Saturday, May 30, 2009
Why We Fight
This is a compilation of the most moving scenes from the best episode of the best series ever televised.
Never has an episode been more appropriately titled
Wasted Investment Research
A UBS report on Schnitzer Steel Industries dated 4/3/09 issues a sell recommendation with the company selling at $35.58 per share.
On 5/29/09, less than two months later Schnitzer was selling at $54.54 per share - a gain of 53%.
I had recommeded Schnitzer to be a buy back then because it is a first rate scrap company then selling for 80% of book.
I think the investment research from the major brokerage houses is a waste.
On 5/29/09, less than two months later Schnitzer was selling at $54.54 per share - a gain of 53%.
I had recommeded Schnitzer to be a buy back then because it is a first rate scrap company then selling for 80% of book.
I think the investment research from the major brokerage houses is a waste.
Friday, May 29, 2009
Improve This
“Private acts of charity or innovation that might actually make the world better are of little interest to the world improvers. They propose a ban on world hunger- without planting a single turnip. They take up the cause of freedom in other countries and force the liquor store next door to close on Sunday. They insist so strongly on better treatment for women in the Islamic world, then forget to kiss their own wives.”
William Bonner and Lila Rajiva
William Bonner and Lila Rajiva
Thursday, May 28, 2009
Zen Politics
The opposition party can not seem to decide whether to become more hard core conservative (and they need to CLEARLY define what that means) or more like their competition, which is a form of surrender or defeat.
But another alternative would be to take a Zen approach, which would amount to making the opposition irrelevant. In marketing this approach is known as surpetition, a phrase coined by Edward DeBono, but it is also simply known as creating your own category, or your own set of advantages.
Instead of going head to head with your competition in a set category, you create a new category that you own completely. For example instead of going head to head with Avis and Hertz, Enterprise Rent a Car focused on the market outside of the airport. Guess who now has the largest rent a car fleet in America: hint- it ain’t Hertz or Avis.
In the martial arts Akido and other schools teach you to use your opponent’s power against them.
Here are some applications of that idea:
Republicans are pro choice- we believe you should choose your own doctor, your own school, and your own future.
You can not trust the free market .... to keep failures in power. Only government and its cronies can do that.
Your vote means nothing ..... if you surrender your freedoms to your elected officials.
But effective marketing is about focus and it means giving up some points to focus on more important points, and this is where the Republicans trip themselves up.
Personally I think they need to open up the tent on social and religious issues and focus on fiscal and liberty issues.
Effective Zen Politics seeks to render the competition irrelevant, and restores control of the debate. When you own the category you are never on the defensive.
But another alternative would be to take a Zen approach, which would amount to making the opposition irrelevant. In marketing this approach is known as surpetition, a phrase coined by Edward DeBono, but it is also simply known as creating your own category, or your own set of advantages.
Instead of going head to head with your competition in a set category, you create a new category that you own completely. For example instead of going head to head with Avis and Hertz, Enterprise Rent a Car focused on the market outside of the airport. Guess who now has the largest rent a car fleet in America: hint- it ain’t Hertz or Avis.
In the martial arts Akido and other schools teach you to use your opponent’s power against them.
Here are some applications of that idea:
Republicans are pro choice- we believe you should choose your own doctor, your own school, and your own future.
You can not trust the free market .... to keep failures in power. Only government and its cronies can do that.
Your vote means nothing ..... if you surrender your freedoms to your elected officials.
But effective marketing is about focus and it means giving up some points to focus on more important points, and this is where the Republicans trip themselves up.
Personally I think they need to open up the tent on social and religious issues and focus on fiscal and liberty issues.
Effective Zen Politics seeks to render the competition irrelevant, and restores control of the debate. When you own the category you are never on the defensive.
Wednesday, May 27, 2009
More Really is Less
“If you put $10,000 into the stocks of companies with the highest paid CEO’s in the previous years from 1991 to December of 2004 you would have ended up with only $8,079, while the same money invested on the S&P 500 would have returned you $48,350- that is, six times as much.”
William Bonner and Lila Rajiva
HKO comments- this is a scathing indictment of the effectiveness of corporate governance and the behaviouralist assumptions that more money gets better results. Our short term perspective on performance is not adding value.
Contrary to opinion- populist outrage is not against wealth- Bill Gates and Warren Buffet are widely admired. Outrage is against those who got paid vast sums they did not deserve or earn.
The real rage should be directed at the board of directors.
William Bonner and Lila Rajiva
HKO comments- this is a scathing indictment of the effectiveness of corporate governance and the behaviouralist assumptions that more money gets better results. Our short term perspective on performance is not adding value.
Contrary to opinion- populist outrage is not against wealth- Bill Gates and Warren Buffet are widely admired. Outrage is against those who got paid vast sums they did not deserve or earn.
The real rage should be directed at the board of directors.
Tuesday, May 26, 2009
Monday, May 25, 2009
Ethno Centric
Years ago during my first trip to Israel I woke up and had breakfast in the Crown Plaza in Jerusalem. As I ate I noticed that the guy making the omelet was Jewish. Then I noticed a few other guys serving juice and coffee were Jewish.
And then it hit me- everyone here was Jewish. I put my fork down and got a bit choked up because I had never been in a city or a state where I was not in a minority. (OK New York City is close). I also realized that there is no other country in the world where this is the case.
While the United States is the most tolerant and free country, there are still constant reminders that non Christians are a minority. Those who are “tolerated” are seemingly somehow a little less free than those doing the tolerating. There is a big difference between being free and being tolerated.
Americans are largely “ethno centric” especially outside of the major metropolitan areas where ethnic subcultures thrive. We have a hard time seeing beyond our religious and cultural lens. This often includes our political preference as well. Few American Christians imagine living as a minority, even when our media and culture sometimes seems hostile to Christian values (Christaphobic).
Yet I also believe that America is more understanding of much of the rest of the world than they are of us. It is rare in history for one nation to fight to free another nation without seeking material gain as a result.
America is a very special place. We just need to understand that it is not the only special place.
And then it hit me- everyone here was Jewish. I put my fork down and got a bit choked up because I had never been in a city or a state where I was not in a minority. (OK New York City is close). I also realized that there is no other country in the world where this is the case.
While the United States is the most tolerant and free country, there are still constant reminders that non Christians are a minority. Those who are “tolerated” are seemingly somehow a little less free than those doing the tolerating. There is a big difference between being free and being tolerated.
Americans are largely “ethno centric” especially outside of the major metropolitan areas where ethnic subcultures thrive. We have a hard time seeing beyond our religious and cultural lens. This often includes our political preference as well. Few American Christians imagine living as a minority, even when our media and culture sometimes seems hostile to Christian values (Christaphobic).
Yet I also believe that America is more understanding of much of the rest of the world than they are of us. It is rare in history for one nation to fight to free another nation without seeking material gain as a result.
America is a very special place. We just need to understand that it is not the only special place.
Saturday, May 23, 2009
Helping the Clueless
Dennis Miller noted that he did not mid helping the helpless but he did object to being forced to help the clueless.
Who should be helped in America? The poorest 5%? The poorest 10%? 20%? When over 50% are drawing more from the government than they are putting in shouldn’t it seem obviously excessive?
Are half of Americans helpless?
A bigger government is antithetical to an independent people. The more people are dependent on government in any way the bigger the government needs to be, and the more government bureaucrats can justify themselves.
When 50% of the people are drawing more from the government than they put in, and when those same people no longer see self reliance as a virtue, then they will always justify voting themselves benefits at some else’s cost. It will be nearly impossible to turn this around.
Who should be helped in America? The poorest 5%? The poorest 10%? 20%? When over 50% are drawing more from the government than they are putting in shouldn’t it seem obviously excessive?
Are half of Americans helpless?
A bigger government is antithetical to an independent people. The more people are dependent on government in any way the bigger the government needs to be, and the more government bureaucrats can justify themselves.
When 50% of the people are drawing more from the government than they put in, and when those same people no longer see self reliance as a virtue, then they will always justify voting themselves benefits at some else’s cost. It will be nearly impossible to turn this around.
Friday, May 22, 2009
Top Ten Reasons for Failure
From American Thinker
May 04, 2009
May 04, 2009
The Top Ten Reasons Obamanomics Won't Work
By Mikiel de Bary
read the entire article here
excerpts
10. The Obama economic team really does not know how we got into this mess. For example, Christina Romer, chair of the Council of Economic Advisors, claims that the "fundamental cause" of the current economic downturn is the decline in asset prices from the levels reached in 2006 and 2007, i.e., from the peak of arguably the biggest and broadest asset bubble in history. In other words, she believes that the retreat from absurd valuations is giving us problems.
7. The Administration tries to meddle with private contracts -- see its attempts to pre-empt the bankruptcy courts and undercut the functions of mortgage foreclosure clauses. For a few cosmetic results, it chills confidence in all future investments.
3. President Obama apparently believes that increasing taxes on some of us and then redistributing the money to favored groups and promoters somehow "stimulates" the economy. Who besides macroeconomists (and their former students) believes this?
2. The Federal Reserve Board has transformed itself into an obedient appendage of the Executive Branch of government.
May 04, 2009
May 04, 2009
The Top Ten Reasons Obamanomics Won't Work
By Mikiel de Bary
read the entire article here
excerpts
10. The Obama economic team really does not know how we got into this mess. For example, Christina Romer, chair of the Council of Economic Advisors, claims that the "fundamental cause" of the current economic downturn is the decline in asset prices from the levels reached in 2006 and 2007, i.e., from the peak of arguably the biggest and broadest asset bubble in history. In other words, she believes that the retreat from absurd valuations is giving us problems.
7. The Administration tries to meddle with private contracts -- see its attempts to pre-empt the bankruptcy courts and undercut the functions of mortgage foreclosure clauses. For a few cosmetic results, it chills confidence in all future investments.
3. President Obama apparently believes that increasing taxes on some of us and then redistributing the money to favored groups and promoters somehow "stimulates" the economy. Who besides macroeconomists (and their former students) believes this?
2. The Federal Reserve Board has transformed itself into an obedient appendage of the Executive Branch of government.
Thursday, May 21, 2009
Americans on a Nuclear Iran
McLaughlin & Associates
American Voters Fear Iran and Terror Threats
With today’s headlines about terror arrests in New York and Iran’s missile launch, the results of our recently taken current national poll are extremely important:
· Nine in ten voters (91%) say that Iran supplying a nuclear umbrella for terrorists is a serious threat to the United States
· Seven in ten voters (71%) say the United States will not be safe with a nuclear Iran
· Eight in ten voters (80%) say it is likely that Iran will launch a missile attack on Israel
· Three in four voters (77%) say it is likely that Iran will use the threat of nuclear attack to provide a shield for Hezbollah and Hamas terrorists to attack Israel
· The majority of voters approves of taking several specific actions to discourage the proliferation of nuclear weapons in Iran
Please click the following to view the poll results http://www.mclaughlinonline.com/6?article=12 or visit our website at www.mclaughlinonline.com
American Voters Fear Iran and Terror Threats
With today’s headlines about terror arrests in New York and Iran’s missile launch, the results of our recently taken current national poll are extremely important:
· Nine in ten voters (91%) say that Iran supplying a nuclear umbrella for terrorists is a serious threat to the United States
· Seven in ten voters (71%) say the United States will not be safe with a nuclear Iran
· Eight in ten voters (80%) say it is likely that Iran will launch a missile attack on Israel
· Three in four voters (77%) say it is likely that Iran will use the threat of nuclear attack to provide a shield for Hezbollah and Hamas terrorists to attack Israel
· The majority of voters approves of taking several specific actions to discourage the proliferation of nuclear weapons in Iran
Please click the following to view the poll results http://www.mclaughlinonline.com/6?article=12 or visit our website at www.mclaughlinonline.com
Environmentalists should oppose fuel efficiency
IN the Boston Globe Jeff Jacoby thinks through the economics of fuel economy.
When gas was cheap environmentalists wanted expensive gas to encourage less driving or more fuel efficient technologies. Instead of cheering $4 gas, however, they cursed oil companies.
Yet subsidizing fuel efficient technologies will make driving cheaper, thus encouraging people to drive more, ultimately using more energy. This will drive down the price of oil and also encourage its use.
Advocating higher oil prices is politically unpopular, so now environmentalists advocate lower fuel prices and less energy consumption. These are mutually exclusive goals.
This recession has done more to reduce fuel consumption than most other environmental policies. Politicians tend to take credit for solving problems that are already solving themselves.
See all of Jacoby’s article here.
When gas was cheap environmentalists wanted expensive gas to encourage less driving or more fuel efficient technologies. Instead of cheering $4 gas, however, they cursed oil companies.
Yet subsidizing fuel efficient technologies will make driving cheaper, thus encouraging people to drive more, ultimately using more energy. This will drive down the price of oil and also encourage its use.
Advocating higher oil prices is politically unpopular, so now environmentalists advocate lower fuel prices and less energy consumption. These are mutually exclusive goals.
This recession has done more to reduce fuel consumption than most other environmental policies. Politicians tend to take credit for solving problems that are already solving themselves.
See all of Jacoby’s article here.
Wednesday, May 20, 2009
Canadian Banks
Why did the Canadian banks fare so much better than their American cousins?
1. There was no Community Reinvestment Act to compel loans to crappy borrowers.
2. There is no Fannie Mae or Freddie Mac pushing “affordable housing by guaranteeing high risk loans.
3. Mortgage interest is not tax deductable.
4. Unless you put down 20% the mortgage holder must purchase credit insurance.
5. In Canada a mortgage holder can not just walk away from a bad loan. He will be held accountable and the bank can attach other assets.
In short the Federal government, including tax policy, is far less involved in the mortgage business, and individuals are held far more accountable. Yet the home ownership rate is the same as in the U.S.
While many blame the deregulation in the U.S., Canada dumped its version of Glass-Steagall over 20 years ago.
Canadian institutions were more shy of risk taking. They got rid of problem loans five years ago. Subprime was only 7% of mortgages vs 20% here.
Canada did not escape the financial meltdown. The Canadian government bought $55 billion dollars of insured loans and helped system liquidity through intervention, and the GDP has fallen. But Canadian banks avoided the complexity and risk that our American Banks embraced.
It is not coincidental that both their private and public sector behaved more prudently.
1. There was no Community Reinvestment Act to compel loans to crappy borrowers.
2. There is no Fannie Mae or Freddie Mac pushing “affordable housing by guaranteeing high risk loans.
3. Mortgage interest is not tax deductable.
4. Unless you put down 20% the mortgage holder must purchase credit insurance.
5. In Canada a mortgage holder can not just walk away from a bad loan. He will be held accountable and the bank can attach other assets.
In short the Federal government, including tax policy, is far less involved in the mortgage business, and individuals are held far more accountable. Yet the home ownership rate is the same as in the U.S.
While many blame the deregulation in the U.S., Canada dumped its version of Glass-Steagall over 20 years ago.
Canadian institutions were more shy of risk taking. They got rid of problem loans five years ago. Subprime was only 7% of mortgages vs 20% here.
Canada did not escape the financial meltdown. The Canadian government bought $55 billion dollars of insured loans and helped system liquidity through intervention, and the GDP has fallen. But Canadian banks avoided the complexity and risk that our American Banks embraced.
It is not coincidental that both their private and public sector behaved more prudently.
Mark Steyn at Hillsdale
Mark Steyn in Imprimis
Live Free or Die
read entire article here
excerpts
If you're a business, when government gives you 2% of your income, it has a veto on 100% of what you do. If you're an individual, the impact is even starker. Once you have government health care, it can be used to justify almost any restraint on freedom: After all, if the state has to cure you, it surely has an interest in preventing you needing treatment in the first place.
Under Britain's National Health Service, for example, smokers in Manchester have been denied treatment for heart disease, and the obese in Suffolk are refused hip and knee replacements. Patricia Hewitt, the British Health Secretary, says that it's appropriate to decline treatment on the basis of "lifestyle choices." Smokers and the obese may look at their gay neighbor having unprotected sex with multiple partners, and wonder why his "lifestyle choices" get a pass while theirs don't. But that's the point: Tyranny is always whimsical.
That's Stage Two of societal enervation—when the state as guarantor of all your basic needs becomes increasingly comfortable with regulating your behavior.
It's ridiculous for grown men and women to say: I want to be able to choose from hundreds of cereals at the supermarket, thousands of movies from Netflix, millions of songs to play on my iPod—but I want the government to choose for me when it comes to my health care. A nation that demands the government take care of all the grown-up stuff is a nation turning into the world's wrinkliest adolescent, free only to choose its record collection.
When the populace has agreed to become wards of the state, it's a mere difference of degree to start regulating their thoughts.
an awful lot of journalists are quite content to be the eunuchs in the politically correct harem.
And then comes Stage Four, in which dissenting ideas and even words are labeled as "hatred."
Professor Krugman failed to notice that for a continent of "family friendly" policies, Europe is remarkably short of families. How can an economist analyze "family friendly" policies without noticing that the upshot of these policies is that nobody has any families?
"Give people plenty and security, and they will fall into spiritual torpor," wrote Charles Murray in In Our Hands. "When life becomes an extended picnic, with nothing of importance to do, ideas of greatness become an irritant.
Hilaire Belloc, incidentally, foresaw this very clearly in his book The Servile State in 1912. He understood that the long-term cost of a welfare society is the infantilization of the population.
When governments annex a huge chunk of the economy, they also annex a huge chunk of individual liberty. You fundamentally change the relationship between the citizen and the state into something closer to that of junkie and pusher—and you make it very difficult ever to change back.
Live Free or Die
read entire article here
excerpts
If you're a business, when government gives you 2% of your income, it has a veto on 100% of what you do. If you're an individual, the impact is even starker. Once you have government health care, it can be used to justify almost any restraint on freedom: After all, if the state has to cure you, it surely has an interest in preventing you needing treatment in the first place.
Under Britain's National Health Service, for example, smokers in Manchester have been denied treatment for heart disease, and the obese in Suffolk are refused hip and knee replacements. Patricia Hewitt, the British Health Secretary, says that it's appropriate to decline treatment on the basis of "lifestyle choices." Smokers and the obese may look at their gay neighbor having unprotected sex with multiple partners, and wonder why his "lifestyle choices" get a pass while theirs don't. But that's the point: Tyranny is always whimsical.
That's Stage Two of societal enervation—when the state as guarantor of all your basic needs becomes increasingly comfortable with regulating your behavior.
It's ridiculous for grown men and women to say: I want to be able to choose from hundreds of cereals at the supermarket, thousands of movies from Netflix, millions of songs to play on my iPod—but I want the government to choose for me when it comes to my health care. A nation that demands the government take care of all the grown-up stuff is a nation turning into the world's wrinkliest adolescent, free only to choose its record collection.
When the populace has agreed to become wards of the state, it's a mere difference of degree to start regulating their thoughts.
an awful lot of journalists are quite content to be the eunuchs in the politically correct harem.
And then comes Stage Four, in which dissenting ideas and even words are labeled as "hatred."
Professor Krugman failed to notice that for a continent of "family friendly" policies, Europe is remarkably short of families. How can an economist analyze "family friendly" policies without noticing that the upshot of these policies is that nobody has any families?
"Give people plenty and security, and they will fall into spiritual torpor," wrote Charles Murray in In Our Hands. "When life becomes an extended picnic, with nothing of importance to do, ideas of greatness become an irritant.
Hilaire Belloc, incidentally, foresaw this very clearly in his book The Servile State in 1912. He understood that the long-term cost of a welfare society is the infantilization of the population.
When governments annex a huge chunk of the economy, they also annex a huge chunk of individual liberty. You fundamentally change the relationship between the citizen and the state into something closer to that of junkie and pusher—and you make it very difficult ever to change back.
Tuesday, May 19, 2009
Lack of Civil Discourse
Trying to find intelligent discourse in politics is harder than understanding the derivative exposure in your 401k money market fund.
The proliferation of news channels, talk radio, blogs, and twitters have served to obscure rather than illuminate; close rather than open dialogue; and divide us more than ever.
We like to pride ourselves as rational creatures, but we are not. We tend to make up our mind emotionally, and only then rationalize our emotional decisions. I like to call this emotional rationalism.
We used to all get our news and information from the local paper and a handful of national television stations. It may have been biased but we at least got our information from the same source. Now we have so many sources that we have no trouble finding information that will quickly confirm whatever bias and emotional judgment we render.
Do you want to hear how evil George Bush and his henchmen were? Just listen to Bill Maher, Keith Olbermann, Michael Moore, Rachel Maddow, and their sycophants. Do you want to hear how terrible Obama, Pelosi , and Harry Reid are? Tune in to Ann Coulter, Rush, Hannity, or Glenn Beck.
We have no trouble finding sources to confirm how right we are and how wrong everyone else is. You can select from your choice of pompous windbags or sarcastic cynics.
When someone asks for advice, they usually already know the answer and just do not like it. They rarely want advice, they want a confirmation for a decision they have already made. The news sources find confirmation far more profitable than advice.
It is so rare to find a speaker get to articulate a well thought out idea. There has to be an opposition interrupting and shouting out over the voice. The point has to be made in minutes because of the station break.
With few exceptions I do not think I have heard a civil discourse aired since Dick Cavett. Even liberal Phil Donahue was civil to Milton Friedman when talking about the role of economic self interest vs political self interest (YouTube it). No one raised their voice and no one interrupted. Friedman quietly with a smile conveyed his free market ideas that were the result of years of research and thought. Whether you agreed or not, you learned something.
It is good to have ideas and principles, but it is better to have thought through them and have them challenged and discussed. But the utter lack of civility discourages such discourse and breeds intolerance for ideas in general.
The proliferation of news channels, talk radio, blogs, and twitters have served to obscure rather than illuminate; close rather than open dialogue; and divide us more than ever.
We like to pride ourselves as rational creatures, but we are not. We tend to make up our mind emotionally, and only then rationalize our emotional decisions. I like to call this emotional rationalism.
We used to all get our news and information from the local paper and a handful of national television stations. It may have been biased but we at least got our information from the same source. Now we have so many sources that we have no trouble finding information that will quickly confirm whatever bias and emotional judgment we render.
Do you want to hear how evil George Bush and his henchmen were? Just listen to Bill Maher, Keith Olbermann, Michael Moore, Rachel Maddow, and their sycophants. Do you want to hear how terrible Obama, Pelosi , and Harry Reid are? Tune in to Ann Coulter, Rush, Hannity, or Glenn Beck.
We have no trouble finding sources to confirm how right we are and how wrong everyone else is. You can select from your choice of pompous windbags or sarcastic cynics.
When someone asks for advice, they usually already know the answer and just do not like it. They rarely want advice, they want a confirmation for a decision they have already made. The news sources find confirmation far more profitable than advice.
It is so rare to find a speaker get to articulate a well thought out idea. There has to be an opposition interrupting and shouting out over the voice. The point has to be made in minutes because of the station break.
With few exceptions I do not think I have heard a civil discourse aired since Dick Cavett. Even liberal Phil Donahue was civil to Milton Friedman when talking about the role of economic self interest vs political self interest (YouTube it). No one raised their voice and no one interrupted. Friedman quietly with a smile conveyed his free market ideas that were the result of years of research and thought. Whether you agreed or not, you learned something.
It is good to have ideas and principles, but it is better to have thought through them and have them challenged and discussed. But the utter lack of civility discourages such discourse and breeds intolerance for ideas in general.
Monday, May 18, 2009
The Future of Journalism
Interesting testimony on the future of journalism, and the merit of local newspapers as non profits.
Read here.
Read here.
HKO Government Axioms
- It is the duty of government to say 'no' to worthwhile programs they can not afford. Change is easy; choice is hard.
- It is the tendency of government to bestow benefits without paying for them.
- Government can deliver any benefit you want. Their only choice is how to pay for them: Taxes, debt or inflation.
- The secret to a sound economy is a) low taxes, b) low regulation, c) free trade, and d) sound currency.
- Our anxiety over our government comes largely from depending on them to solve all of our problems.
Sunday, May 17, 2009
Inflation vs Deflation
We are in an unusual economic situation.
We have deflation because of falling commodity prices and rising unemployment. Many companies have instituted across the board pay cuts.
The credit contraction is also very deflationary. In an economy built on credit, expenditures will drop sharply when the spigot is shut off.
Yet we have printed money at a very high rate that one would expect to eventually lead to rising prices.
A few possible outcomes:
James Grant noted that no decent recovery has occurred until the debris from the previous excess has been cleared away. Current administration policies seem to inhibit the clearing of the debris. It is our inability to deal with short term pain that leads to such long term pain.
We have deflation because of falling commodity prices and rising unemployment. Many companies have instituted across the board pay cuts.
The credit contraction is also very deflationary. In an economy built on credit, expenditures will drop sharply when the spigot is shut off.
Yet we have printed money at a very high rate that one would expect to eventually lead to rising prices.
A few possible outcomes:
- The money sloshing around will be used to pay off debt, and will not have any immediate stimulative effect.
- The cash will build up and have an explosive impact on prices when fear becomes more distant. This could impact industrial commodities and fuel especially. Since many businesses have cut inventory to the bone there will be sharp price spikes and shortages.
- The consumer will face both lower wages and higher prices leading to the opposite intention of the administration of reducing the inequalities of wealth.
- We are entering a period Robert Samuelson calls “affluent deprivation”; a slow growth that leaves private wants and public needs unsatisfied.
James Grant noted that no decent recovery has occurred until the debris from the previous excess has been cleared away. Current administration policies seem to inhibit the clearing of the debris. It is our inability to deal with short term pain that leads to such long term pain.
Saturday, May 16, 2009
The Last Option for Social Change
The danger posed when the rights and liberties of the opposition are assaulted, is that oppositions change and that assault will eventually be applied to you.
The same is true when political power is bestowed disproportionately to the party in power. Those same rights and power will be in the hands of the opposition at the next political turn.
When you propose a legislative solution you need to picture that power being in the hands of your worst nightmare. This is why separation of power is so critical. This is also why the staffing of the courts is so critical; because court decisions and precedents take so long to reverse.
This is also why legislation should be the last option for social change.
The same is true when political power is bestowed disproportionately to the party in power. Those same rights and power will be in the hands of the opposition at the next political turn.
When you propose a legislative solution you need to picture that power being in the hands of your worst nightmare. This is why separation of power is so critical. This is also why the staffing of the courts is so critical; because court decisions and precedents take so long to reverse.
This is also why legislation should be the last option for social change.
Bad Political Theatre
From American Thinker
May 04, 2009
A Wind Blows Against The Political Spectrum
By Lee Cary
Read the whole article here.
Excerpt:
So from FOX we get the signature format of battling talking-heads shouting at each other, a fair and balanced format populated by the fairly unbalanced.
On CBS we watch groupthink panel discussions -- live chat rooms for the commonly persuaded. The most popular transition from one expert to another is "Yes, and furthermore..."
MSNBC offer us a steady diet of vitriolic sarcasm dished out by acidic critics.
Most of us are not partisans. Our main skin-in-the-game is our own skin, and that of our loved ones.
For now, we're trapped. Like an audience chained to its seats, we're forced to watch constant, and consistently bad, political theater. An opera where the actors sing off-tune. The words don't match the action. The plot is muddled. And a tone deaf orchestra without talent plays off beat.
Meanwhile, in the words of George Orwell, "In a time of universal deceit, telling the truth becomes a revolutionary act."
May 04, 2009
A Wind Blows Against The Political Spectrum
By Lee Cary
Read the whole article here.
Excerpt:
So from FOX we get the signature format of battling talking-heads shouting at each other, a fair and balanced format populated by the fairly unbalanced.
On CBS we watch groupthink panel discussions -- live chat rooms for the commonly persuaded. The most popular transition from one expert to another is "Yes, and furthermore..."
MSNBC offer us a steady diet of vitriolic sarcasm dished out by acidic critics.
Most of us are not partisans. Our main skin-in-the-game is our own skin, and that of our loved ones.
For now, we're trapped. Like an audience chained to its seats, we're forced to watch constant, and consistently bad, political theater. An opera where the actors sing off-tune. The words don't match the action. The plot is muddled. And a tone deaf orchestra without talent plays off beat.
Meanwhile, in the words of George Orwell, "In a time of universal deceit, telling the truth becomes a revolutionary act."
Friday, May 15, 2009
Financial IQ
From James Grant’s “Mr. Market Miscalculates. “
“ I urge the regulatory bodies of the U.S. to incorporate an IQ test into their security licensing. No minimum passing grade would be mandated, but no one with an IQ of over 115 would be allowed to work in the financial markets.”
“Finance is too important to be left to smart people.”
“ I urge the regulatory bodies of the U.S. to incorporate an IQ test into their security licensing. No minimum passing grade would be mandated, but no one with an IQ of over 115 would be allowed to work in the financial markets.”
“Finance is too important to be left to smart people.”
Thursday, May 14, 2009
Wednesday, May 13, 2009
Hard Lessons on Human Behavior
In1986 Michael Milken received a bonus of $550 million as a senior vice president of Drexel Burnham for a single year’s performance. Drexel Burnham was a revered name on Wall Street with a long history. In 1990 shortly after the record bonus of a half billion dollars paid to a single employee, Drexel was bankrupt.
Milken served two years for securities violations and paid $200 million in fines and retuned $400 million to shareholders through an SEC settlement. He was worth over $2 billion in 2007. His is still revered by many as a financial innovator and a noted philanthropist.
I do not mean to imply that Milken’s bonus was directly or solely tied to the demise of Drexel. This bonus was approved by a board of directors and likely a compensation committee who had hired a very high priced compensation consultant. This bonus made sense to them because they believed that such high rewards would motivate high achievement and that all of the shareholders would therefore benefit.
They never seemed to consider that when a single employee can earn 50 lifetimes worth of income in a single year, that maybe his long term interests and the long term interests of the shareholders and the company would not be in sync. Such blindingly insane sums may not make some sacrifice their scruples, but it will certainly color their beliefs. It is amazing what you can get someone to believe if you pay them enough money.
Hedge funds typically charge 1-3% of assets and 20% of profits for the money they manage, yet hordes of the wealthy line up to give them millions. In 1998 Long Term Capital, a hedge fund with Phd’s and Nobel Prize winners at the helm, went bust losing billions of dollars in less than a few months. The Federal Reserve under Greenspan engineered a bailout by getting several Wall Street firms to pony up $250 million a piece to help liquidate the holdings in a way to mitigate more serious damage.
Yet ten years later, in the unraveling of our current crisis, Greenspan expressed dismay that the CEO’s of the investment world would NOT look after the best interest of the shareholders.
There is more to these disasters than mere greed and even arrogance. At the root of these disasters is a school of thought based (very poorly in my opinion) on a school of behavioral psychology that we are motivated by immediate rewards. It is based on the Pavlovian response of conditioned reflex, exampled by getting to dogs to salivate upon stimuli such as a bell, in expectation of actual food. The representation of Pavlov’s dogs signified the response of conditioned reflex rather than critical thinking.
The work of B.F Skinner expanded conditional reflex to include other environmental influences. Skinner’s work is closely associated with behavioral psychology. Management theory carried the idea to a preference of behavior modification over rigid rules and structure. It evolved into an incentive system that often replaced management judgment with extraordinary reward.
I doubt that Skinner or Pavlov would have approved of their research and philosophy being used to approve half billion dollar bonuses, but the creators can not be held responsible for how others pervert their ideas.
Alfie Kohn wrote in the appropriately titled “Punished by Rewards” that such motivation is short lived and less effective than higher level motivations such as joy and even altruism. He noted that misguided educational programs that rewarded children who read with pizza parties only resulted in fat kids who hated to read. Kohn rejected the belief in the Skinnerian approach when applied to all human activities.
While I do not agree with all of Kohn’s conclusions (in a conversation he dismissed all business incentive pay), such extremes as Milken’s bonus and our current financial catastrophe underlies a fundamental misunderstanding of human behavior.
Emanuel Derman, a retired quantitative analyst writing about his career on Wall Street (“My Life as a Quant”) after a career in academics and physics, noted, “Catastrophes strike when people allow theories to take a life of their own and hubris evolves into idolatry.”
We suffer the results of business and political leaders who expected talented people to behave like dogs.
Milken served two years for securities violations and paid $200 million in fines and retuned $400 million to shareholders through an SEC settlement. He was worth over $2 billion in 2007. His is still revered by many as a financial innovator and a noted philanthropist.
I do not mean to imply that Milken’s bonus was directly or solely tied to the demise of Drexel. This bonus was approved by a board of directors and likely a compensation committee who had hired a very high priced compensation consultant. This bonus made sense to them because they believed that such high rewards would motivate high achievement and that all of the shareholders would therefore benefit.
They never seemed to consider that when a single employee can earn 50 lifetimes worth of income in a single year, that maybe his long term interests and the long term interests of the shareholders and the company would not be in sync. Such blindingly insane sums may not make some sacrifice their scruples, but it will certainly color their beliefs. It is amazing what you can get someone to believe if you pay them enough money.
Hedge funds typically charge 1-3% of assets and 20% of profits for the money they manage, yet hordes of the wealthy line up to give them millions. In 1998 Long Term Capital, a hedge fund with Phd’s and Nobel Prize winners at the helm, went bust losing billions of dollars in less than a few months. The Federal Reserve under Greenspan engineered a bailout by getting several Wall Street firms to pony up $250 million a piece to help liquidate the holdings in a way to mitigate more serious damage.
Yet ten years later, in the unraveling of our current crisis, Greenspan expressed dismay that the CEO’s of the investment world would NOT look after the best interest of the shareholders.
There is more to these disasters than mere greed and even arrogance. At the root of these disasters is a school of thought based (very poorly in my opinion) on a school of behavioral psychology that we are motivated by immediate rewards. It is based on the Pavlovian response of conditioned reflex, exampled by getting to dogs to salivate upon stimuli such as a bell, in expectation of actual food. The representation of Pavlov’s dogs signified the response of conditioned reflex rather than critical thinking.
The work of B.F Skinner expanded conditional reflex to include other environmental influences. Skinner’s work is closely associated with behavioral psychology. Management theory carried the idea to a preference of behavior modification over rigid rules and structure. It evolved into an incentive system that often replaced management judgment with extraordinary reward.
I doubt that Skinner or Pavlov would have approved of their research and philosophy being used to approve half billion dollar bonuses, but the creators can not be held responsible for how others pervert their ideas.
Alfie Kohn wrote in the appropriately titled “Punished by Rewards” that such motivation is short lived and less effective than higher level motivations such as joy and even altruism. He noted that misguided educational programs that rewarded children who read with pizza parties only resulted in fat kids who hated to read. Kohn rejected the belief in the Skinnerian approach when applied to all human activities.
While I do not agree with all of Kohn’s conclusions (in a conversation he dismissed all business incentive pay), such extremes as Milken’s bonus and our current financial catastrophe underlies a fundamental misunderstanding of human behavior.
Emanuel Derman, a retired quantitative analyst writing about his career on Wall Street (“My Life as a Quant”) after a career in academics and physics, noted, “Catastrophes strike when people allow theories to take a life of their own and hubris evolves into idolatry.”
We suffer the results of business and political leaders who expected talented people to behave like dogs.
Tuesday, May 12, 2009
Monday, May 11, 2009
Wait Till The Cycle Ends
From James Grant’s Mr. Market Miscalculates. This is from a piece written on 5/11/2001
“The soundness of a central bank varies inversely with the breadth of its mandate. The more it’s expected to do the longer the odds against its success.”
“The Fed’s mandate is all encompassing. Roughly speaking, it is expected to deliver the earth (“price stability”), the moon (full employment) and the sky (a solvent financial system, at the center of which is a rising stock market.) Lately, of course, the moon and the sky have been at the top of the policy agenda. To the argument that the Fed has somehow managed to succeed at this impossible work, we reply: Wait till all of the cyclical returns are in.”
“The soundness of a central bank varies inversely with the breadth of its mandate. The more it’s expected to do the longer the odds against its success.”
“The Fed’s mandate is all encompassing. Roughly speaking, it is expected to deliver the earth (“price stability”), the moon (full employment) and the sky (a solvent financial system, at the center of which is a rising stock market.) Lately, of course, the moon and the sky have been at the top of the policy agenda. To the argument that the Fed has somehow managed to succeed at this impossible work, we reply: Wait till all of the cyclical returns are in.”
Sunday, May 10, 2009
Unintended But Not Unforeseen Consequences
Conservatives push energy independence through more energy production including drilling and nuclear. Liberals push alternative fuels such as biomass, solar and wind. While carbon reduction is the primary goal, energy independence is a close secondary goal.
While such noble objectives have unintended consequences this is not the same as unforeseen consequences. I question how the success of these objectives would impact foreign oil producers.
Many of the Middle East oil producing countries produce nothing else. Little farm production is exported and practically no manufactured goods are produced for export. If the market for their only export is obliterated they would fall into financial catastrophe.
Japan was devastated by the Smoot- Hawley Tarriff of 1933 which effectively destroyed its export markets. The global depression of the 1930’s coupled with the crushing burden of the WWI Armistice crippled Germany’s economy.
Given the intent to inflict pain on the American economy that motivated the oil embargo in the 1970’s, and the enormous wealth transfer of the oil price spike in 2008, energy independence is a worthy goal. We should not overlook the incredible destabilizing effect that success in this objective would have.
While such noble objectives have unintended consequences this is not the same as unforeseen consequences. I question how the success of these objectives would impact foreign oil producers.
Many of the Middle East oil producing countries produce nothing else. Little farm production is exported and practically no manufactured goods are produced for export. If the market for their only export is obliterated they would fall into financial catastrophe.
Japan was devastated by the Smoot- Hawley Tarriff of 1933 which effectively destroyed its export markets. The global depression of the 1930’s coupled with the crushing burden of the WWI Armistice crippled Germany’s economy.
Given the intent to inflict pain on the American economy that motivated the oil embargo in the 1970’s, and the enormous wealth transfer of the oil price spike in 2008, energy independence is a worthy goal. We should not overlook the incredible destabilizing effect that success in this objective would have.
Saturday, May 9, 2009
Banned in Beirut
In the May 1, 2009 WSJ William Marling writes about books and films banned in Lebanon.
Jane Fonda’s films are banned because she visited Israel in 1982. “Torn Curtain” is banned because Paul Newman starred in “Exodus”. “The Nanny” is banned because of Fran Drescher. All books that portray Jews favorably are banned.
“Sophie’s Choice” and “Schindler’s List are banned. Books by Thomas Friedman, Phillip Roth, Saul Bellow and Isaac Singer are banned.
Such censorship is common in the Arab World. Diplomatic attempts to bring nations closer will be difficult when the world view of the populations are controlled and distorted from the seats of political power.
Jane Fonda’s films are banned because she visited Israel in 1982. “Torn Curtain” is banned because Paul Newman starred in “Exodus”. “The Nanny” is banned because of Fran Drescher. All books that portray Jews favorably are banned.
“Sophie’s Choice” and “Schindler’s List are banned. Books by Thomas Friedman, Phillip Roth, Saul Bellow and Isaac Singer are banned.
Such censorship is common in the Arab World. Diplomatic attempts to bring nations closer will be difficult when the world view of the populations are controlled and distorted from the seats of political power.
Friday, May 8, 2009
Looter's At Large
"Only in the political arena could two unsecured creditors receive vastly different treatment, as have the Bondholders and the Unions. The UAW, whose unsecured VEBA is owed $10 Billion by GM, will receive 39% of the GM stock; the Bondholders, who are owed $28 Billion, will receive 10% of GM stock . Do the math: the Union has received 10 times what the government expects the bondholders to take in this restructuring."
"In the Chrysler deal, the [United Auto Workers] were unsecured creditors and the Chrysler bondholders were secured creditors. The bondholders received 28% of the value of their $6.9 billion in bonds in cash; the Union will receive stock worth approximately $4.2 billion, and a note for an additional $4.58 billion, which represents 82% of the value of their claim. Either the government negotiators have dyslexia and have made a terrible mistake in their paperwork, or this is political payoff writ large. Is this not the equivalent of financial waterboarding? And thus we enter a brazen new era of government, when the White House is openly complicit in the theft of, as a matter of fact is directing, the looting of private property from investors. Welcome to the Rule of Man, or as the President calls it, change we can believe in!" --
Blogger Dave Cribbin in Dave's Right Side- read the whole entry here.
Thursday, May 7, 2009
Car Thoughts
Random thoughts and questions on the automobile intervention:
Does the equity stake in GM and Chrysler awarded to the UAW make you more or less likely to buy one of their cars?
If oil prices remain low for years to come (Yes I am a contrarian), will the Federal imposed effort to make more fuels efficient cars back fire and make their federalized companies even less profitable?
If that happens will the Federal government pour even more money in the companies to continue to protect the union jobs threatened by governmental management decisions? Will the union owned companies be held any more responsible for bad decisions than the publicly owned companies were?
If that happens will the Federal Auto Consortium (FAC) legislate that their private competitors be forced to manufacture “acceptable” cars to minimize their competitive edge?
Whether because of luck or wisdom Ford is much better off financially than Chrysler or GM. Normally in a properly functioning competitive market, this would reward them with a growing market share, and thus far it is. (They outsold Toyota last month.) Will the Federal Consortium’s billion dollar aid to the losers further penalize sound management decision making by trying to protect the market share of the weaker companies?
By giving the unions a bigger share in GM and Chrysler at the expense of the banks' and lenders' share, which had a higher legal priority in a normally functioning bankruptcy proceeding, has the administration not simply looted bank assets and given them to the union? Is this just a political payoff or do they really think this is in the best long term interest of the auto companies?
Will this action impact future decisions of banks to lend money to heavily unionized companies? Is this not a slightly different corporate version of the mortgage cramdown that was just rejected by the Senate?
Are the unions free to sell their shares or swap them for shares in other companies? If the share prices climb are they allowed to take their profit? Will the future dividends, if there are any, be used to grow the union infrastructure or will the potential benefits be forced to be used for the benefit of the union members? Will there be salary caps on the union officials who run the union that now owns half of two major auto companies? Will the union officials be allowed to use private aircraft?
Will the Federal Automotive Consortium become another Amtrak, subsidized far into the future?
Does the equity stake in GM and Chrysler awarded to the UAW make you more or less likely to buy one of their cars?
If oil prices remain low for years to come (Yes I am a contrarian), will the Federal imposed effort to make more fuels efficient cars back fire and make their federalized companies even less profitable?
If that happens will the Federal government pour even more money in the companies to continue to protect the union jobs threatened by governmental management decisions? Will the union owned companies be held any more responsible for bad decisions than the publicly owned companies were?
If that happens will the Federal Auto Consortium (FAC) legislate that their private competitors be forced to manufacture “acceptable” cars to minimize their competitive edge?
Whether because of luck or wisdom Ford is much better off financially than Chrysler or GM. Normally in a properly functioning competitive market, this would reward them with a growing market share, and thus far it is. (They outsold Toyota last month.) Will the Federal Consortium’s billion dollar aid to the losers further penalize sound management decision making by trying to protect the market share of the weaker companies?
By giving the unions a bigger share in GM and Chrysler at the expense of the banks' and lenders' share, which had a higher legal priority in a normally functioning bankruptcy proceeding, has the administration not simply looted bank assets and given them to the union? Is this just a political payoff or do they really think this is in the best long term interest of the auto companies?
Will this action impact future decisions of banks to lend money to heavily unionized companies? Is this not a slightly different corporate version of the mortgage cramdown that was just rejected by the Senate?
Are the unions free to sell their shares or swap them for shares in other companies? If the share prices climb are they allowed to take their profit? Will the future dividends, if there are any, be used to grow the union infrastructure or will the potential benefits be forced to be used for the benefit of the union members? Will there be salary caps on the union officials who run the union that now owns half of two major auto companies? Will the union officials be allowed to use private aircraft?
Will the Federal Automotive Consortium become another Amtrak, subsidized far into the future?
Wednesday, May 6, 2009
Jen's Quest
I stumbled on this blog through through the Twitter maze. The excerpt is from a Blog called The Jen. I thought this excerpt shows a very thougthful perception of a young woman on a political quest.
My generation hates soccer moms and all that they stand for. They sneer at the traditional values that the members of the Right so often hold dear. They are almost exclusively children of divorce, infidelity, abuse, R-rated movies, and cynicism nurtured from the womb. They are not voting because they want to preserve the values that they see fail every single day. The failures of our parents and authority figures to uphold the truth of goodness and virtue that they preach have much more far-reaching effects than we can know. This isn’t a rebellious, teen angsty POV. It is an abhorrence of the hypocritical image so often associated with the religious and the virtuous, because the attempt to be more enlightened and a good person is no longer enough.
The common excuse of being human and failing doesn’t matter to this scarred and often childish generation. This has evolved into a preciously held belief. We can’t believe in marriage, love, happiness, and virtue (look at our examples of that epic fail) so as usual, people must find something to believe in. The Anti-values Belief. When you believe in being “groovy” with everything, being PC about everything and accepting all forms of relationships and life, it leaves little room for disappointment and failure. Everything is cool.
And this is where the Left makes its grand entrance. Liberals are associated with beliefs that are harder to pin down and harder to be scarring hypocrites about. Scarring was the key word there. The environment, animals, civil rights, women’s rights, seemingly against big business, a more hippie, earthy, open approach to life…who doesn’t care about these things today? The requirements from our country, both economically and politically, to fulfill some of the more idealistic dreams of the Left don’t factor in with my age group. Instant gratification, remember, not a ton of forward thinking. Half of us secretly believe we are headed to some kind of alien Armageddon, for crying out loud. You see how ridiculously easy it is for this generation to walk into the libs camp and act like they were destined for it? We were raised for it.
There are less differences than one might think between the Right and Left. This is an arguable point but I would deviate from this point far too much if I went into specifics. The party differences are at the core and issue related and people are forgetting that. What seems to be the new thought and new common belief is that the differences are more emotional and more personal. What I mean by that is, our two parties seem to be divided more along lines that have less and less to do with the real issues and more to do with the surface politics, the perceived faces. Each day the parties seem to polarize more along these new, ill-defined fault lines.
My generation hates soccer moms and all that they stand for. They sneer at the traditional values that the members of the Right so often hold dear. They are almost exclusively children of divorce, infidelity, abuse, R-rated movies, and cynicism nurtured from the womb. They are not voting because they want to preserve the values that they see fail every single day. The failures of our parents and authority figures to uphold the truth of goodness and virtue that they preach have much more far-reaching effects than we can know. This isn’t a rebellious, teen angsty POV. It is an abhorrence of the hypocritical image so often associated with the religious and the virtuous, because the attempt to be more enlightened and a good person is no longer enough.
The common excuse of being human and failing doesn’t matter to this scarred and often childish generation. This has evolved into a preciously held belief. We can’t believe in marriage, love, happiness, and virtue (look at our examples of that epic fail) so as usual, people must find something to believe in. The Anti-values Belief. When you believe in being “groovy” with everything, being PC about everything and accepting all forms of relationships and life, it leaves little room for disappointment and failure. Everything is cool.
And this is where the Left makes its grand entrance. Liberals are associated with beliefs that are harder to pin down and harder to be scarring hypocrites about. Scarring was the key word there. The environment, animals, civil rights, women’s rights, seemingly against big business, a more hippie, earthy, open approach to life…who doesn’t care about these things today? The requirements from our country, both economically and politically, to fulfill some of the more idealistic dreams of the Left don’t factor in with my age group. Instant gratification, remember, not a ton of forward thinking. Half of us secretly believe we are headed to some kind of alien Armageddon, for crying out loud. You see how ridiculously easy it is for this generation to walk into the libs camp and act like they were destined for it? We were raised for it.
There are less differences than one might think between the Right and Left. This is an arguable point but I would deviate from this point far too much if I went into specifics. The party differences are at the core and issue related and people are forgetting that. What seems to be the new thought and new common belief is that the differences are more emotional and more personal. What I mean by that is, our two parties seem to be divided more along lines that have less and less to do with the real issues and more to do with the surface politics, the perceived faces. Each day the parties seem to polarize more along these new, ill-defined fault lines.
Tuesday, May 5, 2009
Ignoring Basic Principles
I recently finished reading James Grant’s “Mr. Market Misses”, and he noted in his newsletters years ago that something was terribly amiss in the home and mortgage markets years ago.
Some time ago I read Nassim Taleb’s “Fooled by Randomness and “The Black Swan”. Both books dealt with the issue of randomness and the associated risks when random events are either ignored or deemed to be the result of delusional talent. An experienced trader, Taleb warned of the interconnectedness of the financial system and how the fall of a major financial institution could bring many others down with it. A financial collapse seemed almost inevitable.
Recently we have learned that George Soros has made well over a billion dollars betting that the current crisis would happen. There were other hedge fund managers that made more than him.
The point is that there were bright and knowledgeable people who saw the risks in the market and either avoided it or profited from it. Yet there were no such people in the entire Congress, the Treasury, the FDIC or the SEC.
And you can be assured that no such insight guided the managers of 401k’s holding the life savings of schmucks like you and me. There was little such talent available for many charitable trusts and community foundations.
To be fair there have been many perennial bears who have predicted financial disasters for the last 25 years. Sooner or later they were bound to be right.
But the status quo was deaf and blind to challenging opinions. Few were invited and even less were given serious consideration.
Again we fell into a trap of believing that the elite and the smart could not only control the economy but could engineer the economy to deliver the political utopia of something for nothing. We had people smart enough to give us the mix of growth, low inflation, low unemployment, by just tweaking the inflation rate and monetary policy. This was no different than the Great Inflation that was engineered by the government economists from Kennedy to Reagan.
We thought Greenspan was a genius when the stock market was high, and a fool when the market collapsed.
But even with the resources of the entire government and the Federal Reserve we seem no more immune from Black Swans than before the Fed ever existed. In fact the Fed has delivered more severe and longer recessions and depressions than existed before them.
Yet we still insist on electing the intelligent over the principled. It wasn’t eighth grade dropouts that developed or applied Gaussian cupola formulas to investment risks. Our addiction to ‘intelligent’ sounding people is an extension of the same people who want to believe that we can have something for nothing, stocks and home prices that go up for ever, low inflation and low unemployment with out any fiscal discipline, and government programs without cost.
We always rediscover basic principles after we learn the cost of ignoring them.
Some time ago I read Nassim Taleb’s “Fooled by Randomness and “The Black Swan”. Both books dealt with the issue of randomness and the associated risks when random events are either ignored or deemed to be the result of delusional talent. An experienced trader, Taleb warned of the interconnectedness of the financial system and how the fall of a major financial institution could bring many others down with it. A financial collapse seemed almost inevitable.
Recently we have learned that George Soros has made well over a billion dollars betting that the current crisis would happen. There were other hedge fund managers that made more than him.
The point is that there were bright and knowledgeable people who saw the risks in the market and either avoided it or profited from it. Yet there were no such people in the entire Congress, the Treasury, the FDIC or the SEC.
And you can be assured that no such insight guided the managers of 401k’s holding the life savings of schmucks like you and me. There was little such talent available for many charitable trusts and community foundations.
To be fair there have been many perennial bears who have predicted financial disasters for the last 25 years. Sooner or later they were bound to be right.
But the status quo was deaf and blind to challenging opinions. Few were invited and even less were given serious consideration.
Again we fell into a trap of believing that the elite and the smart could not only control the economy but could engineer the economy to deliver the political utopia of something for nothing. We had people smart enough to give us the mix of growth, low inflation, low unemployment, by just tweaking the inflation rate and monetary policy. This was no different than the Great Inflation that was engineered by the government economists from Kennedy to Reagan.
We thought Greenspan was a genius when the stock market was high, and a fool when the market collapsed.
But even with the resources of the entire government and the Federal Reserve we seem no more immune from Black Swans than before the Fed ever existed. In fact the Fed has delivered more severe and longer recessions and depressions than existed before them.
Yet we still insist on electing the intelligent over the principled. It wasn’t eighth grade dropouts that developed or applied Gaussian cupola formulas to investment risks. Our addiction to ‘intelligent’ sounding people is an extension of the same people who want to believe that we can have something for nothing, stocks and home prices that go up for ever, low inflation and low unemployment with out any fiscal discipline, and government programs without cost.
We always rediscover basic principles after we learn the cost of ignoring them.
Monday, May 4, 2009
Stimulating Reason
Reason Magazine interviews 10 economists on the Stimulus package- “Will We Be Stimulated?” complied by Nick Gillespie- Reason May 2009.
Here are some of the morsels offered:
“The genius of the American system, for all of its flaws, has been that we can mobilize lots of liquidity quickly. Silicon Valley exists because you could sit down, make a pitch, and get $10 million that afternoon. If we start governing finance.... we are going to lose that.”
“It redirects resources on a grand scale from uses consumers value to uses politicians value, and thereby impoverishes the general public.”
“A good stimulus package should be designed to move money out the door quickly, then stop. This program is designed to move money out the door slowly and keep going.”
“It’s not targeted, not temporary and not timely. Too slow.”
“Nothing in the package increases the incentive to work, save, invest, or increase productivity.”
“..it destroys savings by using them on projects that the majority did not think reasonable a year ago.”
“... it will have its largest impact after the economy has already turned the corner- so that it will contribute to another round of boom and bust.”
“... the economy will have recovered sufficiently (when it takes effect) by then so that the fiscal stimulus ... might actually be destabilizing.”
“.. Obama says he doesn’t want to do tired old ideas and failed economics. But he is doing exactly what the Republicans did: huge deficit financed spending on useless or irrelevant programs designed to reward political friends.”
“..economic self- correcting resiliency works best in the abscence of government interference.”
“... the government fouled up the banking system (the most regulated part of the economy), so maybe the government should help clean up the mess.”
Here are some of the morsels offered:
“The genius of the American system, for all of its flaws, has been that we can mobilize lots of liquidity quickly. Silicon Valley exists because you could sit down, make a pitch, and get $10 million that afternoon. If we start governing finance.... we are going to lose that.”
“It redirects resources on a grand scale from uses consumers value to uses politicians value, and thereby impoverishes the general public.”
“A good stimulus package should be designed to move money out the door quickly, then stop. This program is designed to move money out the door slowly and keep going.”
“It’s not targeted, not temporary and not timely. Too slow.”
“Nothing in the package increases the incentive to work, save, invest, or increase productivity.”
“..it destroys savings by using them on projects that the majority did not think reasonable a year ago.”
“... it will have its largest impact after the economy has already turned the corner- so that it will contribute to another round of boom and bust.”
“... the economy will have recovered sufficiently (when it takes effect) by then so that the fiscal stimulus ... might actually be destabilizing.”
“.. Obama says he doesn’t want to do tired old ideas and failed economics. But he is doing exactly what the Republicans did: huge deficit financed spending on useless or irrelevant programs designed to reward political friends.”
“..economic self- correcting resiliency works best in the abscence of government interference.”
“... the government fouled up the banking system (the most regulated part of the economy), so maybe the government should help clean up the mess.”
Sunday, May 3, 2009
How to lose a customer in 10 easy steps
1. Interrupt him – show him that what you have to say is far more important than anything he could possibly tell you.
2. Treat him like an idiot- for example, tell him you are not meeting the competition’s price because you want to protect the value of his current inventory.
3. Be opinionated- there is nothing one loves more than having his religious and political views belittled.
4. Take a cell call during a meeting- show him that you’re important and in demand all the time. Maybe you can just peak at your Blackberry while he is talking.
5. Wait till there is a problem before you call- why prevent a problem when you can get more credit for solving one.
6. Be pointless- there is no purpose to your visit or phone call. There is always the weather and the football game you can discuss.
7. Don’t follow up- if there was a problem they would call you, right?
8. Criticize him, point out his mistakes. "Tell" him what he doesn't know. Spouses like this too.
9. Treat his colleagues and subordinates less importantly than you would treat him. That way he will know how important he is to you.
10. Be inconsistent. You do not want him to expect great service all of the time.
2. Treat him like an idiot- for example, tell him you are not meeting the competition’s price because you want to protect the value of his current inventory.
3. Be opinionated- there is nothing one loves more than having his religious and political views belittled.
4. Take a cell call during a meeting- show him that you’re important and in demand all the time. Maybe you can just peak at your Blackberry while he is talking.
5. Wait till there is a problem before you call- why prevent a problem when you can get more credit for solving one.
6. Be pointless- there is no purpose to your visit or phone call. There is always the weather and the football game you can discuss.
7. Don’t follow up- if there was a problem they would call you, right?
8. Criticize him, point out his mistakes. "Tell" him what he doesn't know. Spouses like this too.
9. Treat his colleagues and subordinates less importantly than you would treat him. That way he will know how important he is to you.
10. Be inconsistent. You do not want him to expect great service all of the time.
Saturday, May 2, 2009
An Ammunition Shortage
In the midst of a hard recession the gun business is booming. The last time sales were this good was during the Brady Bill days of Bill Clinton. So many just feared losing their right to bear arms that many who had never thought of buying a gun bought several. It was ironic that the bill to restrict guns did more to arm Americans than anything had before.
Particularly popular is the KelTec 3AT, a very small, easy to pocket .380 caliber (get it?) and its Ruger knockoff. In fact these small pistols have become so popular that stores have trouble keeping ammunition for it in stock.
I believe the increase in business is simply due to the fear that a Democratic majority will restrict gun ownership. Obama has said little about gun rights other than floating the idea of a very stiff tax on ammo. That may also account for the ammo shortage.
The small KelTecs are no fun to shoot, but they are great to simply hide in a pants pocket, and would do fine in an emergency.
I still prefer a shrouded hammer S&W 38. It really isn't that much bigger and it handles much better. For me it is the perfect carry piece.
Friday, May 1, 2009
Not Knowing History
“The trouble with not knowing history is not that one is condemned to repeat it. As history is cyclical, the only alternative to not repeating it is not being around for the privilege. The trouble is rather that the history-deprived person meets a surprise at every cyclical bend in the road. He or she lives in a childlike state of wonderment.”
James Grant from Mr. Market Miscalculates
James Grant from Mr. Market Miscalculates
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