Friday, December 30, 2005

Totalitarianism Bad for Business

The worst performing stock market of the year was (hardly surprising)...Venezuela. What you say? OPEC's #5 exporter in the Year of High Oil? Yeah well, an increasingly brutal dictatorship aggressively pursuing socialist economic policies will do it everytime.

Bloomberg has the story.

Wednesday, December 28, 2005


Donny B. is BACK after a refreshing and joyous Christmas vacation in the great heartland of the USA. For the zero of you that are curious where I's a hint (locally, they were predicting a duck slaughter at the Holiday Bowl).

Thursday, December 22, 2005

NYC Transit Strike '05

No doubt about it, the NYC transit strike is causing much consternation, but the truth is that the TWU's bark is much worse than their bite this time around because of our new, wired world. Telecommuting and modern communication technologies render the union's strategy rather anemic. While they are clearly screwing up the holiday shopping season and making life hell for the innocent tourists who came to our city to have a nice holiday, the beating heart of the city - the financial services industry - is wired to the hilt and can easily do business offsite. Every financial services worker in the city is a Crackberry junkie and has a high speed isp at home or can go to the suburban outposts that every smart firm has setup in the past few years. So the movin' and shakin' is still happening even though folks can't get to the Manhattan office as easily. (And besides, nobody does anything this time of year except go to Christmas parties and obsess about their bonuses.)

This is on top of the bad calculation of the TWU. They have historically relied on the weenie factor in our politicians to get their demands through. Bloomberg may be a nanny-state, phony Republican, but he is rich as Croesus and just got re-elected so he can have a cost-free backbone on this one. Pataki certainly is a weenie, but he's not running again and desperately needs to be seen as a non-weenie since he harbors these delusional notions of running for President. On the whole, bad political calculus from Roger Touissant & Co.

Finally, on a macro level this is just another data point in the long, sorry history of reasons why NYC is a fading great city. NYC is, and has been, losing population and influence for decades. One of the key reasons has been that residents don't get adequate services for the huge taxes they pay in, and the subways are just one example of the many services that come at enormously high cost but are barely adequate. (Schools. We won't even go there.)

NYC still has a way to go before it is completely devoid of appeal for business and a dynamic citizenry, but it continues to do everything it can to drive people and business away. NYC has for years been handing cities like Dallas, Atlanta, Phoenix and Jacksonville what they need to prosper - its fed-up citizens who want a square deal from their local civic administration poobahs. Alas, the transit strike of 2005 is just another chapter in NYC's long, slow decline.

UPDATE: Gee, as if on cue.

Tuesday, December 20, 2005

Christmas Non-Reading List for Feminists

OK, so it's Christmas and everybody seems to have recommended reading lists up. Prof Reynolds posted this one. Not surprised that Atlas Shrugged is on the list. Here is an interesting tidbit that I picked up...the Library of Congress and the Book of the Month Club did a survey asking people what the most influencial book of the 20th century was. Winner: Atlas Shrugged. Wow, so a woman wrote a book that many people consider the most influential of the 20th century. Pretty damn snazzy, for a chick. Sounds like something that ya' might oughta teach in a women's studies course at college if you were into, ya' know, women doing cool things that, like, matter.

Turns out, not so much. Word is that Rand is not a hot item on the reading lists of course curriculae. About as popular as PoliSci 371 - "Great Women in 20th Century Politics: Thatcher, Kirkpatrick and Rice."

Monday, December 19, 2005

Once in a While, Dispense with the Niceties

The Club for Growth's blog has posted an item about a $1 coin bill that sounds like another Michael Oxley disaster coming down the pike. The Republican Study Committee Chairman Rep. Mike Pence's response letter to Rep. Oxley is also posted there. Now, I take pride in my committment to civility and believe strongly that we should have a courteous public discourse. However, just as there are times for carrot and times for the stick, sometimes a little unvarnished language would probably be more effective than the elegance with which Rep. Pence tells Rep. Oxley to sod off.

Ideally, the letter should have gone something like this:

Got your letter. I was happy to try to trash that stupid $1 coin bill that you sponsored. The last thing we need is another one of your brilliant ideas. Sarbanes-Oxley is a shit-show of gargantuan proportions and you are the only one left who doesn't see it. Don't give me this Republican unity crap, a dumb idea is a dumb idea. How much more of your crap does the US economy have to take? Retire already.

Friday, December 16, 2005

FT joins the Ho Hum Crowd

This theme has been beat, justifiably in my view, like a dead horse all over the blogosphere, but I had to mention the Sighhhhh-worthy treatment of the Iraqi elections by the FT. I unrolled my copy of the FT this morning and read the blaring, bold bazillion point text at the top of the page across numerous collumns..."Bush Backs Down on Torture." Ok, fine. Was that really the biggest news of the day yesterday? Was that a world-historical event worthy of top-billing? Guess so. Lesser events were treated to a smaller font, packed into just one column...
"Vote Sees
Iraqis putting

I guess there was a vote in Iraq or something. Easy to miss givent that votes go on all the time in that part of the world.

Wednesday, December 14, 2005

Who Says Corporations Are Humorless?

This is a real press release.

ATLANTA, Dec. 14 /PRNewswire/ -- Bike Athletic announces the production of its 350 millionth jock strap. The jock strap was taken off the assembly line November 28 and framed and flown by DHL to Bike's headquarters in Atlanta, November 30.

"There was no doubt in my mind that DHL would take care of our package the way we have taken care of so many packages for the past 130 years," said Jenny Shulman, Bike Athletic brand manager and expert on jock straps.

Also happens to be a fine example of doing well by doing good, ain't it fellas?

Reggie Hammond Capital Partners LP

Alan Murray makes the case that hedge funds are the new sheriffs in town, policing corporate boardrooms and keeping executive management on the straight and narrow. In general, I think Mr. Murray gets the big picture right, although oddly he feels the need to get a few potshots in at the end. Unfortunately, his potshots reveal that he doesn't completely know what he is talking about.

He states that "hedge funds are moving to 'lock up' their investments for a minimum of two years, making it impossible for investors to pull out if they don't like the way things are going." He's right that hedge funds are doing this, but only because it is the only loophole that the SEC made available to to hedge funds that want to avoid the onerous burden of SEC registration. Potential investors hate the two year lockup and imposing one severely hampers a hedge fund's marketability. So hedge funds are forced to choose between submitting to tens of thousands of dollars in compliance costs and intrusive inspections or inhibiting their own marketability. Cash is real, so it is no surprise that some choose to avoid spending the dough and roll the dice with their marketability. Murray claims that hedge funds "relish" the two year lockup as it protects us from swings in sentiment. Well yeah, but it also protects us from getting any sentiment whatsoever. Removing the risk that business will go south is not a win if you have no business. It is hardly a move that the hedge fund community relishes.

Also, Murray thinks he's found some irony. "Hedge funds thrive by poring over the records public companies are required to file with the government, even as they resist filing anything themselves" he states proudly. First, hedge funds file things with the government all the time, like SC-13Ds. More importantly though, is that these companies sell stock to the public via public markets, making their securities available to any Joe Blow with a brokerage account without him having to know diddly, so they are required to file things that say who they are and what they do. Hedge funds don't sell via public markets so we don't have to submit name rank and serial number to the public's information clearinghouse, known as the SEC. Nonetheless, hedge funds have to explain who we are and what we do to investors too, and we also have to do it through 50+ page legal documents that cost thousands to produce. The fact that these documents aren't sent to a centralized government clearinghouse is irrelevant. Hedge funds are as transparent to their owners, arguably more, than IBM or Chevron are to theirs.

In another clue that Murray doesn't have the firmest grasp of the big picture, he states that money from "less sophisticated investors" such as "public workers' pension funds" is finding its way into hedge funds. Does he not know that cops and teachers are not making these decisions, that dedicated investment professionals hired by the pension plan are?

So Murray's potshots are not just unwarranted but wrong. But it is understandable. When the late Bob Bartley was asked to explain some apparent contradiction between his views and what was contained in the news pages of the WSJ, he would say "we are a newspaper and like any newspaper we have people in Washington, so it's inevitable that some silly notions work themselves into the paper."

My Favorite Sports Personality Today - Tiki Barber

The NY Post's Steve Serby has a good article today on my favorite sports personality of recent years - the Giants' Tiki Barber. I see Tiki as cut from the same mold as Tony Gwynn, Barry Sanders and Julius Erving - great players who were just great guys - modest, gentlemanly and grounded, who let their hard work and quiet determination inspire others. Despite his considerable achievements on the field you won't see Tiki taking off his helmet, flexing his biceps, or other such self-congratulatory display after a run. It is a shame that young boys of all races, and young black boys in particular, tend to idolize the more bombastic and flawed personalities in the sports world today rather than guys like Tiki.

Monday, December 12, 2005

More Evidence: Sarbanes-Oxley is Self-Inflcited Wound

Over the weekend the FT (sub req) ran an editorial bragging about how London has regained pre-eminence as an international financial center. Stephen Fidler recounts the various reasons for London's resurgence, and top of the list...Sarbanes-Oxley. Here's the money quote:

"London's thank you list could start with Messrs. Sarbanes and Oxley and the US Congress. The onerous 2002 legislation...has placed a huge competitive burden on the New York Stock Exchange and Nasdaq, compared with the LSE."

And Fidler throws in some numbers:

"Figures from Dealogic show US exchanges once wiped the floor with London. Foreign initial public offerings in the US in 1999 and 2000 exceeded $80bn, ten times the amount raised through London. Fast forward to to 2005 and IPOs through London have raised $10.3bn, compared with $6bn for the US."

I'm going to say it for the hundredth time: Sarbanes-Oxley must be repealed.

Friday, December 09, 2005

Heisman Busts

With the awarding of the Heisman Trophy coming up, a popular feature of sports punditry is the retrospective on past Heisman winners who turned out to be busts in the NFL. Ron Dayne, naturally, appears on that list, but it is a little known fact (why I don't know) that I, Donny Baseball, predicted Ron Dayne would be a bust the very moment that he was drafted. My reasoning? Very simple...
1) Ron Dayne is a running back
2) Ron Dayne was drafted by the New York Giants
3) Ron Dayne attended a Big 10 school

Why, you ask, are these facts determinative? Well, here is a list of other Big 10 running backs that the NY Giants picked #1:
- Butch Woolfolk
- Jerrod Bunch
- Tyrone Wheatley

Sorry for the unpleasant flashback Jint fans.

Economy Blogjamming !!

Over at Pajamas Media's blogjam, another PhD economist makes me feel like an idiot for questioning theory when reality contradits it...

In the post below I suggested that we have a mini Volcker/Reagan thing going on, as pro-gowth tax cuts set us on a course of expansion and tightening monetary policy wards off inflation.

I guess James Hamilton hasn't heard of this Volcker/Reagan thing:

"It doesn't make sense to be trying to stimulate the economy with fiscal policy and contract it with monetary policy."

I'm no PhD-holding professor, but might I suggest that removing accomodation to monetary policy is not a linear notion, to wit raising the fed funds target rate from 2% to 4.5% is alot different than raising it 250 bps starting at a higher level, say from 5.5% to 8% ??

We've had rates go up, what, 12 times, and a 30 year fixed is under 6.5%? For a PhD, Hamilton's thinking seems awfully rigid to me. Ah, what do I know.

P.S. Although another PhD economist makes me look smart by reiterating my thoughts about Iran.

Thursday, December 08, 2005

Stock Market is Safe...for Now

The lower chamber of the Great Sausage Factory passed the Tax Relief Extension Act today by a vote of 234-197. So don't sell your stocks just yet. The lower chamber must consult with the upper chamber, where there seems to more hostility to the stock market.

Interestingly, Dr. Ed Yardeni's daily email commentary yesterday goes over the doomsday scenario for the US economy that is fast becoming common wisdom on the street. Simplified, it goes like this - the Fed continues raising interests rates and mortgage rates follow, shutting off the cash-out home equity refinancing spigot that has fueled any and all consumer spending, and all goes to hell in a handbasket from there, not just us, but the whole damn world, especially China. (This actually causes instability in China and we have a global political conflagration on our hands, but that is a little off topic...) Anyhew, I don't ascribe to this theory but what I do believe is that a failure to extend the dividend and capitall gains tax cuts will have dire consequences. The big risk to the economy is not raising rates, it is capital-centric tax policy.

As I have blogged before, it will kill the stock market, and as happened at the end of the dotcom bust, tax receipts at the state and federal level will dry up. In 2001, California saw tax receipts plummet and it was almost entirely due to the disappearance of capital gains taxes paid by all those new zillionaires. The resulting fiscal crisis in California was the worst example but states all across the country found themselves in deep yogurt. Of course the real problem is government spending levels, but since monkeys will fly before there will be discipline in that regard, we have to pursue policies that keep the economy humming and extract tax receipts from the increased economic activity. The dividend and cap gains tax cuts have done just that as tax revenue from these activities pours into state and federal coffers. If that all comes to an end, government finances are going to suffer just as states and cities are coming out of their troubles, and we'll be back to where we were in 2002, which is to say, looking for a way out of the mess and having these policy debates all over again.

There is no need to have this debate again when we could be compounding our success to date, creating more jobs and wealth, and increasing our standard of living. What we have going on now is a mini version of the Volcker/Reagan One Two Punch that brought us out of the 1970s malaise, rising rates to stem inflation and pro-growth tax cuts to spur savings work and investment. We've been here before and we know what happens, we just have to have the vision to see it clearly and courage to ignore the doomsayers. Stay tuned.

Iranian President to Israel: "Bomb Us, Already"

Dec 8, 2005

TEHRAN - Iran's President Mahmoud Ahmadinejad said today that Isreal should just go ahead and bomb the country's nuclear weapons development sites. "Come on, already. We know you are going to bomb Natanz and Arak just like you bombed Osirak, so get on with it" said the recently elected hard-liner, directing his comments at Israel's government. Commenting to reporters after the official press conference, he further added that numerous of his recent comments were designed to spur the Israelis to action. "I've been ratcheting up the rhetoric...a little Palestinian solidarity here a little holocaust denial there...who knows, maybe it will move the needle, maybe not, we'll see" the President responded to a reporter. So far there has been no official response from the Israeli government, a request for comment to the Israeli embassy in Tehran was not successful.

It's Official

Congressional Republicans are lost. They've pissed off Uncle Milty.

Wednesday, December 07, 2005

The Living Hell of John Robert's AmeriKKKa !!

Apparently, if you've stiffed the government for $77,000 for 20 plus years, they can now withhold 15% of the $800 Social Security check they send you every month (so that Uncle Sam can hope to get back its principal over the next 50 years).


Tuesday, December 06, 2005

Whew!! I Am Much Relieved.

For the longest time I was worried that maybe we didn't have a decent network of "interogation centers" around the globe to haul high profile terrorists to. What a relief.

This gives me more confidence that maybe we do have agents crawling all over Iran and North Korea.

Toiling Away in Obscurity...and for Good Reason

The WSJ has a report (link in title, sub req) this morning on an absolutely absurd study put out by some Federal Reserve Board economists that claims the 2003 tax cut on dividends and capital gains did not boost the stock market. (Let me just say to begin with that I am in this business and EVERYONE believes that the tax cut boosted the stock market, even the Bush-haters who will only admit it in the strictest professional confidence.)

Delve into the article and you can see why these four economists are toiling away in obscurity. The study only tracks the stock market's performance "during a few days in early January after the Bush adminiistration officially announced the tax cut proposal, and two weeks in the later half of May when the bill was being discussed by the Senate and was eventually signed into law by the President May 28." (emphasis mine)

Um, two words. Cherry. Picking. On the face of it, this sort of methodology is about the least rigorous approach they could have taken and is obviously flawed to begin with. They make a lame attempt to justify this saying that "while the event windows are small they are sufficient to capture the stock market reaction." Really? Says who?

The stock market works by absorbing and reflecting all currently available information, this is to say, it factors every little damn thing going on in the world. So context is important. So what was happening in January when the tax cut was announced is important. Let's review. The President announced a $700 billion plan including the FULL REPEAL of the dividend tax. At that time, the Republicans only had a 51-48 majority in the Senate, where the fate of the tax plan would be decided. The plan came under instant withering attack by the Dems whose line was that while we are fighting an expensive war in Iraq, the President wants to give tax cuts to "Wall Street fat cats." Also, there was instant oppostition to the plan by liberal Republican Senators such as Voinovich, Chafee, and Snowe. Thus it was obvious that the plan was a long shot, and the stock market yawned as anybody with an inkling of experience in the stock market would have predicted.

Fast forward to May. The tax cut package had gone through several iterations and contortions on its way through the Great Sausage Factory and wound up being slightly bigger than half of Bush's original proposal with numerous phase-outs and compromises, namely that the dividend rate would be cut to 15% rather than eliminated. Even so it was not clear the plan would pass the Senate. While the bill was slinking towards a vote, the world was treated to a rash of suicide bombings in Israel and Morocco over the weekend of May 17th and 18th, and Monday May 19th saw a big drop in stocks as pessimism about consumer spending and increased regulatory burdens on pharmaceutical companies hit the market hard. The market never recovered those losses until...the final tax cut package passed in the wee hours of May 23rd with VP Cheney casting the deciding vote. Yes, it was that close, so you would expect that the stock market would not anticipate passage, but react on the news. And it did, the stock market never looked back after May 23, 2003.

As if that lack of context doesn't make these economists look like big enough fools, they claim that the dividend tax cut "didn't lead to a significant increase in the amount of money that companies paid out as a proportion of their earnings." This is too cute by half. Maybe as a proportion of earnings there was no effect, but earnings have grown at a torrid pace, outpacing the merely robust increase in dividend payouts that resulted from the tax cut. No one can sensibly look at examples like Microsoft's $30 billion special dividend (and the fact that MSFT said the tax cut was the impetus for the dividend) and the mountain of other examples of increased dividends and not conclude that the dividend tax cut increased corporate dividend payouts to investors.

The only thing that can be said of this Fed study is that, as my grandma used to say, "it's good enough for government work."

Monday, December 05, 2005

Being (Capital L) Liberal in One Easy Lesson

Radley Balko offers up a sampling of anti-Wal-Mart cant from some comments section somewhre that can only be decribed as...well, it can be described in alot of ways come to think of it...but basically it is an instruction manual on how to be capital L Liberal in America today.

1) Always remember, you know better than others.

"First you have to agree on what "stuff" we should all have."

Got that? What we can have needs to be agreed upon by our betters who don't know the first thing about us.

2) Wealth is bad, so repel all consideration that wealth can be used for good:

"Dear Walton Family, and all other private citizens with a net worth over 1 billion US dollars, "How much is enough?"

They said the same about Rockefeller, but thanks to the 'disgusting' amount of wealth that he accumulated, America has the following institutions (among others):
- The University of Chicago
- Rockefeller University (a leading scientific research institution)
- Spelman College (an historically black women's college)
- The Metropolitan Museum of Art
- Lincoln Center for the Performing Arts

It is a joke to suggest that these institutions would exist without the Rockefeller fortune. Are the wealth-haters suggesting that America would be better off without these institutions?

3) Those that agree with us are enlightened, those that disagree are dangerous:

"The Walton family is not just an economic power house. They are political and social activists who fund groups who want to fundamentally change this country. Check out their position on public education.

Ah, two words. George. Soros. Clearly, being wealthy and powerful is only acceptable if you have the right positions.

OK class, that is it for our first lesson. Next week we will explore the critical principles of killing people to make the world better and go into more depth on why the majority of humankind is, and always has been, stupid and should listen to us. (Hint...religion.)

The Mary Mapes School of Economics

The federal budget was "fake but accurate" before "fake but accurate" was cool.

I loved this post over at Cafe Hayek. Naturally it displays what we all know to be true (if you actually pay attention), that government accounting of its own books is a fraud. This particular example is Balance Sheet focused, but national Income Statements are equally useless, which leads to a point I make as point #1 whenever I discuss out federal budget deficit with anybody: the US annual federal budget accounting is a sham, so why use it as a starting point in debates about fiscal policy? In any other sphere of endeavor, people don't begin with demonstrably faulty data and proceed with discussion, so we should not look to the phony, meaningless federal budget deficit as the sine qua non of economic signposts. There are numerous other measures that we can focus on to measure and analyze fiscal policy. Here is one example (scroll down). Like any other area of economics, journalists generally don't have more than a cursory understanding of federal budget analysis, but cite the federal budget deficit/surplus deliberately to infuse a story with the supposed legitimacy when it suits their purpose. They loved Bill Clinton's surpluses even though they were not nearly as indicative of economic health as they purported, and they hate George Bush's deficits even though they are not nearly as indicative of economic malaise as they hope. Last week was about the best week one could have hoped for in terms of economic numbers - employment is high and going higher, output is humming and inflation is tame if not totally contained - and the stock market and dollar reacted accordingly, because they know this.

Another Giant Win - Antonio Pierce Meet the Good Doctor

This week's award goes the whole Giant defensive unit for displaying old-school Giant football against the hated Dallas Cowboys (although is it really that easy to hate a group of nobodies playing fine football under the Tuna?) Representing the G-Men's defensive unit this week next to the Dr. Senator is the man who pound-for-pound has put in the best performances this year as a Giant - Antonio Pierce. It is hard to overshadow an icon like Strahan and compete with the bursting-onto-the-scene brilliance of Osi Umenyiora, but in the trenches doing the unheralded dirty work, Pierce seems to be inheriting the mantle of Harry Carson, Pepper Johnson and Jesse Armstead - that of the on and off field leader at middle linebacker.

Thursday, December 01, 2005

Chuckle of the Day

Here is a news item from today's Wall Street Journal:

"African-American Broker SuesAlleging Bias at Merrill Lynch"

Here is a picture of Merrill Lynch's Chairman and CEO.

Stop the Madness!