Sunday, November 27, 2011

A (V)OLT FROM THE BLUE

11/27/11

This morning’s (i.e., Sunday, 11/27’s) Chicago Sun-Times reports that the National Highway Traffic Safety Administration is investigating cases of the lithium-ion batteries’ in Chevy Volts starting on fire after a severe crash involving the vehicles in which they are housed. The NHTSA says it’s too soon to determine whether there will be a recall of the vehicle, but quickly added

NHTSA continues to believe that electric vehicles have incredible potential to save consumers money at the pump, help protect the environment, create jobs and strengthen national security by reducing our dependence on oil.”

Hmm…

One does not have to be too much of an aficionado of conspiracy theories to believe that, for the reasons it outlined in that statement, the NHTSA will be under tremendous pressure not to recall the Volt regardless of what the agency’s investigations reveal. The Volt is indeed a job creator, an energy saver, and a genuine green machine. It is also one of the rare, but not as rare as the general public might think, instances in which an American car company substantially moved the technological goal posts. Given all that, and the Bush/Obama administration’s continuing interest in seeing the post-bailout GM survive and prosper, somebody had better keep a close eye on the NHTSA’s investigation of these battery fires. One hopes, and suspects, there is little or nothing to these battery fires, but diligence is warranted given the political pressure for the Volt to succeed.

Saturday, November 26, 2011

“IT TAKES MORE THAN THAT TO STOP A BULL MOOSE!”

11/26/11

This morning’s (i.e., Saturday/Sunday, 11/26, 11/27’s) Wall Street Journal featured, on page A6, the first, or the latest, in an inevitable series of articles from various quarters of the media speculating about the possibility of a third party run for president in 2012. One especially startling statistic is that, when Ross Perot ran in 1992, winning nearly 20% of the vote and thus becoming the most successful third party presidential candidate in modern American political history, 39% of Americans told pollsters they were dissatisfied with the way the country was being governed. The same figure today is 81%.

This all sounds promising for a third party run, and those of us who are both fed up with the pompous nonentities who presume to govern us and intrigued with the horse race aspects of politics are heartened and intrigued by the prospect of a two decade year later Perot. But, sad to say, we can forget about a third party candidacy, or at least a successful third party candidacy, for a number of reasons.

First, of course, our electoral system, and the college that is a big part of it, makes third party runs difficult. Fundraising, ballot access, entrenched party machinery, etc., all make the likelihood of a third party winner miniscule. And the fifty contest nature of the race that the electoral college produces, while having obvious virtues, makes it nearly impossible, at least in these times of two entrenched parties, for a third party candidate to win outright and completely impossible to win a race that is thrown into the Congress.

Second, and more important, a lot of people are unhappy out there and a lot more people would like to throw the rascals out. But throwing the rascals out involves replacing them with somebody, and that is where the third party ardor falls apart. The Journal article noted that the two most talked about potential third party candidates are Michael Bloomberg, the moderate mayor of New York City who knows how to say the things needed to get elected and make the deals necessary to run the nation’s largest city, and Ron Paul, the delightfully incorrigible libertarian congressman who means what he says and says what he means. Would people, or at least a lot of people, who would vote for Ron Paul vote for Michael Bloomberg? If that doesn’t convey my point, two people whose names keep popping up in connection with Americans Elect, a group that is actively promoting an online convention to pick a third party candidate, are former Senator Chuck Hagel, one of the few GOP officeholders with the courage to oppose George Bush’s exercises in self-aggrandizement that have had such severe repercussions for our once great nation, and former Secretary of State Condoleeza Rice, who at least nominally quarterbacked Mr. Bush’s excellent adventures. Anyone who thinks seriously about foreign policy would be about as likely to be indifferent between these two as a typical Chicago baseball fan is to be indifferent between the White Sox and the Cubs.

People are fed and disappointed; they know what they don’t like. But they can’t agree on what they like. Any third party candidate will need the support of a significant majority, or more, of the unhappy electorate is s/he is to have a chance at getting elected. It’s nearly impossible to envision a candidate who could channel that anger into his or her single candidacy.

Tuesday, November 22, 2011

SOCIAL INSECURITY

11/22/11

In the wake of the miserable but predictable failure of the Committee of Dolts (er, sorry, the Supercommittee) to even begin to address our budget deficit problems (See today’s other post, OH YEAH…HAPPY DAYS ARE HERE AGAIN ALRIGHT.), several other pieces of unfinished business loom for our selfless public servants. One of these is the pending (12/31/11, I think, but I could be wrong) expiration of the FICA payroll tax holiday that was instated in yet another attempt by your government to solve a problem that had its origins in too much spending by encouraging more spending.

It’s hard to see how the denizens of the Den of Iniquity on the Potomac are going to let the payroll tax holiday end. The Democrats, including President Obama, support the holiday as a tax cut that directly benefits lower income earners. The Republicans, though seemingly against anything the Democrats oppose in the proud Washington tradition of never letting a good idea get in the way of hair-shirted partisanship, would have a hard time letting the payroll tax be reinstated for a few reasons. First, they are reflexively, and understandably and, generally, laudably, in favor of any kind of tax cut and, conversely, against any kind of tax increase. Second, the GOPers would have a hard time taking the political flak that would result from opposing a tax cut at the low end while fighting hard to preserve a tax cut at the upper end of the income scale. Further, congresspersons from both parties would have a hard time letting the payroll tax expire while the economy is still sputtering along, at best. As Nixon once said, we are all Keynesians now and even those who would deny that observation by one of our most brilliant yet failed presidents have enough common sense, and/or sense of political survival, to not put the drag that would accompany such a tax increase on an already struggling economy.

To take this a step further, it’s hard to see how the payroll tax will ever be reinstated. This is an onerous (about 7.65% on the employee side, the side currently being suspended) tax that affects just about everyone who earns a dollar in this country. Reinstating such a tax would amount to a huge tax increase and the profiles in courage who can’t cut 3% out of a budget (Again, see today’s other post, OH YEAH…HAPPY DAYS ARE HERE AGAIN ALRIGHT.) surely cannot take the heat that would result from such a move. So it might be safe to say that the payroll tax as we understood it since the days of FDR is gone forever.

So what will happen to social security? God only knows, and He’s not talking. However, it might be a good thing to eliminate the tax that ostensibly supports social security but in reality merely supports every other government program. Then we could eliminate the fiction that social security is somehow an off-budget program supported by “contributions” from participants and so need not be financed out of given year’s revenues. Only when we realize that there is no “trust fund” and that, ultimately, social security payments can only be made from the revenues generated in the year they are paid can we begin to address this badly mismanaged program’s problems. So this might be an instance in which the politicians’ very timidity ironically forces them to summon up the courage to address one of our real fiscal problems. But I am probably being hopelessly optimistic, not one of my most salient faults, in thinking that anything can force the poltroons we have sent to Washington to address the problems they have created.

OH YEAH…HAPPY DAYS ARE HERE AGAIN ALRIGHT

11/22/11

The committee of super poltroons, formed by a timid Congress in its latest effort to avoid the responsibility that comes with taking their public paychecks, failed to achieve the paltry ($1.2 trillion) it was charged to find. The utter failure of this pack of hyenas came as no surprise to most people or to any readers of the Insightful Pontificator.

Consider these numbers for a moment. Unless there is something wrong with my math or my understanding of the cuts, $1.2 trillion over ten years amounts to $120 billion per year out of a budget that totaled, in FY 2011, $3.6 trillion. That works out to 3% of the FY 2011 budget, which will, of course, grow, making the $120 billion an even smaller percentage of future budgets. So this Superdolt Committee could not cut the budget by 3%! I digress, but I do so to reinforce a very important point: These guys can’t cut anything. Even the guys who scream and holler about how important it is to cut spending cannot find any spending they would like to see cut. We are doomed.

Now that the committee has crashed and burned, the Congresspersons who designed this abomination before God and man are busying themselves with removing the sanctions, in the form of $1.2 trillion in mandatory cuts, split evenly between “defense” and domestic spending, that are to kick in, but not until 2013 when the elections are safely behind our public servants. The War Party, led by estimables John McCain (Did you know he was a POW in Vietnam?) and Lindsey Graham are in full whoop-whoop, equating any suggestion of removing any dollars at all from the defense budget with treason. Democrats are doubtless doing the same thing about programs that address “vital needs” that seem to arise when the money becomes available, or, in modern American political parlance, when such spending can be slipped by a prime time network TV addled American public, which is always, but, again, I digress.

President Obama, on the other hand, has pledged to veto any effort to undo the mandatory cuts; he wants to keep the pressure on Congress to do something about our deficit problems. So we find ourselves in the odd position in which it is President Obama who is the proverbial adult in the room. We are, ladies and gentlemen, in deep, deep trouble when Barack Obama is the adult in the room.

Humor was not my sole objective in writing that last sentence. In the old days, when this country was great, a guy with President Obama’s limited background (“community organizer,” one and a half term state senator, two-thirds of a term U.S. Senator, and no, zero, private sector experience of any type) would not even qualify to be an obscure back bencher in Congress. Now, in our society preoccupied with “Dancing with the Stars” and Jay Cutler’s thumb, he is President of the United States, and now the mature, wise man in a Washington pullulating with preening poltroonish popinjays who would not ponder a position in the private sector, carnival barkers, chicken head chomping circus geeks, overeducated and underachieving ingĂ©nues whose most salient features are their lack of humility and their certainty of their having all the answers, and other assorted hangers-on and self-important twits and fops.

And then we have this same cast of mountebanks and charlatans piously intoning that the “American people” want action, the “American people” want a responsive Congress, the “American people” want to do something about the sorry fiscal shape of their government. I have news for these professional caitiffs and bloodsuckers: it is the “American people” who sent you carnies in suits to the Washington. The “American people” want to be left alone to anesthetize their brains with the likes of “Mike and Molly,” “Two Men and a Boy,” “Poor Girls,” or whatever these glaring examples are called of the utter decline of our society to the public debauch of indifference and overindulgence it has become.

This country is finished, done, over with. Certainly, the estimables in Washington have had a great deal to do with the decline of this once great country. But far more culpable are the people who sent them there. Self-government takes work, sacrifice, and attention to one’s duties as a responsible citizen in a self-governing polity, not shameless self-indulgence, insufferable, dolorous whining, and feckless, gormless displays of crass materialism.

Thursday, November 17, 2011

“I WISH YOU COULD HAVE COME UP WITH A BETTER STORY; I FELT DISTINCTLY LIKE AN IDIOT REPEATING IT.”

11/17/11

Now that former House Speaker Newt Gingrich has become nearly viable in the GOP race for the 2012 presidential nomination, his ethics are drawing new scrutiny, and not those aspects of Mr. Gingrich’s ethical life that seem to most titillate the public.

It seems that a “consulting” firm run by Mr. Gingrich was paid $1.6 million by Freddie Mac, off an on from 1999 to 2006, for what Mr. Gingrich calls “strategic advice” on how to portray the company to skeptical conservatives who wanted to cap the firm’s growth, according to the Wall Street Journal (Thursday, 11/17/11, page A5). Mr. Gingrich insists that he was not paid to lobby, not for his clout, no sir. He was paid for “strategic advice.”

Let’s just say that we are to buy Mr. Gingrich’s story, that his “consulting” practice was not, as are about 99% of such consulting practices by former office-holders and current hangers-on, a thinly veiled way of selling his influence, designed not only to line his pockets but to enable him, and his ilk, to brag of his “private sector experience” when next pushing for a spot at the public trough. Let’s stipulate that Mr. Gingrich was indeed being paid for “strategic advice” on how to fend off conservatives who wanted to curb the growth of Freddie Mac and who were, in retrospect, clearly onto something. Even if Mr. Gingrich’s at best semi-plausible and at worst ludicrous defense is somehow legitimate, he is still admitting that he (and his firm, of course; this was not a one man operation, no sir) helped Freddie to grow. Since Mr. Gingrich and his fellow Republicans insist, with some (but not as much as they think) justification, that Freddie and Fannie were at the root of the financial problems from which we are supposedly emerging, Mr. Gingrich’s defense is that he was only helping to put the U.S. housing market in the tank and thus abetting what most are calling a financial disaster.

One would think that a guy with Mr. Gingrich’s obviously abundant intellectual firepower could have come up with a better story.

Thursday, November 10, 2011

I DON’T KNOW ABOUT YOU, BUT I CAN HEAR SHIRLEY BASSEY BELTING ONE OUT AS I WRITE THIS POST

11/10/11

Gold was off yesterday, albeit only a touch, on a day when, by most conventional reckonings, it should have been skyrocketing; the news out of Italy was bad, the news out of Greece wasn’t any, if at all, better, and the equity markets were in full retreat, with the S&P down 3.67%. It would have seemed that yesterday was the perfect day to be long gold.

While looking for answers regarding the movement of any commodity, stock, etc. on a given day is pointless given the randomness of any given investment’s movements on any given day, gold’s counterintuitive action yesterday got me to musing. What if gold were to continue to trade down even if the news coming out of Europe, and points east, west, and south, were to continues to be bad but gold were to continue to trade down. What could cause such a phenomenon? Note that I am not predicting such action for gold; indeed, my holdings in GLD and kindred investments remains vastly outsized. But with a position this large in a metal so vital to reading the markets, a little musing is advisable, indeed necessary.

The obvious explanations for weakening gold in the face of circumstances that would dictate a strong market for the ancient object of kingly desire might hold in such a circumstance. The first is increasing margin requirements for gold futures contracts; indeed, it was such an increase in margin requirements that caused gold to drop in the late summer and early fall before plateauing and then resuming a slow climb the last few weeks. The second such explanation is the old investing truism that nothing climbs to the sky; gold has roughly doubled over the last three years, so it’s not surprising that it might be hesitant to continue trading up aggressively, even when it seems like it should. A third is that hedge funds and other investors sell what they can when they can’t sell what they’d like. While this is a popular theory with a degree of credence, one wonders how far it goes; for example, if people sell what they can when the defecatory product hits the wind motivation device, why don’t they liquidate their treasury positions? It would have been easy to unload those positions on a day like yesterday!

But what if there could be more at work, either now or in the future? What if people, after buying, even hording, gold in anticipation of hard times are now liquidating those gold positions, or hoards, now that hard times, at least in the eyes of a sufficient number of those hoarders, have arrived? Could it be that gold could strengthen in the run-up to hard times and then fall when those hard times commence in response to liquidation of the stockpiles of those who bought gold as insurance against the evils that have now befallen them? In other words, could things get so bad that gold starts to weaken because people have to sell it? I’m not talking about hedge funds or professional investors here; I’m talking about investors, largely individuals, who buy gold for protection. One might call them gold bugs, but that description seems somehow incomplete or insufficiently inclusive.

Again, I’m not predicting gold’s demise, but, as a holder of gold in one form or another, I think I am duty bound to think about things that might cause gold to weaken. And, as my readers know, I like to think creatively. (If I were given to the triteness that permeates modern discourse, especially modern business discourse, I would say that I like to think “outside the box,” but I am not given to such mewing drivel, so I say that I like to think creatively. But that is grist for another mill, an upcoming mill that I have been planning for awhile, and a reason to close this post, awkwardly, parenthetically.)

Sunday, November 6, 2011

“HEY, THIS IS A DANGEROUS NEIGHBORHOOD. WHAT YOU NEED IS A LITTLE PROTECTION, YOU KNOW, INSURANCE AGAINST BAD THINGS HAPPENING TO YOUR LITTLE STORE"

11/6/11

It was bad enough when Governor Pat Quinn (no relation) and his fellow travelers in the state legislature increased the state income tax on individuals and corporations (though, as I said in my 1/7/11 post YOU MEAN ALL THAT STUFF GOVERNMENT DOES TO US ISN’T FREE?!, it would have been more fiscally realistic if those who screamed so loudly about the tax hike had used a little of that enthusiasm, and volume, when the spending that ultimately necessitated at least some form of tax hike was being done with reckless, carefree abandon and perhaps had given a touch more consideration to whom they were voting for than to the latest prospects on “Dancing With the Stars,” but I digress), the workings of the fisc in the Land of Lincoln have gotten progressively worse.

Predictably, those corporations that are large enough or politically connected enough (A large area of intersection exists between these two characteristics, as you might guess.), such as Sears, the CME, Caterpillar, etc., are appealing to their friends in Springfield and, voila, getting their tax bills reduced. So we have a situation in which life is made burdensome for the typical business in Illinois, but those who play ball, especially with their checkbooks, with the pols who inflicted these burdens upon them can have their burden mysteriously lightened. It’s the old protection racket, though this time not practiced by Machine pols who control various inspection processes or by enterprising ethnic businessmen who have no compunction about applying innovative and creative means of persuasion, but, instead, by our crusading goo-goo governor and his partners in extortion in the legislature. The typical businessperson, generally apolitical and just trying to stay in business and make a living roughly commensurate with the effort and the investment he or she expends, gets stuck with the bill and suddenly learns the downside of staying apolitical in this increasingly dystopic state. The message becomes clear: play ball with the pols, especially when they expect you to express your gratitude with your checkbook, or be forced to live under the conditions they, who have not the slightest clue as to how to conduct actual, for profit business, impose upon you, the economic engine of this state.

The situation outlined in the last paragraph would be bad enough, but it gets worse. It seems that, according the Chicago Sun-Times (Saturday, 11/5/11, page 9), the governor and the “four legislative leaders,” a description that presumably includes the two GOP leaders, “have settled on a framework” to finance the tax reductions for the likes of the CME and Sears. The framework involves decoupling the federal method of expensing equipment purchases for tax purposes from the state method of expensing such purchases for tax purposes. Currently, federal law allows certain companies to immediately expense the purchase of long lived equipment and the state of Illinois, in the interest of simplicity, allows those same companies to treat the expensing of equipment in the same way. But under the “framework” that the thugs in Springfield are going to put before the rank and file legislators, the state will require equipment purchases to be depreciated; i.e., charged against income at (hopefully) decreasing rates over a number of years. This seemingly arcane change in the state tax code will cost Illinois businesses $570 million. This is in addition to the additional spondulicks the increase in the state tax rate will require them to hand over to Governor Quinn (no relation) and his henchmen. (There is always the question of who the super-villain is here and who are the henchmen, but, for purposes of this post, we’ll go with Quinn being the arch-villain and the legislators being the henchmen. This does not reflect the reality of the way things are done here, but it does reflect the relative degrees of enthusiasm, in most cases, for taxing the businesses of Illinois. But I digress.)

So now we have the typical Illinois businessman forced to pay a higher income tax rate while large and politically connected businesses get at least something of a pass. In addition, the typical Illinois businessperson will be forced, by means of a $570 million tax increase, to pay for the pass given those large and influential businessmen. This can’t be right, can it? Perhaps the article I am citing does not have it right, because this “framework” seems akin to the practice of various totalitarian governments throughout history of having the families of those executed pay for the bullets (or gas, rope, or electricity) used in political executions and/or clean the area in which their family members were beaten and tortured of blood, body matter, and other detritus of the dictatorships’ cruel methods of enforcing adherence to their view of the world.

Note further that, if the Sun-Times article is correct, the ostensibly free market and/or pro-business GOP leadership is going along with this exercise in political coercion and enlightening benighted businessmen to the virtues of making sure that the pols enjoy a healthy portion of the fruits of their hard work. While the grassroots GOPer may mean it when he or she says she believes in free markets, the GOP leadership in this state, and in much of the country, is just another flavor of busybody, know-it-all politico.

While I am sure there are people out there who love this state and living in this state more than I do, there aren’t many of them. But even I am starting to wonder why anyone, at least anyone who manages and/or owns a business, continues to live in the Land of Lincoln.

Tuesday, November 1, 2011

HE DIDN’T LEARN THIS IN DAVID KINLEY HALL

11/1/11

The Jon Corzine/MF Global situation (Some quarters of the media are, predictably, referring to this misstep as a “crisis.” As I have written ad nauseam in the past, everything in our softened society is a crisis nowadays. More sober observers, like yours truly, contend that, in my lifetime, there has been only one genuine crisis, the Cuban Missile Crisis, or perhaps two, the OAPEC Oil Crisis of 1974, and I’m not even sure that either of those two constituted a genuine crisis. But our modern, enlightened society, obsessed with overestimating its rapidly declining toughness and resilience, insists on calling every inconvenience a “crisis.” But I digress.) is fraught with irony.

The first of these ironies is that Jon Corzine is, according to reports, due to get a $12 million severance check (One wonders, however, how the bankruptcy courts will handle this.) despite his destroying the MF Global investing five times his employer’s capital in European sovereign debt. Yes, this investment bankrupted the firm, but it was worse than that. In an environment in which the regulators are demanding that banks lay off risk and in which banks, even if they are able to put on additional risk in a generic sense are not eager to increase their exposure to European sovereign risk, Mr. Corzine’s actions made a purchase of the company, as part of some kind of rescue, difficult nearly to the point of impossibility. So Mr. Corzine sort of brought the company to the brink of death and then made it virtually impossible for someone to save its life. Yet he gets $12 million, if the bankruptcy courts allow such a payment. It must be nice to be in the club.

The second of these ironies is that in MF Global’s investment grade rated bond issue of early August of this year, one of the covenants stated that if Jon Corzine were to leave the firm, the coupon on the bond would have to go up to compensate bondholders for the loss of Mr. Corzine’s services.

Hmm…

The next time you make the assumption that the rating agencies or the smooth talking investment professionals asking to manage your money have the slightest clue as to what they are doing, remember the manifest wisdom of both of the aforementioned parties in the MF Global deal.

The largest of these ironies, however, is that Jon Corzine’s call on European debt was ultimately correct. Note that former governor, former senator, former Goldman co-CEO, and University of Illinois graduate Jon Corzine was certain, given his background and contacts, that he was right in his assumption that “Europe wouldn’t let these countries go down.” In the Eurodeal that the media and the aforementioned investment professionals were slobbering over last week (See my instantly seminal 10/28/11 piece, GERMANS BEARING GIFTS…AGAIN), the Germans and the French (i.e., Europe, for these intents and purposes), made it perfectly clear that no country in Europe, no matter how profligate it chose to become, would be allowed to, as Mr. Corzine put it, “go down,” except for Greece, and even Greece would be allowed to “go down” in only a limited sense. Note further that MF Global, under Mr. Corzine’s tutelage, had no direct Greek exposure; Mr. Corzine bought the paper of Italy, Spain, Portugal, Ireland, and Belgium. The whole point of the deal concocted last week was to assure everyone that those countries would not go down if “Europe” had anything to say about it.

This is not to say that Mr. Corzine made a good trade; he made an awful trade. His timing was bad, he apparently bought at prices that reflected a more sanguine view of either the beneficence of the Germans or the fiscal health of the aforementioned countries, and, with spreads between bunds and Italian 10 years at 450 basis points, most people apparently haven’t caught on to the notion that the sick men in Europe are golden as long as Uncles Wolfgang and Francois are around. Further, Mr. Corzine had no business committing an amount equaling five times MF’s capital to his trades. His execution was lousy, terrible, awful, malodorous, wretched, and maladroit, probably the result of Mr. Corzine’s not having actually traded in about twenty years. But the ultimate basis of the trade, i.e., that the German and the French political elites are sufficiently foolish (my word, not Mr. Corzine’s) to allow their European brethren to continue to party on the German and French dime, was, and is, correct.