Wednesday, January 30, 2008

Dueling Numbers

Usually markets prefer newer data to older data, which is why I would have expected that, faced with the dueling numbers of Q4 GDP and ADP's January payroll numbers, the market would have given more weight to the payroll figure. Granted, there is more going on with today's Fed decision looming large, but still it seems strange that the ADP report would be summarily ignored. Can we chalk this up as another piece of evidence of irrationality currently infecting markets? Answer that question and you can make alot of money.

Grading the Voters - Edge to Dems

I must pause here and give my respects to the Democratic electorate (at least the Democrats of Iowa, New Hampshire, Michigan, South Carolina and Florida). They have resoundingly told John Edwards that he belongs nowhere near the White House, thus displaying some good sense. Faced with the choice of a soulless political automaton, a saintly cipher, and loathesome phony, Democrats have, in the best traditions of American politics, opted to eliminate the latter and have the former two duke it out.

I can't say I am equally impressed with Republican voters. They have 1) given the populist preacher far too much elevation in standing, 2) they have sent packing two eminently attractive candidates: the tough, results-oriented big city mayor and the measured, good sense-exuding lawyer, a modern day Cal Coolidge, and 3) they have winnowed the field to the plastic businessman and the grandfatherly nanny.

Tuesday, January 29, 2008

Tom Brady...Climatologist

More good reason for Osi, Tuck and Strahan to put him on his back...often.

Monday, January 28, 2008

If John Edwards Weren't Such a Phony, He'd Rail On Big Dairy

Forget gas prices. What's really pinching the budget of American families? Milk. Gas prices are mercifully cheap compared to milk prices. I can travel up to 20 miles on a gallon of gas with a carload of stuff. A gallon of milk lasts about a day and half in my household. Yesterday I paid $4.41 for a gallon whereas I was paying $3.00 not too long ago. You won't hear the politicians, like World Class Phony John Edwards, caterwaul about this though, because the milk industry is a beast of their own creation. The US dairy industry stands on a statist design and milk prices are controlled thereby eliminating the information content of prices, the fundamental and critical role the prices play in the economy. Supply cannot respond to demand. Forgive me, it can, but when it does, the lead foot of the state stomps on it.

Thursday, January 24, 2008

Bill Gates Is Wrong...Laughably Wrong

Allow me to happily pile on Bill Gates's squishy and moronic call for a "kinder capitalism" that is splashed all over the front page of the WSJ today. Kudlow has it right, capitalism has lifted hundreds of millions of people out of grinding poverty, escaping the default condition of humanity which is characterized by hunger, short life, disease and large physical burdens just in order to survive. That would be enough to laugh Gates off the stage, but beyond that, the people that Gates is so worried about not benefitting from capitalism, don't live under capitalism. Pretty much all of Africa is untouched by capitalism as we know it in the West. Only a fool would expect the benefits of capitalism to extend to where it is not practiced. South America in general has been travelling the road away from capitalism. The only logical expectation is that that part of the world will see decreasing benefits from capitalism. It's a choice. If you want Chavismo, fine, but you can't have western, capitalist living standards too. The eastern Europeans figured it out, the Indians are figuring it out, South Korea figured it out. It is not capitalism that needs to change, it is poor nations that need to choose.

Tuesday, January 22, 2008

Oscars List Not As Predictably Banal As Usual

The Oscar nominees are out and I must admit Hollywood has given us a break this year, straying from the recent formula of annoyance only slightly. As I noted here, you can pretty much score an Oscar nomination for best film if you produce a film that tells us one of six things: 1) American capitalists are evil, especially oil executives 2) Abortion is good 3) Israel is evil, Palestinians are good, 4) Murderers are just misunderstood 5) Homosexuality is a state of grace and you're a bloody homophobe, Pal! 6) Religion is evil. If you score a twofer your chances go up, although that is pretty easy - 5 and 6 pair well together as do 2 and 6. If you're really creative you can score an unlikely twofer like Capote, pairing 4 and 5.

This year we get 2 films that don't fit neatly into the formula, one a good shoot 'em up and one nice, lush tear-jerker. A third actually zigs slightly from the formula and gives us a girl who for some strange reason does not see having an abortion as empowering. What gives? Maybe it has something to do with Juno being a low-budget Canadian film. Finally we have our two anti-capitalist movies, one of which is a twofer. In Michael Clayton, George Clooney gives us yet another 'capitalism is evil' meme attached to his lovely (so I am told) mug, and There Will Be Blood goes for the twofer. I actually saw this last one over the weekend, because Mrs. Baseball is a fan of Daniel Day Lewis. I should have done more research before succumbing to the idea. I had no idea the movie was based on Upton Sinclair's novel Oil!, one of his 89 or so works that nobody has ever heard of. Had I known, I could have avoided being subjected to this socialist tripe. If you are up for two and half ponderously painful hours of learning that religion is phony and capitalism is an immoral and destructive force in our society, this is the movie for you. Had I not beforehand had an agreeable meal and a nice bottle of wine sitting across from the ever-ravishing Mrs. Baseball, I would have been really hacked off over the turn my Saturday night took. Such is life.

WSJ Competes With NY Times for Pessimist Bona Fides

I've noted previously the big shift in the pessimists' line of attack on the economy. It used to be we were headed for doom because the consumer was tapped out. The consumer, however, didn't get the memo so the recession argument was modified to "the banks are tapped out." They won't lend and so we're back on the road to certain economic perdition. The New York Times has led the charge but today the Wall Street Journal does its part (proving yet again, against common perceptions, that the news sections of the WSJ are only slightly differentiable from those of the NY Times) with a front page distress signal that our hard-working, job-creating small business community will be starved of credit. Trouble is, the evidence is thin on the ground. You get through the whole of the front page text without seeing any examples of actual businesses getting turned away at the loan officer's desk. The reader only gets quotes from college professors that it could get bad or seems likely to get bad. As we read on, somewhere within the bowels of section A, we find that lending is up and we see a few examples of businesses that have ample access to credit. Finally, in the last few paragraphs, we get one example of a business that has been denied credit, but only to go out shopping for deals, or "speculating" as it is also known. Small, incremental growth investments might be another story. So, what is this business that is going to send us all to hell in a handbasket if it can't expand? An orchid farm. The bread and butter of the economy this is not.

The WSJ has really stretched on this one. Fine by me though. Scare the townsfolk all you want. This Old Man Potter has cash and is buying.

Monday, January 21, 2008

GGGGGGGGGeeeeeeeeeeeeMEN !!!!!!!!!!!!

What can I say about my G-men? What a great win, but you have to view their achievement in its totality, three road playoff wins against staggering odds. The two plays that embodied Big Blue's season for me were Amani Toomer's virtually horizontal, toe-dragging sideline grab and Antonio Pierce's red zone tackle with an offensive lineman draped on him like a fur coat. You virtually never hear Amani's name when the pundits talk about the elite wide receivers in the game. It's T.O this and Chad Johnson that and Randy Moss on and on, but Amani just keeps churning out both workmanlike and highlight reel plays like that grab. The second play was Antonio Pierce's tackle in the red zone where he essentially had to burst through an offesive lineman and carry him to get the ball carrier, saving what easily would have been a bigger gain for a 1st and goal. That play won't make it to the highlight reel but it was just the type of hard-working, tenacious play that Antonio and the defense have been exhibiting all year. Congratulations to the men in Blue!

Thursday, January 17, 2008

The Panic of 2007

I've just read a fascinating piece of economic and financial markets history - The Panic of 1907: Lessons Learned from the Market's Perfect Storm. This is from the final chapter (p. 152-153):
"The recounting of the events of 1907 suggests that the storm gathers as follows. It begins with a highly complex financial system, whose very complexity makes it difficult to for anyone to know what might be going wrong; by definition, the multiple parts of the financial system are linked, which means that trouble in one institution, city, or region can travel easily and quickly to others. Buoyant growth in the economy makes the financial system more fragile, in part due to the demand for capital and in part due to the tendency of some institutions to take on more risk than is prudent. Leaders in government and the financial sector implement policies that advertently or inadvertently elevate the exposure to risk of crisis. An economic shock hits the financial system. The mood of the market swings from optimism to pessimism, creating a self-reinforcing downward spiral."

The book came out this year before any of the subprime mess was revealed but Bruner and Carr could be describing exactly what we are going through today. Have we not read that holders of complex mortgage-backed securities like CDOs are unable to determine just what it is they own? Have we not witnessed the distress of banks in the UK and Germany over the rise of foreclosures here in the US? Don't we hear that Alan Greenspan sowed the seeds of the crisis through too loose monetary policy or that Ben Bernanke lit the fuse by tightening money too much and/or too fast?

What's especially interesting is that the storm in 1907 centered on a fast-growing innovation to the financial system - the trust company - before it spread to other areas of the system. The trust company was a relatively new phenomenon in the early 20th century and they tended to have riskier portfolios of assets as they were new and not as linked to the broader financial system. Fast forward a hundred years...can anybody say "hedge funds"? There is no doubt that the riskiest pools of assets today, the newest and most innovative brand of securities such as CDOs, were to be found within the world of hedge funds. We don't have runs on banks these days, but we certainly had a run on the hedge funds. Credit strategy funds that were understood to be exposed to mortgage-backed securities or with even a whiff of poor performance saw massive redemptions. Like the trusts back in 1907, hedge funds don't have any linkages or systems to bind them together in a liquidity crisis; they are islands unto themselves and when the banks can't provide liquidity (because the collateral is so opaque) many of them went under.

In 1907, the liquidity crunch traveled to the brokerages houses too. E*Trade, anybody? In 1907 there were shady figures, like Otto Heinze, trying to game the system and they ultimately undermined all that surrounded them. Who is the Otto Heinze of today? Maybe this guy.

The parallels are stunning, at least in taking measure of the spiral down. Are there parallels in the herculean efforts that were expended to contain the crisis by the likes of J. Pierpont Morgan? Clearly there is no one figure like Morgan and the parallels are not as overt, but I would say there are some. As the muni bond market feared that the financial guaranty industry would vanish, Warren Buffett declares that his Bershire Hathaway would start insuring muni bonds. In 1907 Secretary of the Treasury Cortelyou made emergency deposits of gold into key banks, today Ben Bernanke opened wide the discount window. In 1907, the signature M&A deal that averted further deepening of the crisis was US Steel's acquisition of Tennessee Coal & Iron. You could make the case that Bank of America's rescue of Countrywide averted further damage this time around. JP Morgan's men had to make a midnight run to Washington to get a loudly anti-business president to agree to the US Steel/TC&I deal. Today, you can imagine Bob Rubin meeting with loud, protectionist Senator Chuck Schumer and asking him not to raise a stink as the Saudis and Kuwaitis invest billions into Citi and Merrill Lynch.

While history never repeats exactly, the optimistic view is that the Panic of 1907 was difficult, but faded quickly once the heroic players started taking action. By the second half of 1908, the expansion had resumed and the stock market began regaining lost ground. On the pessimistic side of the ledger, government was much less of a factor in our commercial life back then, there was little danger that the government would step in with policy that made the crisis worse. Not so today. Our government is massively larger and deeply embedded in our commercial dealings and the risk that policy attempts to ameliorate the problem will have unintended and damaging consequences is distressingly real. One thing is certain though, we probably won't have to wait 100 years to get a similar book that illuminates the Panic of 2007 as well as Bruner and Carr have done with the one in 1907.

UPDATE: Don Luskin points out another parallel. Executives killing themselves. Charles T. Barney, the President of the Knickerbocker Trust Company, killed himself in November 1907, just as the worst of the panic was passing.

Wednesday, January 16, 2008

Nationalized Healthcare = Slave Doctors

I could use the occasion of this article to make some hackneyed joke about the dental health of our friends across the pond, but instead I will use it to bolster my previous point about what nationalized health care means ultimately - coercion. As the article makes plain, the UK government is coercing dentists into unacceptable terms to keep the system aflost and the same would happen here. In fact we already have experience with coercion of doctors having experimented with "managed care." This is what people mean when they say they "have a right to healthcare", they ultimately mean they have a right to enslave healthcare professionals, to tell them what to do. We have no right to healthcare, the ability to provide healthcare is actually somebody else's property, bought and paid for by them. Demanding it for less than it is worth is stealing it. Furthermore, what do we think will happen to the quality of our doctors and healthcare professionals if we start bossing them around and telling them what they must do and must accept?

Britain's healthcare system is a cautionary tale, not an exemplar.

Monday, January 14, 2008

How I Would Campaign in Michigan

If I were campaigning in Michigan today along with the rest of the Republican field, I would say this:

"I will pursue policies at the federal level that promote US competitiveness and economic prosperity broadly across the nation, but I can't prevent states from screwing up their local economies, so I won't have a policy that caters specifically to Michigan. Michigan's problems are Michigan's doing. You let Mississippi and Alabama steal your auto industry. You drove Comerica Bank across state lines. The rest of the country has 5% unemployment. Nearly every other state had economic growth. You could too, if you got your act together. I want to be your President but don't look to me to solve your economic problems, look to Lansing."

How many votes do you think I'd get?

Joy In Jintsland!!!

All together now in the best Chris Berman baritone you can muster..."GGGGGEEEEEEEEEE...Men!!!!!!!!!!!!!!!!!!!!!!!"

Friday, January 11, 2008

More Diesel Momentum

Don't look now but diesel is getting some serious media coverage for its efficiency and low emissions. Where have I heard that before. All we need now is a policy to give it a little push...Hey, I know, reduce taxes on clean burning, efficient diesel fuel!!!

Hillary's "Women Hammer" Smashes Reason and Logic

Fresh off her victory in New Hampshire, ostensibly on a wave of women voters, Hillary is now wielding a giant "pander to women" hammer and she is going to smash every nail with it. Addressing the issue of immigration, HRC coughs up the dumbest, most offensive pandering pap I've heard in a long time..."No woman is illegal" HRC tells us.

Ah... yes... a woman can most certainly be illegal. Women are subject to the same citizenship requirements and/or immigration laws as men, deserving of the same privleges but also bound by the same obligations to obey laws. In other words, they are equal to men, being a woman is irrelevant to one's status as an individual who has conducted oneself within the boundaries of the law or outside those boundaries. What is Hillary saying, that women are deficient? Or maybe that they are extra special? Is no woman illegal because women shouldn't be bound by the law like men? Or is no woman illegal because women aren't capable of meeting these obligations of citizenship? Either way, this should be offensive to every self-respecting woman.

On the bright side, the fact that people eat up this feel good feminism may be a sign that serious, "moral force" feminism has done it's work so well we can now afford to have a feminist movement that is an empty shell.

The Other New York

Tigerhawk (HT: Instapundit) is laughing at your typical silly 30-something New York liberal. Sad to say I know far too many of these people, they are everywhere here, and I'll bet Sunday dinner that they are on the Obama bandwagon because it's cool, not because of a careful comparative policy analysis vis-a-vis Hillary. Anyway it is not my point here to bash these people, for I am happy knowing that the debates are a more pleasant experience for me. Nearly all the candidates I watched last night said they wanted to cut my taxes, which would increase my wine budget!! Even Ron Paul, with his focus on sound money, would indirectly help the cause as the falling US$ is making vino from around the globe less attainable. I'd vote for a credible plan to get the dollar back to parity before the '05 hit the stores!

So while the Chardonnay sippers are "torqued up" the Shiraz gulpers are jazzed up!

Wednesday, January 09, 2008

Sausage Factory Brilliant Idea #1,037: Higher Gas Taxes

What was arguably one of the most demogogued domestic issues of the last few years? What have politicians railed, caterwauled, moaned, shrieked, lamented and bewailed over incessantly the last few hot political seasons? Yup. High. Gas. Prices.

Aren't gas prices high in large part due to enormous taxation levels and a patchwork of fuel standard regulations? Yup.

Isn't it widely speculated that high gas prices could be a factor in slowing or reducing consumer spending thereby causing the US economy to go into recession? Yup.

Wasn't the recent transportation bill, whose projects are funded by gas taxes, decried as the sine qua non of wasteful and corrupt government spending and surely partly responsible for Congress's all-time low approval ratings? Yup.

Despite all this, are politicians still planning to massively raise the taxes you pay on gas? YUP.

UPDATE: The Pigou Club is ecstatic because Big Business, who inhabit Incumbistan and only really fear the real capitalists of Small Business, is on board. For those new to the debate - why you should reject the membership in the Pigou Club is here.

UPPDATE: Maybe the correct policy response is to launch a Jeffesonian military offensive against the modern day Barbary pirates of MEND in Nigeria.

Friday, January 04, 2008

Conventional Foolishness

I never thought I'd see the day - but media elites have waged such a war against this country and this government inside their heads that they no longer can tell up from down - that the words "5% unemployment" and "recession" would be used in the same sentence. And not just once, but in nearly every story you read regarding the economy.

Unemployment was actaully sub-5% at 4.975%. Highest in two years? Yup, highest level over a two year period of extraordinary economic prosperity. Kinda like saying this year was Derek Jeter's worst batting average since 2005. Employment growth is slowing? Yup, at 5% unemployment, employers are scraping the bottom of the barrel to find new workers. If business prospects dim slightly they aren't going to invest in the 5% of us who haven't been able to work these past few years. So this slow down in employment is natural, inevitable even.

The panic in the markets is palpable. That's when you make money folks. Small caps in particular are being given away. Pick your spots. Average in over Q1. Happy investing.

UPDATE: Fred Thompson hit this theme in last night's debate when he pointed out that we used to think that 5% unemployment was great. We will again I imagine, just so long as Bush is not in the White House.