11/26/08
In my 11/21/08 Commentary, in which I announced that my posture toward the stock market had moved from decidedly and unrelentingly bearish to a stance that could perhaps best, though clumsily, be characterized as somewhere between mildly bearish and mildly bullish, I mentioned that
“I wish I could say that there is plenty of anecdotal evidence (which readers know I like) that the economy is turning around, but there isn’t. I notice the restaurants I frequent (primarily low priced) are slightly busier than they used to be and there are fewer “For Sale” signs around the suburban paradise we inhabit and its environs. But that is pretty thin gruel. Again, however, markets turn before the economy”
Since then, I have been struggling (perhaps too strong a verb) to find some signs that the economy may be turning around, perhaps to fortify my confidence in my shift in attitude toward the market, and I may have found some.
This morning, the Commerce Department reported that personal spending fell by 1.0% in October, the sharpest drop in seven years. Most experts and conventional thinkers were sullen and down in the mouth about this latest development, offering it as more evidence that we are plunging precipitously into an economic Hades. I, on the other hand, think this is terrific. Why? In order to explain this onset of uncharacteristic and uncomfortable bout of optimism, I offer the following statistics: (The first three columns are changes from the previous month; the last is a simple ratio.)
Disposable Personal
Personal Personal Personal Savings/
Income Spending Income (DPI) DPI
October 0.3% -1.0% 0.4% 2.4%
September 0.1% -0.3% 0.1% 1.0%
(Okay, so Blogspot cannot handle columns very well. The gist of what was supposed to be the above is that personal income and disposable personal income are rising while personal spending is falling, resulting in rapidly increasing personal savings/disposable personal income ratio. This trend has picked up considerably from September to October. I apologize that that didn’t come through when my Word document was translated to Blogspot.)
This is obviously (at least to yours truly) good news. Why? If these numbers are any indication (always a big “if” with two months of data), people are learning not to spend every last dime on which they get their hands, and then some Our economic problems have at their source the chronic inability of Americans (or at least Americans of my and, perhaps, later generations) to save money. If we can get Americans to learn to save again, we perhaps can find our way out this economic problem. If we can’t, we have no hope whatsoever of maintaining (or perhaps regaining) our status as the world’s preeminent economic power.
Conventional thinkers scoff at the notion outlined in the last paragraph. They argue that we will never emerge from this recession if people don’t spend and borrow again. But, as I have said repeatedly in the past (and most recently, at great length, in my 11/11/08 piece, “Happy (?) Days Aren’t Here Again” and at lesser length in my 11/14/08 piece, “A Random Walk Toward Hooverville”), policies designed to get people to spend and borrow more are the financial equivalent of that temporarily soothing shot of JTS Brown in the morning. We’ll feel better for a few hours, but then the old brown bottle flu comes back with even greater fury.
Others might argue that people aren’t spending because their incomes have dropped. But, while allowing that figures don’t lie but liars figure, the above numbers tell a different story. Income is up, but spending is down. Even if you don’t believe that income is up, you have to concede that spending is down more than income. In any case, we are saving more of our income than we have in the past, which would be the case if we were saving ANY portion of our personal income.
Still others might argue that people are saving because they are afraid of the, and their, economic situation. To which I would reply that fear is, while a motivator of last resort, a great motivator nonetheless.
Please don’t misunderstand me; this one set of statistics is not evidence of a rapid, or even a slow, economic turnaround. Given the depths of our problems and the maladroit responses to it from Washington that look to be continued under the Obama administration (See the references in the previous post to the appointment of Tim Geithner as Treasury Secretary.), we could be in this economic sewage drain for a long time. But, as much as it feels awkward for me to do so, I am finding a few glimmers of hope in an otherwise gloomy situation.
Wednesday, November 26, 2008
A NEW SHERIFF IN TOWN?
11/26/08
As those who know me, and many of my readers, might suspect, I am delighted that Paul Volcker has been named Chairman of something called the President’s Economic Recovery Advisory Board. No, I am not happy about their being yet another Council or Board or other soon to be vestigial bureaucracy, but I am confident that the presence of Mr. Volcker will have a eupeptic effect on economic policies emerging from the Obama Administration.
As those who know me, and many of my readers, might also suspect, I am not at all happy that Tim Geithner has been named Treasury Secretary. While I didn’t think that Mr. Volcker would get that job (Mr. Volcker is 81 and I am realistic.), I was hoping for someone other than Mr. Geithner, perhaps Bob Rubin, not for any policy reasons but for the confidence Mr. Rubin could inspire. Mr. Geithner is a reflexive interventionist and one of the chief architects of what I think are the severely wrong-headed policy responses to our economic difficulties. His appointment is an indication that Mr. Obama may intend to lead us further down the rabbit hole of economic mismanagement, much as the dyspeptic retention of Robert Gates as Defense Secretary is an indication that Mr. Obama may intend to lead us further down the rabbit hole of muddle-headed overseas adventures, but that is another conversation entirely.
One could very plausibly argue that Mr. Volcker is also onboard with the sort of economic interventionism that I feel is digging us further into the economic latrine. I understand that. But Paul Volcker is Paul Volcker. He stands for more than frenetic economic intervention. It is not too far beyond the bounds of good sense to argue that Paul Volcker, by crushing the runaway Carter/Miller/Burns inflation of the late ‘70s and early ‘80s, saved Western civilization. Paul Volcker is the type of guy (like Warren Buffett) who, when he says or prescribes something that runs counter to what I think or believe, makes me reexamine my thought or belief. Tim Geithner is just a career bureaucrat who, while bright and energetic (characteristics that can be big negatives when applied in the wrong direction), has very limited experience in the private sector (none, really) and who hence seems to have a reflexive belief in the salubriousness of heavy-handed government.
I just hope that this President’s Economic Recovery Advisory Board is more than a symbolic way of saying “Thanks” to Mr. Volcker for lending intellectual heft and centrist cover to the Obama campaign.
As those who know me, and many of my readers, might suspect, I am delighted that Paul Volcker has been named Chairman of something called the President’s Economic Recovery Advisory Board. No, I am not happy about their being yet another Council or Board or other soon to be vestigial bureaucracy, but I am confident that the presence of Mr. Volcker will have a eupeptic effect on economic policies emerging from the Obama Administration.
As those who know me, and many of my readers, might also suspect, I am not at all happy that Tim Geithner has been named Treasury Secretary. While I didn’t think that Mr. Volcker would get that job (Mr. Volcker is 81 and I am realistic.), I was hoping for someone other than Mr. Geithner, perhaps Bob Rubin, not for any policy reasons but for the confidence Mr. Rubin could inspire. Mr. Geithner is a reflexive interventionist and one of the chief architects of what I think are the severely wrong-headed policy responses to our economic difficulties. His appointment is an indication that Mr. Obama may intend to lead us further down the rabbit hole of economic mismanagement, much as the dyspeptic retention of Robert Gates as Defense Secretary is an indication that Mr. Obama may intend to lead us further down the rabbit hole of muddle-headed overseas adventures, but that is another conversation entirely.
One could very plausibly argue that Mr. Volcker is also onboard with the sort of economic interventionism that I feel is digging us further into the economic latrine. I understand that. But Paul Volcker is Paul Volcker. He stands for more than frenetic economic intervention. It is not too far beyond the bounds of good sense to argue that Paul Volcker, by crushing the runaway Carter/Miller/Burns inflation of the late ‘70s and early ‘80s, saved Western civilization. Paul Volcker is the type of guy (like Warren Buffett) who, when he says or prescribes something that runs counter to what I think or believe, makes me reexamine my thought or belief. Tim Geithner is just a career bureaucrat who, while bright and energetic (characteristics that can be big negatives when applied in the wrong direction), has very limited experience in the private sector (none, really) and who hence seems to have a reflexive belief in the salubriousness of heavy-handed government.
I just hope that this President’s Economic Recovery Advisory Board is more than a symbolic way of saying “Thanks” to Mr. Volcker for lending intellectual heft and centrist cover to the Obama campaign.
Friday, November 21, 2008
TAURUS MINOR
11/21/08
I don’t like to use the Pontificator to report on my market posture, at least not directly; it was not designed as a purely financial site. I try to limit the Pontificator to musings on economic, financial, societal, and political developments. I’ve refrained from making this a typical financial site for a number of reasons, the foremost being that I am a much better writer and thinker than I am a trader; even though my (small; our larger investment accounts are doing well only on a relative basis because they have had small stock positions and large TIP positions; the last few months have not been kind to these accounts, given what has happened to TIPs, but, on a relative basis, they have done very well. Given my discipline, my posture in the larger investment accounts won’t change until their scheduled annual rebalancing dates.) trading account is up 201% over the last year, I’m not so sure that isn’t a case of a broken clock's finally being right.
That having been said, regular readers have a pretty good idea of what my investment and trading posture has been for the last few years: unapologetically and unmistakably bearish. I have been trading in and out of puts on the QQQQs and on various individual stocks and have been consistently long the ultrashorts on the QQQQs (QID) and on the Russell 2000 (TWM).
Over the last few days, however, I have been changing my outlook. Do I think the economy is improving markedly? No. But, like anyone who knows anything about investing, I realize the stock markets turn before, usually well before, the economy. And, as I said in my 11/11/08 post “Happy (?) Days Aren’t Here Again”:
“As far as the markets go, with the S&P down some 42% from its high, it is foolish, if not mathematically impossible, to be as bearish on the market as I was when the market was at its October, 2007 peak and as I have been all the way down. However, it is nearly as hard to be even the slightest bit bullish. While, as with the economy, we might see an ephemeral pop now and then, I see more trouble on the way and more, albeit of necessity fewer, opportunities for bears, even permabears, to make some money on the short side.”
Since then, the market has traded down to the point at which, at yesterday’s close, the S&P was down 52% from its 10/9/07 closing peak. At that point, common sense says that there is likely more room on the upside than the downside. Further, the almost uniform bearishness among the experts (for whom, the loyal readers know, I have such brimming admiration!) also has made me reevaluate my bearishness.
I wish I could say that there is plenty of anecdotal evidence (which readers know I like) that the economy is turning around, but there isn’t. I notice the restaurants I frequent (primarily low priced) are slightly busier than they used to be and there are fewer “For Sale” signs around the suburban paradise we inhabit and its environs. But that is pretty thin gruel. Again, however, markets turn before the economy.
So, I am out of all my QQQQ puts, but my being out is the result of my trading discipline which demands a sale at a certain level, not a firm determination that things are turning around. The last position put I had (the March 29s, QAVOC) touched my limit price, taking me out before promptly trading down in this afternoon’s rally. I have been peeling out of my QIDs and TWMs for the last month, and am down to less than half of my original position. I originally was replacing the QIDs with TIPs (at one point yesterday, the 10 year TIP was trading within two basis points of the conventional 10 year Treasury; you have to be convinced that either deflation will prevail for years or that the monetary authorities will act responsibly in order to buy the conventional 10 year under those circumstances. I scoff at either notion.), but today began to replace them with the Direxion Russell 1000 3x Bull ETF (BGU) and began replacing my TWMs with the Direxion Russell 2000 3x Bull ETF (TNA). I am doing this gradually, as I do everything in investing and trading, the latter on relative basis.
As I said at the outset, I’m not the greatest trader or investor in the world and there probably is a good chance that, now that I have begun my move from bearishness to bullishness the market will soon trade down to zero. SO THIS PIECE IS NOT MEANT IN THE LEAST TO BE CONSTRUED AS INVESTMENT OR TADING ADVICE. But I thought I would report on this alteration of my thinking for a few reasons. First, so I can brag about if things do work out and, second, because my being even the slightest bit bullish happens about as often as the Bears win the Super Bowl.
I don’t like to use the Pontificator to report on my market posture, at least not directly; it was not designed as a purely financial site. I try to limit the Pontificator to musings on economic, financial, societal, and political developments. I’ve refrained from making this a typical financial site for a number of reasons, the foremost being that I am a much better writer and thinker than I am a trader; even though my (small; our larger investment accounts are doing well only on a relative basis because they have had small stock positions and large TIP positions; the last few months have not been kind to these accounts, given what has happened to TIPs, but, on a relative basis, they have done very well. Given my discipline, my posture in the larger investment accounts won’t change until their scheduled annual rebalancing dates.) trading account is up 201% over the last year, I’m not so sure that isn’t a case of a broken clock's finally being right.
That having been said, regular readers have a pretty good idea of what my investment and trading posture has been for the last few years: unapologetically and unmistakably bearish. I have been trading in and out of puts on the QQQQs and on various individual stocks and have been consistently long the ultrashorts on the QQQQs (QID) and on the Russell 2000 (TWM).
Over the last few days, however, I have been changing my outlook. Do I think the economy is improving markedly? No. But, like anyone who knows anything about investing, I realize the stock markets turn before, usually well before, the economy. And, as I said in my 11/11/08 post “Happy (?) Days Aren’t Here Again”:
“As far as the markets go, with the S&P down some 42% from its high, it is foolish, if not mathematically impossible, to be as bearish on the market as I was when the market was at its October, 2007 peak and as I have been all the way down. However, it is nearly as hard to be even the slightest bit bullish. While, as with the economy, we might see an ephemeral pop now and then, I see more trouble on the way and more, albeit of necessity fewer, opportunities for bears, even permabears, to make some money on the short side.”
Since then, the market has traded down to the point at which, at yesterday’s close, the S&P was down 52% from its 10/9/07 closing peak. At that point, common sense says that there is likely more room on the upside than the downside. Further, the almost uniform bearishness among the experts (for whom, the loyal readers know, I have such brimming admiration!) also has made me reevaluate my bearishness.
I wish I could say that there is plenty of anecdotal evidence (which readers know I like) that the economy is turning around, but there isn’t. I notice the restaurants I frequent (primarily low priced) are slightly busier than they used to be and there are fewer “For Sale” signs around the suburban paradise we inhabit and its environs. But that is pretty thin gruel. Again, however, markets turn before the economy.
So, I am out of all my QQQQ puts, but my being out is the result of my trading discipline which demands a sale at a certain level, not a firm determination that things are turning around. The last position put I had (the March 29s, QAVOC) touched my limit price, taking me out before promptly trading down in this afternoon’s rally. I have been peeling out of my QIDs and TWMs for the last month, and am down to less than half of my original position. I originally was replacing the QIDs with TIPs (at one point yesterday, the 10 year TIP was trading within two basis points of the conventional 10 year Treasury; you have to be convinced that either deflation will prevail for years or that the monetary authorities will act responsibly in order to buy the conventional 10 year under those circumstances. I scoff at either notion.), but today began to replace them with the Direxion Russell 1000 3x Bull ETF (BGU) and began replacing my TWMs with the Direxion Russell 2000 3x Bull ETF (TNA). I am doing this gradually, as I do everything in investing and trading, the latter on relative basis.
As I said at the outset, I’m not the greatest trader or investor in the world and there probably is a good chance that, now that I have begun my move from bearishness to bullishness the market will soon trade down to zero. SO THIS PIECE IS NOT MEANT IN THE LEAST TO BE CONSTRUED AS INVESTMENT OR TADING ADVICE. But I thought I would report on this alteration of my thinking for a few reasons. First, so I can brag about if things do work out and, second, because my being even the slightest bit bullish happens about as often as the Bears win the Super Bowl.
Friday, November 14, 2008
A RANDOM WALK TOWARD HOOVERVILLE
11/14/08
Back in September, when Hank Paulson was pushing for what is now called the TARP (See the digression at the end of this piece.), he was telling us how absolutely essential it was to get bad assets off the books of the nation’s titanic financial institutions in order to “unclog the arteries” of the financial system. Almost as soon as the Congress had written him a $350 billion check (with another $350 billion “on reserve,” as we used to say in college in a completely different, but less toxic, context), he began to move away from that febrile argument and starting dishing out the money to comparatively healthy financial institutions in the form of very attractively priced (from the issuers’ standpoints) preferred stock. The he doled a chunk out to the ever vigilant AIG while its executives vacationed (oh, I’m sorry, “conferenced”) in sunny climes of which the check writers could only dream. Finally, on Wednesday of this week, Mr. Paulson finally gave up the ghost and simply admitted that the urgent national priority of not even two months ago is not so important any more. Those arteries which desperately needed the financial equivalent of the Roto-Rooter man can indeed remain clogged and the economy will do just fine as long as we invest more money in banks and Wall Street, encourage the type of lending that got us into this trouble in the first place, and lend succor to homeowners who bought more house than they could afford and now can no longer make, or have decided not to make, their house payments. Those of you who were responsible and kept up with your payments, even when it was painful and you could have used the money for something else, shut up and pay. But I digress.
The evolution of buying toxic assets from an urgent national priority that needed $700 billion RIGHT NOW only two months ago into something that is not as important as fortifying relatively healthy financial institutions and assuring the free flow of the type of credit that got us into this soup in the first place reiterates a point I have been making for months. People, and especially “experts,” are fond of telling us that another Depression is impossible because the government now has a dizzying array of tools at it disposal that are designed to thwart an economic catastrophe. However, I have been arguing, and continue to argue, that when the government uses the wrong tools, or clumsily misuses the tools it is attempting to use, it will only serve to exacerbate the problem it is trying to solve and thus, given the government’s size and resultant immense and immediate impact on the economy, might hasten, rather than thwart, the downward journey into economic dystopia.
Now, on a (thankfully) lighter note, sort of a silly, but nevertheless insightful, point of digression…
The program that I referred to as RTC II back when it was being proposed in September originally came to be called the TARF (Troubled Asset Relief Fund). I thought that was an especially apt name, given the obvious rhyme for TARF. However, perhaps catching this oversight, the “designers” of this program quickly and surreptitiously renamed it TARP (Troubled Asset Relief Program), and TARF quickly evaporated into the mists of history. While I thought that TARF was especially appropriate as a moniker for this abomination, TARP also serves very well. After all, a tarp is a huge, ungainly opaque cloth used to cover up things, right?
+
Back in September, when Hank Paulson was pushing for what is now called the TARP (See the digression at the end of this piece.), he was telling us how absolutely essential it was to get bad assets off the books of the nation’s titanic financial institutions in order to “unclog the arteries” of the financial system. Almost as soon as the Congress had written him a $350 billion check (with another $350 billion “on reserve,” as we used to say in college in a completely different, but less toxic, context), he began to move away from that febrile argument and starting dishing out the money to comparatively healthy financial institutions in the form of very attractively priced (from the issuers’ standpoints) preferred stock. The he doled a chunk out to the ever vigilant AIG while its executives vacationed (oh, I’m sorry, “conferenced”) in sunny climes of which the check writers could only dream. Finally, on Wednesday of this week, Mr. Paulson finally gave up the ghost and simply admitted that the urgent national priority of not even two months ago is not so important any more. Those arteries which desperately needed the financial equivalent of the Roto-Rooter man can indeed remain clogged and the economy will do just fine as long as we invest more money in banks and Wall Street, encourage the type of lending that got us into this trouble in the first place, and lend succor to homeowners who bought more house than they could afford and now can no longer make, or have decided not to make, their house payments. Those of you who were responsible and kept up with your payments, even when it was painful and you could have used the money for something else, shut up and pay. But I digress.
The evolution of buying toxic assets from an urgent national priority that needed $700 billion RIGHT NOW only two months ago into something that is not as important as fortifying relatively healthy financial institutions and assuring the free flow of the type of credit that got us into this soup in the first place reiterates a point I have been making for months. People, and especially “experts,” are fond of telling us that another Depression is impossible because the government now has a dizzying array of tools at it disposal that are designed to thwart an economic catastrophe. However, I have been arguing, and continue to argue, that when the government uses the wrong tools, or clumsily misuses the tools it is attempting to use, it will only serve to exacerbate the problem it is trying to solve and thus, given the government’s size and resultant immense and immediate impact on the economy, might hasten, rather than thwart, the downward journey into economic dystopia.
Now, on a (thankfully) lighter note, sort of a silly, but nevertheless insightful, point of digression…
The program that I referred to as RTC II back when it was being proposed in September originally came to be called the TARF (Troubled Asset Relief Fund). I thought that was an especially apt name, given the obvious rhyme for TARF. However, perhaps catching this oversight, the “designers” of this program quickly and surreptitiously renamed it TARP (Troubled Asset Relief Program), and TARF quickly evaporated into the mists of history. While I thought that TARF was especially appropriate as a moniker for this abomination, TARP also serves very well. After all, a tarp is a huge, ungainly opaque cloth used to cover up things, right?
+
“LAST NIGHT I WENT TO SLEEP IN DETROIT CITY…”
11/14/08
The Big 3 automakers and their supporters in Congress are looking for their piece of the bailout mania that is currently consuming our nation’s capital. The Republicans, professing profound piety toward the gods of the free market, are refusing any sort of bailout for the Big 3.
I am the last person to argue that government ought to be in the business of bailing out private businesses. However, once the precedent has been set by spending billions (trillions, really) to bail out Wall Street, how can the government legitimately deny help to the Big 3? (I know that the Republicans, and especially the (Thank God!) outgoing Administration, are falling all over themselves saying that the Wall Street bailouts were against their principles but were absolutely necessary, that they had “no choice.” However, one should recognize such pious proclamations for what they are: futile attempts by meretricious politicians to cloak their solipsistic tendencies under a thin veneer of easily and conveniently disposed principle.)
Opponents of a Big 3 bailout argue that a collapse of Wall Street is fraught with “systemic risks” that hold ghastly consequences for our economy. Do they really believe that there are no “systemic risks” from a failure of the Big 3? Have these anodyne acolytes of what they have twisted free market principles into ever ventured out of New York or Washington? Have they ever been to the nation’s heartland? Parts suppliers, car dealers, car salesmen, steelmakers, advertisers, pro sports teams, even cattle ranchers and cotton farmers depend on the Big 3 for their prosperity, indeed, in some of the aforementioned cases, even their survival. Some opponents of the Big 3 bailout who had little problem with the Wall Street bailout argue that the Big 3 are mismanaged and that their workers make too much money. They make this argument with a straight face. Do they really believe that much of Wall Street and the banking industry were not mismanaged or that their workers do not make too much money?
As one of our more notorious presidents used to say, make no mistake. I am not for bailouts, but there is something perverse about bailing out Wall Street while giving the cold shoulder to the industrial base of our nation. The Republican refusal to bail out the Big 3 while harboring an enthusiasm for the bail out for Wall Street that was not well concealed by their ephemeral protests of having been dragged, kicking and screaming, into those bailouts is beginning to look like a manifestation of some sort of contempt for manufacturing. I don’t know whence this arises. Has their enthusiasm for a free markets and global competition somehow metamorphosized into a disdain for our side in that global competition or a failure to recognize that there indeed is an “our side” in the global marketplace? Or are some quarters of the Democratic Party right when they charge that the Republicans simply have no regard for people who work with their hands? The former is scary enough, the latter is downright chilling.
The Big 3 automakers and their supporters in Congress are looking for their piece of the bailout mania that is currently consuming our nation’s capital. The Republicans, professing profound piety toward the gods of the free market, are refusing any sort of bailout for the Big 3.
I am the last person to argue that government ought to be in the business of bailing out private businesses. However, once the precedent has been set by spending billions (trillions, really) to bail out Wall Street, how can the government legitimately deny help to the Big 3? (I know that the Republicans, and especially the (Thank God!) outgoing Administration, are falling all over themselves saying that the Wall Street bailouts were against their principles but were absolutely necessary, that they had “no choice.” However, one should recognize such pious proclamations for what they are: futile attempts by meretricious politicians to cloak their solipsistic tendencies under a thin veneer of easily and conveniently disposed principle.)
Opponents of a Big 3 bailout argue that a collapse of Wall Street is fraught with “systemic risks” that hold ghastly consequences for our economy. Do they really believe that there are no “systemic risks” from a failure of the Big 3? Have these anodyne acolytes of what they have twisted free market principles into ever ventured out of New York or Washington? Have they ever been to the nation’s heartland? Parts suppliers, car dealers, car salesmen, steelmakers, advertisers, pro sports teams, even cattle ranchers and cotton farmers depend on the Big 3 for their prosperity, indeed, in some of the aforementioned cases, even their survival. Some opponents of the Big 3 bailout who had little problem with the Wall Street bailout argue that the Big 3 are mismanaged and that their workers make too much money. They make this argument with a straight face. Do they really believe that much of Wall Street and the banking industry were not mismanaged or that their workers do not make too much money?
As one of our more notorious presidents used to say, make no mistake. I am not for bailouts, but there is something perverse about bailing out Wall Street while giving the cold shoulder to the industrial base of our nation. The Republican refusal to bail out the Big 3 while harboring an enthusiasm for the bail out for Wall Street that was not well concealed by their ephemeral protests of having been dragged, kicking and screaming, into those bailouts is beginning to look like a manifestation of some sort of contempt for manufacturing. I don’t know whence this arises. Has their enthusiasm for a free markets and global competition somehow metamorphosized into a disdain for our side in that global competition or a failure to recognize that there indeed is an “our side” in the global marketplace? Or are some quarters of the Democratic Party right when they charge that the Republicans simply have no regard for people who work with their hands? The former is scary enough, the latter is downright chilling.
Tuesday, November 11, 2008
HAPPY (?) DAYS AREN’T HERE AGAIN
11/11/08
One of the lead stories on the CBS radio business news this morning was that Citicorp will be modifying terms on 130,000 mortgage loans (with a potential value of $20 billion) for customers who are current on their payments but are facing financial difficulties. This is probably a salubrious development, but its overall beneficence is a matter, as these things should be, between Citicorp and its customers. However, it was the news report’s referring to the housing crisis, which this move by Citi is designed to partially address, as being the “root cause” of our current financial difficulties that prompted me to repeat what I have said ad nauseam in the past: despite what the “experts” are assuring us, the housing crisis is not the “root cause” of our current financial difficulties.
Though it lies pretty far down the trunk, housing is not the root cause of our financial difficulties. The root of our financial difficulties is too much spending and too much borrowing by individuals, governments, and, to a lesser extent, by businesses. We have been living way beyond our means, and have thus been enjoying a Potemkin prosperity, for at least the last ten years. The housing bubble, the bursting of which has been one of the most salient manifestations of our current financial difficulties, was both a symptom of excessive borrowing and spending and a means of facilitating further excessive borrowing and spending.
Given that our problem lies not in housing, but in gormless management of our personal, business, and societal finances, we can pursue, or, more properly, could have pursued, one of two courses. First, we could go through a long period of deleveraging, in which we pay down our debts, get our balance sheets (and income statements) in order, and learn to live within our means and save money. This sounds a lot easier than it would have been; given the hole we have dug and the sense of entitlement we have developed as a people, such a deleveraging would have been long, difficult, and excruciating. Doing so, if we ever summon the requisite courage, or are simply forced by an utter lack of alternatives, will be necessary if we are to survive as a people, and we will emerge a much stronger economy and a much more formidable people should we ever pursue this course of actions.
Second, we could pursue a hodgepodge of macroeconomic policies designed to avoid the aforementioned painful deleveraging. Given the utter inability of the American people to withstand pain and the short and completely self-interested time tables of our political leaders, this is the course we have chosen. The problem is that such a course of action is the financial equivalent of hair of the dog. These policies, be they financial bailouts, low interest rates, encouraging (forcing, really) banks to dilute credit standards, “stimulus” programs, forced mortgage renegotiations, etc., are nonsensically designed to combat a problem that has as its genesis too much spending and borrowing by encouraging (and indeed necessitating on the government’s part) more spending and borrowing. Like the aforementioned morning belt of Jack Daniels, they might feel quite efficacious for a few hours, but eventually 11:00AM is going to roll around and we will be in far worse shape than we would have been had we downed a quart of orange juice, a quart of water, and a handful of vitamins at 6:00 AM or, better yet, stayed home and drank iced tea the night before.
Given that we have pursued the latter course, and given the political and financial leadership’s glaring misdiagnosis of our economic difficulties, it is awfully difficult to be sanguine about the economy at this stage. We might get a temporary break, much like the several we experienced in the ‘30s, but we won’t get out of this until we bite the bullet. Hopefully, unlike the ‘40s, the phrase “bite the bullet” will remain figurative in this case.
As far as the markets go, with the S&P down some 42% from its high, it is foolish, if not mathematically impossible, to be as bearish on the market as I was when the market was at its October, 2007 peak and as I have been all the way down. However, it is nearly as hard to be even the slightest bit bullish. While, as with the economy, we might see an ephemeral pop now and then, I see more trouble on the way and more, albeit of necessity fewer, opportunities for bears, even permabears, to make some money on the short side.
One of the lead stories on the CBS radio business news this morning was that Citicorp will be modifying terms on 130,000 mortgage loans (with a potential value of $20 billion) for customers who are current on their payments but are facing financial difficulties. This is probably a salubrious development, but its overall beneficence is a matter, as these things should be, between Citicorp and its customers. However, it was the news report’s referring to the housing crisis, which this move by Citi is designed to partially address, as being the “root cause” of our current financial difficulties that prompted me to repeat what I have said ad nauseam in the past: despite what the “experts” are assuring us, the housing crisis is not the “root cause” of our current financial difficulties.
Though it lies pretty far down the trunk, housing is not the root cause of our financial difficulties. The root of our financial difficulties is too much spending and too much borrowing by individuals, governments, and, to a lesser extent, by businesses. We have been living way beyond our means, and have thus been enjoying a Potemkin prosperity, for at least the last ten years. The housing bubble, the bursting of which has been one of the most salient manifestations of our current financial difficulties, was both a symptom of excessive borrowing and spending and a means of facilitating further excessive borrowing and spending.
Given that our problem lies not in housing, but in gormless management of our personal, business, and societal finances, we can pursue, or, more properly, could have pursued, one of two courses. First, we could go through a long period of deleveraging, in which we pay down our debts, get our balance sheets (and income statements) in order, and learn to live within our means and save money. This sounds a lot easier than it would have been; given the hole we have dug and the sense of entitlement we have developed as a people, such a deleveraging would have been long, difficult, and excruciating. Doing so, if we ever summon the requisite courage, or are simply forced by an utter lack of alternatives, will be necessary if we are to survive as a people, and we will emerge a much stronger economy and a much more formidable people should we ever pursue this course of actions.
Second, we could pursue a hodgepodge of macroeconomic policies designed to avoid the aforementioned painful deleveraging. Given the utter inability of the American people to withstand pain and the short and completely self-interested time tables of our political leaders, this is the course we have chosen. The problem is that such a course of action is the financial equivalent of hair of the dog. These policies, be they financial bailouts, low interest rates, encouraging (forcing, really) banks to dilute credit standards, “stimulus” programs, forced mortgage renegotiations, etc., are nonsensically designed to combat a problem that has as its genesis too much spending and borrowing by encouraging (and indeed necessitating on the government’s part) more spending and borrowing. Like the aforementioned morning belt of Jack Daniels, they might feel quite efficacious for a few hours, but eventually 11:00AM is going to roll around and we will be in far worse shape than we would have been had we downed a quart of orange juice, a quart of water, and a handful of vitamins at 6:00 AM or, better yet, stayed home and drank iced tea the night before.
Given that we have pursued the latter course, and given the political and financial leadership’s glaring misdiagnosis of our economic difficulties, it is awfully difficult to be sanguine about the economy at this stage. We might get a temporary break, much like the several we experienced in the ‘30s, but we won’t get out of this until we bite the bullet. Hopefully, unlike the ‘40s, the phrase “bite the bullet” will remain figurative in this case.
As far as the markets go, with the S&P down some 42% from its high, it is foolish, if not mathematically impossible, to be as bearish on the market as I was when the market was at its October, 2007 peak and as I have been all the way down. However, it is nearly as hard to be even the slightest bit bullish. While, as with the economy, we might see an ephemeral pop now and then, I see more trouble on the way and more, albeit of necessity fewer, opportunities for bears, even permabears, to make some money on the short side.
Tuesday, November 4, 2008
“IT’S OVER, IT’S OVER…”
11/4/08
I write this after the 10:00 (CST) declaration by all the major networks and news services that Barack Obama has won the election and before President-elect Obama’s speeches. I’m not much for speeches; pap and pabulum do little for me and even the best political speech is little more than an agglomeration of platitudes and other cotton candy for the mind, so I have chosen to write a few thoughts while anticipating, and listening to, President-elect Obama’s speech.
Mr. Obama’s election is, in many ways, a propitious development for our country. The most obvious reason is that his election shows that we have moved even further along the path away from the racism and bi-nationalism that characterized much of our history. As has been said ad nauseam by the talking heads, young people have no idea how much this election means because they have no idea how preposterous the idea of a Black president sounded not all that many years ago. But even if Mr. Obama were not born of a White mother and a Black father, his election would be a wondrous event. President-elect Obama embodies what America is, or was, all about: he is a guy who came from nothing, a product of a broken home, who worked hard, studied hard, and accomplished great things for himself and for his family and hopefully will do even more remarkable things for the country that has been so good to him. He is one of those great American stories that comprise our history and our very meaning as a nation. He is a role model for all young Americans, a family man, a good man, a decent and honorable man.
Will Obama lead us on some sort of dangerous path to statism and reckless social experimentation, as some of my conservative friends seem to think? Not if he is smart and ambitious, and Mr. Obama is both in abundance. It’s hard to believe that the overwhelmingly centrist American electorate will stand for some sort of radical agenda, so, even with overwhelming majorities in the House and the Senate, it is very doubtful that the very bright Mr. Obama will embark on some quixotic, misguided statist agenda.
On the other hand, a look at the electoral map does not contribute to such a sanguine view of the future of the country, or certainly for the Republican Party and, by extension, our nation. The red states very much resemble the old confederacy, with an extension into the west. It would be a stretch to say that the implications are obvious, but, by its firm embrace of Sarah Palin and her seeming quest to return us to what she doubtless considers the halcyon days of the Know Nothing Party, the core of the GOP seems to be confirming its comfort with its baser instincts and elements. Clearly, large numbers of Republicans rejected the inclinations of what has become the GOP base. So it looks like the GOP is headed toward schism, a reexamination of its mission, or both. Some of us are hoping that a few years out of power will chasten and purify the Party and return it to its roots. But I’m not sure at times what those roots are. I used to think that the GOP stood for, to put it very simply, free markets and free men, but, after eight years of Bushism, the McCain campaign, and the ghastly Sarah Palin flier, one has to wonder if that assumption was ever true. The GOP got a well deserved spanking (body slamming and atomic dropping, really) tonight. What it learns from this spanking could be salutary if the Party returns to sanity or disastrous if it only leads to a round of witch-hunting and reaffirmation of its baser instincts characterized by a growing certainty that those who don’t agree with its lunatic fringe do so out of a profound disloyalty to the country and/or a secret socialist, pro-terrorist agenda. Some partisans on the Democratic side might say that an increasingly irrelevant Republican Party might not be a bad thing, and they might be right. But there has to be a viable alternative to the Democrats if our system is to survive. Maybe it won’t be the Republican Party; it definitely won’t be if the Palin wing of the Party somehow gains ascendancy from the party’s electoral fiasco. But there better be some alternative.
By the way, President-elect Obama’s speech has just ended and, as much as I abhor political speeches, it was a great one. Perhaps I am just a sucker for any speech that begins with “It’s great to be here in Chicago” and that features my beloved hometown as its backdrop, but this speech would have been great even if it had been delivered in Washington, D.C.
Senator McCain’s concession speech was also outstanding. However, the reaction of the crowd at Senator McCain’s speech to his mention of Vice-President elect Biden only confirmed the fears I expressed two paragraphs ago.
On a personal note, as this election entered the home stretch, the stock market, and the financial system, melted down, and the Republicans responded with their own especially noxious form of statism, I have reflected on the last eight disastrous years of George Bush and the obsequiousness shown toward him by virtually his entire party (including, despite the mythology he tried to propagate, Senator McCain) until very late in this election season. I have been continually reminded of a line from the play “Annie,” in which FDR says to Oliver Warbucks “We’ll make a New Dealer out of you yet.” Well, we are embarking on a new administration and a new approach in the throes of very difficult time in our nation’s history. It’s all very exciting and thought provoking. No, Barack Obama probably is never going to make a Democrat out of me, but I suspect that he is probably the ONLY guy who even has a remote chance of doing so.
Finally, MSNBC had as one of its commentators a Bishop Jakes whose first name and affiliation, channel hopper that I am on election night, I did not get. However, I was impressed by Bishop Jakes and especially by his observation that President-elect Obama will need our prayers as he faces the challenges that lie ahead for him and for our nation and by his earnest pleas that we say, and continue to say, those prayers. As great as Mr. Obama’s speech was, Bishop Jakes’ observation on the necessity of prayers was the most profound utterance of the evening.
I write this after the 10:00 (CST) declaration by all the major networks and news services that Barack Obama has won the election and before President-elect Obama’s speeches. I’m not much for speeches; pap and pabulum do little for me and even the best political speech is little more than an agglomeration of platitudes and other cotton candy for the mind, so I have chosen to write a few thoughts while anticipating, and listening to, President-elect Obama’s speech.
Mr. Obama’s election is, in many ways, a propitious development for our country. The most obvious reason is that his election shows that we have moved even further along the path away from the racism and bi-nationalism that characterized much of our history. As has been said ad nauseam by the talking heads, young people have no idea how much this election means because they have no idea how preposterous the idea of a Black president sounded not all that many years ago. But even if Mr. Obama were not born of a White mother and a Black father, his election would be a wondrous event. President-elect Obama embodies what America is, or was, all about: he is a guy who came from nothing, a product of a broken home, who worked hard, studied hard, and accomplished great things for himself and for his family and hopefully will do even more remarkable things for the country that has been so good to him. He is one of those great American stories that comprise our history and our very meaning as a nation. He is a role model for all young Americans, a family man, a good man, a decent and honorable man.
Will Obama lead us on some sort of dangerous path to statism and reckless social experimentation, as some of my conservative friends seem to think? Not if he is smart and ambitious, and Mr. Obama is both in abundance. It’s hard to believe that the overwhelmingly centrist American electorate will stand for some sort of radical agenda, so, even with overwhelming majorities in the House and the Senate, it is very doubtful that the very bright Mr. Obama will embark on some quixotic, misguided statist agenda.
On the other hand, a look at the electoral map does not contribute to such a sanguine view of the future of the country, or certainly for the Republican Party and, by extension, our nation. The red states very much resemble the old confederacy, with an extension into the west. It would be a stretch to say that the implications are obvious, but, by its firm embrace of Sarah Palin and her seeming quest to return us to what she doubtless considers the halcyon days of the Know Nothing Party, the core of the GOP seems to be confirming its comfort with its baser instincts and elements. Clearly, large numbers of Republicans rejected the inclinations of what has become the GOP base. So it looks like the GOP is headed toward schism, a reexamination of its mission, or both. Some of us are hoping that a few years out of power will chasten and purify the Party and return it to its roots. But I’m not sure at times what those roots are. I used to think that the GOP stood for, to put it very simply, free markets and free men, but, after eight years of Bushism, the McCain campaign, and the ghastly Sarah Palin flier, one has to wonder if that assumption was ever true. The GOP got a well deserved spanking (body slamming and atomic dropping, really) tonight. What it learns from this spanking could be salutary if the Party returns to sanity or disastrous if it only leads to a round of witch-hunting and reaffirmation of its baser instincts characterized by a growing certainty that those who don’t agree with its lunatic fringe do so out of a profound disloyalty to the country and/or a secret socialist, pro-terrorist agenda. Some partisans on the Democratic side might say that an increasingly irrelevant Republican Party might not be a bad thing, and they might be right. But there has to be a viable alternative to the Democrats if our system is to survive. Maybe it won’t be the Republican Party; it definitely won’t be if the Palin wing of the Party somehow gains ascendancy from the party’s electoral fiasco. But there better be some alternative.
By the way, President-elect Obama’s speech has just ended and, as much as I abhor political speeches, it was a great one. Perhaps I am just a sucker for any speech that begins with “It’s great to be here in Chicago” and that features my beloved hometown as its backdrop, but this speech would have been great even if it had been delivered in Washington, D.C.
Senator McCain’s concession speech was also outstanding. However, the reaction of the crowd at Senator McCain’s speech to his mention of Vice-President elect Biden only confirmed the fears I expressed two paragraphs ago.
On a personal note, as this election entered the home stretch, the stock market, and the financial system, melted down, and the Republicans responded with their own especially noxious form of statism, I have reflected on the last eight disastrous years of George Bush and the obsequiousness shown toward him by virtually his entire party (including, despite the mythology he tried to propagate, Senator McCain) until very late in this election season. I have been continually reminded of a line from the play “Annie,” in which FDR says to Oliver Warbucks “We’ll make a New Dealer out of you yet.” Well, we are embarking on a new administration and a new approach in the throes of very difficult time in our nation’s history. It’s all very exciting and thought provoking. No, Barack Obama probably is never going to make a Democrat out of me, but I suspect that he is probably the ONLY guy who even has a remote chance of doing so.
Finally, MSNBC had as one of its commentators a Bishop Jakes whose first name and affiliation, channel hopper that I am on election night, I did not get. However, I was impressed by Bishop Jakes and especially by his observation that President-elect Obama will need our prayers as he faces the challenges that lie ahead for him and for our nation and by his earnest pleas that we say, and continue to say, those prayers. As great as Mr. Obama’s speech was, Bishop Jakes’ observation on the necessity of prayers was the most profound utterance of the evening.
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