Thursday, September 29, 2005

Look Up "Political Risk" in the Dictionary...

and this is what you'll see:

After months of demanding that foreign oil companies agree to cancel long-standing operating contracts and sign joint venture agreements (where Venezuela gets controlling equity stakes virtually for free), the Venezuelan government is now strong-arming its foreign oil company partners to comply by claiming they owe hundreds of millions of dollars in back taxes. Bloomberg is reporting that Venezuela, the fifth largest oil exporting nation, will oust foreign oil companies from the county if they don't pay the taxes that the tax authorities have just recently realized that these oil companies owe. Venezuelan dictator Hugo Chavez has been desperately spending his nation's oil wealth on keeping the lid on revolutionary, pro-democracy forces that are boiling over. The national oil company still hasn't recovered from the 2002-03 general strike against the Chavez regime, and the reduced production has meant less oil profits to buy support in the form of subsidized food and healthcare. So Chavez needs to expropriate the production and the revenues of foreign companies. Chavez is taking his cue from Vladimir Putin. Taking a cue but not learning a lesson. Prior to Putin's similar expropriation, via those back taxes, of Khodorkovsky's Yukos, foreign companies were tripping over themselves to invest in Russia and Russian oil exports were growing at 10%. Now, Russia is an investment pariah and exports are growing 1%.

Venezuela is fast becoming a pariah for investment capital and will soon feel the pinch even harder as the inevitable retreat of capital causes infrastructure to erode and supply to slow. The supply picture coming out of Venezuela can only add to the upward price pressure of gas in the US. Someone tell Bill O'Reilly.

UPDATE: More here. I'm afraid Chavez is going to gain in popularity, not necessarily in Venezuela, but worldwide. Soon Fidel will be gone and the world's naive utopians need an idol. Stupid college kids ten years hence may well be wearing Hugo t-shirts.

Pinch will never be Mayor at this rate

The blogosphere has been abuzz over the NY Times's new TimesSelect policy, accusing it of shielding its columnists from serious criticism. I can't say, but what I do know is that the NYT is a piker when it comes to delivering liberal bias to an influencial demographic and a world-class piker when it comes to getting paid for it...

A virtual requirement for those who make their living in the capital markets is a Bloomberg. Or more specifically, "The Bloomberg Professional Service" which up until recently could only be brought to your desk through a proprietary computer terminal, thus the industry shorthand "a Bloomberg." Many professionals start their day perusing the news items on their Bloomberg and the most general news screen is the TOP function, which gives you the top stories from Bloomberg News. It is basically Bloomberg's front page. When it comes to liberal bias the NYT has nothing on Bloomberg TOP. Everday this screen treats us to liberal takes on the economy and politics. Today, for example, was an extremely light day, just Margaret Carlson declaring that the Bush presidency was over because 1) Katrina flooded New Orleans, 2) Tom DeLay was indicted and 3) Bill Frist sold HCA stock, all in about a month or so. But days like July 14, 2005 are my favorites - out of 19 stories on TOP, these were 5 of them:
  1. "Hedge Funds...Sell Republicans Short, Invest in Dems"
  2. "Rove - Thug, Coward, and Now Smoking Gun"
  3. A story about how Joe Wilson's claims all hold up (despite Senate determinations that they do not).
  4. A hit piece on supply-side economics by hyper-partisan, non-economist Gene Sperling entitled "Try a Little Quiz About Supply-Side Economics" (which was part 2 of two part trashing of SS economics, part 1 was the previous day)
  5. "Goldman Economists Are Skeptical of Bush Budget Optimism"

Any given day can be light or heavy, but it is a virtual lock that TOP will feature the Al Hunt, former WSJ token liberal columnist, unapologetic liberal worldview. (To be fair, they did just sign up Kevin Hassett, so Hassett is to Bloomberg what Tierney is to the NYT.)

And what does Bloomberg cost? $1700 a month. Pinch Sulzberger only wishes he could brainwash his readers for that kinda coin.

Wednesday, September 28, 2005

It Must Be a Principled Stand or Something

Barcepundit has this item about Spain's new friends. OK, I get it, it's a statement against the war in Iraq. I wouldn't have known this except for the giveaway that there's no better way to express your sentiments against war by being pro-repressive dictatorship.

Nonetheless, I wonder if anybody thought through the practical implications of this decision. After all, in a globalized economy who would you want to be buddies with, the 2nd most competitive nation or the 89th and one not even on the list? Clearly, Zapatero is long oil. I hope that bet works out for him, er, I mean the citizens of Spain.

Republicans Could Turn Lemons into Lemonade

The Austin American Statesman is reporting that Tom DeLay could be indicted on conspiracy charges and would thus have to give up his leadership post as House Majority Leader. If this comes to pass, the Republicans could take this opportunity to make big strides back into the good graces of small government conservatives and turn an embarrassment into a victory. (Come to think of it, they could get back into the good graces of the average 'government shouldn't be irredeemably profligate, corrupt and irresponsible' American citizen.) This would require a bold and daring move that would demonstrate that they are completely in touch with their constituents, have analyzed their failings accurately and are eager to correct them. Of course this is why it won't happen, but life isn't as rewarding if you can't savor the possibilities, so here are the three top candidates that Republicans should choose from take DeLay's place should he go down:
  • Jeff Flake
  • Jeb Hensarling
  • Mike Pence

Choosing any one of these Generals of Operation Offset would signal to the vast majority of Americans that the majority party that presides over our Great Sausage Factory is coming to its senses.

UPDATE: CoyoteBlog and I are on the same wavelength.

UPDATE: OK, so DeLay is indicted. I see no evidence that the Roveian minions have swarmed my blog to discover the Lemonade recipe, so I am predicting lots of bitterness and puckering.

Tuesday, September 27, 2005

Latest Quack Unearthed by Media

The Times of London has a patently silly item that is a case study in how the media dig up the most obscure academic "study" to press into the service of the enlightened orthodoxy. This time it is a non-academic "paleoartist and free-lance paleontologist" taking naked cheap shots at religion and offering up the notion that we'd have alot less social problems if we just studied evolution a bit more. Now, I'm not an Intelligent Design kinda guy, but this sort of flimsy advocacy masquerading as journalism makes me ill.

The Times calls the author, Gregory S. Paul, a "social scientist" when it looks as if he is a man who draws dinosaurs extremely well. The "study" is published in what the Times calls an "academic journal" when it would be more accurate to describe it as an obscure journal with a six-year history published out of a small, Jesuit university in Nebraska. Not that there is anything wrong about being small, new, Jesuit or from Nebraska, but given the enormous scope of academia and the well-known hierarchy of stature within the world of academic publishing, don't you think at least some context would be useful? Maybe, give us a hint if we are dealing with a big leaguer or weekend warrior and let us look into it further if there are any obvious red flags? Nah. Just make it look like it is the equivalent of the splitting of the atom and move on.

I looked at the study and it is a joke, completely flawed from the get-go, yet I will have to leave it up a qualified social scientist to rip this thing to shreds, because that is what they do and not what I do.

Friday, September 23, 2005

Category 6 Central Banker Lashes Europe

Hurricane Rita is clouding more than the skies over the Gulfcoast. The betting on Rita's impact is muddying the fallout of the Fed's rate increase. It has been a rough few days for the stock market but it is hard to parse out what is Rita and what is Alan. Soon though, Rita will yield the stage completely to Alan. Notable though is the Euro trading, which after a Rita-induced mini-mini-spike is headed down again, which I recall reading somewhere. It seems that any Euro strength is completely related to US weakness, as opposed to anything positive happening over there. Germany, apparently without a system of laws and procedures that anticipate electoral deadlocks (or evil, black-robed zealots to appoint someone), is holding meetings on what the future government will look like. (If this drags on too long, it would only be half joking to say that they might be better served by a game of rock-paper-scissors or a good, solid eenie-meenie-miney-mo.) Adding to this picture is a Bloomberg TOP story about how the Mafia is tightening its grip again on the Italian economy (can't provide a link b/c not all TOP items get posted on One can be wary of media sensationalism here but Italy's drop from 26th to 47th in the World Economic Forum's competitiveness rankings, which the WEF attributes partially to organized crime, is hard to dismiss.

While Euro bulls latch onto the slimmest of reeds, like forecasts for France's GDP growth getting revised upward from 0.7% to 0.725% (how do you say "Rock n' ROLL!" in French?), to make their case, the broader picture for the Euro looks just so challenging. With Alan all but promising better rates on your dollar holdings real soon, I think it is safe to say that he is an opposing force to Rita. Rita is now a Category 4 storm lashing the Gulfcoast of the US. Alan is a Category 6 Central Banker lashing the money of Europe.

Thursday, September 22, 2005

Steinhardt Insults...Who Exactly?

Legendary hedge fund manager Michael Steinhardt, as reported by Bloomberg, thinks the stock market is going up despite all the dummies in the Bush administration.

"The intellectual quality of the people in the present administration is remarkably low in relation to how well we are doing, " he said.

Well, you would think that Steinhardt was smart enough to know that politicians have generally very little influence on the economy, and when they do exert undue influence it tends to be negative. Enough with generalities though, let's get to specifics. Given that he is talking about the state of the economy, he is most likely talking about any or all of the following people: Larry Lindsay, Paul O'Neil, Glenn Hubbard, Greg Mankiw, Ben Bernanke, John Snow. OK, maybe Lindsay wasn't great but he was fired. O'Neil was fired too, but was his intellectual quality low? Doubtful but let's concede that one. Let's move on to who has actually set our current policy. In the here and now we are basically running on policy recommendations of Hubbard, Mankiw and Bernanke. So is Steinhardt calling these guys low in intellect? Can that statement be taken seriously? OK, not all ivy league professors who write textbooks are good economists, but hardly anybody impugns Mankiw's intellectual firepower. Ditto for Glenn Hubbard and Bernanke. Is there a principled argument that these guys are doofuses? Or is this just another lame assertion of the hackneyed popular belief that GWB is an idiot. You'd think Steinhardt was more sophisticated than that.

Nonetheless, Steinhardt is a legend so let's listen to him. Let's bring back those of sufficient intellectual quality. Get me Janet Yellen, Laura D'Andrea Tyson, and Martin Baily on the horn. At least then we'll know that the good times are for real.

Kaus the Heretic

Mickey Kaus looks at the fulminating over the suspension of the Davis-Bacon Act that will apply to the Katrina rebuilding efforts and makes the subversive argument that maybe liberalism (the modern American variety as opposed to the classical kind) can and should exist without unions. He has an interesting quote from Robert Reich, who said "the jury is still out on whether the traditional union is necessary for the new workplace." (Apparently this is a "famous" quip. I am fairly certain that nothing that Robert Reich has ever said or will say could be considered famous except by hopelessly uncurable liberal policy wonks.)

Well, I'm not sure as to what the makeup of the jury is. Maybe the jury is out among the little old ladies that you find on juries, but one very important group has made its verdict. The group - investors. The verdict - guilty. Or more specifically, 'unions are guilty of not being necessary for the new workplace.' In my profession, investment management, it is axiomatic that unionized workforces are an inferior situation from an investment perspective, all else being equal. In the private sector today, to put it more bluntly, unions repel capital. This is the self-inflicted cancer that has been killing and will continue to kill private sector unions. Quite simply, you can't survive in the modern global economy by being a repellant to capital. The industries that they have brought low - autos, steel, airlines - have largely been abandoned by the investor class. Only when such an industry is at rock bottom will capital entertain their prospects, such as we've seen in steel with Wilbur Ross's ISG and presumably now with Kerkorian's run at GM. Sure there are counter-examples that the union camp will throw out, like Southwest Airlines. "Southwest, which is the most successful US airline and a model for the industry all over the world, is a union shop," is something they might throw out. (Forget the deliciousness of that construct "most successful US airline" which, to me, is something akin to "safest Chinese coal mine.") Well yes, Southwest is a union shop, but this fact is mostly irrelevant because they have such a radically different business model than the industry in general that the union vs. non-union status of their workforce is a side issue - they are successful for other reasons. You will simply not find a union shop that outperforms, pari passu, a non-union shop on a meaningful scale.

As more Americans put their savings into mutual funds or direct ownership of stocks rather than into bank accounts, this country has less and less of a stake in private sector unions. And, as Kaus rightly points out, the growing gap between the performance of the private sector and the public sentor is bound to be increasingly pondered by Americans, which represents a danger to unionism's current strength, the government. If unionism is to reinvigorate itself it has to look hard at the old adversarial model of labor vs. management that it is stuck in. The democratization and increased mobility of capital has lumped management in with labor - investors can simply withdraw capital support and redirect it to other management teams operating in the exact same business. Unions ought to be thinking about their approach to capital rather than their approach to management. Early signs, exemplified by the unions usurping of capital allocation decisions such as at CALPERS, show that they are not learning the right lessons.

Wednesday, September 21, 2005

Roveian Oil Plot that Predates Rove

Instapundit links to this item about the HUGE amount of oil in the shale deposits in Colorado, Utah and Wyoming. Of course, we all know about the HUGE amount of oil in ANWR in Alaska. Then there is the LARGE amount of oil that we think is just offshore (scroll down). None of which have we been making much effort to get at.

This reminds me of something that I heard Rep. Richard Pombo (R-CA) say in a speech. He was talking to a foreign oil minister who declared that the US's energy strategy was transparently obvious. It was clear, the minister said, that we were hoarding all of our own oil and using up everybody else's first.

Could be.

New York Times Markets Itself for the New, Down-sized Future

The New York Times Co. recently announced that it would be laying off a bunch of folks. This has to be in keeping with its own new vision of itself, embodied in its new ad campaign "a useful tool for living in the city." Not the 'paper of record' or some other bold claim to definitveness as a source of information and perspective, just a useful tool, like some high octane Zagat Guide or something. Clearly that requires less manpower.

Things Must Be Really Bad in Idaho

Instapundit highlights that 650 members of the Idaho National Guard that are serving in Iraq have re-enlisted. And Clayton Cramer muses that things must be really bad in Iraq. I think this points to a bigger problem...what is wrong with Idaho?

How About "Law of Supply and Demand" Day

This past Saturday (Sept. 17) we celebrated Constitution Day, on which, among other things, schools are required to devote time to educating students about the Constitution. This is inarguably a good thing, given that the Constitution is the seminal document of our democratic governance and that most young people know not a lick about it (older people too for that matter). It couldn't come at a better time given some of the severe attacks on the Constitution of late and the perversions of it that we as citizens have to endure.

Well, given that we live in a free-market, capitalist society (and even if we didn't) and that most young people know not a lick about economics (older people too for that matter), how about a national day of forced learning about some other seminal principles? It couldn't come at a better time given some of the severe attacks these principles have taken of late and the perversions that we as citizens have to endure.

Bill O'Reilly is Stuck On Stupid On Oil

(Gotta jump on the Russel Honore bandwagon!)

I've been watching Bill O'Reilly since he first got started on Fox. I was a fan simply because he was a maverick, made the right enemies and didn't pull from from standard play book; I am less of a fan now because he is so powerful that when he is wrong he can be dangerous. I have always maintained that his biggest blind spot, among several, is on oil and gas prices. Here is really wrong and really dangerous. He persists in putting forth the notion that the oil market is rigged and that there are a bunch of cigar-chomping, robber-baron oil executives screwing the average consumer for kicks. He is absolutely clueless on how the oil markets work and has given his conspiracy theory such play recently to the point where 89% of " premium members" (whatever that means) believe likewise. All this means is that 89% of the folks who responded to the poll are as clueless as O'Reilly.

Bill doesn't seem to understand some basic economics. He was on a witchhunt tonight for a specific person or entity that is making all the illict oil profits that he thinks are being made. He dismissed the notion that it is "the market" that sets the price because he says "that's nobody, there is no person or thing that is the market." Of course, there is such a person. It is you and me and the hundreds of millions of people who make decisions about consuming oil for the thousands of applications that it is used for. The fact that the market is diffuse doesn't hide the essential fact that the market is entirely real people. If I want to drive to granny's house, I am competing for the oil to achieve that with a tire manufactuer who wants to make tires, who is competing with people who want to heat their homes, who are competing with a farmer who needs to harvest soybeans who is competing with the Chinese government who are stockpiling oil for strategic reasons who are competing with an airline that wants to fuel their planes and on and on and on. Untold uses are competing for the same resource and those that invest in finding and producing that resource can choose to sell it into the channel that is likely to pay the most for it at the end of the day. At the most basic level, Chevron can sell oil to, for example, the Chinese gov't or to American Airlines or to me. Whoever wants it most will pay for it. Complicate this with the hundreds of billions of dollars of infrastructure that support getting that oil to me, AA or China in usable form. Further add in thousands of laws and regulations that dictate minute details of how this process of getting oil to people in usable form can be conducted. Bill simply has no understanding of the fact that there are thousands of uses for oil, hundreds of producers, thousands of middlemen and hundreds of millions of end users and all of this is governed by thousands of laws and regulations. He wants to boil it down and haul somebody into the chair to convict and hang on behalf of "the folks" - he is on the hunt for that small group of diabolical individuals who are screwing us. So let me get this through to you Bill - my decision to keep the car parked and eat ice cream with my kids IS the market, and my decision that travelling 100 miles in my 18 mpg car (that I freely chose to buy for my own very good reasons) to see my ailing Dad is worth $5.00/gallon to me IS the market. And if the Chinese want to stockpile oil to invade Taiwan or American Airlines wants to fly 747s half-empty from Dallas to Duluth that is the way it is and I get to make and remake my own personal utility calculations everyday based on that critical piece of information...price.

UPDATE: I'm in pretty good company.

Monday, September 19, 2005

My wishes for tonight's Giants vs. Saints game

I hope the broadcast prompts a further outpouring of prayers and material assistance to the residents of New Orleans and the Gulfcoast. I hope the national spotlight on the game contributes to maintaining the elevated level of concern and caring. I hope the game provides a welcome respite from the political bickering and places attention where it belongs, which is on people, on their shattered lives and on their hopes for the future.

And then I hope the Giants ram a cellphone far up Joe Horn's ass...

UPDATE: I think it is safe to say that, metaphorically speaking, something was successfully implanted!

That Downy Freshness and Productivity Too!

I admire the excellent economics blogging over at Cafe Hayek. Today Don Boudreaux has a neat post on the increased productivity in prosaic, old-economy businesses, citing the garbage business. He is spot on that some stunning advances in productivity are coming from areas of the economy that merit no attention. The results of these innovations are tiny improvements in quality and productivity that, when aggregated, account for our already high and improving standard of living. I like the example of the coin-operated laundry. Some providers of coin-op washers and dryers to college campuses are hooking their machines up to the Internet so that a potential user can know if a machine is available before they trek down to the basement. Just think of all those futile, frustrating trips to the laundry room only to find all of the machines in use that will be avoided with this innovation, adding back thousands of man hours to society for potentially better uses. Let's hope that the student population takes good advantage so that this isn't a false economy.

FOMC Meeting Inspires Germanic Decisiveness

In my previous post about tomorrow's FOMC meeting, I made the case that the outcome would settle some scores given that the spectrum of views is noticably split and that Katrina had raised the stakes. Well, after having the weekend to cogitate on the matter, analysts and observers are as confounded as the German electorate. Bloomberg reports that the median estimate of the 22 primary dealers of US Government debt has moved more toward Fed restraint while in a broader survey of economists, 88% see the Fed continuing its course of rate increases. Each side has its numbers to support its case of course and there won't be any decisive victory in the stats, but, as I argued, this FOMC meeting is about animal spirits. The 'fragile economy' camp is so entrenched in their belief and now they have Katrina. If the Fed continues to see the current expansion as durable even with Katrina, it could be a real shock. If they raise, you can be sure that the high profile dovish analysts will be back-tracking. (William Dudley at Goldman Sachs has gotten ahead of the game here with a recent reversal of his view. Do you think he knows that to get it wrong on the dovish side is the bigger whiff at this point?) And if they raise without a hint of near term moderation in their "measured" pace, the dovish camp is going to have to burn all evidence of their current views and start from scratch. For the inflation hawks and for those who simply take the Fed at their word, a restrained or more moderate Fed is no great screw-up in light of Katrina, whose impact is essentially a statistical mystery.

I have always found that the exciting thing about economics and the capital markets is how events can unfold before our eyes in unpredictable and humbling ways but also how they can intersect to raise and lower stakes in dramatic ways. Potentially, within the span of 2 days the US economy, with the Fed as its proxy, could shrug off a natural disaster of Katrina's magnitude at exactly the same time the Germans show an ambivalence about their economic prospects with unemplyment at 11%. Dollar holders could be looking forward to the prospect of further rate increases while what Euro holders could be looking forward to is anybody's guess. Warren Buffett can afford to hold Euros, but I can't. I'm liking my assets in good old greenbacks right now.

Friday, September 16, 2005

Bloomberg FINALLY speaks up on Roberts

Whew. Finally Michael Bloomberg has spoken up and declared that he is unsupportive of Judge Roberts's nomination to the SCOTUS. Thank God, because, as we know, the Mayor of New York City has an important constitutional role to play in the appointment process of SCOTUS justices.

In that spirit, I, Donny Baseball, a capital markets/economics blogger, hereby declare that, after having read six news stories and done a small amount if research on the web, see no credible basis to support the charges leveled against Lance Armstrong for using banned performance enhancing substances during the 1999 Tour de France. There. I knew the world was waiting.

Blogger's Family Addresses Energy Crisis with Vanilla and Caramel Toffee Crunch!

Amidst all the breathless huffing about gasoline prices by the news media and politicians, the workings of the free market system are adroitly addressing the problem via the mechanism of price. The high price of crude oil has led the world's oil exploration companies to go on a drilling binge resulting in a shortage of drilling equipment. Consumers on the other hand are reassessing their use of gasoline at the margin given the sting of high prices. For example, over the previous two weekends, this blogger's family chose to forgo planned roadtrips that would have consumed about 2.5 tanks of gasoline, or about $100. Not alot of money, but certainly a relevant amount at the margin.

In lieu, we stayed home and took advantage of another price incentive afforded us by our wonderful free market system...we ate lots of ice cream. There is a vicious price war raging in the ice cream business driving prices on the leading premium brands down to ridiculous levels. We picked up several pints of Dreamery for $0.99 each while Haagen Dazs went for $2.00 a pint at our local supermarket (in NY no less where everything is expensive). Prices were so good that we invited all the kids in the neighborhood, many of whom were also home because their parents cancelled trips, over for an ice cream party. So while the media and our esteemed sausage-factory workers urge Americans to "sacrifice" to address the "energy crisis", normal people are redrawing their own utility functions and engaging in substitution just like basic economics would lead us to excpect. I doubt any of the kids in our neighborhood felt they were sacrificing, as their lost utility from decreased road travel consumption was offset by the increased utility from more ice cream consumption.

Thursday, September 15, 2005

BBC Outsources US Economic Reporting to 15 Year Old

The BBC has an inept report on the first new unemployment claims number in the US after Hurricane Katrina. There were 68,000 new jobless claims attributable to Katrina out of a total of 398,000 total claims and every attempt is made to make this rather dull number as sensationally dire as possible (to "sex it up" in BBC parlance). Here it is:

US jobless claims at 10-year high

Before Katrina struck, the US economy was creating new jobsUS unemployment has surged in the wake of Hurricane Katrina, with the weekly rise in the number of people claiming benefits jumping to 10-year highs. The US Labor Department said 71,000 people signed up for benefits last week - with 68,000 of those claims directly attributable to the effect of Katrina.

The increase is more than was seen after the 11 September terror attacks. President George W Bush is expected to announce moves to help people affected by the hurricane later on Thursday.

Economic pressure
There have been calls for the limit to be extended on the time a person can claim unemployment benefit. At present, they can sign up for a maximum of 26 weeks, but policymakers want that extended to 39 in order to ease the lives of those hit by Katrina. The total number of claimants in the week ending 10 September was 398,000 - its highest level in two years. The worry among economists is that the extra government spending will put increasing pressure on the US budget deficit at a time when it already is having to finance military operations in Iraq and Afghanistan. After hitting record levels last year, the budget deficit has been trimmed but is still running at unsustainable levels.

First, the title claims the number is a 10-year high. Well, the number is not a 10-year high as anybody who follows this number easily knows. The rate of increase from the last report, was the highest in 10 years. The number excluding Katrina claimants is actually relatively low.

The next sensational bit: "The increase is more than was seen after the 11 September terror attacks." Oh my God, things are worse than on 9/11! Crikey! Truth is that the majority of layoffs came weeks and months after 9/11/01 as the economic damage became clear. There is no way to know at this point how Katrina will compare, so any comparison is less than meaningless.

Then some drivel about "calls" for this and economists "worry" about that as we get the grand finale: "After hitting record levels last year, the budget deficit has been trimmed but is still running at unsustainable levels. "

It has been trimmed, has it? Yeah, try from $412 billion to $331 billion. Just a slight 20% trimming. Seems to me that if you lop something off at a rate of 20% per year, you can get it down to nothing in due time. So how is it that we are at unsustainable levels? How long do we have to right the ship? What are the consequences? We don't know, cause they don't say, but the clear implication is that things are looking bad for the good ole' US of A. Except that we're much less "unsustainable" than say France or Germany, as our budget deficit is 2.6% of GDP compared to over 4% in those countries.

After that feast of specificity, context and insight, we have...nothing. Unsustainable levels, full stop, as they say. Is this bias or some assistant deputy junior intern banging out some copy before dashing out for pints after work?

Wednesday, September 14, 2005

A FOMC Meeting Like No Other

The upcoming Fed meeting is arguably one of the most important in a very long time. It will settle alot of bets and change alot of minds. To oversimplify and summarize positions, there is the camp that feels that there is no inflation risk and the Fed has only been getting rates back to levels that are not driven by a panic over deflation. This camp thinks that further rate increases are going to hurt the current expansion, which is fragile, and now even more so after Hurricane Katrina. The other camp thinks that monetary policy has been, and still is, highly accomodative and that the Fed needs to continue to act aggressively to fend off inflation which is patently obvious all around us in the price of oil, gold, housing, and numerous other commodities. Prior to Katrina the latter and the former were about evenly matched, but the devastation on the Gulf coast has given the inflation doves the edge (as has today's core CPI which excludes food and energy [which makes total sense because my family doesn't eat, heat our home or drive anywhere]).

What the Fed does at the end of this month is of keen interest to those that are engaged (with others or with themselves) in a debate over whether we are in a housing bubble or not. I think it will be a decisive moment. The common wisdom has been that low interest rates have fueled the housing boom, which is mostly correct but not a comprehensive explanation. Still I give it alot of weight because it is this common perception that fuels the animal spirits that prevail in the housing market, so it is incredibly important to the housing bubble debate. A corollary is that a sustained reversal in rates has the potential to spook those animal spirits and be what many see as the pin that pricks the housing bubble. Yet home prices have gone from merely nuts to fargin' insane even while the Fed has been raising interest rates since June of last year, because of the view that Alan Greenspan has got to stop raising rates pretty damn soon. In other words, Alan's rate increases have not swayed the animal spirits. They persist on demonizing him as inept or refuse to see how he can't be paying attention to the disappointing payroll numbers, the sporadically disappointing retail numbers and the dreaded 'twin deficits'. Now they have Hurricane Katrina. How can he possibly continue on this course, raising rates, after the the destruction wrought on the Gulfcoast? Doves are even more convinced that rate increases are coming to an end. Katrina represents the crowning star on their tree of complacency. What will happen when the FOMC does raise rates and doesn't soften it's language? What will happen if the FOMC even gets more hawkish towards inflation given that so much production capacity was wiped out and that reconstruction demand will tax already tight materials markets? Will this shock the markets and make the housing bulls think twice about where rates are really headed? I think it has just that potential. September 20 could be an inflection point for the animal spirits that have been driving housing prices up up up.

Tuesday, September 13, 2005

The Buffalo Bills' throwback Unis are Fantastic

I love 'em (not the Bills, the unis). I was thrilled when my G-men ditched the bland "GIANTS" for the stylized "ny" of old (along with putting players' numbers on the front side too). Aside from warming the hearts of nostalgia buffs like me, resurrecting the uniforms and logos of old is a good business move - it usually boosts flagging purchases of team merchandise and it strengthens the connection to the team's past among current fans. The business logic generally means that managements only do this after a period in which the team has sucked, looking to create some buzz and business momentum. After all, it is a bad management move to change the look and feel of the product when it is successful and success leads to strong merchandise sales anyway, which is why we probably won't see this guy anytime soon. Pity.

John Roberts Survives "Shock and Awe" Phase

Just as we sought to concuss the Saddam regime with an overwhelming bombing campaign in the first stages of the war, looking to destroy their will to fight even before our boots hit the battlefield, the government employed a "shock and awe" strategy against John Roberts, forcing him to sit through the lengthy opening statements of 18 Six-Year Term Sausage Factory Workers .

I didn't see Roberts's performance but clearly exposure to such a massive assault would drive any mortal to flee to the confines of a rat hole to drool, contract lice and mutter incessantly, "the Constitution explicitly guarantees the right to government-paid, on demand abortions for 12 year olds."

I think I am still talking to myself, but...

it seems fairly obvious that I should explain the name and significance of this blog. The name is a reference to a quote in what I deem to be a classic movie (actually, not a "quote" because it doesn't come from a character, it is an audio clip that is simply used in the movie). It's significance is zilch, nil, nada, the big bagel. Following what seems to be one standard approach in the blogosphere, I started this blog with no particular theme or intended audience and thus have no need to press the name into service of any larger mission. So, with not a whit of a care for proper Marketing, the obvious thing to do was to pick something from a movie that was made way the hell back when and for which my affection confounds my spouse.

As for me, I am a finance industry entrepreneur in New York City, which could mean alot of things, but suffice it to say, I have a day job. I also have kids. That about sums up the tone of the posts you will find here - thoughts from a guy with kids and a day job. (No drivel like you would find from a childless guy with cats.) I will post mostly on economics and the markets as those are both my profession and my principal interest, as well as politics and some oddball stuff. Despite all outward appearances, I will not post about baseball. I don't really know a whole helluvalot about baseball despite the fact that as a boy I dreamt of being Graig Nettles and leading the forces of good over the forces of evil, which in those days were the Kansas City Royals.

Hindery Joins the Chorus

Powerline has a good takedown of Business Week's giving Leo Hindery a platform in which to blame GWB for the tele-communications breakdown in New Orleans. PL justifiably goes after Hindery's phony guise as a clinical analyst from the business world. Leo Hindery is a political guy. He is a guy you hire to run your telecom company because he knows everybody in telecom and in Washington, not because he is a strategic telecom genius. Kind of like hiring Dick Cheney to run your oil services firm.

Anyway, separate from motivations, Hindery is wrong on the merits. Our telecom industry is one of the most over-regulated sectors of the economy and consequently one of the least vibrant. The burdensome regulations cause companies to do the least amount of investing in both infrastructure and human capital that they need to. Sensible people who compare the quality and value they receive from their phone company to the quality and value they receive from nearly any other service provider with whom they do business know this.

There are so many points in time and so many stupid policies that one can point to where we made the wrong decisions regarding our tele-communications industry, but the most recent one is clearly the Telecommunications Act of 1996 that Reed Hundt, Clinton's FCC Chairman, admitted was drawn up to give the economy a shot in the arm. No other piece of legislation from that era so perfectly embodies the keg party approach to the economy that prevailed in the 1990s - live up the intoxicant-fueled good times, sleep off the resultant pain and hope someone else cleans up the house. (The prominent partiers included Bernie Ebbers, Gary Winnick, Joe Nacchio, but less visible revelers were Terry McAuliffe and Leo Hindery. A fair minded right-winger might characterize the prevailing business/politics dynamics thusly: "we got the oil, they got the phones .") The Act gave soon-to-be fly-by-night startups the right to use established companies' infrastructure at cut rate prices, which predictably removed the incentives for the incumbents to invest in upgrading their infrastructure. That is one reason why basic phone service runs on 100+ year old technology. Much like the levees that broke in New Orleans, the state of our telephone system is fragile not because of too little money but because of too little freedom to make sensible choices - too many rules imposed upon the real players by an unknowledgable few.

Monday, September 12, 2005

SARBOX (or SOX) a Campaign Issue?

The WSJ's Political Diary reported that Guiliani was in Australia and said that he hasn't decided to run for the Presidency in 2008. Sure. Then though, the non-candidate decided to, ya' know, spitball about some issues and said he opposed Sarbanes-Oxley. Huh? Why would America's Mayor, the Prince of the City etc., whose stock is actually rising along with the waters of Lake Pontchartrain in New Orleans as political leadership failures abound across the Bayou State, invoke this obscure and incredibly boring recent addition to our securities regulatory regime? Well, to signal to some very large (and small ones too) money trees to prepare to be shaken, of course. Most might see this as unseemly - that ghastly money in our politics - and certainly the MSM will take the 'sop to big business' route (although they would be wrong, because large companies like the kind of burden that is more burdensome on their smaller, nimbler rivals than on themselves, but that hasn't stopped them before), but this is smart on Rudy's part and a good development. Sarbox is a disaster and should be repealed and the mere idea of it will get the campaign cash flowing into Rudy's 2008 coffers. Mike Oxley is about the only person left who thinks this legislation is a good idea and the best arguement for it that anybody is making is that it will be less needlessly burdensome in the near future because companies have gotten used to and made allowances for the majority of the needless burdens already. (So, like the tax code, it is a mess, but hey, we're all used to it, so why change it. ) Sarbox is hurting small to mid-sized companies that are, broadly-speaking, the most dynamic and innovative in the publicly-traded universe and there are numerous examples of companies that are choosing to forgo regulatory compliance altogether by delisting rather than cough up the one or two million bones to be kosher ala Sarbox. Funny that, a law designed to increase transparency for investors is doing just the opposite, and our capital markets suffer as small companies redo the cost/benefit calculus of being public. So, large swaths of the business community would love to see Sarbox go the way of the Dodo and I'm willing to bet they would even write checks to a candidate who raised the issue prominently. In politics early money is the best kind of money and Rudy could put his campaign in great shape with an early tour through the business community pounding away on this silly law. And he'll need it to suvive McCain in the primaries. Regardless of the messenger, we can only hope that the message spreads to more of our intrepid leaders - repeal Sarbox.

Friday, September 09, 2005

Not Blanco, Not Bush, Not Nagin, Not FEMA

None of the above are responsible for the disastrous situation in New Orleans and the gulfcoast. These people operate out in the open and are answerable to voters. Clearly the blame lies where secrecy prevails. And the Rich. Yes, the rich operating in secrecy. What could be more destructive? No government oversight! Good heavens, the secretive rich operating largely unregulated!! That surely is the cause of all this great cataclysmic suffering. Yes! Yes! PURE EVIL what is thy name?

Hedge Funds.

OK. Wow. First Post.

So I bumped 'Start Blog' up on the list of things I wanted to do if I had more time because the list was getting too long and it seems a heck of alot easier than pursuing six-pack abs at my age and cheaper than restoring some rundown Victorian somewhere. OK, so cross it out. Progress!

So what is my goal? The journey is my goal really. I'm out for growth and self-edification...ah phooey, I'll come clean. I aspire to no less than the rank of Junior Unindicted Counter-Conspirator because Mama Mia knows we need it. Forget we, I need it. I just know that whatever dread disease I am going to contract 30 years from now will either be curable with one simple, minty-fresh pharma miracle or confine me to years of delibilitating pain or death based on the choices we make today. I want the minty-fresh outcome, so I am prepared to do battle with the forces economic illiteracy. And, my kids need it too. Based on the choices we make today, their hard-earned homestead either will or will not be bull-dozed because the dumber kids from Mrs. Huckleberry's class became politicians and decided to hand over the their homestead to Donald Trump's progeny in order to increase the tax base so the municipality can roll out aroma math in all the schools. So sign me up to the Future Liberation Front (or is that the Front for Future Liberation?). I'm New Blogger and I'm Reporting for Duty!

...and if that doesn't work out, I can post pictures of cats or something.