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.
Tuesday, November 30, 2010
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.
Monday, November 29, 2010
The SEIU, the union which has been most identified with Barak Obama, has decided to terminate health coverage for its employees. To the supporters of hope and change this looks like a horrible betrayal of the socialist principles they were hoping to see implemented, but to the rest of us, this is as surprising as the discovery that water runs DOWN hill.
Wednesday, November 24, 2010
I like this concept, but it's a little over the top if you ask me. The probability of something like this is arguably larger than it's ever been, but in my informed opinion it's still quite small.
Still, if someone told you that you had a 1 in 10 chance of getting cancer and dying, you'd probably quit smoking right? How bad do the odds need to be before we react to them?
I've had this sort of thing happen to me too. In a turn of events too complicate to explain, I once accidentally boarded a plane with 12 inch meat cleaver in my carry on bag. It went through the x-ray scanner at Laguardia and no one even blinked.
In fact I didn't realize I had it with me until I reached my destination and was randomly picked for a detailed search by Mexican customs. The soldier at the gate took it out of my bag, held it up, and looked at me like "What the F%$! is this?!" Rather than giving him a long, complicated, arguably difficult to believe story I just lied and said: "Soy cocerino."
He nodded knowingly (as if that explained it) and gave me back my bag, with the cleaver neatly tucked inside. Figuring I'd never be that lucky twice, I ended up leaving it in Mexico.
Tuesday, November 23, 2010
As I’ve written before, they don’t allow gun shows in NJ. So if I want to go to one, the local show for me is actually in Valley Forge Pennsylvania. They have them there every three months or so, and I’ve already decided that I’ll be there this time on the morning of December 18th. I’ve been re-watching the Deadwood series so I have it in my head to buy myself a Remington Smoot revolver (in .38 S&W CF if I can find it, but maybe a .32RF) and they always have stuff like that at the shows.
But even if I don’t find one; a gun show is a great place to get a deal on bulk ammo and all of the other odds and ends that shooters always need. And since we ‘people of the gun’ are so outnumbered here in greater NYC, I usually get a kick out of hanging around with a bunch of guys who feel the same way I do about so many things. I don’t have a hard number, but based on the license plates in the parking lot, I think about 40% of the people at the show are from NJ.
And with that in mind, I thought I’d do a little creative self promotion while I’m there as well. My buddy Rob bought me a bunch of the shirts shown above as a gift with the intention of having me give them away. I thought about just letting people ask for them via the comments section, but with all the mailing hassle and shipping cost it didn’t seem like it would work (especially since it’s my wife who would inevitably end up with all the hassle). So instead, I’ll bring a bunch of them with me to the Gun Show on the 18th and if you spot me there and ask, I’ll give you one. I’ll do my best to make myself visible. I’m a tall thin guy with short brown hair who looks like he’s about 40ish. I'll have a blue backpack on my shoulder full of grey T-Shirts. I won’t be hiding.
Also, I haven’t written anything about gun politics in a while because I don't have too terribly much to complain about. The fact of the matter is, on the national level things are really going our way and the forces of tyranny are in rapid retreat all over the country. In fact, that might change soon locally too. One way that you can gauge Christie’s interest in a national run will be his attempt to establish some pro-gun bonifides with a local issue. These things change of course, but being pro-gun is a great way to win a profoundly devoted portion of the electorate nationally, and any conservative candidate from NJ will need to do a little work to win those voters over.
As a starting point, I’d recommend giving a pardon to this poor guy from a link sent to me by Matt H: Brian Aitken’s Mistake
Radley Balko over a "Reason.Com" handled this piece brilliantly so I don’t have all that much to add except this: This guy got caught up in the system where any judicial and prosecutorial discretion was firmly aligned against him. In my opinion, the only way to avoid being in the same situation he’s in is to make sure you have either the political or economic resources to affect the cost benefit decisions of the judge, prosecutor and arresting officer.
In my case I have the latter, and from moment one I would make sure everyone involved understands that there will be no ‘quick conviction’ in my case. At best they can expect massive and costly procedural obstacles, endless appeals, and if acquitted, a follow up civil suit, and at least an attempt at a criminal civil rights complaint. I’m going to try to make it cost them their job, their pension, and if I can their freedom as well. I obviously don’t know one way or the other but I think that if you can make them believe you can offer that much resistance, then you’ll dissuade all but the most devoted anti-gun prosecutors and judges. These are petty crimes with disproportionately severe penalties, but the ability to offer effective (and costly) defense is why you don’t see ‘the rich’ being convicted of things like this.
Also, since I’d prefer to end this on a high note, I have a few other gun links. I have a buddy who has moved close to me, and we shoot together fairly often. His wife has no problem with his hobby, but she refuses to allow firearms in the house. I’m sure we’ll wear her down over time, but toward that end I have 2 great links.
Kathy Jackson is the managing editor of Concealed Carry magazine and a firearms instructor in Seattle. She is also the author of “The Cornered Cat”, a woman’s guide to Concealed Carry. One day we may be allowed to carry concealed in New Jersey again, and if we are, I’m sure much more of her copious knowledge will become useful to us. But in the meantime she's written some really great stuff relating to women and firearms.
I think my favorite piece of hers is this one:
How To Make Your Wife Hate Guns”
Followed by this one:
Buying a Gun For Your Wife”
She has gobs of instructive and entertaining stuff on her website: The Cornered Cat which I highly recommend for anyone with either a gun or a wife, and would like to think about getting one of the others.
Friday, November 19, 2010
Nothing assures political unrest as absolutely as starvation. No one will stand by and respect the political authority of their leaders while watching their children go hungry. Thankfully this is not a problem that we in the US are likely to have. Environmental activism notwithstanding, America has some of the most productive and efficiently managed farmland on the planet and as a result, food represents a smaller portion of American earnings than anywhere else in the world. Our poor people aren’t starving, they’re struggling with obesity. And given current trends, you’ll see Washington DC reduced to ash and congressional staffers crucified along the beltway before that changes in any meaningful way.
To be frank, that’s why I’m not so worried about a little inflation. Even double digit inflation for a short time won’t be that big a deal for the vast majority of Americans. People won’t like it, and the standard of living will be reduced modestly for all of us. But for most people, it won’t be a matter of life and death at all. Even our ‘desperately poor’ in America with their cell phones, cable TV, and air conditioning have a very ‘middle class’ existence when compared to the third world. So our standard of living can fall a LONG way before it’s anything like a real crisis.
But some people don’t see it that way. The romantic appeal of an apocalyptic vision is strongly embedded in some people, even though the odds of seeing it are really very small. Personally I see no issue with buying a little insurance against catastrophe, but I don’t think it makes sense to go too far overboard. I have generator and enough fuel to run it for 48 hours in case of a power outage. I have a house FULL of guns (but mostly because it’s my hobby) and my wife shops at ‘big box’ stores because (to be perfectly frank) she’s cheap. But I haven’t invested the tens of thousands I would need to take my home off the grid or stockpiled a decade of canned food and MRE’s. After analyzing the probabilities I just don’t think it makes economic sense to spend that much for something that’s so unlikely.
But not everyone feels that way. Glenn Beck, for example, is trying to rally his troops to store a year’s worth of food, but I think that’s way over the top. I’m a fan of Glenn more or less, but he doesn’t seem to understand that inflation doesn’t cause scarcity, it causes higher prices. And just because people can’t afford high end Beef anymore doesn’t meant they’ll starve. What’s more, as prices rise, so too will the supply as more marginal land is brought under cultivation. Yes it will all cost more. But any real food shortages will be local and sporadic at worst.
That’s not true in China however. In China any substantial rise in food prices means people WILL be starving. With 25% of the population involved in agriculture and surviving on barely better than a subsistence level, a serious rise in food costs are a real problem. What’s worse, with such a low standard of living the only solution China has for addressing a problem like this is price fixing, and that DOES lead to shortages. And that’s where things can get really out of control for them.
I’m assured by people who know that the Chinese Army will have no problem suppressing any civil unrest, but that’s the sort of thing that doesn’t look good on the front page of the New York Times. (Especially to the China worshipers in the Times editorial section.) The Chinese rulers know this of course, and would prefer not to get to that situation. So while Ben Bernanke is flooding the global markets with cheap dollars in order to create a little inflation, the Chinese are raising their banking reserve requirements in an attempt to pump it out.
Make no mistake about it… this is what a currency war looks like. And in a war like this the US will certainly win. The Chinese can’t possibly remove liquidity as quickly as the US can pump it in because of the political constraints on their actions, not the economic ones. Whatever anyone in this debate says, we have more breathing room, and less drastic choices. So we can have a QE2, or QE3 or QE10 without having to worry about real problems of law and order. That doesn't mean it's a good idea, but it's not the end of the world either... not for us at any rate.
Ron Paul may end up punching out Barney Frank, or beating him with his cane on the floor of congress or something before it’s all over. But as bad as things may be in our economy we’re still a long way from a genuine crisis. And civil unrest is not going to be brought on by managed inflation in spite of what Glenn Beck says, even if the level gets a little higher than anyone planned. This will remain true even with an utterly incompetent administration, and a Congress frozen in stasis.
In the end, we all have to deal with the world as we find it. So before it's all over, the American poor people will be choosing between the unlimited data plan on their cell phone, and a second line for the kids. Or maybe they'll be giving up HBO and Showtime in exchange for setting the air conditioner at 70 degrees. But the Chinese poor will be choosing between trying to steal the Army's food supplies and risk getting shot, or watching their children starve to death. Based on that, I think it's easy to figure out the global winners and losers.
Tuesday, November 16, 2010
Sometimes people are so desperate to seem clever that they don’t make any sense at all. I’d bet that’s happened to Tim Heffernan on more than one occasion, but it certainly has at least this once. His response to my post from November 4th about eliminating the corporate income tax was so incoherent that I wasn’t precisely sure how to address it or for that matter whether I should go to the trouble. When someone makes as little sense as this it reminds me of arguing with a homeless guy screaming at you from a traffic island. It doesn’t really matter what he’s saying, there’s really nothing to be gained from discussing it. Still...I had an hour to kill this afternoon so I figured… what the hell.
In a situation like this where someone has registered their disapproval of one of my ideas, I’ll usually try to stick to the substance of their argument rather than the personality of the person offering it. But when the criticism offers as little substance as Mr. Heffernan’s did, I’ve got to confess I find that tough. As near as I can tell his only real compliant was that simplifying the tax code in the way I suggested would negatively affect the employment prospects of 1.3 million accountants. Toward substance that was really the best he could do.
In the meantime however, he does very effectively offer gobs and gobs of snarky condescension. So much so in fact, that it makes you wonder if he thinks the best way to learn about Economic and Tax policy is not to do what I’ve done for the last 20 years, but to get a journalism degree and go to work for a fashion magazine. (In my experience, people with journalism degrees think that’s the best way to solve EVERY problem… but I digress.) His level of empty sneering is really quite astounding. Even more so when you consider that he has basically no expertise at all upon which to draw when discussing this topic. To me it seems like he didn’t understand my argument but was hoping that his sophisticated wordsmithing would be so impressive that it would keep anyone else from noticing.
That’s not how we manage our disagreements in my world, where there are consequences to being wrong, and real money to be made based on ideas. But knowing as little as I do about men’s fashion, maybe it would be best if I defer to Mr. Heffernan’s much more vast knowledge in that area.
No wait… we weren’t talking fashion were we? That’s right we were talking tax policy. I guess I got confused for a minute because Mr. Heffernan writes for such a prestigious fashion magazine. That is what Esquire is isn’t it… or at least … what it used to be once... a fashion magazine? I guess I just assumed from his dismissive tone that we must be discussing something about which he has a vast knowledge and I have very little. But we were actually talking about a tax policy issue. Well then maybe I am qualified to say something about it after all.
I’ve worked on Wall Street for 20 years as a Research Analyst and Portfolio manager. I started out at JPMorgan on the Commodity derivatives desk designing energy swaps and SPV’s, but most of my career has been spent at ‘Macro’ hedge funds where we make trades based on big issues like changes to tax, economic, and monetary policies. I still work at one today.
My contract prohibits me naming my present employer, but I can say that it’s a very well known multi-billion dollar hedge fund, not too dissimilar from my last two employers, Caxton Associates and Moore Capital. I can also say that in all the time I’ve been managing investment capital I’ve never had a down year, and my average annualized return is well into the double digits. Even people who dislike me call me an expert in my space. And analyzing things like the effect of tax policy have been my bread and butter for most of my career.
Prior to working on Wall Street I was in school like everyone else. Tragically, I didn’t study journalism like I guess I should have if I REALLY wanted to be an expert in something. Instead I was a part of the only undergraduate labor economics specialty program in the country at the time. So am I qualified to render a comment on the effect of a change in the tax code? As a matter of fact I think I am yes, and that opinion has been shared by all of my employers over the last 20 years who were paying me to do that very thing. But as far as Tim Heffernan is concerned those qualifications pale when compared to his vast knowledge of inseam stitching and the button count of suit vests, or whatever else it is that he thinks he knows.
I wasn’t put off by his calling me a dunce any more than I would have been if he called me a tub of lard. (I’m 6’1” and a very fit 183 pounds) It’s just something that people don’t say about me so it doesn’t hurt my feelings. But the fact that he would go to that trouble does make me think that he feels deeply threatened by me in some way. Since I can’t imagine ever going to work for a fashion magazine for any amount of money that they could possibly afford to pay, I’d say he has little to worry about. But my impression was that he disagrees and is worried.
I think the thing he’s most threatened by is the fact that I am doing for free what he would like to charge people for. All he does is write after all. And I got the impression he doesn’t like his turf being trod by an amateur. I think that’s why he spent so much time criticizing my blog instead of criticizing me or my ideas directly.
And if I want to be fair about it, those criticisms are probably valid. This blog is hastily thrown together; the writing is rushed and is usually rife with my dyslexic spelling and grammatical errors. And it would probably be nice if I could remember to start sentences with a capital letter. But then again, I’m not trying to compete with Esquire in any way, Tim Heffernan’s insecurities notwithstanding. I'm no journalist, and I don't aspire to be one. I couldn't possibly afford the pay cut.
Ask the people I’ve worked with and they’ll tell you that thinking outside the box is one of my very great strengths. Even the people who hate me will probably tell you that I’m much smarter than the average bear, and that really means something when 90% of the people you work with are geniuses. And in truth, my job for two decades has been to find innovative and profitable solutions to economic problems, not to draft sneering commentary. So in that respect, in comparison to Tim Heffernan, I guess I really am an amateur and should better know my place.
Then again, everyone needs a hobby.
Friday, November 12, 2010
Here's one for all those people still complaining about Governor Christie shutting down that batch of union fat they called the ARC tunnel. My buddy Rob A. sent me this amazing story of a Chinese hotel that was built in just 6 days. That's right, it's not a typo. From hard foundation to hotel in a whole 6 days. Christian or no, I'd bet they rested on the 7th day.
Admittedly, it was a pre-fab building, but I still think it's awfully impressive. To be honest I have to admit that I'm not completely comfortable with ANYONE having to work that hard. But the companies in NJ that exploit the kind of construction work done under government contract couldn't even mark out the ground for a hotel in 6 days.
Last year my wife spent 7 weeks in Florida helping my father in law recuperate from surgery. In the meantime my daughter and I were home alone – but the situation was drastically improved with frequent use of Skype video calling. With the combination of a wireless network and my daughter’s laptop, my wife was able to tuck my daughter in at night, (more or less) and spend time with us during the day. She said that it felt like being ‘Richard Nixon’s Head’ from Futurama, but it was much better than nothing at all.
Anyway, when my daughter’s laptop gave up the ghost in the middle of that trip, there was no question of shopping around or planning ahead, I just ran out and bought another one as quickly as possible. Unfortunately, it came with Windows 7.
Thanks to that mistake we’ve had a chance to try Windows 7 extensively. And we’ve decided that if this is the direction that Microsoft is going, then they’ll be going there without us. It’s not that it’s slow, or that it crashes a lot, or that you can’t install anything like was the case with Windows Vista. But it’s so counter intuitive that it takes much longer to do anything you want to. Like all Microsoft products, it tries to do everything for you and in the process, prevents you from doing pretty much anything.
At the very least, it takes that Microsoft “The customer is an imbecile so we had better do everything for them!’ philosophy to a ridiculous extreme. We spent hours trying to get it to do trivial things like recognize a file as video instead a zip file, or to find a shared network printer, and we’ll never get that time back. So we’ve more or less decided that we’re done with Windows 7, and if it’s our only option, then we’re done with Microsoft as well.
Now we’re shopping for a new laptop for my wife, and we’re having a bear of time finding anything that will be delivered new without Windows 7. We have Vista as an option, but that’s like deciding to go with a serving of diphtheria instead of the broken leg. If we can’t find one that can spare us either liability, then we’re considering going with (brace yourself) a Mac.
Personally I’m a Unix guy, which as you probably know is the libertarian of computer operating systems. It gives you all the freedom in the world including the freedom to do irreparable damage to your software, hardware, data, and network. I’ve stayed away from Macs because I’ve done so much work on computers, that’s always meant PC’s on the desktop, and Unix behind the scenes. But I’m told by friends who have them that it isn’t just a chick’s computer anymore.
It’s certainly not my first choice, but I won’t use Windows 7, and it seems a bit much to ask my wife to learn how to use Unix. Besides, as the CFO of my little company she needs to use a lot of shrink wrapped applications that don’t usually have Linux capable versions. (It’s all tax and compliance stuff – small apps from small companies that write to a niche small business audience).
Anyway, I’d appreciate any suggestions from the more techno savvy readers. If you’d rather keep it private, an email address can be found on my profile if you don’t already have it.
Wednesday, November 10, 2010
And there was much rejoicing......
I have to admit, I’m fascinated by the stories no one tells. You know… the things that are in the script but no one ever spells out? What precisely was glowing in the briefcase from pulp fiction? What exactly was the source of Hattori Hanzo’s grudge in Kill Bill? There’s plenty of speculation so you can probably figure it out for yourself more or less. But they never definitively tell you for sure. To do so would be insulting, and make the story less memorable.
You may find this connection tenuous, but the absence of a VAT tax in the Fiscal Commission Report seems just like that to me. It was trial ballooned a few months back – no doubt by someone who would inevitably get back to the commission members on how it was received. There was nothing official, and the person who mentioned it would have no direct connection to the commission. It was never actually a part of what they were considering. Especially after how they saw it was viewed.
People went ballistic for a variety of justifiable reasons, myself included. I’m not saying I had anything to do with it’s elimination from the commission’s consideration. But I think all the people who caused an uproar over it when it was trial ballooned played a small role in coloring how it was taken. Had all the reporters, blogs and talking heads instead said:
“Wow!... what an inspired idea! Only someone as brilliant and thoughtful as Obama could come up with something that great! Thank god for President Obama and thank god for his VAT tax proposal!”
…then it’s exactly what we’d be getting right now.
But instead the mob said ‘We hate it! Only a deceitful villain could conceive of such a thing. It's obviously designed to steal candy from babies and to fund baby seal clubbing! If it's suggested as an option we'll tar and feather the suggester!” Or something to that effect anyway. I forget the exact words that were used. But whatever they were, it was certainly that reaction that prevented it's being adopted, and I was part of the mob that helped form that reaction … (644th row back, 28th guy from the right… the one with the pitchfork).
In the meantime though according to the offical script of what happened, the administration never officially asked for it, the commission never officially considered it, and it was never officially rejected. No harm and no foul. It was never really a problem at all according to the 'official' script. Just like the glowing briefcase, or Hattori Hanzo’s grudge – you have to figure out for yourself what really happened. But it's not hard to see.
A NJ woman was charged with inciting people on the parkway to tailgate her. It doesn't say how. If it was by driving 52 mph in the fast lane on the GS Parkway, then I think the penalty should be death. And I think she should be killed by being dragged behind a car that's going 15 miles per hour, for as long as it takes.
I think I'm as cynical about Sarah Palin's future prospects as any of her fans. The media HATES her with an astounding passion, and will do absolutely anything they have to, to see to it that she never is elected to national office. And I'm not talking about the Rachel Maddow's and Joy Behar's of the world - I expect it from them. I mean the self described 'impartial' media. They're the ones who will leave no lie untold to keep Sarah in the background of American politics. She's not as dim as they think she is; conservatives never are. But for liberals the mythology matters far more than the facts.
With all that though, I'd like to see Katy Couric or whoopie Goldberg do something like this. For the denizens of the upper west side, going to a Greek restaurant in Queens is about the biggest chance they're willing to take. And for that reason if nothing else, I think this is really cool.
With all that though, I'd like to see Katy Couric or whoopie Goldberg do something like this. For the denizens of the upper west side, going to a Greek restaurant in Queens is about the biggest chance they're willing to take. And for that reason if nothing else, I think this is really cool.
The Feds have demanded repayment of all the funds it's supplied so far to the now canceled ARC tunnel project:
NJT must immediately repay all the Federal financial assistance expended for ARC under the (work agreement) which is currently estimated to be $271.091 million, plus reasonable interest and penalty charges that will be determined by FTA," regional administrator Brigid Hynes-Cherin wrote in the letter to James Weinstein, executive director of NJ Transit.
Since projects which involve as much union graft as this one have never been canceled in NJ before (at least not to my knowledge), I'd be interested to know if the Fed's have a legal leg to stand on. If they don't then I think the Governor should tell the Fed's to F-Off. He is the governor of NJ after all, and being plain spoken is what he's all about.
For myself, I'm less concerned about the cash and more annoyed with the glee that the media is demonstrating with the telling of this story. I guess you really can judge a man by the quality of his enemies.
Monday, November 8, 2010
One question I've been asking around the office is, "What happens when the Fed stops buying bonds?" No one has an answer. Actually the truth is... they can all answer it, but I think they're just afraid of saying something like that out loud. They know it's nothing but mist and vapor, so they don't want offend the gods.
The Fed will have to stop buying eventually. Either they stop before the world loses all confidence in our currency or they stop afterward. The question of which is like wondering if the pilot died from the heart attack or the subsequent crash. It won't make much difference to the pilot.
It's easy to criticize the Fed's actions but the problem is that Ben really had no choice. We had already decided not to punish the guilty for our housing debacle, and the capital markets were already so frail that Ben could either prop them up himself or not - but no one else was going to do it.
The long term investor has fled for the hills. Their trading volume has been replaced by high frequency traders so the banks have been getting trading revenue. But in truth that poses even more problems than it's solves by making things 'seem' normal when they decidedly are not. The effect taken on the whole, is that it’s made the US capital markets feel like carrying a sailboat on your back along the edge of the cliff. One wrong puff of wind and it’s all over.
Knowing that, Ben could either wait for the breeze to blow the wrong way and end it all or try to pull the markets back from the edge of the cliff a little. The only way he could do that was with newly printed money, so that’s what he decided to do. To him it probably looked like the least bad choice, and it seems the same to me. I’m as critical of inflation as the next guy but I’m also sympathetic to Ben’s position. What he did is giving us nothing but bad options. But that’s better than no options at all.
So what happens when the Fed Stops buying? Well hopefully we’ll have a rip roaring economy by then thanks to all the radical and outside the box changes being made to fiscal and tax policy. But a slow growth, high unemployment ‘European style’ economy like the one we have now can’t possible survive it. Ben (and virtually all of the hedge fund community) know that.
So whatever the “yap yap yap” of the politicians and policy makers, the Fed is going to keep buying until things improve. There will be a QE3 and a QE4 and however many QE’s it takes until congress gets it's head out of it's collective butt, or the world won’t let us print anymore money. You know how it is with risk - the piper must be paid. And if the guilty won't be paying the price with falling house prices, then it has to be paid by everyone else. That's the route we let our politicians choose for us.
Ben is betting that we’ll revert to the mean before the US dollar falls apart completely, and that will mean that things improve. I think that's the way to bet. It’s more a question of political confidence than anything else, and since the dollar is really the currency of the western world, there are a lot of people who have a stake in keeping things going as they are. If you ask me Ben's probably right. Things have a tendency to work out for the best, almost all the time. But I'd also say that we're at least 2 more QE's (and maybe one more election) away from responsible policy action. We’ll probably survive the whole thing, but we'll do it with an Argentinean style standard of living.
But if it turns out that Ben’s wrong then it’s going to be Thunderdome time. I know this seems like a very dangerous game to be playing to many of you, but so too is life. You may not enjoy it, but it's better than the alternative. And if the currency of the western world really does fall apart Zimbabwe style, then at that point there won’t be anything left to save.
Thursday, November 4, 2010
Here is a great example of why a doctrinaire bureaucracy loving 'big labor' liberal like Obama has no business in the Whitehouse. Current monetary policy is providing him an opportunity to fix the bulk of what’s wrong with the US economy with the stroke of a pen, but he’ll never do it because it would violate his idealistic (and economically illiterate) view of how the world works.
If Obama wants to create jobs all he has to do is eliminate the corporate income tax… all of it… forever. If he then chooses the worst case spending scenario and makes no cuts to spending at all, then assuming my math is right, he’ll need to borrow an additional 250 billion dollars or so to patch the hole that creates in the federal budget for the coming year . But in an environment where the Federal Reserve is buying 100% of all currently issued Treasury bonds, this is a trifle. The bond market won’t even notice. It can be managed by simply extending the Fed’s current policy by an additional 2 months.
And when the US corporate tax rate goes to zero, instead of having US companies trying to figure a way to move to China, you will instead have Chinese and other foreign companies trying to move here. The hiring boom that would come from a tax code change like that would be unprecedented in history. It would solve many of our current economic problems in a heartbeat.
The corporate tax is a sham anyway because the corporations never really pay it. It's either passed on to consumers in the form of higher prices, or employees in the form of lower wages. That means that if it's eliminated, much of the savings will be passed on to consumers in the form of lower prices, but the rest will take the form of rapid investment and expansion. The resultant "Obama Boom" would make the "Reagan Boom" seem like small potatoes.
As for the repatriated jobs, it was always a fallacy that we need to pay wages equivalent to what workers make in China in order to see hiring here. Since we are the end market, the elimination of the corporate tax will let businesses redo the math. They will be in a position to offer a wage premium for hiring in the US which amount of the difference in shipping costs at the very least. In reality it would be even more since managing American workers is so much easier than managing workers in China. That might mean that the lowest paying jobs will remain overseas, but the better a job pays, the more likely it will be worthwhile to move back to the US.
Those jobs might not pay what the unions would like, but when you’ve been on unemployment for 2 years I think you’re probably willing to be a little flexible. After all, there was never any such thing as a job that American’s wont do, only a price they wouldn’t do it for. That price has fallen in the last 2 years – at least for the 10% of Americans whose unemployment is about to run out and can’t pay their bills. And in a booming economy all wages will begin to rise again instead of fall.
It would work...but regrettably, it will never happen. Obama will never do it because it would weaken unions. And the unions are what Obama is all about. He’s taken his every domestic policy cue in the last 2 years from former SEIU chief Andy Stern. And Obama isn’t going to go against the unions just to reduce unemployment and cause the US economy to boom. It's just not worth it to him or to them.
And that's a real shame because a Republican president would never be able to get a change like that past the left wing media. They’d call it ‘corporate welfare’ and complain that ‘evil corporations’ were getting a benefit they don’t deserve while evil Republicans force poor people to eat their children to survive.
But if there is a sector of America willing to give Obama a pass it's the media. He'd be able to insulate himself from criticisms like that long enough for the effects of the policy to be felt. Then the booming economy would solve so many our budget, entitlement and employment problems that he be hailed as a hero for thinking outside the box. It's a shame he won't do it.
It’s just one more reason to lament the economic illiteracy of the political left.
If you came here from Esquire then you might also be interested in this response to that confusing bit of criticism.
One of the things I learned during my days of heavy travel in the third world is how terribly dangerous coconut trees can be. It sounds reminiscent of the three stooges, but falling coconuts kill about 150 people per year, many of them children. In fact, while in Indonesia I spoke to man whose young cousin was killed in just that way.
But even with that said, I think this is a little excessive.
Personally I don't have such a big problem with Obama taking a large security detail with him to India. I don't know that it's necessary exactly, but whether I like his policies or not, he's still President of the United States, and I don't want anything to happen to him while overseas. So if the people who do that sort of thing for a living say it takes a big crowd to make him safe I say - it's the way it goes.
But coconuts? Really?
Wednesday, November 3, 2010
Where Republicans Lost:
They lost in Nevada, California, and my local NJ districts, the latter meaning the most to me personally. They also lost the key ‘headline’ races where the national Democrats did all they could to avoid 'above the fold' embarrassment. But it’s important not to take the wrong lessons from this. Roselle Catholic High School (In Roselle NJ if you couldn't guess) is a small school with a first rate basketball program, and the New Jersey Nets are probably the worst team in professional basketball. But if asked to put money down on a match-up, smart money would go with the Nets every time.
That’s what happened in all the places where Republicans lost. It was a matchup of vigorous amateurs against jaded and cynical professionals. The people who pulled the election out for Harry Reid, Rush Holt, Frank Pallone and the California delegation are all professional electioneers. They are union organizers, victimology agitators, and people who do nothing but influence elections for a living. It’s their entire career, and they devote 40 hours a week to it, 50 weeks a year. Against an organization like that it’s tough to make inroads when you’re doing it part time, and trying to run another business at the same time.
What’s more, had Chris Christie been running for Governor of NJ this election cycle, I don’t think he’d have won. I continue to maintain that the only reason he was elected in New Jersey, where civil service and teachers unions give pro-government candidates a 17 point advantage in statewide office going in, was because the unions didn’t really see him coming. But they certainly see him now. They know that people like Christie represent an end to their days of getting rich on the public dime, and they’ll do anything to prevent that coming to an end.
The thing to do now in NJ and Nevada is for those ambitious amateurs to take over the local Republican committees. That’s where the real battle will be fought. And the truth is, people like me have a responsibility on that front too. Giving credence to the small government story and condensing it to rational sound bites will play an important role in the next 24 months. People like me (and probably you – if you’re reading this) should do all we can to influence the dialog and try to make the independents understand that the path they voted for this cycle isn’t sustainable. We should talk loud in bars and restaurants, and ridicule people who are foolish enough to take the liberal side. Over time, it will change minds.
Except for the people in California. To be frank, I think the shortest path to electoral salvation for them is to let the parasites kill the patient, and then remove them from it's dead body. By my reckoning that will happen less than 36 months from now, so at least it will be quick. It might even be faster now the Governor moonbeam is back.
Where Republicans Won:
PJ ORourke had the best quote this election cycle which I ripped off for the title: “This wasn't an election, it was a restraining order.”
Republicans won basically everywhere that was really up for grabs – where the Democrat ‘community organizer’ machine was too weak to prevent them from doing it, or where the Democrat failed to put enough distance between Obama and himself. There really isn’t any doubt that this was a referendum on Washington and progressive policy. So more than a win for Republicans this was really a loss for the progressive wing of the Democrats.
We are a country that wants to be left alone by our politicians. But I’ll bet anything this is a message that team Obama fails to get. In fact, I’m not even completely sure about the Republicans getting it. Obama has built his entire career on the belief that the people he rules are too stupid to decide things for themselves. To him and the people like him, this election is nothing except more confirmation of the stupidity of the electorate. So he’ll go on using parliamentary tricks or whatever he has to, to make sure he circumvents the vox populi wherever he can, because he believes it’s for their own good.
When Obama got elected, it was by children, and grownups who think like children. They thought that they could elect one man with an eloquent teleprompter and instantly the oceans would begin to heal and the sky would clear. They believed that we were one election away from the final rise of Soviet man, free from the shackles of inequality imposed by a system that focuses on contemptable ‘merit’ over politics. But things don't change that way, and their disappointment over that fact was part of this election.
But the people that believe what the Tea Party does, aren’t expecting a miracle from a single election cycle. They know how long it takes to clean up a mess this big and they aren’t going to shy away when a single election isn’t everything they wanted. They’ll still be around – and still pushing, in 2012, and later. That’s the real victory this time I think, even if the Nets did manage to eek out a small victory over Roselle Catholic High School.
Tuesday, November 2, 2010
One of the advantages of living way out on the very tip of one of those districts tortured by gerrymandering is that It’s not really possible for me to go politic my neighbors on election day. Not that it would help much anyway. In my predominantly Jewish neighborhood I’m surrounded on all sides by liberal Democrats. The best thing I could do for Anna Little is go nail all my neighbor’s doors shut. But thanks to gerrymandering, most of my neighbors are actually in Rush Holt’s district, and that spares me the guilt of minding my own business.
I’m not terribly well liked in my neighborhood anyway. My daughter hangs out with the girl next door who is close to her age, and anytime a child is in my house I make sure the parents know that there are guns here. I also let them know the safety procedures I have in place, and how caution is like a religion in my house. Usually they don’t care much about the presence of firearms, but appreciate being told. But when that bit of news got out into the broader neighborhood I became a pariah locally. Which to be frank, was fine with me.
But my point is that if I tried to convince anyone in my neighborhood to vote, given my local reputation, it might have the opposite effect. I have my ‘don’t tread on me’ flag on the front of my house so if the occasional tea party sympathizer drives by they might not feel quite so alone. And given the demographics, I think that’s about all I can do.
I will be voting today of course. But for the reasons mentioned above, I will not be driving people to the polls or going door to door to ‘get out the vote’. It’s the lazy man’s out I know, but I do also have a job, and markets are open today. It’s going to take some luck for Anna Little to pull it out, and I’m keeping hope alive. But I’ll be doing it from my office, and from my couch. And rather than obsessing over returns I’ll spend my time playing with my daughter, and remembering that in a perfect world politics isn’t supposed to be such a big part of our lives anyway.
I’m not going to claim I don’t care about this one… but I’m going to try not to worry too much about it. I am in NJ after all… and in the end politics in NJ is something done to its citizens, not for them. So I want to make sure I keep it in perspective.
Monday, November 1, 2010
What I get from this excellent Henry Olsen article in NRO today, is that centrist Democrats will be apologizing for Obama and Pelosi for a good long time, and America won't (in general anyway) be buying it. In the meantime, they have also animated the Tea Party, which is essentially a revolt against Republican softness. It has as much to do with 'compassionate conservatism' as with progressive's view of social justice; maybe more. And with any luck it will become the defining movement of a generation.
anyway - this is a long piece but you will not think the time wasted.