Friday, December 31, 2010
I got in an hours long debate with Galvez in Greenwich yesterday. I was saying that the tea party motivated heel dragging regarding ‘no more bailouts’ for the state pensions and the states may the very thing that drives us over the edge. His position was that if that turns out to be the case, then as a matter of principle, we should let it all come crashing down.
He knows we’re on the same page in terms of principles. He knows I agree that much greater individual liberty should be the goal. But I took great exception to his position. I told him that I thought 95% of the people who were saying we should let it all crash weren’t thinking about the real consequences of what they were cheering for. They were dehumanizing the very real suffering that would come from that by the guilty and the innocent alike. What’s more it was easy for them to do so because in America life has been easy even for the poor. They had never missed a meal thanks to poverty or had never been cold for lack of heat.
I’d been through both of those in my youth and even years later the memory was so pronounced and vivid that I couldn’t wish it on anyone. Beside that, I wasn’t convinced that tearing it all down will get us closer to individual liberty at all. When we had our revolution the constitution was written by brilliant men dedicated to the idea of personal liberty. If we tried to write one today it would be written by ACORN and the AFLCIO. The Bloods and Crips will want (and probably get) a say. It would include a reference to limiting CO2 emissions, the right to unionize, and a guarantee of free healthcare for those with preexisting conditions. While the original was inspired by Adam Smith, if we rewrote it today it would be influenced more than anyone else, by people like … cough – sputter… Paul Krugman.
Rather, I thought that if individual liberty were the goal, it would be best to keep the current patient alive even if it means a compromise of our principles. I thought the odds of disbanding the department of education and other ‘major reforms’ were more likely than getting anything resembling liberty from the kind of horror of a constitution that would come with a collapse of the US government.
Galvez said that he felt the moral issue was greater. He felt it was a first principle and that we should be prepared to say ‘liberty or death’ like the founders. He felt that at that point continuing to support the corrupt system would make us complicit in it and it would inevitably cost us our souls. He said that if my fears were realized for a new constitution, then we who know better should leave the crips and bloods to duke it out and move on to somewhere else. When I asked him where – he said ‘wherever people like us go’. My response was this:
“I’ve been poor and hungry. And speaking from experience, I know that the day my daughter misses a meal, my morality and my principles are all going out the window. It won’t get me in line for government issued bread in exchange for supporting socialism, but I’ll happily kill and rob the first man I find with government bread in his arms – then live with being a murderer and thief for the sake of my child.” The look on each of our faces made it clear that I meant it, and he believed it.
The simple fact of the matter is I’m a lot more frightened about our future than Galvez. We both think a major crisis and maybe a collapse is inevitable now. It’s just that he believes that whatever the circumstance he’ll simply reinvent himself and persevere, while that’s harder for me to accept. I remember from personal experience what being destitute and powerless is really like. It’s been burned into my memory so deeply that however much success I achieve, I can’t ever seem to set it down. My other friends have also criticized that aspect of my personality from time to time as well.
Anyway – we each made detailed points in the discussion that the other hadn’t considered. And if this seems like an argument between us it really wasn’t. Part of our friendship is about disagreeing, and pointing out new ways to look at issues we thought we already considered. It was really just one more chat in our endless discussion, and I’ve filtered out all the jokes and laughter in the interest of brevity. But the important part for me came later. About four hours after I left for the day, I got the following email from him:
You should not be worried about the future. Just keep your options open. In the event of a collapse, you will be a political leader.
I have every confidence in your abilities my friend.
Maybe he’s right and maybe he’s wrong – I honestly have no idea. I know politics would never be my first choice. What was important to me however was not that he believed I’d be OK but that he was a good enough friend to me to say so, hours after the conversation ended.
Success in business isn’t a matter of brilliance or inspiration. If it has to be attributed to a single characteristic, it would have to be determination. I’m convinced that anyone can achieve the kind of success they want so long as they can continue to refuse to take no for an answer. My career has certainly been a product of that belief. I don’t think luck has played any part (any positive part anyway) in my career so far. For my money, the Calvin Coolidge quote above says it all about achieving success.
But having the kind of friends I do - That’s how I’ve been luckiest. And if you’re reading this I’m talking about you.
I’m a man who has committed all manner of great offenses against others and even more against himself. Sometimes I think the flaws in my character are all that's holding it together. But my friends keep letting me off the hook and sticking with me in spite of it all. It’s become a bit of a trend for me that my closest friends all have more confidence in me than I do in myself. Half the time I don't know what the hell they're thinking and the other half I'm amazed at how I've managed to fool them all so well.
One thing I never doubt though is this. I view it as an incredible blessing that my connection to the world is maintained through a group of such great and truly admirable men. I continue to be astounded that they let a guy like me associate with them. Don’t think for a minute that I don’t appreciate every second of it guys.
Thanks a million.
Thursday, December 30, 2010
This is a good piece from Andrew Stuttaford.
I’m convinced that this is the central political issue of the next decade – who pays. Andrew’s reference to those “broken on inflation’s wheel” is pretty compelling. Unfortunately, those same people here in America lie directly in the path of least resistance for our legislators. Inflation can be blamed on speculators and foreign interests so it’s easier than coping with new taxes. Better to twist Ben Bernanke’s arm than your campaign contributors after you raise theirs. That means the deficit and debt will be paid by those people he mentions - the non unionized middle class – the savers – the people living on fixed incomes.
But while I think inflation will be high – higher than we would like, I’m confident that we won’t see hyperinflation. Hyperinflation is caused by a lack of confidence. It’s not a rational phenomenon created by functioning markets. It’s a breakdown – a collapse. And as dysfunctional as our economy may be at the moment it’s functioning more than well enough to prevent hyperinflation.
My point is, the thing that would make our inflation into hyperinflation is not the Fed or QE8 or whatever. It won’t be caused by an increase in the money supply because however big that number may be, it will be finite. And because that's so, the fair value of it will be calculable. So long as we have the time to do the neccesary math we can continue to operate without danger of going over the cliff, even with high double digit inflation.
But if we have political circumstances that create increased volatility – then the whole thing is at risk. If an Iranian nuclear weapon were to go off in Long Beach California, or if one of the biggest pension funds like CALPERS were forced to liquidate assets by some idiot judge without notifying the fed. That liquidity driven event could cause a cascade and send the value of the dollar over the edge driving it toward zero. Then the Fed couldn’t possibly keep up.
But I doubt that will happen. We’ll have lots more pain in the next decade along with more bailouts and more QE. That will eventually lead to double digit inflation which we’ll be slow to address because it helps the indebted (the federal government). But so long as we move slow enough and steady enough to keep from frightening the herd, and we address the longer term systemic issue when and as we can, I don’t believe we’ll see hyperinflation.
Wednesday, December 29, 2010
Kevin D. Williamson is a Texan transplanted to greater NY city, who writes to great effect for NRO on the shipwreck that is our public finances. To those that know my own background it might ring a tad hollow when I say that his bio has nothing to do with how truly brilliant and insightful I find this particular piece of his.
He starts out rightly criticizing Obama's ATF chief as a devout anti-gun advocate who penalizes the law abiding rather than the law breaking. With so many recent successes for the pro second amendment crowd I might have given a piece about just that a pass as 'inside baseball stuff for gun guys' - not really something that a broader audience should worry about. But this piece is a little different.
Democrats have recently made it clear that they don't need actual 'law' to enact their vision - all they need is the bureaucracy. The EPA can institute CO2 restrictions, the FCC can appoint itself regulator of the internet. And although Kevin doesn't specifically say so, his article seems to raise the forward looking question of whether Democrats will try to use the ATF to impose further restrictions on firearms ownership. (If there is no one to buy it from - then you can't buy it.)
I particularly liked this part about how Andrew Traver (the aforementioned anti-gun advocate - now ATF head) and his department are demonizing gun dealers primarily out of stupidity and laziness:
The truth is that all these lavishly recompensed and richly pensioned cops and lawyers on our public payrolls have neither the will nor the wit to keep up with the most dangerous and dedicated sort of criminals, for the reasons cataloged above. Criminals are a pain in the butt by definition. Gun dealers, on the other hand, largely are law-abiding citizens by definition. (Try getting a dealer’s license if you’ve got a criminal record.) Gun dealers keep lavishly detailed records. They usually operate out of a fixed place of business and keep regular business hours. They will accept and keep an appointment, and most of them are quite keen on cooperating with law-enforcement authorities on all matters related to their business. They pay taxes and have phone numbers in the Yellow Pages. And that is why the Eliot Spitzers and Mayor Joneses of the world are coming down on them: because it is convenient to do so.
How's that huh? Tell me this guy's not cut from my kind of cloth.
Normally I would say that one more attack on the second amendment from the far left would be unlikely given what a political disaster it's always been for them. But with their recent success in thwarting the voter's will - now I'm not so sure. So I think it makes sense to write something like this right now, and to read it. I only think it's a shame that it's being released with three feet of snow on the ground. Because now I have to remember to have 'The Derb' ask him along the next time we go shooting - after the snow thins a bit.
Tuesday, December 28, 2010
Sunday, December 26, 2010
As a guy who’s been studying the effect of labor unions ever since he was a little economist, I’ve noticed something important about their long term consequences. Labor unions are designed purely to increase costs, and they use their ties to politicians as a mean to compel businesses to endure them. But businesses must respond to immutable laws. Costs must be held lower than revenue if a business is to survive, and no law can change that… at least not permanently. So with the politicians stacking the legal deck in favor of the unions, the businesses saddled with socialized labor always end up in one of three places.
The first place is for the lucky few who see technology advance in their industry. This allows them to automate their processes, and thereby better manage their labor costs by replacing the union labor. The second place, for those that can’t automate, is that an alternate source of labor is employed to supplant the union either through moving the company’s operations overseas, or by moving the foreign labor to the location of the company. The third place, by far the most common, is for those companies coping with unions to eventually go broke. Bankruptcy for the corporate host is as much a part of organized labor as the picket line.
Think back on the history of unions and you’ll see exactly what I mean. Railroads were the industry where unions really had their start in America. For transporting freight they were largely supplanted by technology in the form of inexpensive trucking. This was in effect, a form of automation; and it allowed a few freight carriers to survive. But for transporting passengers the labor costs were inherently higher so instead, the railroads went broke. The few that still operate today, (like Amtrak and the nation’s few commuter rails) do so exclusively as wards of the state – producing a loss but continuing to operate thanks to massive subsidies taken from the taxpayers by force.
That’s just one industry. Look at any of the others that have seen high union penetration over the years and you’ll see that they have all come to one of the same three ends. Heavy manufacturing: outsourced to Japan, China and Mexico. Light Manufacturing: either automated or outsourced to the third world. Textiles: outsourced. Construction: Components like brick making have been outsourced overseas, while assembly of them has been outsourced locally to illegal immigrants. Automotive: Either bankrupt or outsourced with a token domestic effort like the passenger rails, still operating only thanks to gigantic taxpayer subsidies. Coal and other Mining: Either replaced by technology in the form of refined crude oil, or highly automated. I can go on, and on.
So this raises the question then. If unionized institutions all either automate, outsource or go broke, then which of those effects can you imagine unions having on the civil service? Can you envision the government bureaucracy automating? How do you make wealth redistribution a function of technology? How about being outsourced? I suppose some tasks can be handed off to private institutions, but in this context ‘outsourced’ means that the labor is drawn from a pool not subject to the same restrictive labor laws as those supporting the union. So unless you can imagine something like the DEA or Medicare being run by illegal immigrants, clearly that can’t apply. The point is, if the first two options aren’t a part of our future with public service unions, then we really only have the third option remaining.
Liberals would disagree. They don’t think economics is constrained by immutable laws. They think the rules of economics can be bent and twisted until the results achieved manifest support for their political goals. Regrettably that can be made true temporarily. For a short time external resources can be added to the equation and used to make up any shortfall created by a union’s costs. As an example, GM can operate at a “profit” so long as the definition of profit is allowed to include billions in taxpayer subsidies from which GM supplements its ordinary revenue, or nominally lowers its prices.
But eventually the earth spins, the sun rises, and the immutable laws of economics must be answered. Eventually the piper must be paid. So how do you imagine we’ll be offsetting the higher cost of socialized labor in government? Is there anywhere else we can borrow from to make up for it’s current inefficiencies and those promised for the future by the union’s increasing political influence? The obvious answer is no. When the money runs out (which at this rate is in about 4 years or so) our government will simply go broke. There is no other choice.
Friday, December 24, 2010
Oh did I say blood? I meant haircuts.... "There will be haircuts...Public Sector Haircuts!!!" Doesn't sound nearly as bad that way does it? Actually, in this context, those two probably mean the same thing. I'm convinced that while it may take a few years, the unionized public sector is going to be decimated by the failure of their pension system.
I don't mean to be playing the same tune all the time, but it doesn't look to me like the media has put the pieces of this puzzle together yet. Like most people who don't have to face personal consequences for being wrong, reporters are typically rent seekers. Except the rent they seek is greater access to the halls of power. So when they see a public figure they are less inclined to view them harshly than the general public would. That typically makes them a day late and a dollar short when it comes to identifying trends in public policy, and this issue with the public pension system is no different. Somewhere there is a reporter who is saying "If I report this too negatively they won't grant me interviews anymore so I'd better spin it nice."
I have no such limitation so let me say it plainly, the public pension train is going off the cliff. At this point there isn't much that can be done about it. The people who track these things for the public sector still seem to be assuming that some miraculous transformation in the capital markets might give the pensions higher returns than expected, and that event can still save them. But that event won't be forthcoming.
Inflation will drive markets nominally higher for the next few years. But his rhetoric aside, Obama is no more a friend of the free markets than anyone at the AFL-CIO or the SEIU is. A radical change to the tax code could re-invigorate the American economy and with it the capital markets. But the kind of thing we need will reward the productive (the rich) far more than the unproductive (the poor) and is therefore absolutely off limits to Obama and his far left allies. They want the economy to grow but they want it to happen without the people that make it grow gaining any advantage. In the real world this isn't possible.
So the public pension system is going off the cliff. The consequences of this will be higher taxes (which we are already seeing), municipal default (which we are already seeing) and a MASSIVE haircut for public sector employees. This is the least politically attractive option because public sector workers are unionized. Union members are a minority of the population as are civil servants, but thanks to their PACs and lobbyists (who help clean up and legalize their bribe money) they hold more political influence than their numbers would indicate.
So it's an unattractive option for politicians (most of whom enjoy receiving
That violence seems likely to me because the very concept of unionization is built on the idea that someone else should be the one who is forced to pay the cost. They don't say to management, "Hey - if we're 10% more productive we want 10% more pay." Rather they say "We want 10% more pay without increasing our productivity - take the 10% you give us from someone else. In fact, we'd like work rules which let us cut our productivity by 10% but you still have to pay us 10% more or we'll riot and burn your factory to the ground!" People with a worldview like that will not be inclined to rational economic argument or civil discourse.
Even worse, we're talking about civil servants, who by their very nature are unaccustomed to those antiquated private sector practices like 'productivity" and "accountability." The idea that some serving politician will want to cut their overall compensation after he's been bought and paid for by the PAC's and lobbyists, will be horrifying and deeply foreign to them. They would prefer that once they buy a politician, that politician stays bought. But in the next few years that's not likely to happen.
Obama's pro big labor economic policies will keep unemployment high, and that high unemployment will eventually mean that the politicians who defend the public sector unions will all be voted out. Eventually even safe Democrat districts will purge themselves. 2008 was not the outlier, it was the beginning of the real trend. This will happen in parallel to rising taxes, and more frequent municipal default - all being driven by lavish pension payments to public sector employees. But as the crisis deepens even the reporters will begin saying things like "This bankruptcy isn't being caused by a payment to a working civil servant who is redistributing wealth, but to a retired civil servant who stopped redistributing wealth years ago but is still collecting a check for it."
Eventually the politicians will see the choice as being between the public sector unions - or themselves. In a choice like that, who ever shall they pick I wonder.
A recession is the way that liberals learn about economic reality. It's a lesson. the kind of lesson that can only be learned by liberals when they live through it. And what they are slowly learning now is that you cannot reward the unproductive at the expense of the productive and expect anything but stagnation. In the private sector union labor is far less productive than non union labor and contribute less to economic growth. Public sector employees don't produce any growth at all, they just redistribute the growth that the private sector produces. And unionized public sector employees make even that process less efficient by radically increasing it's cost. When the majority of America learns these facts, a retired, unionized, public sector employee will not be that difficult to vilify.
Thursday, December 23, 2010
For years I was a guy who answered the questions of others for a living, but for a few years now I've become a guy who asks them instead. During that time I almost forgot what a useful site the Bureau of Labor Statistics is. The chart above comes from that site, and it gives a good window into the timing of future defaults and bankruptcies in the public pension system.
This is total union membership of course, so it's not a perfect fit. What you really need to know is union membership matched against percentage of public employees versus private. But it should stand as a fairly good proxy. For instance, NJ's Public Employee Retirement System is schedule to run out of money in about 4 years. Theoretically Chris Christie might forestall that a bit, but he's not a miracle worker. Short of seeing him walk across the Delaware and multiplying loaves and fishes, I'd bet against it.
But if you use that as a model and assume that the civil servants in California, Oregon, Illinois, Minnesota, Michigan, Pennsylvania, Massachusetts, Nevada, Connecticut and Wisconsin are no more responsible and competent than the civil servant in NJ, the same should be true (more or less) for them. New york and Washington, should see it slightly sooner.
But these are states. As I mentioned earlier today, we're already seeing municipal bankruptcies and pension defaults. And as the states begin to run even more short of money and begin to cut their distributions to local governments, you can expect those municipal defaults to happen much sooner. I would expect wide scale municipal pension defaults in the states mentioned above, as early as this year, no later than next. The states governments themselves, all of which will be applying for and getting bailouts from the feds - will likely take just a bit longer.
It would be unfair to say that this is the first domino falling because that implies some causality between one and the next. A better way to describe it would be to say that it's the first popcorn kernel that's popping. Every public pension in the country is cooking in the same pot and in no time, they'll be busting out all over the place:
From the NYTimes:
This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.
Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.
This will be happening more and more over the next few years. Eventually there will be municipalities that are still too small for a bailout but are large enough to create civil unrest when the stop sending out checks. That's when the fireworks will really start. Take the city of San Diego for instance:
“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”
For years now my buddy John Derbyshire has been telling people to get a government job, and I've been telling him that it was a mistake. That for all those positions promised in an utter lack of accountability, high pay, great benefits, and irrevocable job security, it was all going to change. This is the beginning of that change.
Wednesday, December 22, 2010
Tuesday, December 21, 2010
Governor Christie has commuted the sentence of Brian Aitken, the man whose conviction for illegally possessing a handgun has gained so much attention among the firearms community. Americans can learn 2 things from this. Number one, that Chris Christie is as reasonable and thoughtful with regard to NJ’s overly zealous gun laws as he is with everything else. And number 2, he will definitely be making a run at national office eventually. All of that is great news.
Just to refresh your memory, Brian Aitken was living in Colorodo when he legally bought 2 handguns. He then decided to move back to NJ. NJ’s law on transporting firearms is as "over the top" as all its other firearm laws. It not only requires that they must be in a case, unloaded, and out of reach, but that you can only have them in your vehicle if you are going to or coming from either the firing range, hunting, or moving them from house to house.
This reads a little tricky so let me explain again. If you are going to the shooting range, and have guns in your trunk (unloaded – and cased) it’s no problem. I’ve been pulled over on the way to the range and told the officer that I had guns in the car – I didn’t even get a ticket. However, if your plan was to go to the range later this afternoon but were planning on stopping at the mall for a few hours first, you would then be going from the mall to the firing range, and you’d be in violation of the law.
Did you get that? You can have them in the car only from your residence to and from the practice range, your residence to and from hunting, or your residence to and from your other residence. That’s it. If you take em anywhere else you’re in violation of the law. I know a guy who has his office in Greenwich CT and had planned to go shooting with his Spanish gun nut buddy during lunchtime one day at the Greenwich gun club. When he stopped at his office in the morning, he was in violation of NJ law even though his guns were properly stored. I know another guy who makes a habit of stopping at the deli to pick up a drink on his way home from shooting on hot days. I know another who stops to buy gas. They too are both in violation of NJ law.
In other words, while these laws may seem perfectly reasonable to ‘punish the innocent’ gun banning crowd, the way they are written makes them far too easy to violate. Even so, if I were pulled over on the way out of a gas station near my gun club, most policemen would have the good sense not to charge me with a gun crime on such a minute technicality. Most prosecutors would have the foresight not to try to prosecute me for it, and few judges would look at my offense of “getting gas on the way home from the firing range”, as requiring 7 years of jail time.
Alas, the people who crossed Brian Aitken’s path weren’t so reasonable. His guns were unloaded in cases in his trunk, and there was testimony that he was moving at the time from one residence in NJ to another. But he still got a felony firearms conviction and a sentence of seven years. To be fair, there were more details which muddy the waters a bit. And the consensus I’ve heard from legal friends was that although it was a technical violation, he probably was breaking the law.
Still, it was clear that he was pursued over zealously, and that a seven year sentence didn’t fit the crime, so Christie commuted it. Brian Aitken will be spending this Christmas with his mother (which if you google the long version of his tale you’ll see why I think that’s more than I would probably do).
The cost benefit on this one for Chris Christie is pretty straight forward if you ask me. He loses the vote of one Bryan Miller, the head (and very likely the last remaining member) of Ceasefire NJ, the hyperbolic gun ban lobbying group that has seen it’s star decline so dramatically in the last few years. And in the process he gets hundreds of thousands of New Jersey firearms owners who will at least listen to him make his case going forward. He shows himself as reasonable (which will only alienate Bryan Miller even further) and as meaning what he says when he talks about diminishing the role of government in our lives.
Back in the day as a federal prosecutor, Chris Christie signed on to the Assault Weapons Ban; arguably the stupidest firearms law ever written. It had basically no effect on crime (many argue that it was never intended to), but greatly inconvenienced law abiding gun owners. Many people still resent Christie's support of it. I don’t know if this will be enough to make the firearm rights community sign on to a Christie campaign for President. But I think this commutation shows him to be reasonable and not above changing things when the evidence indicates that the law (however well intended) was probably over the top.
He’s not pro-gun, but he’s got enough virtues in other areas that I think gun owners should give Christie a chance. I think this decision earns him that at the very least.
Monday, December 20, 2010
The whole “infrastructure investment” scam strikes me as extraordinary. I watch these commercials that CNBC does for their ‘executive discussions’ of the topic and I wonder, "Where in the world did they find so many hopelessly dishonest rent seekers to participate in this sham?" The line for them and the rest of the mainstream media is (imagine this being said in baritone – authoritative sounding voice) “we are losing our competitive edge because of a lack of infrastructure”.
What utter BS. These empty suits on CNBC - who in their real jobs sell cement to the DOT or wire to government utilities - are all claiming that our competitive advantage is being lost because the government isn’t writing them a big enough check. That’s not unusual. That’s where the term ‘rent seeking’ comes from. What is extraordinary though is how foolishly the media is falling for it all.
More than anything else, the debate around it reminds me of the global warming scam. The self appointed “journalist – experts”, in their infinite wisdom are accepting the unproven assertions of the rent seekers absent any evidence, and then treating a discussion of rent levels as if it were actual news. Tom Friedman (that idiot from the NY Times) decides that ONLY government can build a road or an airport, and it’s accepted as a fact absent any evidence. The truth of the assertion is never questioned, only the amount is ever debated… which is exactly as the rent seekers wanted it.
What fatuous nonsense. Nowhere in America is a business saying “I’d love to get access to this market and I would open a factory here, except … I get so much better access to roads and electricity in rural Mongolia – or Nepal – or Indonesia. How laughable.
Let me say it as plainly as I can. I see no way in which the US is made uncompetitive by our lack of infrastructure. I see the tax code making us uncompetitive by driving investment away. I see our labor laws as making us uncompetitive by favoring labor unions and regulation which rewards people for being less productive. And I see our government making us less competitive by taking resources away from people who know how to get a maximum return on its use, and giving it to the government who gets only a minimum return on it.
The truth about this ‘infrastructure’ canard it seems to me, is that it's really just the latest attempt for the ‘green energy’ lobby to re-brand their ideas in a way that lets them slip more regulation, subsidies, and entitlements through congress. And although the media seems to be buying into it whole hog, you really shouldn’t. Look for evidence. Look for facts. If they can't be provided, (and so far they cannot) then we should dismiss them.
(For those of you following along at home - this is probably one of those issues where I'm out in front by too much... again. I'd look for it to be a big topic in the mainstream sometime next summer or so.)
Friday, December 17, 2010
Since this exchange occurred a week or so ago I've tried about 5 times to write something about it, but I keep falling off into profanity and invective. I think it not only shows Anthony Weiner as being guided by the immorality of hard left principles, and driven by envy and a sense of government entitlement, but worse that that it shows him to be one of the rudest most obnoxious men alive. Calling him a jerk is radically toned down from what I've been screaming at my TV for the last week.
For my friends who know the story (or for those who read it when I wrote it here) I'd just like to say that while I can no longer keep an eye open in hopes of meeting Ted Kennedy while in DC, I can now keep an eye out in the hope of getting to meet Anthony Weiner.
This week I wrote a lovely essay about the soul-less wretches who set out with the goal of obtaining work in government. It started out with a short review of the movie Casino Jack where Kevin Spacey brilliantly depicts the life and downfall of one time lobbyist Jack Abramoff. I artfully describe how the job of lobbyist is pretty much exclusively a job for lawyers because all they do is find legal ways to funnel what amounts to bribe money to our elected officials. My description made it clear that the one bipartisan thing still done in Washington is stealing from the private sector, and that the people on the right and left were all despicable, soulless, dark hearted MoFo’s engaged in the practice.
I then went on to relate the story of a friend of mine who had recent occasion to deal with the market regulators. I describe how the regulator staff were really just losers who couldn’t make it in the private sector, and were devoted to using their role as market overseers to do all they can to get their vengeance on a system they think failed to see them in their proper superior role. Their sense of entitlement and superiority absent any evidence to support it was breathtaking.
I related my friends feeble attempts at using logic and reason to mitigate their arrogance and how the regulators were not only impervious to it, but stood in open defiance of it; all but plainly stating that to them, the truth of the matter at hand was whatever they damned well say it is. They saw themselves as the ultimate iron fisted tool of political correctness that would make the round peg of the finance industry fit into the square hole of government even if they had to irreparably smash the round peg to make it fit.
And finally I relayed my friend’s abject horror at how such truly despicable individuals with such base and evil motivations could fit in so well in government, and how it’s changed his view of the world forever. It was a tragic tale, with a sad ending, that was told with vigor and enthusiasm. The story contained elements of irony, insight, and even had a joke or two. But regrettably, you’ll never get a chance to read any of it.
I’m no journalist, so I make no pretense at some ‘right to protect sources’. But when I showed the finished essay to my buddy he said that he was afraid that it described too much detail of what was actually said by the regulator. He felt that it might expose him to some liability, and out of deference to him - exclusively because he’s my friend, I decided not to publish the piece. Many people dislike me for a variety of perfectly valid reasons that I will usually cop to if challenged. But I will always have the back of my friends.
So since we can’t talk about any of that, let’s talk about guns instead.
Seal a pipe at one end, drill a small hole in it for a fuse, and that can qualify as a firearm in some respects. Make it a small pipe and it can qualify as a handgun. But to regulate that like they do other hand guns wouldn’t be just ridiculous – it would be impossible.
Between here and there are some things we would still call firearms, but most legal systems do not. For instance, say that you were to get your hands on an antique firearm from the old west. If it was one where the ammunition was no longer made and you can prove that it was made prior to the legal cutoff, then it would NOT be considered a firearm by the federal government, and would therefore not be subject to the government’s highly restrictive laws. It would still be subject to state law of course. But so long as state law is adhered to it can be bought and sold without any federal restriction.
The number of cartridges that have been retired from that age are surprisingly numerous. The most common for pistols of that era are the .32RF, the .30RF, the .38RF, and a few others. These are rimfire cartridges (hence the RF) which makes them similar to your little 22 squirrel gun, but in a slightly larger bore. These were relatively under-powered cartridges with anemic ballistics that couldn’t possibly stand up to today’s modern designs in either power or cost. But the punch line is that it’s fairly easy to get your hands on an antique pistol (often a revolver) that meets those specifications. And when you do, it’s usually somewhere in size and power between a full sized pistol, and a tiny derringer.
Now I’ll tell you another secret. For most of those cartridge sizes, you can still get ammunition. Some ammunition companies have made ‘special runs’ of small batches for those cartridge sizes, and there are other ‘custom ammo’ manufacturers that will make you a batch to spec. It’s expensive – very expensive relative to a box of 9mm Luger. But if you’re willing to pay up to $200 for a box of 50, they can be had.
So if you live in a state where there are limited restrictions on antique firearms, and you found one of these older revolvers in good shape at a gun show, you could theoretically buy it and walk out the door without any of the legal song and dance that comes with ordinary firearms purchases. Regrettably, NJ isn’t one of those states. In New Jersey not only is an antique firearm still considered a firearm, but so too is a BB gun, and an airsoft pistol (which in other states is known by the much more accurate description – “a toy”). So even though I’ll still have to jump through all the hoops that the government makes us firearm fans jump through, I've decided that I still want one.
I’ve been re-watching "Deadwood", the fictionalized series from HBO about the black hills boom town where Wild Bill Hickock met his demise. It’s a really great series that was cut short because of TV economics. The show was supposed to be re-cut for regular TV ala the Sopranos, which would greatly increase the overall revenue for the show. But by the time they got done removing all the swearing, nudity, violence and sexual references, there was only about 8 minutes of video left. (At one point I thought the name of one of the main characters: Al Swearengen was a cutesy play on words as Al "Swear - Engine", so named for his manner of speech.)
Anyway - the favorite firearm of many of the characters is a small single action ‘pocket pistol’ with no trigger guard. These ‘spur trigger’ weapons weren’t much for power, but at close range they managed to do enough damage to slow things down. I’ve identified both a Smith And Wesson model 1 ½, and a Remington Smoot being used in the series. And given their continued availability, I think I can find either of those in a .32RF. So I’m going to gun show in Valley Forge tomorrow to begin my search.
As I said a few weeks back, I’ll be bringing along some RFNJ swag to give away. Not the coffee cup above, that was a gift from the Mrs. and I have only 1. But I’ll have a bunch of T-shirts in my bag in a mix of sizes. I’ll be there when they open the doors at 9:00AM and will probably be hanging around for 2 or 3 hours. If you can find me while I’m there (I won’t be hiding), I’ll give you a T-shirt. I’m six foot one, about 185 lbs., and will be wearing tan cargo pants, and a grey T-shirt with the RFNJ logo, and carrying a blue backpack.
Here is a link to the Valley Forge gun show. You can find directions there. If the only thing you know of these events is what you read in the papers, it should be an eye opening experience to attend one. I hope to see you there.
Tuesday, December 14, 2010
My daughter and I were playing a computer game together the other day and she told me that her teacher 'hinted' that she doesn't like Chris Christie. This is in a 5th grade classroom in what is arguably one of NJ's most conservative towns. That should give you an idea of how pervasive that attitude is, and how much vitriol is being stored up in the union ranks for Christie's next election.
In the meantime, at 10 years old, my daughter is not the type to go arguing with an authority figure. She's a shy sweet kid without a confrontational bone in her body. If challenged directly on the issue she would smile quietly and look at her shoes. This suits her parents just fine. I don't think the people in this video are above punishing a student simply because they don't like their parent's politics.
Whenever an issue of political correctness comes up (and they already come up all the time) we always tell her to put the answer the teacher wants but know that the 'real answer' is different. When they demand that she think of herself as a member of a political group we remind her that she is first and always an indivudal. She takes to that sort of thing just fine and seems to enjoy the conspiratory flavor of defying the teacher in her home. But the truth is, for all my talk, it's really my daughter who is the one behind enemy lines. She's the one whose forced to pretend, in order to avoid the wrath of the NJEA.
Fairly often one of my friends who reads this blog will write me a note wondering why I "don't mention this story" or that. Usually it's because I don't have anything unique or different to say about it. Mind you, I set my personal bar pretty low - if I can think of anything original at all then I'll usually scratch it down. But how many times can you guys (and gals) listen to me going off about the public sector unions, the virtues of civilian gun ownership, or the horror of top down economics before it all becomes a blur? To me it sounds like saying I love you a gazillion times - after a while, no one hears you.
Luckily, there are now a few more guys who are getting into this fight. Tim Pawlenty had an OpEd which spoke particuarly plainly for a politician, and today it's these guys. So instead of boring you with my same old song, today I think I'll let them carry the ball a while.
I've also noticed that as a rule I tend to be a little too far ahead of the pack on topics like this for people to remember that I was reasonably prescient about them. By the time the issue enters the popular dialog, I've wandered away and gone on to something completely different. This was true for QE2, for the demise of the global warming movement, and several other issues. And although we haven't seen it yet, I'm confident that it will also be true of the Obama crucifixion, the state (and state funded pension) bailouts and the legislative curtailing of the public sector unions.
I think this is a burden that comes with 20 years of market 'forecasting' for a living. In the future I'll try to pick my entry point a little better.
Monday, December 13, 2010
The reason we have no bipartisanship in Washington, is because no one can figure out a way to get the economy to grow aggressively, while still keeping ‘the rich’ from participating in that growth. That’s the actual goal of people in congress. That’s the only thing that will make everyone happy. The Republicans want growth for everyone, and the Democrats want to punish the rich to help the poor. Those two views are not only diametrically opposed, but mutually exclusive. And they are defining why there is nothing being done about our fiscal crisis.
It’s like that old joke about Bull$hit and Chocolate Ice cream. If you’re deciding what to have for dessert, how much of a compromise can you take between those two? How about 50 – 50? Maybe just 10% of one and 90% of another? There is no recipe which makes it palatable. That’s why we’re having no compromise in Washington.
What we really need to do is decide which world view represents the American character. Are we defined by our envy and willing to drag down anyone who rises above the pack simply because they’ve done so? Are we willing to define their achievement purely as ‘exploitation of others’ and punish them with high taxes simply for ‘having more’? Will we no longer allow America to be the place where individual achievement defines a person’s success level? If that’s so – if we’re willing to commit to that whole hog, then we should adopt the Democrat plan in total, rapidly escalate taxes and let the ‘rich fall where they may’.
They’ll all leave of course. That’s what the rich do. You can no more punish the rich for their success than you can expect the mob to remain reasonable. But the Democrat plan is like that old joke I’ve told about Ivan and Igor:
They were the same in every way. The same house, the same land, the same boots - they were even married to one of two twins for wives. The only difference in their lives was that Ivan had a goat and Igor didn’t so Igor thought of Ivan as being much ‘richer’ than he was. One day Igor found a lamp in the road and when he rubbed it a genie came out. The genie said, “Things aren’t what they used to be before the revolution comrade, but I can still grant you one wish. You can have anything you like – simply ask.” Igor thought carefully a minute and said “I wish Ivan’s goat would die.”
That’s the Democrat plan. They are looking at ‘the rich’ and praying for their goat to die. But since the genie hasn’t been forthcoming, they’re going to tax the goat away and slice it up to feed to the poor.
The key to a successful future in America is Economic liberty. We must be free to fail, and allowed to reap the benefits if we succeed. That’s the only thing that will even come close to keeping us from bankruptcy. Everything else is rearranging the deck chairs on the titanic – and eating goat as our last meal.
Sunday, December 12, 2010
About 2PM on Tuesday by buddy Rob sent me a text asking me if I was Bear Hunting at that moment. The truth was that I couldn't make it this year, but when I was participating in the last one I was sending him and a few other guys IM's from the field.
That's one good thing about NJ hunting - you can bring your smartphone and browse the internet while you wait.
Still, it's not so bad...better than working anyway. I'm going to go out of my way to try to make it next year - but given my industry, the first week of December can be a tough week to be away.
The above video was great because it came from the Star Ledger's NJ.Com. I don't think there is a publication in the country that has a less blatant liberal bias, but is more insistent about it's absence. And although I'm sure they had hoped to show the hunters as bloodthirsty psychopaths and the protesters as well intentioned 'conscience bearers' of the community, they couldn't manage it.
Instead, both were depicted pretty accurately in my view. The hunters were numerous, respectful and saw themselves as engaged guardians of nature while the protest were few, psychotic, and barely lucid enough for a conversation on the topic. Sounds just like real life to me.
If I didn't know better I'd say the Start Ledger was actually trying to be fair. But that's an idea I've been burned by many times before so I'm going to wait for a little more evidence before I go jumping to any crazy conclusions.
Friday, December 10, 2010
It seems to me that Charles Krauthammer is about 5 chess moves ahead of me on this one, and about 3 ahead of Obama. Remember the Obama as Hostage Video? Krauthammer is proclaiming that a Victory... for Obama.
If it were anyone esle I'd call it nuts. Krauthammer has had some wacky ideas in the past too - the imported oil tax springs immediately to mind. But he's generally so clear eyed that I find it hard to dismiss this one, even if Obama himself already has.
At it's best it seems more like a broken Whitehouse Clock to me.
Thursday, December 9, 2010
A commenter on a previous post asked me a perfectly reasonable question which when I thought about it, I was a little surprised I hadn’t seen before. It’s right here (in the comments section), but to paraphrase, he basically said “Where the hell do you get all this stuff anyway?” That’s a fair question I think. I consider myself somewhat less apocalyptic than many others in my circle, but some of the speculation I offer is still pretty far out there. And I think if I were on the receiving end of it I’d probably be asking the same thing. So for his edification as well as others, let me explain a little about my own information gathering process.
First to speak to you directly James, yes I’m a quant, which in the strictest terms means that the trading strategy I run lets the computer make the actual trading decisions rather than the decisions being made based on my moment by moment discretionary judgment. But when you’re designing a trading strategy, if all you know is math then you are only half way there. In order to make money you have to understand virtually everything that ‘discretionary’ traders do, and all the math as well. Every sword maker wants to be a Samurai, but the career graveyard is full of skilled mathematicians who believed that their math knowledge was enough to turn a profit in the markets.
A better way to think about it is that a ‘quant strategy’ is really the same as a discretionary strategy with a single difference. The tweeks and tunes that we make to our strategies are still done based on our discretion and our judgment, but we make them more infrequently and more methodically than your average discretionary trader. We still need to be tuned in to the markets and still need to be prepared to revisit our base assumptions. But we’ve designed the computer system to worry about the minute by minute issues, so we can focus on the big themes.
And even intra-quant the lines aren’t very clearly defined. Some quant strategies rely very deeply on higher math while others rely more on an understanding of the markets. I can’t discuss it too much in this format, but the strategy I run is more markets focused than many others in the quant space. My own area of expertise has to do with the way that markets discount new information. I’ve spent most of my career studying it. And when you layer that over the top of my career (spent mostly in Macro focused hedge funds), in most circumstances I tend to sound more like a Macro/Commodity guy and less like a pure quant.
So, to the nuts and bolts of ‘where I get this stuff’ the answer is ‘in lots of places’. But as generally informal as the structure of it all is, there is a methodical process around it. Let me give you a partial example.
This evening I’m meeting a few friends at a Christmas party. Among our little circle there will be two “C level” executives at a well known hedge funds, two senior staffers in Research and Trading at others, a department head from the NYSE and an FX Trader from a major bank with 20 years experience. (Virtually all of whom are also regular readers of this blog and whose comments can be found all over the place.) Since I try to stack up my Manhattan socializing, I’m also getting together before that with one of my oldest friends in the business who was the head of Commodity Trading at DB, but now just runs a Billion dollar trading book at a Hedge Fund.
Apart from being first rate at their jobs, all of them also have areas of particular expertise that I like to tap when I have the chance, and this evening will be no different. My FX trader buddy not only knows all the ins and outs of the currency markets but he’s also an expert on the effects of inflation and sovereign credit risk. He knows as much about what happens in those moments of civil crisis as anyone I’ve ever met (and is also the only civilian I know who’s ever actually shot someone). One of the research guys has a deep understanding of what’s happening in European markets, which is particularly tough to do for those of us on the outside because if you aren’t focused on it, it’s such a developed market that it can be hard to see the forest for the trees.
All the other guys have areas of focus which they bring to the group too, as do I. They’ll all ask me about the state of affairs in relative value trading, HF and the quant space. The FI guys might ask me about commodities, and commodity guys might ask me about FI (since I know more on both those topics than they do respectively). And because they know it’s a particular area of focus for me, they all might ask about the current state of ‘bubbles’ across the globe.
No one asks anything too specific about what we’re doing, nor would they be willing to discuss it if someone did. We’re not trying to pick each other’s pockets. But we’ll talk about all the big issues. And when it’s all been said, we’ll take the data from those conversations back to our own firms and toss the most compelling ideas around among our peers. They will discuss them with their friends at other firms with everyone adding their two cents, and everyone sounding it all out. And from all of those conversations, a medium term ‘general consensus’ will form which eventually becomes the ‘conventional wisdom’ of at least my Macro Hedge Fund part of Wall Street.
Keep in mind, this isn’t like a journalist talking to a politician. The journalist usually has no expertise in anything except in repeating what people say. They don’t have any practical judgment or experience to act as a filter – they just repeat what they think sounds good. And the politician they speak to probably just buys votes for a living and doesn’t know much about anything at all.
Instead, these are conversations between people who have skin in the game. They have, over the years, been taught ‘how to think’ by the hardest experience. Because if they’re wrong more than they’re right, then they will end up unemployed. They are in the business of forming these judgments, and over they years I’ve come to trust their individual thoughts on particular topics as they have come to trust (or distrust) mine.
But that’s only a small part of what I relate. Some of the other stuff you asked about has been common knowledge on Wall Street for so long that I don’t honestly know where I first heard it. Something like the expectation you mentioned that ‘rioting happens at about 25% unemployment’ I probably heard for the first time while I was in school years ago. In that particular case, it’s like the idea of Mastodons roaming the earth. No one has actually seen one, but everything we have seen since points to it as logical so no one gives it much thought. Keep in mind, no one can tell when a specific riot is going to break out or particularly cares when that first rock is thrown. There’s no money to be made in knowing that level of detail so it’s irrelevant as far as we’re concerned. And we probably couldn’t guess anyway. But a general sense that unemployment in the low 20% range causes civil unrest does matter. And that broad statement is usually enough for Wall Street’s decision makers to frame their thinking.
And that raises another issue – documentation. A larger source of what I write here is either taken from formalized research or from informal discussions with people who generate formalized research for a living. Since it’s their job that also means that they’re charging for the service. Many of them you would know if you watch things like Squawk Box or follow the business news closely. But in many cases it’s often because of a personal relationship that they are speaking to me off the cuff. The long and short of that is that I’m probably not going to be able to provide you documentation or attributable sources for any of it. No one is authorizing me to give away what they are selling, and I wouldn’t ask.
I can however give you my impressions of what they say or tell you the ways it changes my broader view of the world. I can’t for instance, reproduce the research that I was given about the state of China’s banking sector. But so long as I don’t name him, I can repeat that my buddy who produced the report thinks that a large part of the assets held by the Chinese central bank are just IOU’s from the PLA. I can also tell you what I think the consequences of an insight like that are. His conclusions come from distilling the facts through his years of experience in the area, and his distilled results are then mixed by me with my own. What you’re getting is my judgment after all of that. That’s what I’m writing here – in legal terms I think it can be described as well informed hearsay. In other terms, it’s all ‘off the record’ talk.
So why should you pay any attention to it? Well to be perfectly fair, if you think you shouldn’t that’s fine with me. But since I’m not trying to get money out of you, and I have no axe to grind other than those I state up front, I don’t see any reason to suspect my motives. (I don’t think you did James – I’m just sayin.) While I may be ‘wrong’ I think it’s apparent that I’m not trying to slip anything past anyone. I have my specific areas of expertise, and my friends have others which I think are interesting and entertaining to talk about. And I think it serves the broader interests of the country to get information from such skilled and experienced thinkers into public consumption where it can influence the broader political dialog.
The things I know as hard and fast ‘facts’ are usually things I’m trying to make money off of so I can’t talk about those. I won’t ever talk about specifics from my strategy, or medium term issues related from friends because those are our value added items. Knowing those things better or sooner than others is how we all make our living. It’s all independently derived stuff about Macro Economics – no insider trading. I can’t remember the last time someone mentioned a specific company. But the longer term speculation (which by definition is less precise and is therefore offered in less precise terms) I will discuss. I respect the opinions of the people offering the info – both formally and informally, or I wouldn’t relate them. But if you decide not to… it’s no sweat.
And the reason I don’t’ get worked up about it is because disagreement is part of the process. Although my friends, coworkers and I engage in this sort of speculation for a living, and most have demonstrated a level of success over the years, on any particular issue there are plenty of people out there who think we’re full of it. In fact, we often disagree with each other about all sorts of things all the time. That disagreement is the way our individual opinions are tuned and tweaked to match what we expect the world to do.
And that’s the heart of the thing. If there is some ‘truth’ offered here it’s a consensus truth. I don’t generally offer views I disagree with, at least not without saying so. But it’s equally unusual for me to offer an opinion of my own that hasn’t been passed through the filter of my circle of friends and coworkers. This may not seem like much, but you should remember that my friends are all experts in related subjects and each has their own area of deep expertise. When I ask them what they think of X they know there may be money on the line. So although we’re friends, they tend to guard their credibility carefully. Since in this business, in the end, credibility is all you’ve got.
They (really) are the reason I think this is interesting enough to write about. It’s because I respect what they say so much that I think it’s worthy to repeat in some form to all of you. It may just be chatter – but it’s the chatter of guys who are some of the best thinkers in the world in their particular space. And because I value it, I assume others probably should too.
I hope this answers your question James, but if it doesn’t or if you’d like to know about something specific please - always ask, and I’ll tell you what I can within the constraints I mentioned. Thanks.
Wednesday, December 8, 2010
I don't mean to put too fine a point on it, but there won't be any 'Tax Cuts' for the rich or anyone else. All this Obama compromise is, is an agreement to keep taxes the same. But even if there were tax cuts, they won't help because taxes are not the problem.
Our elected officials go on about how they're making 'an investment' in America. but they are no better at investing than they are at anything else. Government projects cost many times more than private projects of similar size and scope, and take MUCH longer. In very basic terms they offer a much lower return on the investment than private projects. The problem that we're having in America is that we aren't creating enough wealth for all the money we're 'investing'.
Government is too big. We need to slash it. We can't afford to pay people for doing nothing anymore. No more 'free' stuff from the government. It seemed to work fine when we could just borrow money to make up the difference, but those days are over. We're at our collective limit. Our credit card is about to be cut up by the Chinese.
It's going to take serious thinking to get us out of this. The adolescent, self congratulatory, top down thinking of the far left is going to need surrender to the metaphysical constraints of reality. If they don't wake up and smell the coffee soon the whole thing is going down. the problem isn't taxes per se. The problem is that we need to all get a higher return on our investment. We can't get that from government when all they do is take it from someone who is producing a lot, and giving it to someone else for consuming it.
Tuesday, December 7, 2010
If you watch the replay of Obama’s “Bush Tax Cut Compromise” speech closely, you’ll see that he not only blinks his eyes in the pattern S – O – S, but that he also includes the GPS coordinates for the Washington DC office of the Heritage Foundation. For they surely have a gun to his head (or some other off-camera part of his body) to get him to agree to something he finds so utterly distasteful. I could be wrong about that address; I don’t know Washington very well. I suppose it could be the offices of the AEI, or Cato. But one thing is for sure, it was NOT a speech he was happy about making.
If this guy was put in Washington to foster compromise and a ‘coming together’ and a settling of our differences, he certainly has a strange way of showing it. I’ve never heard such an angry ‘reconciliation’ speech in my life. Or it could be that those terms simply mean the same thing they have always meant when liberals say them: “We won an election now all of our critics should just shut the F#@! up and let us run things our way without public dissent!”.
For his part, the president got another 13 months of unemployment payments for “Obama’s Army” (That growing percentage of people who have made their way in the world exclusively by collecting unemployment benefits since Obama came to office.) This was important to him because Liberals believe that unemployment benefits are the best way to foster economic growth. It's their claim that since the money is spent on consumption immediately it's a good thing. But all this really does is highlight how little liberals understand economics. If it’s so helpful why don’t we all just go on unemployment, all 300 Million of us? The economy should really get roaring then.
What they don't understand is that its really productivity that creates economic growth; In fact it’s even more than that - it’s excess. You take a bunch of metal, plastic, and other raw materials, mix in the cost of some energy, and you make something that people will pay more for than the original stuff you took in. That ‘value added’ – the excess - is the real economic growth, and you can’t have prosperity without it. That’s what’s spent and invested and is the real ‘wealth of a nation’.
What the government needs to do to create more excess is to persuade more people to take a chance and try to create some. But that can't happen if all they do is write them a check and ask for nothing in return. Instead what they’re really doing is taking the value added from one person (who produced it), and giving it to another (who didn’t). That doesn’t create growth it stifles it, and the November payroll data shows that very thing.
Since the government's only net effect is to take a small cut with each redistribution transaction, it's actually lessening wealth not creating it. It’s a parasite on the ‘productive’ part of America. To foster real economic growth we need to get all those people out of ‘public service’ and back into the productive part of the economy and quickly. Because the only way we are going to survive the next decade is with wildfire economic growth. Redistribution and the ‘targeted benefits’ of top down economics will not lead to prosperity. Ever.
Liberals need to understand that ‘profit’ isn’t what you’ve cheated others out of because of your ‘advantages’. It’s what’s left over (if anything) after you’ve paid everyone else. And America needs to start turning a profit again, even if Obama is sympathetic to those who would rather ‘fight’ to prevent it. Only giving ‘economic liberty’ back to all American's has a chance of getting us where we need to go.
Sunday, December 5, 2010
Mike Potemra has a typically thoughtful post over in the corner, about Sarah Palin's 2012 candidacy chances. It lit up their comments section like a Christmas tree, and you should definitely read it. You'll find links to his prior bits as you go.
Like everyone else, it's gotten me thinking about it a little. If she did get elected, I'm not sure her presidency would be what we on the right would hope for. In short I agree with Mike's basic assertion that Sarah is an Obama of the right. And even as a fan of Sarah, that's more than a little disconcerting to me.
Don't get me wrong, like I said, I'm a fan. She kept her baby even with Down's Syndrome so we know she walks the walk on the right to life. Her daughter kept her baby even though she wasn't married, so we know that Trig wasn't just political calculation as some of her critics accuse. That also shows us that she not only really holds the values she seems to but that she taught them to her kids. Further, we know that she absolutely will stand by and see her blood put on the line while specialist Palin entertains himself in the sandbox, and I can't imagine a better test of character than seeing your child be put at risk. She's the real deal as far as we on the right are concerned - there is no doubt about it.
But setting aside the effect of the media misrepresenting him as a centrist, the same could be said about Obama and his fans on the left. As far as they were concerned he had also proven himself in the ways that they felt were important. First and foremost... his father was black, and nothing means more to the American left than the way that a candidates views race. He then attended 'the right' schools. He swore off a life spent generating any type of profit and instead became a community organizer... a much more noble vocation for lefties than some evil corporate job. Then he went on to devote his life to 'public service', the ultimate lefty calling.
As sure as any of her fans are about Sarah, the left justifiably feels the same way, at least about candidate Obama. So what's my beef?
Well I think it will be just as easy to destroy the western world from the political right over the next decade, as it would be from the political left. And as much as I admire Sarah, I believe she'll be way out of her depth in dealing with the economy and the modern banking system. In fact, to be honest about it I think she'll be so far over her head that I don't think she'll know enough to choose her advisers well.
That isn't really her fault. These are dangerous times for the western world. Half the people who actually work in the finance industry don't know how fragile things are right now, and it would surprise me not at all to discover that no one in Washington does. At best I'd put the odds of her financial team understanding the full impact of their actions at less than 20%, no matter who she picks. That's a far sight better than anything the left is offering. But it's fair question to ask how this former Alaska governor with a journalism degree can have any chance of getting this issue right.
It's a real quandary.
Let me offer just a few quick examples of how a principled conservative position can destroy the prosperity of the west for a generation or more:
The key to the economy of the western world right now is that assets are overvalued. Which assets? In some respects ... all of them... it depends on how you look at it. But at the very least it applies to housing, mortgages, mortgage bonds and their descendants, and US treasury bonds. (So too is all that European debt, but that's not really her problem to solve.) So for things to go back to 'normal' we need to allow those assets to revalue to a price that the market will bear. But to do that, someone will take a loss... a big one. So what do we do?
Well Washington can pick the winners and losers. It can command the big banks to take the losses for instance. Everybody hates the big banks these days so that would be politically palatable. But those losses have already been partly nationalized when the treasury issued bonds to pay for Tarp. So if the govenrment does simply command the least popular political player to take the hit (ala Obama in the Chrysler - UAW bailout) then the bonds that get revalued will negatively effect the value of other debt being held by insurance companies and pension funds. So the losses will flow through to private citizens who thought their retirement would be there but now it won't. That ends badly.
Instead we can say that we're going to simply liberalize the markets again and let the chips fall where they may. Deregulate, liberalize and let the market tell US which assets should be revalued and by how much. That has the virtue of forcing the people who most missaporpriated their risk to take the most loss. That sounds great on paper, but it won't look good in practice when all of that deleveraging takes place in a single afternoon - and that's very much what would happen.
The markets are so over sensitive to shock right now that they will badly overshoot 'fair value' targets. And by the time that day is over, the effect will be ruinous. Thousands of financial companies will be bankrupt whether they had done anything wrong or not. When they go and lending dries up, they'll take a fair portion of the broader economy with them. By the time the tally is taken, unemployment will be skyrocketing - even by today's standards. We might have been able to liberalize before Tarp, but with all the rules now changed to socialize the losses, the markets aren't robust enough to survive it again.
What's worse, in both of these examples when the bond losses flow through to the pensions and insurance companies, the short term result will probably be a money market crisis. That will create runs on the banks, and since the states and municipalities are all broke, President Palin will be declaring martial law before they get that under control. Then there will literally be blood in the streets, and not just wall street.
Suppose we went a different route and took a hard nationalist position. That way we would make US investors whole while forcing the defaults through to foreign investors. The Chinese are certainly unpopular - they don't even pay taxes. But if we did that then people who are in a position to know have told me that the Chinese government will probably collapse. And when it puts down the rioting(the Chinese have no problem firing live rounds at the crowd), they'll still have a huge military and nothing to feed them. That's a bad situation to even ponder because guy's with guns never starve.
Suppose instead she just kicked that particular can a little further down the road and instead took a hard line on the fed and QE2-3-4 etc. The Fed is really unpopular so the voters will love that. But when that happens, the US treasury bond price will collapse. The soaring interest costs that will come with it would decimate the treasury and leave half of the states, and all of the large cities bankrupt. And I don't mean this 'Oh my, how will we ever continue to guarantee those union promised 5% pay raises for all our teachers' sort of bankrupt, I mean real 'everybody go home now because we can't pay you anymore' bankrupt. Government layoffs will be massive and if we want to keep paying the Army (and we'll want to) then governments will have to enforce massive layoffs. 18 months later the unemployment rate will be 30%, but no one will probably know it. Why? Because when it reaches 25% there will be wide scale riots, followed quickly by martial law.
Anyway, the point of all this moribund speculation is to highlight how easy things can fall apart right now and how destructive a polemic position will be even if it's coming from the right. In order to get through this without someone getting hurt, we're going to have to take a lot of small steps in the correct direction. And the problems are so complex and severe right now that I'm not sure anyone whose being considered in 2012 for the Presidency is really up to the task, including the current president.
Of course I'd prefer Sarah Palin to Obama, or anyone else on the left. Frankly I think it goes without saying. But just because she's trying to do the right thing for America doesn't necessarily mean she can. I apologize for leaning on yet another movie quote, but the right the correct path really is 'as narrow and hard to walk as a razors edge'. And I don't think the fact that she'd be going in the more or less right direction will be enough to get us through this.
Here is one more way that Sarah can utterly destroy the western world. In fact, she clearly doesn't understand how serious this will be because she's already signed on to it via Facebook.
Right now the Bond Markets are treating the State and Municipal debt as if it's automatically going to get a bailout from Washington. If it doesn't, then the losses will flow through to the broader markets as pensions are forced to sell their holdings. The result will be utter disaster.
From my position, betting on a state bailout is a lot like betting against an asteroid hitting the earth. If it misses the earth, even by just a little, then I get paid. But if it hits the earth, there is no one around to come collect from me.
Friday, December 3, 2010
WikiLeaks Ready to Release Giant 'Insurance' File if Shut Down is the title at FoxNews and Drudge. My first thought when I read that was: "Well it's not like he won't reveal it eventually anyway, even if he isn't arrested."
Seriously.... I don't see any way we can avoid making an example of this guy. His future should be deep, dark, and involve only limited visitation with no access to any technology.
I don’t work with many PhD’s anymore, and to be frank, I’ve long since given up being impressed by those who have earned them. The two PhD’s who I was most impressed with during my career were the two guys I worked closely with in the commodity derivatives group at JPMorgan back when the earth was young. It’s probably because I was still learning so much from them, but the truth is they were profoundly realistic about their own credentials. Both of them agreed that holding a PhD usually meant that you stayed in school too long.
I’ve always thought it was a good thing that the private sector cares more about what you can actually do than how much the people at university X think of you. There are limits of course – when interviewing, a basic bachelors degree does help winnow the field a bit. But the most successful people I know have all come from mid range schools with only bachelor degrees, or have been among the rare few who have flunked out of Harvard. None of them have PhD’s. The tag line is that it’s easy to find a PhD on Wall Street, but finding one who can make money trading is all but impossible.
My point is about decision making. In the private sector the thing that people care about is productivity. That’s the upside of ‘what have you done for me lately’. If what you’ve done is helpful, then people really do care about it. Your end product is what matters most of all, and if that end product is so much better than everyone else's, then people in the private sector will happily overlook all sorts of other things. They'll ignore your race, your national origin, your looks, your weight your receding hairline or European hygiene. None of it matters in the private sector, so long as you are more productive than others.
This is as opposed to government where it matters much less what you actually achieve because the only actual achievement for most government workers is taking money from one group of unpopular people, and giving it to a different set of people less a cut for administration. In government, pretty much all they care about is your political classification. They really only want to know which pigeon holes you fit into. That's the thinking that gave us those hiring rules where everyone is looking for that one obese, black, muslim lesbian midget from the pacific islands with only one leg, so they can meet all the quotas.
Someone from the private sector like me looks at that process and wonders how precisely something like a PhD is helpful. Do they teach equitable ‘redistribution’ in doctoral programs? In fact in many I think they actually do yeah, for whatever that’s worth. But that’s not why the government values PhD’s so much higher than the private sector. The real reason is that if you aren’t going to reward people based on merit (and in government they really are not), then you have to do it based on something. And using the degrees and credentials that employees have earned is at least more rationally based than crafting compensation based on something like height.
That really is all there is to it. Government doesn’t care what you achieve so a PhD is worth more on it's own merits in government than it is in the private sector. In effect it’s the private sector that cares more about the actual ‘content of your character’ objectively measured by what you produce. This is one of the central problems with Paul Krugman’s deeply misleading OpEd in the Times.
I don’t like to read Krugman because unlike most establishment journalists, I believe he’s smart enough to know precisely how he’s being deceptive, which means he’s doing it on purpose. I find it kind of troubling that someone with as much influence as he has can intentionally misrepresent the truth with such abandon. The good news is, most other people are troubled by it too, so his influence falls a little every day.
Still, when he says "Federal salaries are, on average, somewhat less than those of private-sector workers with equivalent qualifications." He knows the facts, he’s just trying to hide them. When you compare like jobs, the Federal government pays much more. An HR manager makes more working for the government then someone with a similar set of job tasks in the private sector. But since the private sector is more concerned with how well you do the job than what sort of advanced degrees you have, the person in that role will on average be somewhat less credentialed than their government peer. It's only when you compare similar credentials that government begins to seem like it pays less because it's where the most inept PhD end up going. Even in government the Peter Principle will apply. (A man will rise to the level of his own incompetence.)
Krugman knows all this, but as a highly credentialed rent seeker, he's interested in promoting not only government workers in general, but all holders of advanced degrees. He's much more interested in putting those people in charge than people who can actually achieve things regardless of their credentials. Ask him to illuminate this deception and I’m sure he’ll eventually get around to the fact that in his opinion the private sector just doesn’t value a PhD as highly as they should.
Anyway, the rest of his piece is just as deceptive as that one item. In other words, it’s as worthless as everything else he’s written since he gave up on being an economist and appointed himself a ‘social engineer’. The main difference though is that while most journalists aren’t really that smart, he actually is. It’s like that line from Lawrence of Arabia. "A man who tells lies, merely hides the truth. But a man who tells half-lies, has forgotten where he's put it."
It’s not a perfect fit but its close. I can forgive most journalists for not being smart enough to know the truth when they hear it, but in Krugman’s case, it’s more a question of him going out of his way to conceal it. It’s one more tragic chapter in the degradation of a once serious thinker.
The Camden City Council is laying off 25% of the cities workforce including many police and firemen. Since Camden is already the second most dangerous city in America (I think East St. Louis is number 1), this should prove entertaining... from an appropriate distance of course.
The Democrats who have spent decades wasting all the money the state sends them are blaming Governor Christie but that's like blaming the ocean for the hole in your boat. Christie isn't being vindictive, he's being realistic. He's requiring the various Democrat run institutions in the state to wake up and smell the coffee - or in this case, maybe the bonfires and cordite and gasoline.
when the Army went into Somalia under Clinton, I thought the best strategic plan at the time actually came from an unnamed major on the ground in the US compound there. When PJ ORourke asked him about it he said that the best way to solve the problems of Somalia would be to arm the population and seal the borders.
The same is probably true of Camden. It's been irredeemable for some time. Let's see how they do when the outside money runs out.
Tuesday, November 30, 2010
I wrote a post about this a few days ago but never put it up because it sounded too technical and dull; too much like 'homework'. I find I do that a lot with technical issues lately... it's probably a phase I'll get over.
But in this video you not only get to learn why consumption doesn't drive the economy, but you get to learn it from an attractive Albanian chick. She looks way better than I do anyway.
But in this video you not only get to learn why consumption doesn't drive the economy, but you get to learn it from an attractive Albanian chick. She looks way better than I do anyway.
My daily email communication includes a bunch of correspondence with friends of mine who are more or less my peers at other firms. Often that means other hedge funds, but it also means guys who are running trading books (or departments) at investment banks.
We talk about the state of the market a little, but nothing too specific. We all know the rules and have no interest in telling anyone outside our own firms what we’re doing anyway. Most of the conversations are nothing more than ‘big picture’ political commentary. It's probably the same kind of snide remarks and exasperated chatter that you have with your friends. In fact, one way to think about it is as a shorter version of what I write in this blog. It’s really just a circle of friends chit chatting, the only difference is that we all trade the markets for a living, and follow the news on a minute by minute basis instead of once at the end of the day.
Persuant to all this, I got a note from a friend of mine today. He’s Chinese (here on a green card), works at a major investment bank, and is an expert in High Frequency Trading. He was telling me that he has to be a little more careful about the email that he sends back and forth going forward.
“What’s the problem” I said, “did some of our correspondence get you in trouble?”
“Not with you” he replied, “but I sent a note to another friend about the North Korea situation where I lightheartedly said that the Dear Leader must be long vol, and I got a note from legal demanding to know who the ‘dear leader’ was.”
I sent him an LOL and told him I’ll be careful in the future, but he wasn’t laughing with me.
“I’m not kidding, he said, “this reminds me of the cultural revolution. The US has degraded into a kind of corporate fascism.”
I find that a little overstated, but maybe if I was at an investment bank I’d feel that way too.
There is no doubt about it, the regulatory pendulum has swung MUCH too far in the direction of more power for the lawyers. what's worse, the idea that new government regs will somehow prevent a future crash is simply idiotic. What will happen is, they will spell out how the new rules work, someone will figure out a way around them, and the whole drama will continue again. The same as it always does.
But in the meantime we’ll be calling people before the governmental inquisition to find out what precisely they meant in their emails about world leaders. And calling people on the carpet for figuring things out before anyone else does, even if they did it on their own.