Wednesday, November 30, 2011
A coworker and I have been going back and forth all day about the Fed's new dollar swaps rate reduction. The long and short of it all is that it doesn't bode well for the future of the Euro (which is toast) and no, that sound you hear is not thunder. I don't expect it to last to 2012, and it might not make it to the weekend.
But at one point he found a "Center For Economic and Policy Research" study that was demanding (as is so common with liberals) that the Fed go out immediately and start buying Italian and Greek debt directly in order to 'save the Euro'. I told him that even if it were legal and a good idea (I don't think it's either... and for the record neither does he) in this political environment it would be impossible because if he tried, someone would end up taking a shot at him. "That threat of violence is a powerful dis-incentive." I said.
He looked at me, quite seriously and said "Learn from my mistakes. Never be in a position to lose money because of something that you think Ben Bernanke will never do."
Unions have walked out of their jobs at Heathrow airport in order to protest.... honestly... who cares what they were protesting. It's Britain. It's always the same greedy/lazy leftist dribble anyway, and we have our own unions to worry abut.
But I think it's hysterical that the effect of their walkout has been that wait times at the airport have IMPROVED!
Now if only we could get NJ's civil servants to do the same.
Tuesday, November 29, 2011
You know those incredibly annoying flash movies that seize control of your browser every time you accidentally drag your mouse over the Ad? Well someone has invented a tool to disable them.
Take that "Cosmopolitan Hotel in Vegas"!
NYTimes writer Tom Friedman, is an imbecile. But he's an imbecile who simply loves the totalitarian Chinese state for it's 'practicality'. Every time you turn around he's talking about how wonderful it would be if we could simply shut down our archaic and tradition based institutions like the separation of powers and voting, so that we could get some of that great top down thinking that the Chinese are so good at.
Well here's a little change the Chinese have made. Lets see him cheer this one:
A little noticed Associated Press news story last week reported that China now plans to phase out college majors that consistently produce unemployable graduates. Any program in which 60% of the graduates failed to find work for two consecutive years would face funding reductions until supply was brought back into balance with demand.
More at the link.
At a glance this seems like silly story, but there may be something more to it. The chronological events go this way:
The Tea Part held a rally in a government owned park in Richmond Va. Called Kanawha Plaza. They paid all of their own costs for public services provided to this rally which amounted to about $8,500 in police, portable toilets, park fees and permits. No big deal. Tea Party people pay their own way. Certainly no story here so far.
Time rolls along, and the local ‘occupy’ people show up and begin squatting in that same public park. Democrat Mayor Dwight Jones not only allows them to break the law by remaining in the public space, but also provides them with free police, portable toilets, trash pickup (the Tea Party famously leaves no trash behind so that’s unnecessary in their case) and waives their park fees and permits. The city marked the costs for the squatters as about $7,000.
This is obviously providing a meaningfully preferential treatment for one political group over another. When asked about it, Richmond City councilman Bruce W. Tyler was quoted as saying: ““I guess we’ll be writing a check to the Tea Party people. You can’t treat one group different from the other. It’s unfair.” So the Tea Party submitted a bill to the city for its costs – you know, just to make things ‘fair’.
Mayor Jones decides that not only ducks the issue, but immediately responds by ordering an audit of the Tea Party for non-payment of their local taxes. The whole thing is here.
There are no huge numbers involved so this may not seem like a big deal, but it’s an example of how the process of self-rule has been degraded. when one group is treated better than others, things are unjust and the rule of law has become the rule of "Whatever I say it is boy!"
In NJ we deal with this all the time. Local government in NJ is all about being able to extract a favor and get special treatment from a friend, or trying to avoid being on someone’s list and getting unjust penalties. Justice isn't even a secondary concern - it's simply not a part of the equation. And no one can mess with you and your home, and your life, like a local government official.
When the end comes, the first place I’ll be trying to point the mob with their torches and pitchforks is toward my local building permit department.
From John Hawkings at Townhall.com
(Another example of the full employment fallacy is this. If you want 0% unemployment it's a simple thing, simply make the use of a computer punishable by 15 years in prison. Tough a keyboard or a touch screen - go to jail. Once the riots are put down the unemployment rate will be zero.)
Monday, November 28, 2011
OK... here is the 'funding plan' from the last post that woke me with such a great laugh this morning. The basic idea is that the IMF (using mostly US taxpayer money) will 'bail out' Spain and Italy, circumventing those nefarious market forces that are attempting to value those bonds objectively.
But it says nothing of the perverse incentives that would be put in place by the 'bail-out'. And that means that no matter how you structure this, it will be the good actors paying for the bad, so the bad actors will have absolutely no interest in modifying their behavior to prevent the next round of fiscal profligacy and corresponding bailouts.
To bail out the euro countries is literally to bail the water from the bottom of a burning boat. Bail as fast as you like - you won't save it. You wont even address the real problem... which is the tendency of social welfare states to spend money they don't now, nor will ever have.
And for the record, if you think this news was what was driving the US equity markets today, I have 30 Trillion dollars worth of European sovereign debt I'd like to sell you. Either that...or a lovely bridge... your choice. (But if you buy both... you get free egg roll.)
Thanks to the pretty Indian girl from CNBC for giving me a good hearty belly laugh to wake up to this morning. She said that today's soaring market is as a result of 'A rumor of a funding plan" for Europe and the troubled Euro members. I'm sure she's right. I'm sure it has nothing to do with the mean reverting tendency of non-linear dynamic systems otherwise known in industry circles as 'the dead cat bounce".
Let me explain the hard reality of public sector finance in the sunset age of the social welfare state:
If you can tax it, it's so narrow that it isn't enough to fix anything. If it's enough to fix anything, it's so broad and far reaching that you can't tax it.
The hard fact is that the future of this debt is known. Either the countries involved steal it from savers by printing vast amounts of currency, or they steal it from debt holders by defaulting. There is no financial Rube Goldberg device with a bunch of letters before it's name that get's you there.
And to be fair, Worldwide Exchange is by far the best financial show that CNBC airs. The pretty Indian girl was just saying what was on the teleprompter.
Friday, November 25, 2011
There is really only one question left for the Euro. Will European leaders ignore their own laws to maintain their power?
It won’t be as dramatic as the Reichstag fire, or the direct suspension of a national parliament. The forms of European democracy will continue to be observed. But it will be a toothless thing; a fiction preserved only to keep the plebs from erupting. The last bit of power retained by the people to influence their own government, will have to be stripped away if the Euro is to be preserved as is.
The problem, as I’ve said before, is that there isn’t enough time for Europe’s political system to change the law which would allow their leaders to legally save the Euro. It can be done – easily. The ECB can monetize the “in crisis” debt of Europe. But if they do it, then they are breaking the law as it currently stands. They are saying that this ‘emergency’ gives them the power to usurp the Democratic institutions responsible for making such an act legal.
We’ve heard that sort of thing before in Europe so they may do it. “Never let a crisis go to waste”, a would be tyrant once said. And if they just break that law, then the Euro can stay in place. But then they have to enforce the new agreement. And that may be another story entirely.
Europe’s political leaders have no Army to speak of. They cannot force anyone to actually do anything. They can strong arm a negotiation. But the only way that any agreement would ever be honored by both parties is if both parties consent. And if the Democratic institutions of Europe are usurped, the chance of any agreement standing the test of time, falls to zero.
Imagine the Germans say “We will allow the ECB to bail out Italy, but only if we get some central control of Italian fiscal policy. The Italians respond by saying “yes yes, of course we agree! We’re happy to have the ECB help us navigate such dangerous fiscal waters.” Then in a year, the public service unions make a demand that seems reasonable to the Italian government but unreasonable to the ECB. The choice for the political leader in charge of Italy will be to honor the ECB treaty and cope with the union riots or break the treaty and spend the money to placate the unions. How will something like that turn out I wonder?
The central conceit of the European model was flawlessly expressed last May by Angela Merkel but I missed it when she originally said it. It was just as well. Her comment has hung in my mind like a big dark cloud ever since. Her money quote was this:
“We must re-establish the primacy of politics over the market.”
This is a breathtakingly delusional statement for a world leader to make in public. Imagine she said: “We must re-establish the primacy of levitation over gravity” or “We must re-establish the primacy of pillow fights over artillery.” Either would have as much relevance or accuracy. And since she emerged from her insulating bubble last May to say those stupefying words, the rational universe has continued to give her its obvious response:
“Establish whatever you damned well please Angela, but the world will continue to spin on its axis, whether you vote for it to do otherwise, or not!”
Ms Merkel and her co-elites seem to believe that the universe can be fully contolled simply by passing a few laws. But the markets are a dynamic mechanism like the weather. No private actor can control them and no public actor can control them for long. In other words, you can’t be unworthy of public trust and mandate that trust through political action. At least not without using force.
If that’s what Angela plans – then she’s right. She can re-establish the primacy of politics over every demand thing she likes. That’s what politics is after all – it’s our mechanism for forcing people to do something they don’t want to do. And marching your Army into another country can establish an awful lot of primacy. That’s the end game of all politics – even Democratic politics. In the end, 51% send guys with guns into the homes of 49% and at that point (and not before) the 49% shut up and do exactly what they’re told.
But I don’t see that happening in this case. Mostly because the only Army that is protecting Europe at the moment are all wearing American or British uniforms. And they don’t give a hoot about Angela Merkel and her faux political primacy.
Without that threat – without the threat of violence, there is no way to force anyone to do anything. And that means the drama around the Euro is just more of the same empty theatrics. Under those circumstances there will be no way to save it… only stall its funeral.
Tuesday, November 22, 2011
The rising tide lifts all boats, but clearly we're at low tide.
I had a falling out with an old friend a few weeks ago. He’s a guy who has done all the right things with his career and achieved a fairly high level of success. But these days, the old models for generating profits are all failing, and his is as well. And that failure, in spite of everything he’s trying, has left him frustrated and prickly.
The hedge fund world is changing in important ways. All those ‘also ran’ Harvard and Princeton guys who got started thanks more to their good contacts than their incredible talent, and made their income from collecting high fees while only matching the market, are almost all gone already. Even the traditional out performers are finding that they don’t have such a steady information advantage anymore.
What’s worse is that vast amounts of the industry still seem to believe in the holy grail. They believe that there is some way to invest and hedge that will result in a steady profit without undue volatility. They believe that you can find a mathematical way to eliminate 100% of the risk and still retain ‘alpha’ – as if every shovel you dipped in the earth came up holding only gold.
But as a smarter than average guy whose spent his career looking for that particular piece of tablewear, I’d have to say – I’m convinced that it doesn’t exist. You can be profitable, but if you are, you’re going to have volatility. The only question is whether you have that volatility a little bit every day, or if you have it all at once during a 15 minute period, 12 months from now. This is the short-vol, long-vol dynamic. Long vol is noisy and hard to sell to investors, short vol is smooth and easy to sell to investors, but will eventually explode.
We’ve seen it time and time again. Every time someone thought they’d found that perfect strategy, it turned out to be loaded up with implied optionality, and when it hit that ‘black swan moment’ it blew up. Stat-arb, credit, liquidity strategies, collateralization, countless mean reversion and momentum strategies. Many of them seemed to fit the bill at first, but in the end – none of them did. But careful structuring combined with creative pitch book authoring allowed some of us to pretend that ‘short volatility’ wasn’t actually there. We either convinced ourselves or we convinced others, that our strategy was different. But now we know the truth, and it seems that most of us have either been villains or fools.
And although my truly 'long volatilty' trading strategy and my honest presentation of it is unusual in that it doesn’t pretend to be something it isn’t, I am not exempt from the sin mentioned above. I've discovered that I’m as guilty as anyone else – so this post is a sort of confession. I’ve been deceptive in a way that I didn’t understand, but I think I do now.
And this brings me back to my friend. He got upset at me for trying to help him through what looked to me like a typical emotional tough patch. My suggestion that he take a break from his research and come have a chat and a coffee to get some perspective didn’t work for him, but it was offered with the best intentions. And when he took it badly, and was still angry at me weeks later, I didn’t know what to make of it. Clearly he had over-reacted – but I didn’t understand how someone I’d known for so long could take me so badly.
After thinking about it, it occurred to me that he must misunderstand how I saw our relationship. Had I known that it would make things so much harder for him I’d have never asked him to take a break. I thought that maybe he was misunderstanding that I’ve never chosen my friends based on business expediency but on general affection. I’ve never been one to form expedient alliances to help my career. Say what you want about me, but I thought it was clear to everyone that I was nothing but genuine. It’s actually hurt my career, but you always know how I really feel about you.
I’d known this guy for 20 years so it was hard for me to imagine, but it must be that after all this time, he was simply wrong about me. It must be that after 2 decades of working his way to the top, it’s become tough for him to tell whose being genuine with him and who isn’t. And then I realized the real issue. The problem wasn’t that he had trouble telling the difference between business allies and genuine friends… the problem was that I had trouble telling the difference.
But now that I’ve had a chance to think about it…I’ve decided that I’m OK with that. I’d rather be a fool who knows who his friends are, than a villain who only knows whose on his side. We learn all sorts of things when the tide goes out and we find ourselves high and dry. Sometimes the things we learn are about ourselves.
Monday, November 21, 2011
Okay, we get it. The people on the political left (especially the media people on the left) don’t like rich people. They think the only economic issue we should be worried about is that some people have more money than others.
According to them, we shouldn’t be worried about the ability of people to improve their own lot if they choose to. And we definitely shouldn’t be worried about how leftist policies make things worse not better. All we should think about is the rich ‘fat cat’ sitting in his mansion lighting his cigars with $100 bills. It’s all about class warfare. Fine. We get the point.
But here is a question for all those liberals who can’t seem to get past their own envy long enough to worry about anything else: Why exactly do you think that having government impose a penalty on those rich people will help things? Has government ever made anything more ‘fair’ for anyone? In my view the only thing government has ever imposed was a profound UN-fairness. And it sounds to me like all you want is for them to impose even more of it.
If I take you at your word, then all you want is for government to act as your authorized thief. You want them to go to the rich person’s house, steal his money and give it to you. You don’t say it that way of course. You call it ‘making him pay his fair share’. But you aren’t going to give him any more for his trouble, so what you’re really talking about is simply taking more of his money by force –against his will. Theft.
“No no no!” you say “he only has the money because he cheated! He bought lobbyists and manipulated the system to give him a greater share of the pie!” Well first of all, a modern economy isn’t a pie to be sliced up by the government – but having tried to explain this to you countless times before, let’s set that particular issue aside. More to the point, where was your virtuous government when the rich guy was buying it up with lobbyists? Are you so stupid that you believe that all Democrat politicians are virtuous while all Republican politicians are evil, so only the Republicans can be bought? Can anyone in modern America really be THAT stupid?
Or is it at least possible, that there is another issue? Is it possible that all these problems of unfairness are actually made worse by the government rather than better? Maybe telling your congressman to rob someone else and give you the money isn’t the most sound economic policy to pursue. Maybe you can leave the top 1% destitute and sleeping in the streets, and there won’t be nearly enough money to make a dent in the wants of all the 99%. Maybe guys like Steve Jobs and Warren Buffet haven’t actually cheated the system at all, and you’re really only being manipulated by people who would rather destroy American society that see it ruled by anyone but them.
And maybe if you really want to shrink the gap between rich and poor, you should go get a job, and live within your means. Maybe you should tell the government to let you keep more of what you earn. Then if there is a bigger gap between rich and poor, by the time you get to be as old as the average ‘rich’ person, at least you’ll be on the ‘rich’ side. You don’t have to be a Bill Gates to end up rich, you just have to save money over the long term, work hard, and be careful.
And while you’re having this (probably very first) bit of honest introspection about your motives, maybe you can explain to me how proposing increased individual responsibility is evil? Or you can tell me how it’s racist to demand that our institutions no longer consider race? Because to be perfectly, frank, I find those parts of your worldview damned puzzling too. Seriously, why don’t you try making just a little bit of sense, please. Try to be consistent with that part of the universe which is objectively verifiable by others, instead of woven from whole cloth from your imagination.
In the end it will help you much more than allowing yourself to be so visibly manipulated by ambitious men who are only trying to turn your fear, envy and sloth into more political power for them.
Sunday, November 20, 2011
When Obama loses this guy he's lost it all...thrilled leg and all. Yeah, I know Matthews is a worthless bullying hack, but clearly he's feeling the malaise.
BTW, remember my post Obama election rant where I said that:
The inevitable shattering of liberal ideals as they collide with the inescapable facts of reality is never pretty. But it’s a lesson I suppose we need to learn every generation or so. Obama was elected by the young; the most naïve portion of our electorate. And it’s in the disappointment of liberal children that conservatives are usually born. Carter’s malaise speech brought the Reagan conservatives to the fore, and Obama’s future version of it will no doubt do the same. Eventually everyone gets tired of making the same mistakes over and over. And when Obama starts raising taxes on those who would otherwise create jobs, driving businesses overseas, and massively increasing the cost of energy, the young will begin to get the point.
Well this is what I was talking about. No one can say that conservatives didn't see this one coming.
I'm sure you've seen this since it's been so prominently displayed on Drudge, but I just wanted to toss in my two sense. Those of us who posses any economic literacy have known for ages that the left's agenda is anti-poor. It breeds dependency, discourages thrift, and imposes all sorts of negative incentives.
But I think it's important to remember how dependent the left is on keeping the poor people poor, in order to fuel their redistributionist political agenda. After all, you cant' have class warfare without the lower class can you? If they run out, then they have to start changing the rules and talking about the 'near poor'.
Honetly, how can these people look themselves in the mirror?
The purpose of a labor union is to increase costs and reduce quality. But the truth is, that high level description doesn’t do justice to the ‘boots on the ground’ story of coping with unions. We’ve all heard of the ridiculous work rules, opulent pensions, and adolescent retirement ages but that that stuff is really all about the cost side. When it comes time to actually get union labor to do something, it’s the poor quality that makes all the difference.
Regrettably I’ve been exposed the union labor in a few places recently. My gun club used union electrical workers to rewire the 5 skeet and trap houses over this past summer. Myself and two friends went there today, a full three months after the work was due, to try to sharpen our skills a little for our December 10th Pheasant hunt. But thanks to union electrical work, when we got to the club only one machine was working and it was being used by a particularly rude guy who was claiming that he'll be there the rest of the day. So instead of being able to shoot today, we got to listen to a long list of excuses.
But even closer to home (in fact in my actual home) the developer I chose to repair the damage from hurricane Irene used union labor as well. This has been a much more serious and painful problem for us. We’re still sifting through the wreckage so we'll probably have to make additions to this list, but here’s the tally of issues we've had with them so far:
1. They utterly destroyed three separate, free standing shelving units. There is nothing left of them but kindling.
2. They used several metal shelving units as a place to scrape clean their spackling trowels... not once, but dozens of times. The shelves were covered with a plastic tarp, and had dry goods on them at the time. They simply tore through the tarp and used the corners of the shelving.
3. They unplugged our fully stocked freezer and left it unplugged – for two weeks.
4. They left mounds of spackle the size and consistency of dog turds on every floor, including the ones that were carpeted. They then proceeded to track it everywhere, including rooms which weren't being spackled. In the meantime, they managed to get almost none on the few tarps which were spread over some of our more sensitive gear.
5. They destroyed one bathroom sink which will have to be replaced. There was absolutely nothing wrong with the sink until they arrived, so it wasnt' just a case of neglect.
6. They left nails, scrap drywall, dust, and general filth in spectacular and truly breathtaking amounts, on every surface in the bottom half of our house.
7. They damaged an expensive magnifying lamp, and coated several of my tools and gunsmithing gear with spackle.
8. They destroyed and disposed of the shelving in all our closets, and when we called their attention to it, then cut up the free hanging shelves that used to be mounted on the walls, and used the wood to replace the shelving destroyed in the closets.
9. They blew a circuit breaker by leaving an electric heater plugged in over night. Nothing caught fire so this wouldn’t have been a big deal except they had sealed off any access to the circuit board by piling an indescribable mound of wreckage in front of it. About 1/3 of our house was on the same circuit, so we had to use flashlights where necessary until they could come back and dig the circuit board out.
There is certain to be more damage – my guess would be much more. But my wife is too upset to go down there and look too carefully. I don't blame her.
What really bothers me about this whole thing is, I wasn’t dismissive of these guys. I was as courteous and polite with them as I could manage. The only demand I made of them was that I asked them not to let the dog out the front door when they went back and forth. I even offered them coffee while they worked (which they occasionally accepted). With the exception of having them actually do work, I treated them like guests in my home.
And to be totally fair, the general contractor is profoundly sorry about what he's seen from them. He was here until nearly 10 last night personally vacuuming dry spackling off my carpets, scrubbing the floors, and apologizing copiously for the general level of disaster. In his mind, he's as much a victim in the whole thing as we are, having had his reputation dragged through the union muck. So he's doing his level best to make things right with us personally.
Anyway, I’ve been anti-union for as long as I can remember. But after this debacle, I’m unashamed to say that I will never hire another union man again, under any circumstances. It’s sort of a hard and fast rule with me that I won’t deal with you anymore after you’ve made my wife cry.
In NJ, Latin American illegal aliens are taking over the building trades, and it’s easy to see why. It’s not just that they’re cheaper, they do a much better job. In my experience they treat the people who pay them with a measure of respect and go to what efforts they can not to do more damage than they are there to fix. It's a shame we couldn't get the same treatment from Americans.
The Organized labor movement is really in rapid decline, in spite of what the Obama emection might have indicated. There are too many people out there whose experience is similar to mine for them to explain it away. so every day there are fewer and fewer people who are willing to put up with them on any terms.
And if you think this is bad, just imagine what the unionized teachers are doing to our kids.
Saturday, November 19, 2011
I've mentioned before an example of how making a 'bad' thing 'illegal', can make things worse not better, when all the various incentives are taken into account. Take this example:
A teenage boy is asked by his mother to be home before sundown. Let us stipulate that over the long term, being home before sundown will probably have a positive long term effect on the boy's life. He'll learn responsible habits, be well rested the next day, and he will for one night at least, avoid all that trouble that teen boys seem to find the minute darkness falls. (we've all been there)
If he complies with his mother's request, he'll be ridiculed by his friends. This particular brand of ridicule is a constant of human civilization and has been present in every culture and time period that has had both teen boys and mothers. So it's a mild disincentive for him.
However, if he does listen to his mother, then the older men in his community will recognize that he is a boy more worthy of respect than his peers. They'll see his tendency to obey his mother as a sign of good judgment and positive character. If they need someone to trust to complete a task he'll be more likely to be chosen, and therefore more likely to gain the respect of the rest of the community. And this 'positive face' that he gets from willingly obeying his mother, for many boys, will counter act the negative incentive of being ridiculed by his friends.
But as soon as the all knowing state decides to pass a law that makes it illegal for teen boys to be out past dark, he is no longer showing good judgment. Now, all he's doing is obeying the law, and isn't worthy of any special respect. But if he complies with the law, then his friends will still ridicule him. So instead of having a positive incentive, a negative incentive, and the chance to choose between them, we have only a negative incentive, and a command issued by the state that must be obeyed.
All that's been eliminated by making it illegal, is to take away the societal upside.
My point is, when we go from a being a people worried about right and wrong, to a people worried about what's legal and not, it's evidence that we are no longer capable of making moral choices. And that in turn, is evidence that we are unworthy of self rule.
Here is Mark Steyn making the point far better than I could. Only instead of a hypothetical story about a boy obeying his mother, he's using the Penn State child rape disaster to illustrate it.
I made a reference the other day, to how annoyed Progressives always get when constrained by the rule of law. And I used the US Constitution, and the treaty of Lisbon as points of comparison. Well here Daniel Hannan illustrates that these two documents, while they may be accomplishing the same short term goal, are hardly the 'same thing'. (But the European progressive are no less annoyed with it.)
It makes me wonder how horrible the next US consitution is going to be after ACORN, the UAW, the ATF, and all the other Alinsky-ites get done contributing to it.
Friday, November 18, 2011
I'm sure this will work out just fine:
For those of you without close ties to Ireland, the Bogside is the traditionally Catholic neighborhood in Derry (/LondonDerry), which has always been the place where rebellion was fermented. It's what Berkeley California would be if all the university professors carried kalashnikovs concealed under their coats, and made car bombs in their spare time.
Technically it's in Britain not the Republic of Ireland, but that territorial distinction has only been in place for about 500 years so they haven't recognized it yet either. If those fellas get it in their heads that the Germans really are their masters, I can't imagine they'll take well to it.
For those of you without close ties to Ireland, the Bogside is the traditionally Catholic neighborhood in Derry (/LondonDerry), which has always been the place where rebellion was fermented. It's what Berkeley California would be if all the university professors carried kalashnikovs concealed under their coats, and made car bombs in their spare time.
Technically it's in Britain not the Republic of Ireland, but that territorial distinction has only been in place for about 500 years so they haven't recognized it yet either. If those fellas get it in their heads that the Germans really are their masters, I can't imagine they'll take well to it.
The collapse of the Euro currency is an interesting look into the Petri dish that is the progressive agenda. In Europe we have an ‘enlightened’ elite dominated by Ivy league technocrats (or their European equivalent), who are trying their level best to consolidate and centralize power so that they can then do ‘what is best’ for the plebs they rule over. And like our progressives here, the only thing standing in the way is a troublesome little detail called the rule of law. In our case it’s the US constitution, but in their case the Lisbon Treaty which defined the Euro currency.
These European technocrats are struggling desperately to free themselves from this archaic constraint on their actions. In short, they’re trying to find a way for the European Central Bank to be allowed to buy the debt issued by the member governments. But in order to approve the treaty of Lisbon, the European people needed to authorize it through their various national democratic processes. And the only way it managed to receive popular support was if the ECB was specifically prevented from doing that very thing.
The Plebs you see, rightly believe that if the ECB were allowed to do this, it would set up perverse incentives for the various national treasuries to be mismanaged, and the costs passed on to those member states who weren’t mismanaging their treasuries. They were also afraid that this would inevitably result in inflation, and the erosion of national sovereignty.
Now comes the punchline of the joke that was the Lisbon treaty.
Just as the ‘know nothing’ Euro-skeptics have predicted, the national Treasuries have been mismanaged, and the European elite would now like to use the ECB to pass those costs on to those nations which have not been mismanaged. This will of course result in inflation and erosion of national sovereignty, but that’s OK now because the elite have now decided that both inflation and the erosion of national sovereignty would be in the broader European interests. So they’re now doing their level best to find some loophole in the contract.
To put it in American terms, they’re looking for a ‘general commerce clause’ which they can expand the meaning of and then use to circumvent not only the treaty of Lisbon, and national sovereignty, but the very concept of the European nations state. They want to issue taxes collect revenue and distribute largess all from a central European government that is totally ruled by them. The nation states are free to exist in a sort of honorary form, but the money will all pass through and be controlled by Belgium. Once there, it will all be managed without further interference from the plebs of Europe, and their troublesome democratic processes and archaic institutions.
At this point, that anyone would ever consider any other option to addressing this crisis seems to the elite, quite uncivilized. And as they continue to say ad-infinitum on CNBC, they would really please prefer it if the plebs would simply shut their stinking pie holes and finally learn to obey their betters when they give them a command.
This is how progressives see the world. This European drama where the last of the nation state is being stripped away from the people, in many cases against their will, is what the progressive end game looks like. They’ll give lip service to the rule of law and the democratic process until it gets in their way. As soon as it does, they want to replace the law with something else that isn’t so encumbered with archaic traditional mechanisms. Corruption isn’t a problem for these people, it’s a process; one which is considered "awful" if it serves someone elses interests but "essential to peace in our time" if it serves the interests of the European ruling elite.
The truth is, they don’t really believe in democracy at all - they never did. What they would really prefer is to be granted supreme rule by divine right; or since they don’t actually believe in god anymore, by bureaucratic fiat. And in the end, to fulfill the progressive vision, the ECB will have to break its own laws. It’s either that, or see the progressive dream of a financially centralized Europe end.
Money is split on which way it will turn out.
Remember all this the next time the NYTimes editorial board tells you that our system is broken and it would be much better if we simply didn’t have to worry about elections, or the separation of powers. We’re growing this very same progressive fungus here in America, and it will end up taking us to the same place, and doing the same thing. Festering.
I'm not the only one whose noticed this. Behold Britain's Nigel Farage who had me laughing so hard at 4:15 this morning, that I woke up my daughter.
Thursday, November 17, 2011
Remember a few weeks back when I used that old stock-pickers trick of extrapolating my personal experience to come to the conclusion that our infrastructure wasn't actually crumbling at all? Well let's here it for the old stock pickers. Turns out I was absolutely right.
(For the record, even though it was published before mine, I hadn't seen that Charles Lane piece Veronique links to until today. My piece was inspired by beautiful and well decorated Minneapolis Saint Paul Airport and the flawlessly clean highways around eastern Minnesota where I had recently spent a few days on business.)
The chart above comes from an AWESOME zerohedge amalgamate of the data that's hanging out there regarding the economy. And while I absolutely love the chart, I think the probabilities are wrong.
"Fiscal Union" sounds like a very innocuous thing - maybe even a good thing when you're told that it will mean greater growth. But what it would really mean in Europe is the abandonment of a substantial portion of the unique identity of every European. All the national identities and all the tribal identities will have to be subordinated to the idea of being a "European" and I don't think Europe is ready for that.
I myself am of Irish descent, and we Irish are a particularly clannish people. My relatives in northern Ireland still called the people on the next block 'newcomers' when their ancestors had lived in the neighborhood since the 16th century. What's worse - they were biologically related. Both tribes were celts whose ancestors may have been temporarily separated by the Irish sea, but who were considerably less biologically diverse as a group, than your average south Boston catholic congregation.
Now take those same people, raised and thoroughly inculcated into that deeply tribal mindset, and try to convince them that they are actually a single people with aFrenchman, or an Italian, or a Greek. What's more, you will then tax the Irish (at what we would consider highly punitive rates) to ensure that the Greek civil servants can get 14 months pay for every 12 months worked, and retire at 55.
And don't you believe that anywhere else in Europe is any different. German Bavarians and Saxons and Westphalians still all regard each other with a measure of contempt, to say nothing of how they feel about the Normans, the Basques and the Magyars. And don't even get me started on Switzerland. In it's heart Europe isn't one place, its 1,000. And you can't change that by writing a law in Belgium.
So, take that 25% that the chart assigns to 'fiscal union' and spread it out across the lower end of the spectrum, and I think you have a much more likely outcome in Europe.
In fact, even ECB monetization seems unlikely to me since:
1. They can't afford it.
2. They aren't allowed to do it under the law.
3. The German public will roast and eat the ECB ministers in the ashes of the their Frankfurt HQ if they tried it (and don't think those German's don't know how to riot. As in most things, they put your Greek and Italian rioters to shame.)
So now we reduce the ECB monetization to a more realistic 10%, and we have an additional 50% probability assigned to the lower, less pleasant set of outcomes. That I think is a more realistic look at the future of the Euro.
Like it or not, you can't conquer a people without using force. That's one rule of civilization that can't be changed.
Wednesday, November 16, 2011
This is making the rounds. It's a video of the OWS crowd calling for New York City and the Stock Exchange to be burned to the ground, and threatening to use Molotov cocktails on Macy's.
I'd just like to remind the people whose job it is to uphold the law (politicians and policemen both - but mostly politicians) that the minute someone throws that first rock, this is no longer a peaceful demonstration but a riot. Rioting is a criminal act that is not protected by the first amendment. And you have a responsibility to protect New York's law abiding citizens and their property from that sort of thing.
Maybe they don't mean it. They probably don't. Liberals are cowards after all. But an angry mob is an unpredictable thing. So if they do follow through on their threats, as a law abiding American who deserves to be protected from things like this, I'd be thrilled if the police responded with live ammunition.
I fear I'll regret tossing this out without a lot more explanation, but I'm pressed for time today and I didn't want to leave it. So here it is:
No one wants to admit it yet, but the only way the Euro can be saved in it's present format is if the US federal reserve funds the bulk of it's bailout. And the size of that funding will be far more than can be indirectly offered to foreign banks through the support of US debt prices. They'll have to save it, and almost certainly admit to saving it. The only other option is a Euro that contains Germany, or the PIIGS, but not both.
I don't know what would persuade Bernanke to do it, but that doesn't change the fact that the only way it's going to get done, is if he does it.
The implications of that are certainly something to think about.
If the Pickens plan were really a good idea, it wouldn't need massive government subsidies to get it implemented. The truth is, the approval of the plan is just a way for Pickens, one of the largest natural gas producers and distributors in the world, to make a killing at taxpayer's expense.
People I know have said as much to Pickens, and he basically called them anti-American for their trouble.
This is a new flavor of crony-capitalism. And since Pickens can afford to buy whatever he wants (including congressmen and Senators) I'm pretty sure we're going to end up paying for it eventually. But I still think it's wrong to go down this road.
If it's so great, let Picken's pay for it. Let him subsidize the new truck equipment. Then he can make the huge profits and he won't get a single complaint from me. Don't shift the cost to taxpayers on the form of massive subsidies and mandates.
Tuesday, November 15, 2011
Defining the ultimate contrarian indicator.
Guys (and Gals), there are a number of public policy issues that are tough to get a legitimate bead on right now. So I think we should all rally together and ask our liberal coworkers what they think. Because whatever the issue, the one thing we can be absolutely certain of is that liberals will be wrong about it.
So go ahead... ask a liberal whether we should have looser monetary policy or whether it would be better for Germany or Greece to leave the Euro. Find out what they think about the dual Fed mandate or if they think China will have a soft landing. And please bring their answers back here for the rest of us. I'd do it myself, but I've gotten to the point in my career where many people are more worried about ingratiating themselves to me than telling me the truth about what they really think.
They won't have an answer for the complicated issues - not thinking about complicated issues are a liberal hallmark. But help us out - press them on it. ask them to look into it. It is afterall, the most reliable indicator I've ever heard of, so let's all make the most of it.
OWS is a movement, eternally devoted to it's own incompetence.
The trouble they've had in the worker's paradise of Zucotti park is well documented. No need to rehash it, no matter how funny it is. But this "I'll be back" closing statement seems to be too well suited to a movement that seemed to have incompetence as it's central theme:
The showdown came after protesters had vowed to "shut down Wall St." on Thursday to mark two months of occupation.
I've worked on Wall Street for 20 years and started my career at 60 Wall street when JPMorgan's headquarters was still down town. Of course these days it's up on Park avenue, several miles from Wall Street. Even the NYSE is not the hum of activity it used to be. I have a very good friend who runs one of their business units that still thriving, and he tells me the exchange floor is really just a TV studio these days. Anyone can see this from even a casual glance at a CNBC show on their morning TV. You can see it for free in public spaces all over NY.
Since I left JPMorgan to continue my 'Wall Street" career, my actual office locations have been on Park avenue (twice), 6th avenue (also twice), E. 61st st (once) and most recently, A converted mansion on King St. in Greenwich Ct. I won't tell you where my office is now, but rest assured, it's nowhere near the actual 'Wall St'. How sad and tragic that they think anyone but the NYTimes reporters will care what they do on Wall Street.
These kids don't know who Warren Buffet is. They can't understand why a person with a Masters degree in puppetry can't make 200K a year. They think failure needs to be subsidized by success, and that Marxism should be given another chance. But in reality, their central belief is that if they bang their rattle on their high chair enough, then mommy will give them what they want. But for their reverential treatment by liberal media who are still looking to recreate the 60's, these kids would be utter laughingstocks.
They care about income inequality, but as all things with them seem to, this misses the point entirely. The only way to get people to give you more money honestly is to do something no one else can do, or do something that no one else wants to do. The only other way is to steal it - or in the case of these kids, have someone else (the government) steal it for you. In the end, it's not the responsibility of the people who made successful choices, to support the people who didn't.
So go ahead losers - shut down Wall Street. Have a blast. But the only people you'll be hurting are that hotdog/fallafel guy outside the exchange, and the guy selling the foam 'statue of liberty' headgear for the tourists. But no one in the capital markets will even notice, let alone care. Instead, we'll all be worried about how your like minded fellow travelers in Europe are pushing the world over the brink.
So have your fun, and enjoy the 'story', even if it is fictitious. And when you're ready to go and do something productive again, please let the rest of us know.
This is surreal in it's idiocy. The OWS folks are now fighting in the courts to get permission to stay in an irrelevant place, saying nothing rational, to no one who is either present or interested - all on the basis of their freedom of speech.
Camping on private property is now protected free speech, but if someone mentions Jesus - they're out of there!
Monday, November 14, 2011
I find it tough to be super enthusiastic about this movie. I just don't have much confidence in the Hollywood elite's ability to tell this story honestly. I think it's entirely possible that they depict one of the bravest women in British history as a cartoon.
Still... you never know.
Not everyone who reads this blog is a finance guy, and I’d like to say something specifically to the non-finance people who are reading this now.
You are probably watching the political leaders of Europe trying to lie their way to the top and to keep the Euro together. It’s not going to work. The Euro as it is now, is absolutely finished – but it may take a while for the politicians to realize that. They’re not the brightest bunch, and their ambitions for domination of the continent will die hard, so we’ll need to be patient with them.
In the meantime they’ll make all sorts of cataclysmic claims. Ignore them. They’re simply trying to scare people into cowing to them. And to those of us in the capital markets (who are for the most part, the people they’re trying to scare), this is already obvious. I don’t know anyone I respect who still believes the euro is ‘save-able”; at least not as it is. You might still have a Euro currency in name someplace, but it won’t be used by both Greece and Germany.
The ultimate reason for this has been obvious for some time. The only thing that will solve the problems of southern Europe will be cash. Gobs and Gobs and Gobs of printed cash. They can print Euros or Drachma and Lira or whatever. But someone somewhere will eventually print unspeakable amounts of currency, and that will allow those troubled European government to nominally pay their debts. In Greece, and Italy, and probably Spain and Ireland, they are in for inflation. Probably lots of it.
But before you go laughing up your sleeve at the pain and horror that these socialists have once again brought on themselves, you need to keep a very important fact in mind. It’s a fact that even most of the capital markets don’t completely understand yet, so it may give you an advantage to accept it now. And that fact is this:
Inflation, is now a global phenomenon.
We can consistently show economic stats which indicate little or no inflation domestically, and prices will still rise and the living standards will still fall thanks to inflationary policies that have been adopted elsewhere. It can’t be avoided. The CPI and PPI will say that nothing has changed, and our lives will still be worse. And none of the economists looking at the conventional statistics will be able to explain why.
So when you see someone on CNBC telling you there is no inflation, don’t believe him. He/She may be right in terms of how they’re defining it, but unless they think of inflation globally, they aren’t seeing the whole picture. When we reduce the barriers to trade we reduce the effectiveness of the economic statistics that focus only on domestic numbers. And since China and Europe will have highly inflationary policies, we will have some inflation too.
There is an element of the political right who seems to feel differently about it. There are several Presidential candidates out there saying that if we just slash government spending dramatically, then everything will be fine. Over the long term, I think they’re right, but in the near term it won’t prevent a thing. Even if we discount our own fiscal problems, the Europeans and Chinese will give us inflation whether we want the inflation or not. What’s worse is, there really is no going back. The only alternative to higher inflation at this point is high unemployment, and slow economic growth. Pick your poison.
This next bit is a profoundly cynical argument I know, but I wouldn’t be surprised if we’re talking about ‘economic warfare’ in coming years. What I mean is, if our living standard can be lowered by our trading partners, theirs can be lowered by us too. And while the developed world has room to have their living standard fall without creating civil unrest, the Chinese and the emerging world does not. So it’s very easy for me to imagine an economic policy that could be specifically designed to have the inevitable result of toppling an unfriendly foreign government.
Of course, that doesn’t mean we should do it. What comes after may turn out to be far worse, so it may be contrary to American interests. But when the people who watch these things decide that it’s something that we’d like to see happen, it would be very easy to do it. It’s a tool – like a pitching wedge. You only use it when the time is right, but when you know you have it in your bag; there is a little less reason to fear the sand trap.
My point is, the world has changed in meaningful ways since the end of the cold war, and the way we look at economics hasn’t caught up to it yet. But the sooner we accept that, the better off we will be. And since ‘we’ aren’t going to all accept it at the same time, it may give you an advantage to see it today as opposed to a year (or three) from now when the ‘insightful’ academics and major media start thinking about it.
So work it through in your mind a bit. I’m sure you’ll see how this inflation issue can be thought of as a global issue, and a few of the things that something like that means. Remember, my job is to be just a little bit out in front of the pack with these ideas. In this case I assure you, it really is just a very little.
Saturday, November 12, 2011
Charles C. W. Cooke has been doing the dirtier dirty work of patrolling the OWS protest for signs of intelligence on behalf of National Review, and his Friday piece about it's fracturing consensus contains this priceless gem:
A fistfight broke out yesterday on the testy northeastern side of the camp, when one protester fashioned and displayed a cardboard sign that read, "Food is for OWS only!"
This, said some of those camped nearby, was "fascism."
"No, no," came the rejoinder, "it’s only fair! We paid for it; it’s for us! You can’t just walk in and take our stuff!"
As you by now must certainly know... the delicious irony was missed completely.
These people are losers. Not because they're 'damaged goods' in some way, but because they have chosen to be losers. In their worldview, where winning is considered proof of malfeasance, it's the only way they believe they can act morally. And they will keep being losers, until the abandon the post-deconstructionist nonsense and begin to admit that the lessons learned from a few millenia of human history, might indeed have had a point after all.
I learned at a dinner this week that not all 25 year old's in America have had their brains successfully rotted out by this useless palaver. I saw first hand evidence that it's possible to be fully drenched in post-deconstructionsm and thoroughly ensconced in the cult of good intentions, and still come out of it with your brain in tact.
So take heart. In spite of the OWS claims to be the representatives of virtually everyone, they don't even really represent the bulk of their own peer group. And in a few years when their peers have moved on and learned how little intentions matter when compared to results, these people will still be losers.
Just as the aging hippies long for the 60's, when the world has recovered, these imbeciles will be longing for the brave days of standing up to the man down in Zucotti park. Maybe with luck their TB will have cleared up by then.
Friday, November 11, 2011
If you're already a RadioDerb listener, then you can skip this post and go back to my last one where I say a bunch of clever things, and openly long to be able to wear my cowboy hat in public again without being considered unfashionable. If you aren't a RadioDerb listener, then please read on.
On Friday afternoons, my friend John Derbyshire does an online radio assessment of the news of the week from his palatial suite of fine leather and mahogany draped offices, high at the top of Buckley Towers in midtown New York City. It's always clever, sometimes funny, and it contains the same kind of logical irreducibility that typifies his other writing. Political correct?... Feh! John knows the meaning of the word of course, but he utterly rejects the principle.
This week he's broken from his traditional form just a bit and spent the time on an interview of Seth Forman, author of American Obsession: Race and Conflict in the Age of Obama.
While I personally dont' think this show's John at his clever best, it's none the less a first rate interview with a man who clearly has something very important to say about racial politics in the age of Obama. I strongly suggest that you invest the time in listening.
The Relevant "Radio Derb" link can be found here.
The house looks likely to approve the concealed carry reciprocity act, which makes a concealed carry permit act like a driver’s license. The federal government will force anti-gun states to recognize the carry permits approved by other more rational states.
As you can imagine, I’m strongly in favor of this law on a personal level, and if approved by the Senate, will very likely change my legal residence to Florida. The data makes it indisputable that this will mean greater safety and reduced crime for Americans, as it provides a strong disincentive to criminals.
Taking those signals one step further, the cowboy hat might even come back in style since it will be a signal to criminals in Chicago, NY, Boston, and other anti-gun cities that they would be better off finding another victim. (I'd recommend the aging hippie in the "Hope and Change" T-shirt.)
But in terms of it's constitutionality, Robert VerBruggen makes an excellent point that it is at a minimum, anti-conservative. It’s a direct usurpation of states rights, and it’s hard to cheer for that sort of thing under any circumstances.
I do however think that this might be an important teaching moment. Conservatives are all very well aware of the threat to individual liberty posed by a muscular federal government which is why we look at even a law like this one that is obviously in our interests, with deep suspicion at the very least. But liberals continue to champion the Federal government's greater interference in our lives as a solution to “society’s” problems. Maybe passing a bill like this one will teach some of them that there is a down side to that.
I say “some of them” because obviously there are some liberals who can’t be taught anything. Some liberals have been cheering for Marxism since the 60’s and simply ignore all the copious evidence of failure that the collective has left at every turn. Those people don’t even realize that "society" itself doesn’t actually have any problems, that only people have problems. So for them, passing this bill would only mean adding another item in their narrative of the world - a narrative that's based entirely on fantasy. They’ll probably blame George Bush or Dick Cheney, or the Koch brothers or someone. We’ll see.
But for the rest - those kids at OWS for example who are only there because no one ever taught them anything about reality – maybe they can learn that consolidation and centralization of power doesn’t always work out the way they want. Or maybe they’ll learn that under the idiotic ‘pure democracy’ they’re always touting, 49% of the people can end up very unhappy, while under federalism, everyone can have pretty much whatever they want. Either of those lessons would be very helpful, both for them and for the country.
And in the meantime, I’ll be able to both carry my gun on the subway (legally), and break my 20X Resistol wide brim (pictured above) out of storage. Nothing but upside if you ask me.
Thursday, November 10, 2011
He's an unapologetic gun guy and I like that. He was Al Gore's campaign manager in Texas, and I didn't like that. Now it's moot.
His 'no heart' comment lost the base, and that painfully difficult to watch stumble in the CNBC debate last night, lost everyone else. It would be tough to watch if it were anyone. It's a horribly difficult moment. Even if it were a liberal it would be tough. It could be Maxine Waters stumbling, and it would still hurt to watch it.
So I think Rick Perry is probably just about done running for president.
Give our best to the folks in Austin governor.
Wednesday, November 9, 2011
The title of this page is how we often recognize a sale in my business. Buy, Sell, Long, Short, Bull, Bear, Hawk, Dove... even Up and Down. All those words have proven unreliable under certain circumstances. But "Yours" and "Mine" convey the critical message precisely.
No one is saying "Mine" today.
Today, all over the globe, everyone is trying to say "yours" to everyone else. This is a 'risk off' day, where everyone tries to run to high ground at the same time. But since the sovereign debt crisis has begun, the high ground isn't as high as it used to be.
As a practical matter, Europe needs to build a firewall around Italian debt. If the yield on that debt gets too high, the finances of Italy begin to look like Greece and things become unsustainable. Many think it's already reached that point. But Italy is much larger than Greece, so it's a much larger problem.
Today, confidence in Italy and broader European government in general is falling, and as a result the people who trade Italian debt are all saying "Yours". This means the firewall, is failing. It's really built with only words after all. Water is leaking in everywhere, and if Italy goes, so will the rest of Europe. We called our banks 'too big to fail', but for Europe, Italy is too big to save.
I personally think they'll keep Italy from toppling keel over mast this time. They'll get some cash from China, who has an interest in keeping Europe afloat. But the stories the European leadership are using to keep the dike together are sounding increasingly ludicrous and unlikely, and the Chinese are losing faith too. In the end that's what's causing yields to rise.
When they decide that Europe is no longer rational, they'll start saying "Yours" like everyone else, but there will be no one left to say 'Mine".
We getting pretty close. the fat lady hasn't sung just yet, but the orchestra is warming up and the lights are going down. Tick tock.
If someone wants to do the same work (or even less work) for more money, then that's not being greedy. But cutting costs in order to remain viable as a company - greedy.
These idiots think that because they are an angry mob, they are automatically virtuous. In a rational world they would be ashamed to display their stupidity so publicly.
BTW, NJ local elections turned out the way that the gerrymandered election map said they should. Virtually no change - I think Democrats picked up a single senate seat in Bergen county.
Tuesday, November 8, 2011
It was Katy Couric’s shameful performance during the Clarence Thomas confirmation hearings, that cemented my budding conservative views onto what was already a libertarian outlook. In her mind she had Thomas convicted and run out of Washington on a rail before testimony was even offered. The accusation alone was more than enough for her to all but demand his head on a pike - to hell with innocent until proven guilty. So from a fairly early point in my political awareness, it’s been an established fact for me that women don’t react rationally to sexual harassment charges.
In my 20 something years on Wall Street I’ve never seen nor heard of any actual sexual harassment, but I’ve met dozens of women who were perfectly willing to make unreliable or totally false accusations of it. In fact, the latter being so much more common than the former in my experience, I’m very reluctant to believe the charge unless there is more supporting evidence of some kind. Show me a blue dress with DNA, and I’m convinced. Short of that, it’s all just he said she said. And in that circumstance I think the man should almost always get a break.
It always seemed to me that the idea of ‘unwanted sexual advances’ being illegal was subjective and silly. If fat bald Joe from accounting tells you that your shoes are nice then it’s harassment, but if Brad Pitt accidentally unfastens your bra, then it’s perfectly OK. That doesn’t seem right to me, and in point of fact it isn’t. Joe from accounting would never be prosecuted – the law requires more evidence than that. But these days, where the great spinning wheel of justice is seen as a chance to cash in by many, in practical terms the law no longer works that way.
I’m 40 something, tall, lean, I have all my hair, and more than one woman whose opinion I trust has told me that I’m not bad looking. I’m no Brad Pitt by a long shot, but there are no villagers following me around with torches and pitchforks either. In short, I’m a relatively normal, if slightly nerdy guy.
And as a relatively normal guy with a very well documented lack of charm when it comes to most women, I know for certain that a large portion of the sexual advances I’ve made in my life have been unwanted for one reason or another. In fact if you ask my wife, I wouldn’t be so surprised to find out that many of my current sexual advances still are. But obviously that doesn’t mean that I’ve broken the law. Even the Pope says it’s ok to proposition your own wife – even if she’s not really in the mood. So the standard for illegality is obviously set a little higher than that. But in my experience, many women don’t think so. Many women seem to think it’s all about how appealing they find it.
So the upshot of all this is, when Herman Cain says that he didn’t do anything, I believe him. He doesnt' strike me as the kind of man who would do what he's been accused of, and his avid denial is really all I need to hear. I think the woman's claim is the more suspect of the two anyway.
I’ll bet I can find half a dozen women who will accuse pretty much anyone of sexual harassment if the upside is there. And with our legal system and pop culture being what they are, it almost always is. In certain liberal media circles, celebrity victim hood is considered a lofty virtue, so women will line up to accuse someone like Herman Cain even if all it means is a chance to be on the today show.
I may turn out to be wrong, but from what I’ve seen, I don’t think he did anything wrong at all. And until someone shows up with a blue dress, I’ll probably continue to feel that way.
If you have kids in the public schools this WSJ editorial tells you something that you almost certainly already know. That public school teachers are as a rule, just slightly stupider than your average American college graduate.
Color me shocked. My personal experience with the teachers in my town is that they are well intentioned, slightly dim but earnest individuals. Many of them are very nice. And like most nice, slightly dim individuals, they have no idea that they aren't geniuses. They can certainly see no difference between themselves, and the people who take up other more demanding careers.
I've always found it fascinating that if you ask people to self describe their intelligence, you get estimations which vary from very smart at the high end to 'about average' at the low end. But it's a mathematical certainty that 49.99% of the population is possessed of a lower than average intelligence. So the tracking error for those 'about average' estimates is probably much higher than normal. In other words, the dumber you are, the less aware you are of it.
In my estimation, nothing describes a public school teacher better than that. Eventually of course, you get to the Forrest Gump level, and at that point, the difference becomes large enough to be noticed. But teachers usually fall into that 'delusional gap' where their self assessment is particularly unrealistic. That's really best typified with this brief exchange from the classic movie 'A Fish Called Wanda":
Otto: "Stupid people don't read philosophy!"
Wanda: "Yes they do Otto, they just don't understand it."
Transform Otto from a narcissistic criminal into a woman with a more pleasant personality, a love for children, and an earnest desire to do good, and there's your public school teacher right there.
I'm sure there are teachers who are outliers. But I work in an industry where virtually everyone is an outlier when compared to the general population. And by definition, there aren't that many outliers to go around. So if there are any in the teaching field, they're probably a little more rare, or a little less "out" than in other areas. A super bright teacher might have an IQ of 125. In my world, the girl who answers the phone has an IQ of 125. (I'd say this applies to higher education as well, but to be fair, they weren't included in the WSJ sample.)
None of this really means much. I don't think you need to be that smart to teach middle schooler's what a gerund is or how to navigate the Pythagorean theorem. But the next time some theoretician comes up with some radical new way to teach things, we should try to remember exactly who it is we're dealing with here. If they do their jobs and achieve reasonably good results, I have no problem with paying them. If teacher A does better than teacher B then teacher A should be rewarded. But let's please stop pretending that these people are the leading intellects of our age.
Oh... and when you normalize for any one of several standardized intelligence tests, they're also not underpaid.
Sunday, November 6, 2011
There’s never been a good movie about hedge funds. There is that 60 minutes hit piece about my old boss Paul Tudor Jones, that some people think did the job. But rather than tell the truth about him, it did it’s best to describe him as an ego driven lunatic who lives the 'ultra high speed' wild life. Absolutely nothing could be further from the truth about him.
When you’re a Billionaire like Paul, sycophants are everywhere. And you don’t really know how good you are at resisting their flattery until you’ve actually coped with it. But if it turns out that you’re supremely good at staying grounded, you may turn out to be half as good at it as Paul Jones. I’ve never met a man who had more valid claim to a monstrous ego, but was actually less effected by it.
Anyway, there has never been a good movie about hedge funds. And until now, there has never been a good movie about the 2008 financial crisis. Wall Street 2 was a joke where Gordon Gecko gets out of jail and tells the liberals in the audience that they were right about capitalism all along. Laughable.
HBO's "Too Big To Fail" told the story of the brave and wise bureaucrats and civil servants that sprang into action to save America from the evil corporations and banks, by throwing gazillions of taxpayer dollars at them. That was a joke too, it just wasn’t as funny as Wall Street 2.
But Margin Call is different. It's not a cartoon fantasy told by againg 60's Marxists, or politicized commercial for bigger government told by a NYTimes reporter. It's a movie that does it's level best to describe what happens to a firm in crisis, and how that crisis spreads even though everyone is only doing their jobs as best they can. There are no cartoon villains in Margin Call, just like there aren't in real life.
The movie tells the fictionalized story of a sell side bank learning about it's exposure and making the rational decision to cut their leverage, knowing full well that in the process, they will probably be setting off a genuine liquidity crisis. It describes the players (both their virtues and faults), the chain of decision making, the inter-departmental politics, and the various components of expertise that are applied at the various points in the descent. At the end of the movie I was saying to myself that “I know those guys”.
At hedge funds, all we do is find things that we can buy for less than they’re worth, and things that we can sell for more than they’re worth. Risk management is our bread and butter – really our only job. So it’s always a first principle inside a successful hedge fund to have both a deep understanding of, and close management of, all of our risks.
But investment banks do lots of things. For them risk management is often seen as a cost center, and not a division that has much control over business decisions for much of the time. The movie actually starts at the moment when the senior risk manager at the firm is being laid off. The risk department is important and so are the folks in it, but if things are working as they should at a bank then there is never any reason for risk management to get involved do they tend not to be big the power players that they often are in hedge funds.
Most banks try to stay as close as they can to risk neutral, or if they do end up accumulating a risk, they try to keep it to a manageable size. Back in the stone age when I was at JPMorgan, 'Delta Neutral, Gamma Neutral and Rho positive' was our risk management mantra. That meant we should be neutral to a change in the market, neutral to a change in volatility, and if interest rates rose, we should gain just a tiny little bit. But by 2008, the banks had wandered far away from that goal and you know how that story ended.
The truth is, there are a few bones tossed to the political left in this movie. You probably can't make a movie in Hollywood otherwise. There are some strip club references and some talk about how none of the players 'deserves' their huge salaries. It’s Hollywood. What are you going to do?
But on the whole I was very impressed with how accurately they told the story of how these things happen. And the best way to tell that it’s accurate is that just like in real life, there is no villain. No one has a handlebar mustache or gets sexual pleasure from setting kittens on fire or anything. It's a movie about a bunch of people who were doing their jobs the best they can, and trying to manage a crisis. You might not like some of the characters in the movie, but you don’t walk away pointing fingers at them.
If you want to understand what happened in 2008, then this is the only movie that makes an honest, non-politicized attempt to explain it. It’s a first rate film that will hold your attention. I couldn’t recommend more highly.
Upon reflection, there is one important way that this movie differs from real life. With a very few highly notable exceptions the vast majority of the people I worked for on the sell side were real shit heels. They were political animals who sucked on the right appendage of a senior staffer to get where they were.
Not only that - by the time I got to Wall Street, to even get on that track you needed to start out with real advantages. Either you had to have an uncle who was on Federal reserve board, or the Harvard Alumni association, or was a dictator in a third world cesspool or OPEC member state. If you ask me I think it's probably been a VERY long time since anyone rose to the upper ranks of an investment bank on merit alone.
There were plenty of good people there when I was, and I'm sure there still are. But during my sell side tenure, most of the decent people were pulling the chariot not riding in it. But I guess in order to get people to focus on the real problem in the movie, they had to make the key people themselves a little more likable. and even the worst boss I've ever had (he was a member of the British peerage who used to refer to the Indian guy on our team as 'the little brown fellow') probably thought of himself as a good guy with decent motives.
Saturday, November 5, 2011
I know I post a lot of Sowell interviews, but this one I think is particularly profound. At about the halfway mark, Peter Robinson pulls the following quote from his book:
"My Life as been ... [a] radical contrast with the lives of many other black intellectuals... Perhaps most important, I grew up with no fear of whites."
What a perfect example of typical Thomas Sowell profundity, to express such a complex and meaningful idea in so few words. This is one of the many reason I so admire the guy.
Friday, November 4, 2011
Why exactly do I keep hearing liberals talking about how vital to our future it is to increase government spending on infrastructure? I drive, I fly. I use electricity and phones and water. And when I do, I don’t see any appreciable crumbling of our infrastructure. Newark and environs looks pretty bad but not meaningfully worse than it has at any other time since the 60’s. The rest of the state looks as good as I can ever remember. I even did the “geriatric commute” this past summer, driving from here to south Florida and back. The roads looked awfully good the whole way, as did virtually all of the rest stops.
In my new job I’ve been driving and flying outside the greater NY area too, and to be perfectly frank I’m surprised at how good everything looks. Airports that I remember as being schlocky 70’s concrete where depressing unionized food service workers would grudgingly sell you a $36 burger and fries like you’d get at a ballpark, have all been renovated. Now they’re all well lit tastefully carpeted plaza’s where you can get a Starbucks coffee or a burger from Chili’s for the same price that you’d pay for it anywhere else. The roads in the rest of the country, apart from being devoid of traffic compared to NJ, are the same quality as our high speed interstates. They’re even better than the ones in Brooklyn and Queens because those are so much older and narrower.
So where exactly is this big infrastructure crisis anyway? I’m beginning to think we’re all being had.
In NJ we have two kinds of construction jobs. The unionized kind where everyone involved works for the government, and the private sector kind where virtually all the employees comes from Guatemala, Nicaragua, or southern Mexico. Democrats see both lazy unionized civil servants and incredibly hard working but relatively low paid illegal aliens as constituency groups. So I always figured the call to arms for more needless infrastructure spending was really just more of the same old ‘feed my union’ scamming. But when you get out of greater NY, the union membership drops precipitously, so there is really no ‘pay to play’ benefit to politicians outside the northeastern ‘union belt’. So why do they support this visibly needless nonsense?
Could it actually be that our ‘infrastructure crisis’ is no more real than man made global warming? (Believe what you want about global warming, but I analyze data like that for a living and I’ve seen the actual data so you aren’t fooling me.)
I don’t have any hard data on the infrastructure issue because it’s so local and is therefore hard to aggregate. The only justifications I’ve ever heard have been individual cases. But I’ve had great luck over the years at using my personal experience to drive decision making. You get a great sweater at the Gap and it seems crowded, buy Gap stock. You see lots of new cars in the parking lot you buy Ford or Toyota or whatever.
And my personal experience with the infrastructure in America is that it’s actually really great. There are no high speed rails, but I wouldn’t ride the thing anyway so what do I care? They never did make any economic sense.
I’ll hold off until I hear from the rest of you on this issue before I make up my mind, but I think all these cries for infrastructure might very well be nothing more than the Obama administration following through on the Roosevelt plan for getting the economy going, when they are constrained by political feasibility.
Infrastructure spending would not only support their key constituencies, but it follows a narrative than even dim witted liberals can track. You know how liberals love a good story. And they’re always prepared to believe one that matches their preconceived biases whether it’s true or not. To them if Roosevelt did it, then it must be helpful, so it makes sense they would support this all over again. Don’t be surprised if in the next few years they start demanding that we go to war against Germany and Japan (or maybe China given the demographics.)
Unless contradicted by massive reports of first person observation, I’m going to start believing that this great infrastructure crisis is no more than that… a good story.
I had lunch with Arthur Herman once - his college roommate is a freind of mine. Knowing my friend's interest in history, I offhandedly mentioned to him one day that I had read this absolutely fabulous book called To Rule the Waves: How the British Navy Shaped the Modern World and he responded by telling me that he's known the author for over 30 years. Sort of a weird coincidence.
Anyway we ended up at lunch, and we've corresponded a little here and there since.
I'm not sure who this Maddow person is. I think it's some peculiarly named guy on one of the liberal news channels. But whoever it is, if Arthur Herman say's he's full of it, then I believe him. And it turns out that he says that very thing.
It turns out that one of the great monuments to liberal's vision of a world filled with government infrastructure, wasn't actually built by government at all. That's right... contrary to liberals eternal claims, the Hoover Dam was actually built by private companies. That liberals have revised their version of history to exclude that fact should surprise no one. But it's a fun fact to toss out there the next time you hear this Maddow guy talk about more government funded infrastructure.
There is some talk about making the EFSF into a body assigned to permanent bond buying in Europe. This is a very interesting idea. It would be funded by the rich European countries and then use the funds to equalize the markets between the mismanaged European countries and those that funded it. Italy’s debt, and Ireland’s and Greece’s will all be cheaper to fund, and the difference in cost will be made up by France and German using the EFSF to circumvent market forces. This will hurt their broader government balance sheet somewhat, and thereby raise their cost of funding, greater reducing the differences. It's a sort of fiscal socialism for Europe's nation states.
Another way to describe it as a synthetic CDO (Credit Derivative Obligation) where the less credit worthy countries are given a portion of the stronger country’s credit standing. And in the process of creating the transfer, the stronger counties both increase their hold on the weaker ones, and directly circumvent the ability of those evil ‘speculators’ to bring market forces to bear on any of it. It’s a fiendishly elegant means of stripping the capital markets of their effectiveness, and doing it all without having to get anyone’s political permission, or firing a single shot.
The problems with taking this route should be obvious. But bureaucratically circumventing the political autonomy of the various people’s of Europe will be nothing compared to what will happen downstream with this idea. The moral hazard, already tragically obvious in the condition of Greek finances, will be greatly, GREATLY amplified. And unless the at risk economies of Europe suddenly change their stripes, they will quickly run right up to the backstop. Assuming that backstop is set in the 1 to 2 Trillion range (numbers that are frequently discussed for this idea) then by the time they reach it, the impending collapse will be so large that the chance of contagion will be very nearly 100%.
In other words, under this plan even a tiny country like Greece will be able to borrow and spend so much money that a default from them would absolutely shatter every capital market in the world. It wouldn't be like giving whiskey and the car keys to a teenager as much as it would be getting him hooked on heroine, and putting him behind the wheel of an Abrams tank.
When it finally blows up (and there is really no doubt whatsoever that it will) it will collapse into a singularity and suck the entire financial universe out with it. We'll need a bailout from Alpha Centauri if we go down this road. It will take a while - even the Greeks would need some time to tear through a Trillion dollars, there are only 10 million of them after all. But this plan is the thing I've heard that is most likely to ensure our total and utter global collapse. If they go through with it (which I admit is unlikely) then it's 15th century, here we come.
I didn't think much of Jon Corzine before this MF Global debacle, and the circumstances of that story haven't changed things for me. I don't think much of the occupy wall street crowd either. Beating drums and dressing up as your favorite 16th century french literary character is not an effective way to bring on political change - especially when the political change you want is MUCH MUCH more of exactly the thing that has caused all the problems in the first place.
But there is one thing that they are absolutely right about. The system is corrupt. And for that reason I know that Jon Corzine, Former Goldman Sachs chief, former NJ Governor and Democrat part financial powerhouse isn't going to jail for anything. He may resign his position, but he will never serve any jail time. Not while Eric Holder is running the justice department.
He won't go to jail if he rapes a 13 year old girl on live nationwide TV (at least... so long as the girl is white). He's not going to jail. No way. But as the threat grows, be prepared to see signs of him proving his untouchability, by allowing a few of the bodies he's buried to come to the surface, and for the political fallout to take out a few others.
Thursday, November 3, 2011
What's that you say? The Greeks have worked it all out? Well by all means then I'm going to rush in and buy risk assets with both hands. Are there any sellers of anything left out there?
If you think this is the end of the Greek turmoil you are kidding yourself. At this point, the only thing that will eliminate the financial uncertainty is a hard default. The markets will only put up with this childishness for a little while longer.
The euro cognoscenti may regret all this effort before it's over.
By now any reader of this blog knows all about the impending Greek referendum. Or maybe it isn’t impending… who can tell. The Byzantine nature of Greek domestic politics obscures and clarifies it second by second.
Michelle Cabruso-Carerra who has been camped on a roof in Athens with a CNBC film crew watching the riots for the last three weeks, made an excellent point this morning. She thinks the Greek people will approve the referendum (and remain a part of the Euro) because there hasn’t’ been any runs on the Greek banks. It seems to me it could just as easily be that the Greek banking employees are all on strike and you can’t have a run on a bank that doesn’t’ open – but she does have a point.
Still, to get a perspective on this issue you have to think about it the way that the Greeks do. There is a substantial portion of the Greek people who believe that this would all work out just fine if it weren’t’ for all the greed of the foreign bankers. The ruling party in the Greek parliament is the socialist party for god’s sake. It’s a world where Nancy Pelosi would be considered a right wing radical, and Barak Obama is viewed as being entirely too comfortable with free market solutions.
In Greece, Spock always has a Goatee.
For people like that, the ‘bailout’ isn’t viewed as a bailout at all. It’s viewed as a foreign power imposing their control over a peaceful people through global finance. In their minds, it’s just a small step short of direct military intervention. Socialists are all a little fuzzy about cause and effect anyway. So to them, the fact that they borrowed more money than they could ever hope to pay back isn’t a problem at all. They were ‘entitled’ to that money. It was their right!
The problems began when the evil and greedy bankers began demanding that the money be paid back. But for that act of aggression, all in Greece would still be paradise, according to them. The cartoon above is an example of their view. To them the rest of the story is just petty details which interfere with the heroic narrative. Leftists don’t like details, but they love heroic narratives, so that’s what they’re focusing on.
Ask me to bet on the referendum’s outcome, and I’d bet on Greece leaving the Euro. And the reason I’d bet that way is that I have an absolute confidence in the ability of leftists to always make the choice that will harm their interests the most. They’ve been on the wrong side of history 100% of the time. The only real question is whether staying in the Euro would hurt them more than leaving.
My thinking is that the thing that will hurt them the most is whichever options puts the control of decision making in the hands of the people who are furthest to the left. In Greece’s case, that means local control and an abandonment of the Euro. After they return to the Drachma they’ll have Zimbabwe style inflation for a few months before the fabric of their society begins to fully unravel. Governments will rise and fall. At least one (but maybe several) military coup’s will take place. And eventually Greece will find itself excluded from the global capital markets (except at prohibitively high rates) and local misery and despair will be the order of the day.
The local leftists will blame it on others, as they always do. Who that is exactly is anyone’s guess. Whoever is most convenient probably. They don’t work any harder at finding scapegoats than they do at anything else. And while they preside over Greece’s descent from modern nation to pre-industrial cesspool, to a totalitarian nightmare ruled by a (probably crazy) military strongman, they’ll claim it was all someone else’s fault.
As to Michelle-CC’s claim about bank runs, I think it’s entirely possible that everyone in the country with the economic literacy to see that far down the chain of cause and effect, has already taken their Euros out of the banks. Their black market economy is so big already that the banks don’t exactly represent a full snapshot of what’s going on there. And it has probably never occurred to the union members, the communists, the 38 year old students, and the 47 year old retirees who represent the vast majority of the Greek population, that leaving the Euro would have any effect on the value of their savings.
I can’t really be sure about the referendum (that either is or isn’t happening), because the odds are very close to 50-50. But I can be sure that whichever way the vote goes, it’s that route which would mean the worse outcome for the Greek people. They aren’t so much running off the cliff as they are staggering off it. They’re stumble half blind toward the illusion of a rainbow that’s hanging off in the sky. They have a half century of economics to learn, and no interest in learning it. They prefer the fantasies of the 19th century instead.
But I’m sure they’ve got nothing to worry about. The unicorns will certainly catch them as they fall.