosi noted, “We won the election, we wrote the bill.”
The one area of most urgent concern, the banking and financial system, is still waiting on action from empty desks at Treasury. The budget seeks resolution of every problem except the most serious and urgent.
But the most worrisome is the tone of certainty from the President that his budget must solve all of these major problems NOW. Certainty in the markets comes at a very high premium.
Replacing the blind certainty of Wall Street with the blind certainty of Washington is not a solution but an extension of the problem.
James Madison noted, “A crisis is the rallying cry of the tyrant.” Rahm Emanual confirmed that we can not waste this crisis and should use it to enact the administration’s agenda.
Like Icarus who flew to close to the sun, Obama’s ambition can be counterproductive. We can use a big dose of doubt and skepticism. The principles of addition and subtraction do not change just because the numbers are larger.
You can achieve anything but not everything; at least not at the same time.
Change is easy, choices are hard.
Monday, March 16, 2009
A Living Rolodex
Facebook has added a whole new dimension to social networking, in fact reinventing it. Like any new media certain protocols develop; like learning not to capitalize all the letters in an e-mail message for fear of appearing loud or angry.
There are those who engage continuously through their iPhone or Blackberries and seem interested in sharing what seems to be the most trivial activities of their day. There are those that share links to entertaining videos or interesting articles.
There are those that engage through questions and lists about yourself.
I find that it is a fascinating place to add some depth to otherwise casual relationships, to rekindle old relations, and to get to know authors and readers with similar interests.
I follow my daughter and some of her friends but I am cautious to avoid ‘conversations’ with them less I appear to be intruding on her social network. I am cautious of appearing predatory towards women that I do not know and avoid ‘friending’ strangers unless we share at least 12 common friends.
While I share articles that I find offers some insight I try to avoid blatantly political and partisan attacks since I pride my ‘friend’ pool on its political diversity.
Facebook clearly is used by many to promote business interests and that is largely why I got involved. Combining business and social networks can have some real potential as long as it does not get overwhelmingly and blatantly commercial. People do like to do business with people they know and like.
To me Facebook is like a living Rolodex where you can get constantly updated information on your ‘friends’ and contacts. The new media has developed so fast that its uses are just being discovered, and every user gets to set his or her own rules.
There are those who engage continuously through their iPhone or Blackberries and seem interested in sharing what seems to be the most trivial activities of their day. There are those that share links to entertaining videos or interesting articles.
There are those that engage through questions and lists about yourself.
I find that it is a fascinating place to add some depth to otherwise casual relationships, to rekindle old relations, and to get to know authors and readers with similar interests.
I follow my daughter and some of her friends but I am cautious to avoid ‘conversations’ with them less I appear to be intruding on her social network. I am cautious of appearing predatory towards women that I do not know and avoid ‘friending’ strangers unless we share at least 12 common friends.
While I share articles that I find offers some insight I try to avoid blatantly political and partisan attacks since I pride my ‘friend’ pool on its political diversity.
Facebook clearly is used by many to promote business interests and that is largely why I got involved. Combining business and social networks can have some real potential as long as it does not get overwhelmingly and blatantly commercial. People do like to do business with people they know and like.
To me Facebook is like a living Rolodex where you can get constantly updated information on your ‘friends’ and contacts. The new media has developed so fast that its uses are just being discovered, and every user gets to set his or her own rules.
Sunday, March 15, 2009
Investing Odds
Is this a good time to buy?
Yes and no. The contrarians are salivating but one can not discount the real risk in this market. Obama’s policies are so radically different on so many different levels that there is a chance that the game may be changed for a decade.
It would be foolish to expect a rapid resurgence in prices. It will likely be a long slow slug from current levels. One should not be testing bottoms here without a lot of patience.
But it would be a good time to begin to buy the strongest players in the weakest industries; especially steel, cars, and banks. A more conservative play would be to starting frequent buying of low cost index funds, especially if the market continues to fall.
Here is my gut risk assessment of this market. There is a 50% chance that we are less than a 1000 points away from a bottom. While 1000 points seems like a wide margin it is small considering the 6,000 drop in the last 9 months. Even if we do bottom above a 6,000 Dow the time frame could be long. This is no time for impatient investors.
I see a 20% chance that the market could drop far beyond 6,000 to say 4,000 and a 10% chance it can go beyond that. I see a 10% chance that we could rebound significantly and rapidly from near current levels. I see this last probability largely because of the massive monetary infusion. The market may benefit from inflation.
Cash and patience are king, but opportunities are available that we may not see again in our lifetimes.
Yes and no. The contrarians are salivating but one can not discount the real risk in this market. Obama’s policies are so radically different on so many different levels that there is a chance that the game may be changed for a decade.
It would be foolish to expect a rapid resurgence in prices. It will likely be a long slow slug from current levels. One should not be testing bottoms here without a lot of patience.
But it would be a good time to begin to buy the strongest players in the weakest industries; especially steel, cars, and banks. A more conservative play would be to starting frequent buying of low cost index funds, especially if the market continues to fall.
Here is my gut risk assessment of this market. There is a 50% chance that we are less than a 1000 points away from a bottom. While 1000 points seems like a wide margin it is small considering the 6,000 drop in the last 9 months. Even if we do bottom above a 6,000 Dow the time frame could be long. This is no time for impatient investors.
I see a 20% chance that the market could drop far beyond 6,000 to say 4,000 and a 10% chance it can go beyond that. I see a 10% chance that we could rebound significantly and rapidly from near current levels. I see this last probability largely because of the massive monetary infusion. The market may benefit from inflation.
Cash and patience are king, but opportunities are available that we may not see again in our lifetimes.
Saturday, March 14, 2009
The USS Liberty
The most controversial act during the Six Day War of 1967 was the attack on the USS Liberty by Israeli planes. Thirty US sailors were killed and the ship was severely damaged, but not sunk.
Officially, the attack was a mistake, though several conspiracy theories abound. The Liberty was an intelligence gathering ship and was likely sent to the area to get solid evidence that the Soviets were in fact directly involved in military combat against the Israelis. The US ship stopped in Gibraltar to pick up Intelligence personnel with Russian and Egyptian linguistic ability. It was noted that the ship staff did not have Israeli or Hebrew capability.
This indicates that their objective was to monitor Russian and Egyptian communications, not Israeli. This is important because one theory posed by John Loftus in the “Secret War Against the Jews” was that the Israelis attacked the Liberty intentionally because it was spying on the Israelis and communicating Israeli troop movements to the Egyptians. While seemingly farfetched Loftus contended that the US State and Intelligence Departments were often at odds with executive and congressional foreign policy when it came to Israel.
The Israelis claimed they thought the vessel was Egyptian, but they may have suspected it was Russian, and claimed they thought it was Egyptian to keep from inciting the Russians.
Given the strong soviet presence in the area, the speed and the ferocity of the battle, it is understandable that it could have been a suspect Soviet spy vessel relaying battlefield communications to Israel’s foes. Given the fear that the Israelis had of direct Soviet military intervention in the war, it seems unlikely they would have intentionally attacked their strongest ally, the U.S.
Officially, the attack was a mistake, though several conspiracy theories abound. The Liberty was an intelligence gathering ship and was likely sent to the area to get solid evidence that the Soviets were in fact directly involved in military combat against the Israelis. The US ship stopped in Gibraltar to pick up Intelligence personnel with Russian and Egyptian linguistic ability. It was noted that the ship staff did not have Israeli or Hebrew capability.
This indicates that their objective was to monitor Russian and Egyptian communications, not Israeli. This is important because one theory posed by John Loftus in the “Secret War Against the Jews” was that the Israelis attacked the Liberty intentionally because it was spying on the Israelis and communicating Israeli troop movements to the Egyptians. While seemingly farfetched Loftus contended that the US State and Intelligence Departments were often at odds with executive and congressional foreign policy when it came to Israel.
The Israelis claimed they thought the vessel was Egyptian, but they may have suspected it was Russian, and claimed they thought it was Egyptian to keep from inciting the Russians.
Given the strong soviet presence in the area, the speed and the ferocity of the battle, it is understandable that it could have been a suspect Soviet spy vessel relaying battlefield communications to Israel’s foes. Given the fear that the Israelis had of direct Soviet military intervention in the war, it seems unlikely they would have intentionally attacked their strongest ally, the U.S.
Friday, March 13, 2009
Sectarian Conservatives
I remember a now deceased economics professor being asked if he was a liberal or conservative economist. He responded that there were good and bad economics, not liberal and conservative economics.
Many of us have long lost the use of the polar political descriptions. Most of us are “liberal” on some issues and “conservative” on others. The moral distinctions are shallow and meaningless.
All of us would like to alleviate poverty, war, injustice, and disease; the difference is determining which method will be best for the most. We know there is some combination of individual rights and incentives and government control and oversight, and the political debate is just a matter of a shift along some continuum.
The Libertarian minded Republicans and the Blue Dog Democrats are both economically “conservative”. The religious right threatens to drive many of their libertarian fiscal conservatives away and marginalize themselves permanently.
Obama may have been politically brilliant in putting Rush Limbaugh’s face on the Republican Party. In many polls Rush Limbaugh ranks less favorably than Jeremiah Wright. It doesn’t matter whether Rush is right or wrong. It is next to impossible to change a public perception and their perception of Rush is not good. Sarah Palin may have drawn a lot of support to the party, but she also drove some of it away.
To regain ground the Republicans need to put religion back in churches; and this includes abortion. By making this a litmus test issue the Republicans risk aligning the sectarian conservatives with the Blue Dog Democrats. There are many options to reduce abortions (which I support) besides government mandates.
Sectarian does not equate with atheism, but atheists are over 15% of the voters (probably more) and they also vote. Sectarian includes many non Christian faiths and many Christian faiths that prefer to keep their faith and politics separate.
The radical budget that Obama and the majority party is trying to force down our throat is the best opportunity the Republicans have for regaining power, but I wonder if they will squander it by diffusing their focus on issues of moral supremacy rather than practical action.
We are relying on the Blue Dog Democrats to bring some sanity to the budget because the Republicans currently do not have enough power to bring us back from the edge.
Many of us have long lost the use of the polar political descriptions. Most of us are “liberal” on some issues and “conservative” on others. The moral distinctions are shallow and meaningless.
All of us would like to alleviate poverty, war, injustice, and disease; the difference is determining which method will be best for the most. We know there is some combination of individual rights and incentives and government control and oversight, and the political debate is just a matter of a shift along some continuum.
The Libertarian minded Republicans and the Blue Dog Democrats are both economically “conservative”. The religious right threatens to drive many of their libertarian fiscal conservatives away and marginalize themselves permanently.
Obama may have been politically brilliant in putting Rush Limbaugh’s face on the Republican Party. In many polls Rush Limbaugh ranks less favorably than Jeremiah Wright. It doesn’t matter whether Rush is right or wrong. It is next to impossible to change a public perception and their perception of Rush is not good. Sarah Palin may have drawn a lot of support to the party, but she also drove some of it away.
To regain ground the Republicans need to put religion back in churches; and this includes abortion. By making this a litmus test issue the Republicans risk aligning the sectarian conservatives with the Blue Dog Democrats. There are many options to reduce abortions (which I support) besides government mandates.
Sectarian does not equate with atheism, but atheists are over 15% of the voters (probably more) and they also vote. Sectarian includes many non Christian faiths and many Christian faiths that prefer to keep their faith and politics separate.
The radical budget that Obama and the majority party is trying to force down our throat is the best opportunity the Republicans have for regaining power, but I wonder if they will squander it by diffusing their focus on issues of moral supremacy rather than practical action.
We are relying on the Blue Dog Democrats to bring some sanity to the budget because the Republicans currently do not have enough power to bring us back from the edge.
Thursday, March 12, 2009
Orwell Lives
Politics is rife with words meant to sound very different from their true meaning.
The Employee Free Choice Act is being used to deny workers a secret ballot when voting to petition for a union. A secret ballot is sacrosanct in our democracy and is critical in protecting voters from intimidating actions.
My personal experience is that unions will lie and intimidate freely to get a petition signed and to get workers to vote a union in. I am sure that there have been cases where employers will also stretch ethical behavior to get their workers to vote against a union. In fact the secret ballot was originally demanded by unions to avoid employer intimidation. No matter how many laws and court rulings are used to get workers treated fairly, nothing protects their rights and intentions as much as a secret ballot.
Actions to deny workers a secret ballot are a shameless power grab by the unions as a payoff for their support of the current Congress and administration. Acquiescence to this gives P.J. O’Rourke’s description of a “parliament of whores” a ring of “truthiness”. The comparison is unfair to whores.
Yet the secret ballot is only part of this calamity. If a contract is not neogotiated in 60 days the union can have the federal government set the terms and force them on the company. What company in their right mind would open a new factory or create a new job in such an onerous environment? This is a job killer on a massive scale.
Union membership has declined precipitously in the last half century. Union demands have helped to cripple and bankrupt many icons of capitalism; GM is just the latest victim. (Yes there were other causes; every contract did require two signatures.)
Modern progressive management practices have also contributed to the decline in union membership. The largest and most profitable steel company in America is Nucor. It is non union; having defeated unionization attempts many times. It workers are well compensated and quite content. The union handicapped steel companies of 50 years ago are mere shadows of their prior existence.
Many manufacturers fled south to escape union pressures in the north. An American government that pushes unionization on its workforce will contribute significantly to the same flight overseas. Unemployment will rise and capital forming industries will vacate along with its society improving, wealth creating, tax paying benefits.
While I strive to see both sides of an argument I can not see how anyone remotely concerned with a worker’s rights can support denying him the right to a secret ballot. The damage to employment and business creation by this Orwellian promise of worker fairness would set back business growth by decades. Once a business locates overseas, it will not be quick to move back.
Like the unions themselves, candidates will freely and loosely make promises they either forget or refuse to keep. This is one promise they should break.
The Employee Free Choice Act is being used to deny workers a secret ballot when voting to petition for a union. A secret ballot is sacrosanct in our democracy and is critical in protecting voters from intimidating actions.
My personal experience is that unions will lie and intimidate freely to get a petition signed and to get workers to vote a union in. I am sure that there have been cases where employers will also stretch ethical behavior to get their workers to vote against a union. In fact the secret ballot was originally demanded by unions to avoid employer intimidation. No matter how many laws and court rulings are used to get workers treated fairly, nothing protects their rights and intentions as much as a secret ballot.
Actions to deny workers a secret ballot are a shameless power grab by the unions as a payoff for their support of the current Congress and administration. Acquiescence to this gives P.J. O’Rourke’s description of a “parliament of whores” a ring of “truthiness”. The comparison is unfair to whores.
Yet the secret ballot is only part of this calamity. If a contract is not neogotiated in 60 days the union can have the federal government set the terms and force them on the company. What company in their right mind would open a new factory or create a new job in such an onerous environment? This is a job killer on a massive scale.
Union membership has declined precipitously in the last half century. Union demands have helped to cripple and bankrupt many icons of capitalism; GM is just the latest victim. (Yes there were other causes; every contract did require two signatures.)
Modern progressive management practices have also contributed to the decline in union membership. The largest and most profitable steel company in America is Nucor. It is non union; having defeated unionization attempts many times. It workers are well compensated and quite content. The union handicapped steel companies of 50 years ago are mere shadows of their prior existence.
Many manufacturers fled south to escape union pressures in the north. An American government that pushes unionization on its workforce will contribute significantly to the same flight overseas. Unemployment will rise and capital forming industries will vacate along with its society improving, wealth creating, tax paying benefits.
While I strive to see both sides of an argument I can not see how anyone remotely concerned with a worker’s rights can support denying him the right to a secret ballot. The damage to employment and business creation by this Orwellian promise of worker fairness would set back business growth by decades. Once a business locates overseas, it will not be quick to move back.
Like the unions themselves, candidates will freely and loosely make promises they either forget or refuse to keep. This is one promise they should break.
Wednesday, March 11, 2009
Is Obama Really Responsible for the Market Drop?
Correlation is not causation and while many of us feel his policies have not restored confidence there are other causes for the declines that can not be ignored.
We are in a demographic shift as the baby boomers are retiring and moving past their prime consuming year. Consumption trends are likely to be level to down.
We are also unwinding a long overblown credit bubble. Average household debt was high and unsustainable before the housing boom. Rising house prices just gave a false sense of security for homeowners to get even deeper in debt.
Clearly our financial system got way out of control and consumed much too large a portion of our economy. It must unwind.
The damage in investor confidence will take some time to overcome. Economist and accounting professionals did a very poor job of advising and protecting us as did our regulators and those in government.
None of the above can be blamed on Obama.
This is not to say that his policies and plans can not make this worse.
We are in a demographic shift as the baby boomers are retiring and moving past their prime consuming year. Consumption trends are likely to be level to down.
We are also unwinding a long overblown credit bubble. Average household debt was high and unsustainable before the housing boom. Rising house prices just gave a false sense of security for homeowners to get even deeper in debt.
Clearly our financial system got way out of control and consumed much too large a portion of our economy. It must unwind.
The damage in investor confidence will take some time to overcome. Economist and accounting professionals did a very poor job of advising and protecting us as did our regulators and those in government.
None of the above can be blamed on Obama.
This is not to say that his policies and plans can not make this worse.
Tuesday, March 10, 2009
A Recipe for a Republican Resurection
Erick Erickson notes the preferred position of his party- That Every Man Can Make Himself- borrowed from Lincoln.
Read the whole piece here.
Read the whole piece here.
Contrarian Conflicts
Conversation is fluid between those who believe this is the best time to buy stocks and those who believe that it is the worst time.
Pure contrarian thinking gets more excited about the possibilities the more negative the news gets. They pray for blood in the streets. The best ally of the contrarians is the media who tend to more negative than reality, driving panic and excessive selling. True contrarians must ignore the media. It takes deliberate focus.
On the good side is that there is enormous liquidity in the market. While the loose monetary policy under Greenspan is largely to blame for the financial panic, the fed is responding to this crisis with even greater liquidity. This money must eventually go somewhere. Fear is keeping it in low yield and low risk invenstment.
While unemployment is rapidly growing it is still low comparative to other recessions, and a fraction of the numbers during the Great Depression.
For the time being inflation is low, fuel prices are down as well as other industrial commodities, housing is far more affordable, and wage increases will be restrained by the poor business climate.
Historically stock prices are low, but that does not mean that they can not go lower. A very bright close friend in the real estate business noted that the market can remain irrational much longer than most people can remain liquid.
This does not mean that business will get better quickly or that Obama has the right answer. Raising taxes, reducing deductions, appointing federal czars to ‘oversee’ private industries, bailing out dying businesses, promoting unionization, subsidizing bad behavior, trying to support housing prices that were inflated by poor fed policy, massively increasing spending on health care, education, and every other ‘worthy’ cause, increasing welfare spending, lengthening unemployment benefits, massive infrastructure outlays during a time of declining earnings and tax generating income seems antithetical to every lesson we have learned in the last 100 years about fiscal discipline.
Obama has clearly fulfilled his campaign promise of change but he has avoided the far more difficult problem of choice. He intends to have it all. The street understands the tremendous risk of his policies.
The contrarian choice believes that we will return to a historical trend. The market extremities that flew above the mean have dropped well below the mean and will eventually return to the mean.
But if Obama’s radical reversal of numerous policies at one time signals a reversal of a long term trend then the contrarians may be wrong. Investors constantly read the disclaimer that past results are not indicative of future expectations, but they may be having trouble truly believing it at a time when they should be giving it very special consideration.
While some stocks are selling at valuations lower than we have ever seen, that doesn’t mean this market is without real risk. With such dramatic changes the game may be changed for years to come.
But certainty in the market carries a very high premium. The two best assets now are patience and cash. It will likely be a slow slugfest to return to market highs. But it would be a good time to start buying the strongest players in the weakest industries. The market may have long discounted the worst that can happen in those industries. A reasonable speculation would be to start slowly placing money in a low cost index fund.
It seems simple to acknowledge the wisdom of buying low and selling high, but this market clarifies why some wisdom that seems easy to understand can be so difficult to execute.
Pure contrarian thinking gets more excited about the possibilities the more negative the news gets. They pray for blood in the streets. The best ally of the contrarians is the media who tend to more negative than reality, driving panic and excessive selling. True contrarians must ignore the media. It takes deliberate focus.
On the good side is that there is enormous liquidity in the market. While the loose monetary policy under Greenspan is largely to blame for the financial panic, the fed is responding to this crisis with even greater liquidity. This money must eventually go somewhere. Fear is keeping it in low yield and low risk invenstment.
While unemployment is rapidly growing it is still low comparative to other recessions, and a fraction of the numbers during the Great Depression.
For the time being inflation is low, fuel prices are down as well as other industrial commodities, housing is far more affordable, and wage increases will be restrained by the poor business climate.
Historically stock prices are low, but that does not mean that they can not go lower. A very bright close friend in the real estate business noted that the market can remain irrational much longer than most people can remain liquid.
This does not mean that business will get better quickly or that Obama has the right answer. Raising taxes, reducing deductions, appointing federal czars to ‘oversee’ private industries, bailing out dying businesses, promoting unionization, subsidizing bad behavior, trying to support housing prices that were inflated by poor fed policy, massively increasing spending on health care, education, and every other ‘worthy’ cause, increasing welfare spending, lengthening unemployment benefits, massive infrastructure outlays during a time of declining earnings and tax generating income seems antithetical to every lesson we have learned in the last 100 years about fiscal discipline.
Obama has clearly fulfilled his campaign promise of change but he has avoided the far more difficult problem of choice. He intends to have it all. The street understands the tremendous risk of his policies.
The contrarian choice believes that we will return to a historical trend. The market extremities that flew above the mean have dropped well below the mean and will eventually return to the mean.
But if Obama’s radical reversal of numerous policies at one time signals a reversal of a long term trend then the contrarians may be wrong. Investors constantly read the disclaimer that past results are not indicative of future expectations, but they may be having trouble truly believing it at a time when they should be giving it very special consideration.
While some stocks are selling at valuations lower than we have ever seen, that doesn’t mean this market is without real risk. With such dramatic changes the game may be changed for years to come.
But certainty in the market carries a very high premium. The two best assets now are patience and cash. It will likely be a slow slugfest to return to market highs. But it would be a good time to start buying the strongest players in the weakest industries. The market may have long discounted the worst that can happen in those industries. A reasonable speculation would be to start slowly placing money in a low cost index fund.
It seems simple to acknowledge the wisdom of buying low and selling high, but this market clarifies why some wisdom that seems easy to understand can be so difficult to execute.
Monday, March 9, 2009
Flying Too Close to the Sun
Obama inherited a severe economic problem regardless of its source. It requires expensive solutions and careful analysis and monitoring. Like past presidents he must balance the government’s role and that of the private sector, but that balance is even more crucial given the unprecedented size of the problem and the urgency caused by frozen credit markets.
Just resolving this financial crisis is more consuming than most problems faced by new presidents. Yet Obama is overreaching. He wants to fund the financial bailouts and completely change our energy consumption with carbon credits, completely reform the health care sector, fund universal college education, and cut taxes for the vast majority of Americans and raise taxes on the rest. The so called stimulus package stretches our financial capabilities to new levels leaving most of us wondering how to pay for that.
I would have much more respect if he admitted our limits and focused on solving the most crucial crisis first instead of fulfilling every campaign promise in the first 100 days.
Carbon caps will raise energy costs for everybody. Promises to promote union growth by eliminating secret ballots will drive companies and their jobs overseas. Raising tax rates on the wealthy will drive down the dollar revenues. The size of the government as a percent of GDP will squeeze job creating, tax paying business out of the capital markets. Tax revenues will decline as government spending dramatically increases.
California is bankrupt from passing every socially progressive legislation the state wanted. California faced the same problem every government faces; saying “no” to worthwhile programs we can not afford. The wax is melting on California’s wings.
You can accomplish just about anything, but you can not accomplish or afford everything. Politics is a grown up game and requires grown up decisions.
Obama has certainly shown himself willing to make radical changes, but he has not shown himself able to make difficult choices.
His flight may be short lived.
Just resolving this financial crisis is more consuming than most problems faced by new presidents. Yet Obama is overreaching. He wants to fund the financial bailouts and completely change our energy consumption with carbon credits, completely reform the health care sector, fund universal college education, and cut taxes for the vast majority of Americans and raise taxes on the rest. The so called stimulus package stretches our financial capabilities to new levels leaving most of us wondering how to pay for that.
I would have much more respect if he admitted our limits and focused on solving the most crucial crisis first instead of fulfilling every campaign promise in the first 100 days.
Carbon caps will raise energy costs for everybody. Promises to promote union growth by eliminating secret ballots will drive companies and their jobs overseas. Raising tax rates on the wealthy will drive down the dollar revenues. The size of the government as a percent of GDP will squeeze job creating, tax paying business out of the capital markets. Tax revenues will decline as government spending dramatically increases.
California is bankrupt from passing every socially progressive legislation the state wanted. California faced the same problem every government faces; saying “no” to worthwhile programs we can not afford. The wax is melting on California’s wings.
You can accomplish just about anything, but you can not accomplish or afford everything. Politics is a grown up game and requires grown up decisions.
Obama has certainly shown himself willing to make radical changes, but he has not shown himself able to make difficult choices.
His flight may be short lived.
Sunday, March 8, 2009
The Dog Doesn’t Like the Damn Food
On an old Johnny Carson show there is a clip of a commercial break for a dog food where the dog comes out to eat the food during the commercial message and the dog keeps turning away from the bowl. After several embarrassing attempts to get the dog to eat the dog food, Johnny quips, “The dog doesn’t like the damn food.”
It got a round of applause and cost the show a sponsor, but it also shows that a marketing campaign often misses the single most important issue; you must offer a product or service the consumer wants.
Wall Street seems to be rejecting the product Obama is selling. Instead of a solution to our financial mess, the new president is reordering the entire economic and political system. As bad as the crisis is, the investors do not want to destroy the whole system. There is a difference between a major repair and scrapping the vehicle.
By attempting too much we often fail to accomplish anything. Americans are an impatient people and we want problems addressed and dispatched. The “fix everything approach” threatens to drag this problem on indefinitely.
It got a round of applause and cost the show a sponsor, but it also shows that a marketing campaign often misses the single most important issue; you must offer a product or service the consumer wants.
Wall Street seems to be rejecting the product Obama is selling. Instead of a solution to our financial mess, the new president is reordering the entire economic and political system. As bad as the crisis is, the investors do not want to destroy the whole system. There is a difference between a major repair and scrapping the vehicle.
By attempting too much we often fail to accomplish anything. Americans are an impatient people and we want problems addressed and dispatched. The “fix everything approach” threatens to drag this problem on indefinitely.
Saturday, March 7, 2009
Is Obama Effecting the Dow?
"A financial crisis is the worst time to change the foundations of American capitalism."
Read Michael Boskin's article here.
Read Michael Boskin's article here.
Discouraging Charity
Among the many bad ideas of the new administration the idea of raising taxes on the investor class in the midst of a recession is one of the worst.
Losses in the market have destroyed 50 years of confidence. It will be years before many will return to the equity market. Raising taxes on the investing class adds further disincentive to the average investor to help replish the capital pool.
Equally absurd is the idea that deductions for charitable organizations should be reduced. Charitable organizations have suffered the double trauma of losing much of their investment capital in this atrocious market and having a much harder time time getting donations from the public suffering from this recession.
In fact dedcutions for charity should be increased. If the top tax bracket is going to be 39% then why not allow one to deduct charitable donations at a rate of 50%. Why would anyone want to discourage charitable donations?
It seems that every idea this administration proposes is less economically sound than the one before.
Losses in the market have destroyed 50 years of confidence. It will be years before many will return to the equity market. Raising taxes on the investing class adds further disincentive to the average investor to help replish the capital pool.
Equally absurd is the idea that deductions for charitable organizations should be reduced. Charitable organizations have suffered the double trauma of losing much of their investment capital in this atrocious market and having a much harder time time getting donations from the public suffering from this recession.
In fact dedcutions for charity should be increased. If the top tax bracket is going to be 39% then why not allow one to deduct charitable donations at a rate of 50%. Why would anyone want to discourage charitable donations?
It seems that every idea this administration proposes is less economically sound than the one before.
Def Poetry Heeb
This is an awesome poetry recitiation you may not expect at Def Poetry Jam.
View it here.
tips to Jill Levine
View it here.
tips to Jill Levine
Friday, March 6, 2009
Cram This
The proposal to allow judges to rewrite mortgage contracts through a process appropriately known as “cramming” is the one of the most economically ignorant proposals from our still very new administration that is building an ever growing inventory of bad ideas.
If a judge can simply decree a change of the amount owed in a contract, the supply of private capital to the mortgage market will either a) disappear or b) the interest rate will escalate sharply to cover the potential of legal theft handed to some unknown judge.
The end result of the evaporation of mortgage capital is to keep housing prices depressed forever at a time when the president is trying to keep people in houses that have dropped sharply in collateral value.
A better idea would be to give a tax credit to a bank for a portion of the write down that they voluntarily negotiate with the lender under the condition that the bank keep the loan on their books for a predetermined period of time.
A reduction of mortgage interest deductions is probably a fair idea; why should the wealthiest be able to deduct an unlimited amount of mortgage interest? Yet while I general support the idea of a mortgage deduction cap, I could not envision a worse time to impose this change; when the real estate market is in the gutter.
Since the Republicans are effectively neutered, our only hope is for the Blue Dog Democrats to restore some sanity to these ridiculous proposals.
If a judge can simply decree a change of the amount owed in a contract, the supply of private capital to the mortgage market will either a) disappear or b) the interest rate will escalate sharply to cover the potential of legal theft handed to some unknown judge.
The end result of the evaporation of mortgage capital is to keep housing prices depressed forever at a time when the president is trying to keep people in houses that have dropped sharply in collateral value.
A better idea would be to give a tax credit to a bank for a portion of the write down that they voluntarily negotiate with the lender under the condition that the bank keep the loan on their books for a predetermined period of time.
A reduction of mortgage interest deductions is probably a fair idea; why should the wealthiest be able to deduct an unlimited amount of mortgage interest? Yet while I general support the idea of a mortgage deduction cap, I could not envision a worse time to impose this change; when the real estate market is in the gutter.
Since the Republicans are effectively neutered, our only hope is for the Blue Dog Democrats to restore some sanity to these ridiculous proposals.
Thursday, March 5, 2009
Pricing Cynicism
I was planning to go to the quiet college town of Bloomington, Indiana to visit my daughter and I called the Hilton Garden Inn just off the town square where we had stayed before. After asking me of I was with any group (I wasn’t), they quoted me a rate of $450 dollars a night.
This was triple what I had paid before, and they had no remorse in spite of my outrage.
Such pricing tactics are likely the result of bean counters who know the price of everything and the value of nothing. They rationalize such ridiculous pricing models yet remain ignorant how such arrogant tactics infuriate and alienate customers.
When the airlines used such practices to sell airline tickets they threw customer loyalty out the window.
The most important contact point with any customer is the pricing connection. A customer may not mind paying a little bmore for a perceived value but a customer will become furious when they feel they are being gouged. An outraged customer will not only cease using them, they will tell many others.
Any one want to guess how many readers will see this?
The Hampton Inn a few miles down the road is very nice and less than one fourth the price.
This was triple what I had paid before, and they had no remorse in spite of my outrage.
Such pricing tactics are likely the result of bean counters who know the price of everything and the value of nothing. They rationalize such ridiculous pricing models yet remain ignorant how such arrogant tactics infuriate and alienate customers.
When the airlines used such practices to sell airline tickets they threw customer loyalty out the window.
The most important contact point with any customer is the pricing connection. A customer may not mind paying a little bmore for a perceived value but a customer will become furious when they feel they are being gouged. An outraged customer will not only cease using them, they will tell many others.
Any one want to guess how many readers will see this?
The Hampton Inn a few miles down the road is very nice and less than one fourth the price.
Wednesday, March 4, 2009
Rolling Recession
As the Dow drops another 250 points (2/23/09) I keep seeing disconnects from the bad news.
It took me three hours to get from Atlanta to Macon last week (a ninety minute trip). I do not think all of those 18 wheelers were running empty.
I had to wait 20 minutes for a seat at Carrabba’s. There was a twenty minute wait at Wild Wings for lunch on Sunday and an equal wait at Sticky Finger’s nearby. The parking lot at the new mall was crowded. The gym was crowded.
If I did not get the news, there is little in Middle Georgia to tell me that we are on the edge of an economic abyss. Yes I know that things have slowed down, and New York has been hit much harder. I also realize that the auto, financial, banking and real estate industry are in an absolute depression. High growth areas such as Florida, Las Vegas, and Atlanta have been hit the hardest; when you eat like and elephant, you shit like an elephant.
But our strength is in economic diversity. We tend to have rolling recessions where some industries and regions get hit hard and others do OK. This appears to be markets adjusting. While unemployment is high and rising it is still well below the highs of the recession of 1981-82.
We are seeing excess credit unwinding, the ultimate costs of a weak monetary policy, and the result of a demographic shift.
These are long term trends unwinding and they must take their course. They are more a result of public policy than private excess. The problems that are exploding are systemic.
Yet it seems many readers feel comfortable blaming Bush, Greenspan, Clinton (Bill), Pelosi, Obama or whatever scapegoat you prefer. This economy is well beyond the control of any of these players, not to excuse incompetence and bad policy decisions from all of them.
Meanwhile, we get closer to a stock market bottom every day.
It took me three hours to get from Atlanta to Macon last week (a ninety minute trip). I do not think all of those 18 wheelers were running empty.
I had to wait 20 minutes for a seat at Carrabba’s. There was a twenty minute wait at Wild Wings for lunch on Sunday and an equal wait at Sticky Finger’s nearby. The parking lot at the new mall was crowded. The gym was crowded.
If I did not get the news, there is little in Middle Georgia to tell me that we are on the edge of an economic abyss. Yes I know that things have slowed down, and New York has been hit much harder. I also realize that the auto, financial, banking and real estate industry are in an absolute depression. High growth areas such as Florida, Las Vegas, and Atlanta have been hit the hardest; when you eat like and elephant, you shit like an elephant.
But our strength is in economic diversity. We tend to have rolling recessions where some industries and regions get hit hard and others do OK. This appears to be markets adjusting. While unemployment is high and rising it is still well below the highs of the recession of 1981-82.
We are seeing excess credit unwinding, the ultimate costs of a weak monetary policy, and the result of a demographic shift.
These are long term trends unwinding and they must take their course. They are more a result of public policy than private excess. The problems that are exploding are systemic.
Yet it seems many readers feel comfortable blaming Bush, Greenspan, Clinton (Bill), Pelosi, Obama or whatever scapegoat you prefer. This economy is well beyond the control of any of these players, not to excuse incompetence and bad policy decisions from all of them.
Meanwhile, we get closer to a stock market bottom every day.
Tuesday, March 3, 2009
Sweet Home Alabama
Temple Emanu-El in Dothan Alabama is offering $50,000 for Jewish families to relocate to Dothan, Alabama.
Small southern Jewish communites have faced stagnation for decades. The large starting salaries for rabbis make them practically unaffordable for many small communities. This Alabama synagogue has taken a very bold step to stem the attrition.
Hundreds of families have applied and 60 have qualified. For the rest of this story that just has Rebel Yid written all over it go here.
Small southern Jewish communites have faced stagnation for decades. The large starting salaries for rabbis make them practically unaffordable for many small communities. This Alabama synagogue has taken a very bold step to stem the attrition.
Hundreds of families have applied and 60 have qualified. For the rest of this story that just has Rebel Yid written all over it go here.
Monday, March 2, 2009
The President’s Reckoning
Conservatives are comparing Reagan and Obama, noting that Reagan entered office with the country in an economic crisis with the attitude that government is the problem. Obama clearly has a much different, practically opposite approach.
But to be fair, this economic crisis is very different. Reagan fought an inflationary spiral largely caused by the government unwilling to bear the political pain to get it under control. Reagan was willing and his solution entailed the recession of 1981-82, but the ultimate response was a twenty year economic boom.
President Obama is facing a very different situation with a severe financial crisis that most see as a problem largely brought on by greed and incompetence in the private sector. One could argue, as I often have, that the government also contributed significantly to this mess, but one can not ignore the failures in the private sector.
Obama has the troublesome task of avoiding a monetary collapse, which was largely accomplished, at least for the time being, with the TARP program and the forced mergers of 2008, trying to contain the recession, while avoiding the inflation that plagued us for two decades.
It appears to me that the party in power is using the crisis for political gain, but that is not the larger problem that is looming. Giving away money you do not have is easy.
The problem comes when you have to avoid the inflation that results from the kind of monetary growth we now have. It involves cutting back of the very programs that they are now funding in the so called Stimulus package, plus the large entitlement debts that are looming.
Any faith I have in this administration is based on their ability and commitment to keep the country from entering an inflationary spiral. We are getting relief now from the deflationary impact of lower fuel and commodity prices, and by the fact that as weak as our economy is most of the major world economies are worse. For the time being there is no safe haven and that is good for the dollar... for now.
But Obama’s reckoning with inflation is on the horizon. His ultimate success will come if he wins that battle.
But to be fair, this economic crisis is very different. Reagan fought an inflationary spiral largely caused by the government unwilling to bear the political pain to get it under control. Reagan was willing and his solution entailed the recession of 1981-82, but the ultimate response was a twenty year economic boom.
President Obama is facing a very different situation with a severe financial crisis that most see as a problem largely brought on by greed and incompetence in the private sector. One could argue, as I often have, that the government also contributed significantly to this mess, but one can not ignore the failures in the private sector.
Obama has the troublesome task of avoiding a monetary collapse, which was largely accomplished, at least for the time being, with the TARP program and the forced mergers of 2008, trying to contain the recession, while avoiding the inflation that plagued us for two decades.
It appears to me that the party in power is using the crisis for political gain, but that is not the larger problem that is looming. Giving away money you do not have is easy.
The problem comes when you have to avoid the inflation that results from the kind of monetary growth we now have. It involves cutting back of the very programs that they are now funding in the so called Stimulus package, plus the large entitlement debts that are looming.
Any faith I have in this administration is based on their ability and commitment to keep the country from entering an inflationary spiral. We are getting relief now from the deflationary impact of lower fuel and commodity prices, and by the fact that as weak as our economy is most of the major world economies are worse. For the time being there is no safe haven and that is good for the dollar... for now.
But Obama’s reckoning with inflation is on the horizon. His ultimate success will come if he wins that battle.
Sunday, March 1, 2009
The Only Real Christians
from
ISRAEL'S PECULIAR POSITION
by Eric Hoffer (LA Times 5/26/68)
The Jews are a peculiar people: things permitted to other nations are forbidden to the Jews. Other nations drive out thousands, even millions of people and there is no refugee problem. Russia did it, Poland and Czechoslovakia did it, Turkey threw out a million Greeks, and Algeria a million Frenchmen, Indonesia threw out heaven knows how many Chinese and no one says a word about refugees.
But in the case of Israel, the displaced Arabs have become eternal refugees. Everyone insists that Israel must take back every single Arab.
Arnold Toynbee calls the displacement of the Arabs an atrocity greater than any committed by the Nazis. Other nations when victorious on the battlefield dictate peace terms. But when Israel is victorious it must sue for peace. Everyone expects the Jews to be the only real Christians in this world.
Other nations when they are defeated survive and recover. But should Israel be defeated it would be destroyed. Had Nasser triumphed last June he would have wiped Israel off the map, and no one would have lifted a finger to save the Jews. No commitment to the Jews by any government, including our own, is worth the paper it is written on.
ISRAEL'S PECULIAR POSITION
by Eric Hoffer (LA Times 5/26/68)
The Jews are a peculiar people: things permitted to other nations are forbidden to the Jews. Other nations drive out thousands, even millions of people and there is no refugee problem. Russia did it, Poland and Czechoslovakia did it, Turkey threw out a million Greeks, and Algeria a million Frenchmen, Indonesia threw out heaven knows how many Chinese and no one says a word about refugees.
But in the case of Israel, the displaced Arabs have become eternal refugees. Everyone insists that Israel must take back every single Arab.
Arnold Toynbee calls the displacement of the Arabs an atrocity greater than any committed by the Nazis. Other nations when victorious on the battlefield dictate peace terms. But when Israel is victorious it must sue for peace. Everyone expects the Jews to be the only real Christians in this world.
Other nations when they are defeated survive and recover. But should Israel be defeated it would be destroyed. Had Nasser triumphed last June he would have wiped Israel off the map, and no one would have lifted a finger to save the Jews. No commitment to the Jews by any government, including our own, is worth the paper it is written on.
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