Friday, May 29, 2009

How To Vote No On Sotomayor

Hey, liberals have an abortion litmus test on justices, so why can't conservatives and libertarians have a litmus test on the right to bear arms? If Sotomayor doesn't explicitly support an individuals 2nd Amendment rights, vote no. Pretty simple.

Thursday, May 28, 2009


The birth of Government Motors is coming into focus.

I don't know what this means, but I know it ain't good...
"The government will make a “judgment call” on May 30 as to whether bondholder backing for the latest proposal is sufficient, the administration official said."

Ditto this...
"Bondholders would lose some or all of the warrants and their 10 percent stake in the new GM entity unless the company wins sufficient support from those investors to satisfy the Treasury, GM said in the regulatory filing. "

Sounds like a strong arm tactic rather than a proscribed process of established law. All this from the presidential administration of a Harvard Law graduate.

UPDATE: The Obama administration is dressing up the PR over the Chrysler disaster, but the GM deal is still pretty much a hosing, only mildly thuggish this time around. Nonetheless this is a slow rolling disaster for our economy and our nation.

Exit question: what investor in his right mind would want to be a 25% illiquid partner in a private company majority owned by a statist administration and one of the nastiest unions?

Gas and Unemployment: Obama's Crucibles

Dan Henninger has a great column today in the WSJ, talking about what we are losing as a nation that is so deep and important yet so subtle as to be easily missed. I understand this, big time. But what struck me is Henninger's off-hand quip about some frightful green bureaucratic agency instituted in Barack Obama's second term. This may be wishful thinking on my part but I see serious obstacles to an Obama second term. Sticky wickets like North Korea and Tea Parties aside (which ought not be dismissed, as they represent a real and legitimate concern over the mismatch between what citizens want out of their government and what government wants for itself), I think the two principal barriers to Obama's re-election are going to be energy prices and unemployment. In my opinion, it is a better than 50% chance that the nation will go into the 2012 election cycle with $4+ per gal. gasoline, and 10+% unemployment. This is not mindless Obama=Jimmy Carter reductionism. Most analysts agree that crude prices are likely to jump in a few years as a return of demand will stress anemic supply growth. The bursting of the oil bubble since July 2008 has substantially reduced capital expenditures on oil and gas exploration, drilling rigs have been shut down at a staggering rate and energy companies are retrenching heavily. This is what one would expect to happen based on fundamentals, but as they say in the oil business, "low prices cure low prices" meaning this decline is eminently reversible. However this old maxim may not play out true to form this time around when you consider the policy obstacles that may prevent the natural self-correction of energy production. The policy environment is so hostile, and set to get worse, for energy producers in this country that their domestic exploration budgets won't come back even close to 2006-2007 levels until the anti-hydrocarbon attack is toned down substantially. Put simply, energy producers are hiding under their desks. If they are spending money, it is abroad. The domestic energy exploration business is going on an extended vacation. Any energy that is produced abroad is subject to competitive bidding by the Chinese and the Indians, whose economies will be consuming ever-greater amounts of crude oil. It is a virtual certainty that oil prices will rise by 2011, potenitally substantially. Here though is my less certain prediction (20% probability): gasoline prices over $4 during the heart of the election cycle will weigh on Obama in the polls and he will tap the Strategic Petroleum Reserve to mitigate high prices (e.g. save his ass).

The second obstacle for an Obama re-election will be unemployment. Let us here distinguish between the economy, the stock market and unemployment. The economy can be doing fairly well, as can the stock market, while employment can be in relatively bad shape. The Democrats drove home this point a few years back with their incessant lamentations of "jobless recovery." We can certainly have one. Looking at the landscape holisitically, the incentives for companies to invest in hiring US workers over the next couple of years are underwhelming. Companies are likely facing input cost inflation driven by cap-and-trade legislation that will drive up energy and compliance costs. They may face the prospect of advancing unionization made easy through card check legislation (see here for the real danger in this terrible idea). They face higher taxes on income earned abroad, taxes which their foreign competitors do not pay. They face potentially intense anti-trust scrutiny. They face head-on regulatory attacks on their industry (just ask the credit card industry). The upshot of all this is that US corporations will be struggling to maintain their level of profitability, and when they do contemplate growth the incentives are for them to invest in productivity tools rather than people or to invest in workers abroad rather than domestically. Trust me, China and Brazil want US corporations to build factories in their countries and they won't have anything like cap and trade to make potential investors think twice. It is a long shot to conceive of large corporations, companies whose hiring registers on the establishment survey, hiring aggressively soon after having near death experiences and facing this set of disincentives. Small businesses too will be under severe pressure from many of the same forces I noted and since the small businessman or woman is the last to get paid, they will be reluctant to divvy up their uncertain pie with more employees. So, my sense is that unemployment is almost certainly not going to approach 6% in Obama's first term. The best we can probably do over the next four years is 8% and even that may prove a struggle; but, it is a very real possibility that it will be at 10% when the mid-term congressional elections roll around, and depending on a few to-be-determined legislative outcomes , 10% unemployment could persist into 2011.

So if we contemplate gas over $4 and 10% unemployment in 2011, how do key Obama constituencies react? What do recent and soon-to-be college grads, who are disproportionate liberal voters, do? Do they entertain pocketbook issues or do they maintain a youthful idealogical posture? Hard to say exactly, but it's easy to imagine some slippage among this group if they can't find jobs. Businessmen? A large chunk of the business community went for Obama in 2008. Will they be there for him? With the exceptions of those who directly benefit from Obama's agenda (think subsidized green enegy outfits), this is the area where Obama has created the biggest risk of losing 2008 supporters. These are the obvious ones. Less obvious is private sector unions. Sure, Obama will pull out all the stops to help them, but what if his actions backfire? What if trying to hand the auto unions a leg up raises the cost of capital and hampers employment at other unionized shops (i.e. CAT)? Do the rank and file vote Obama's intentions or his results?

So while North Korea, SCOTUS nominee Sotomayor are grabbing the headlines, these could turn out to be tangential issues for Obama and for voters come 2012. President Obama has sown alot of risk into core, pocketbook issues for the next election. It will test his political abilities to the hilt to avoid reaping bitter fruits.

Wednesday, May 27, 2009

Kudos to Exxon Shareholders, Part 2

For the second year in a row, ExxonMobil shareholders have had to smack down busybody do-gooders and some not-so-well-intentioned activists bent on hampering the company's efforts to create shareholder wealth by exploring and marketing hydrocarbon-based energy. Kudos to Exxon's shareholders, again, and here's hoping that the anti-growth, anti-business bozos get the message and go away.

Jersey Pension Crisis

I did my first posts on New Jersey's disastrous state pension back in 2007. I predicted that the MSM would ignore it. I was wrong, turns out the MSM would ignore it until the crisis could be blamed on something other than corrupt and/or incompetant government. Of course, now they have their preferred bogeyman - the stock market, as proxy for capitalism and private enterprise.

The MSM also likes to refer to public pensions as "underfunded." I like the good professor's alternative..."overgenerous." With 49% of new Jerseyans wanting to leave the state, NJ will never fill their pension hole, not with taxes, not with hawking the Turnpike, not with anything. Without radical surgery to the size and scope of government and an aggressive pro-growth program to grow out of the hole, the Garden State - beloved home state of my youth - is headed for a California-style fiscal crisis.

Incidentally, the WSJ attempts to read the writing on the wall for Corzine, although the arternative appears to be weak tea for what the state needs.

Friday, May 22, 2009

Two Words Benjamin: Tankers and Pipelines

Remember when I pointed out - in the context of the drive to forge a global agreement on climate change - that Brazil was investing $175 billion (with a B) in hydrocarbons? And not just for shits and giggles either. For national greatness. Turns out that greatness needs a little financing and perhaps even a little sharing o' the greatness. I then posed a question to the global warmists (who are trying to change their name to climate changists, because, like, apparently the globe isn't definitively, like 'ya know, warming), "So how do you think Brazil will vote when it comes down to it? So now we have to ask, with their vast petro loans on the line, how do you think China will vote? The good Professor has the answer.

For that matter, let's speculate how Russia might vote, or Mexico, or Venezuela, or Iran. See where this is going? Of course they are all hoping we (as in the USofA) cut our emissions, so they can sell us their energy resources after we decide we actually want comfortable homes, powerful cars, light in the evening, hot food, cold drinks, etc...

I try not to give investing tips on this blog because I do not believe in the value of "stock tips" but this is more of a macro call. If cap and trade passes, the rest of the world will smell opportunity and move in to dominate energy while watching us force atrophy upon our thriving domestic energy sector. So here goes. Assumption one: Americans will not give up their energy-intensive standard of living. Assumption two: Climate legislation will reduce the amount of domestically produced energy. Assumption 3: Alternative energy efforts will fail to fill the gap. Conclusion: We will have to import much more of our energy. Implication: There are only two ways to import energy into the US, tankers and pipelines. There you have it my friends, the equivalent, for Barack Obama's America, of Mr. McGuire's "Just one word. Are you listening? Plastics."

UPDATE: Bahrain will spend $20 billion on developing their hydrocarbon industries. How will they vote on massively reducing demand for hydrocarbons? Likely, thumbs down.

UPPDATE: Algeria will invest $63 billion into producing hydrocarbons. I'm guessing they'll want to see a return on that investment. Killing demand for hydrocarbons? Unlikely.

Chavez Seeks Creative Financing Solution

Here is an interesting story. Apparently, the mafia (like the real Italian mafia) tried to get billions of dollars of credit lines from large banks. How did they try to go about this handy scheme? They tried to post Venezuelan bonds as collateral. Here is the part of story that should stick out...
"False Venezuelan bonds were authenticated by corrupt officials within the South American nation’s central bank, prosecutors said. "
Ah yes, just your average run of the mill corrupt South American bureaucrat looking to pad their state pension. I call bullshit. This is isn't about the mafia or some corrupt bureaucrat. This is coming from the top, from Chavez himself. He has stiffed the oil industry for billions, stolen their assets, and promises to take more. Nobody in their right mind would lend to him. So he's turning to partnerships with the likes of the Cosa Nostra to get "financing". There should be little doubt that Chavez was in cahoots with the mafia to defraud the banks, using the central bank to authenticate phony bonds to secure billions in lines of credit. The mafia would've gotten its cut, but Chavez would keep the bulk of the dough so he could keep the balls in the air a little longer. When this is how you are going about getting some liquidity, you are just about overdonecaputfinito - completely busted. I give Chavez two years at most.

More here.

Thursday, May 21, 2009

$7.5 Billion Is Just the Ante

The battle lines are already forming, it's government-owned car makers versus non-government owned car makers; and the government wants you to buy from them so that 1) the life line they threw their UAW allies can be recycled into contributions that keep them in power, and 2) they get to pursue their agenda of dictating the type of cars we drive. Just as predicted, the government's resources are already going into making life hard on the companies that compete with the government (i.e. Ford) and who might take their cues from the marketplace rather than from government. This capital infusion into GMAC is the first in what will be a long running string of subsidies aimed at inducing Americans to buy undesirable "green" cars built with expensive UAW labor. Ditto, the $15 billion dollar gift that we will have ended up giving General Motors after we forgive their debt to the US taxpayer. This will make it that much harder on the non-government/UAW-allied automakers. And it is not too hard to imagine legislation coming down the pike that puts the allied car makers at an advantage. They will pull out all the stops, maybe eventually even some tawdry 'investigation' by the FTC or the DOJ into one of Ford's obscure human resources policies or something.

The only way to fight this is to avoid GM and Chrysler products like the plague and force them to become Barack Obama's very visible signature sink hole for your tax dollars.

Japanese Company Knows a Sinking Ship When It Sees One

One of the world's great companies, Neptune Orient Lines Ltd., is ditching California and moving its US headquarters to lower cost Phoenix, AZ. Of course, they are several years behind Nissan. I'm sure they are, but if they aren't, California's neighboring states ought to be on a full-court press to woo businesses out of the Golden State right now. It's a great opportunity to poach jobs and growth opportunities. This is beauty of federalism folks, states have to compete for jobs and business. It is the only corrective mechanism we have now that our democracy has been so diluted by incumbancy protection measures and responsiveness to citizens' will is almost nil.

Date With Reality for College Grads Moved Up

I warned all those college students graduating today without any job prospects to tune in back in 2007. All the potential capital that would go into investments that could employ you is being sucked out of the private economy to fund massive government deficits. Of course, you could get a job providing socialized medicine to your countrymen. Not sure that will be as fulfilling as you might have dreamed a career can be. Do you think you'll earn ever-increasing amounts of money and receive ever-expanding room to be creative as befits your most excellent skills, attitude and competance? Hmm. Yeah, sure. You may not have a job, but at least we are on the path to social justice. Enjoy it.

Tuesday, May 19, 2009

More Choice Words for TARP

Jamie Dimon, addressing JPM's intention to return TARP funds, calls the visa restrictions tacked onto the program by the Obama administration "a complete and utter disgrace." And this from a guy who has been trying to play nice.

Of course, TARP was the leverage that the Obama administration had over banks in the Chrysler bankruptcy and Team Obama want that same leverage in order to deliver unto the UAW the same sweet deal in the impending GM bankruptcy. So the TARP funds won't be easy to repay and they won't take the money back before the bulk of GM is handed to the union. Sure enough.

Aside: I thought that taxpayers were irate that their hard earned dollars were going to bolster faltering banks. But leave it to the media to find a cloud in the silver lining of banks giving back the money - no upside.

Monday, May 18, 2009

And Now They Will Get Nothing...

New York state has finally driven out a billionaire who chose to stay and fight the bloating of our budget, the deterioration of our business environment, and the rapaciousness of public sector unions. Thomas Golisano will fight no more, he will flee. To Florida. Instead of getting 6.85% of his sizeable income each year, Albany will get 8.97% of nothing. The Big Donut. Note to clueless pols: The Rich Can, And Do, Flee. Sadly, the pols will learn the wrong lesson and will probably respond by increasing the toll at the exit.

(HT: Carpe Diem, although a buddy told me about this this weekend and I would have eventually posted it.)

Pirate Pictures

Here are some pictures of an attempted pirate attack in the Gulf of Aden. What struck me is that six men (six!) felt they were capable of capturing a giant oil tanker. They felt that way because they had achieved this before. Such is the impotence of our modern attitude, expressed via our laws and operating practices, that six, probably illiterate, modestly armed men in a small plastic boat can steal pieces of the civilized world's substantial infrastructure so easily.

Friday, May 15, 2009

Sheila Bair Craps All Over the Rally

The politically ambitious FDIC head knows which way the big boss leans, so she's talkin' all tough...and crappin' all over a stock market with a desire to move higher. Thanks honey.

Local Elitist Nannying Jerk Takes Act National!

Good news! NYC's smoking-banning, trans-fat crusading, all-around health Uber-Nanny is taking his act national courtesy of Dear Leader. Watch out America.

Even With Biden In Charge?

The market (and me) had it pegged from the get-go. Obama owns this puppy. He should have known better than to outsource to Pelosi/Hoyer/Obey.

Kiwis Want More Oil and Gas...Keep Taxes Low

New Zealand gets it. If any nation is more environmentally conscious than New Zealand, I am unaware of it, and yet they find a way to promote their energy industry in a responsible way. Hmmm.

Been to the Post Office Lately?

As Congress debates taking over the healthcare sector of the economy and imposing the largest regulatory scheme ever on the vast energy sector, the Post Office is experiencing a shortage of small denomination stamps. Yes, knowing that there would be a surge in demand for 2 cent stamps after they raised the postage rate from 42 cents to 44 cents, the USPS still couldn't get enough 2 cent stamps out there to meet needs. (And they don't put up notices, so you have to wait in line, in many cases up to 20 minutes, to learn that they have no stamps). That's OK, you can just buy double the 1 cent stamps, right? Wrong. Out of those too. And three cent stamps. Maybe there are some in the vending machines? Whoops. I went to three different post offices before I just gave up and bought 4 cent stamps.

Government incompetence is all around us everyday and yet we've still voted to give these bozos more control of our lives. Enjoy your universal healthcare and the delights of cap-and-trade America!

Wednesday, May 13, 2009

Not a Dime's Worth of Difference

Little did we know the symbolism of the picture of Obama and Chavez shaking hands. The exchange could plausibly have gone like this:

BO: "Hugo, how do you get away with stealing private property for the benefit of your government?"

HC: "Easy, Mi Amigo, let me show you how."

Cost Of Capital? What's That?

I realized it in my gut implicitly when I said (here):

"Why would anybody buy a bond of an American industrial company now after this long running tragic farce, which was capped off today with the President of the United States demonizing the people who lend their money as the capital that enables our companies to produce?", 

but I can't believe I failed to sum it up in this clarifying way..."Obama just raised the cost of capital for any unionized company generally, and UAW company specifically.  We he thinks that was a good thing is a mystery."

Saturday, May 09, 2009

Thanks for the Hat Tip George, Damn Moocher.

I'm tellin' ya' folks, NBfPB is where you should come to first.  It took George Will himself until yesterday to tell you that buying a Ford  was a strong statement and proactive move you could make to repudiate government involvement in the private economy.  I've beat this drum for a while now.

Stress Test Mess

I said that the banks ought to sue over the stress tests if it looked like it was going to be ridiculous.  Turns out that it almost was and they almost did...

"At times, frustrations boiled over. Negotiations with Wells Fargo, where Chairman Richard Kovacevich had publicly derided the stress tests as "asinine," were particularly heated, according to people familiar with the matter. Government officials worried San Francisco-based Wells might file a lawsuit contesting the Fed's findings."

Yeah, I bet the Feds didn't like being called asinine so they were out for WFC.  The WSJ has the behind the scenes story.

Here's another lovely tidbit...

"SunTrust Banks Inc. also persuaded the Fed to significantly reduce the size of its estimated capital gap to $2.2 billion, after identifying mathematical errors in the Fed's earlier calculations, according to a person familiar with the matter."

Well, good thing that the Government did this and we all can have confidence now that the Feds have spoken.  Oh and by the way, the Obama administration figured out the budget wrong, they'll need another $60 billion to pay for their healthcare disaster.

Indeed, the country is in the very best of hands.

Friday, May 08, 2009

Road to Serfdom 70% Travelled in Venezuela

On the occassion of F.A. Hayek's 110th birthday there are likely alot of commentators rightly quoting or otherwise employing material from Hayek's classic The Road to Serfdom. If you haven't read it, you should, but if you don't have the wherewithal right now, you don't necessarily have to read it because the what the book talks about is literally happening in real time, right now in Venezuela. (Truly handy if you missed the last time this book was re-enacted in real life a few years ago in Zimbabwe.) In Venezuela, it's been slowly unfolding now for awhile, but it has been as predictable as the sunrise. This latest development sets the stage for another easily predictable turn of events. So, Chavez steals all this oil and gas infrastructure. He'll be hard pressed to find people to work the equipment. The equipment will also suffer wear and tear. I doubt Hugo has a very large maintenance capex budget. Actually I bet that it is not much higher than zero. In time - a short time - this equipment will cease to be operable and no good to him. So he'll have to try to steal some more stuff, but most of the potentially stealable equipment will be long gone out of Venezuela. Without equipment and manpower you can't get oil out of the ground. Ergo, Chavez is spiralling fast toward the point at which he has no more oil, which is the point at which most people in Venezuela will have almost no prospects, little food, and alot of anger.

Just Remember, the "Stimulus" Was and Is Absolutely Critical to Our Economy Recovery

When Mark Sanford, Governor of South Carolina, proposed forgoing some stimulus money, the MSM went nuts, flogging the line that being deprived of stimulus dollars was the worst thing that could happen in this economy. How could he do such an irresponsible thing to his suffering constituents? Well, it turns out that it is OK to go without stimulus money, and you'll never guess who thinks so.

Rehabilitation of the Household Survey

Back in 2004 and 2005 there was a bit of a tug o' war between the establishment survey of employment and the household survey of employment. They are two different things and tell us slightly different things about the employment landscape. True market analysts, who are trying to make money, understand the differences and approach the data with political agnosticism. Not so pundits and the MSM. The difference and the interplay between the two surveys was shamelessly ignored and manipulated to score political points a few years ago. The key talking point on the left throughout 2004 was the "jobless recovery" which was meant to discredit the 2003 tax cuts and George W. Bush going into the November election; and, if you were out to bash the economy, the establishment survey numbers were for you. Big company employment lags the more informal sector and tax cuts spur more entrepreneurial expansion, which would tend to show up in household survey. So the MSM ignored the positive signs inherent in the household data and focused exclusively on the establishment data. Conversely, if you wanted to look for positives and proof that the tax cuts were working, the household survey was where to look, and rightward media outlets were the only place you could learn even a smidge about the household data. (Some background here.)
The US economy is a convoy of giant tankers and small speed boats. When they all decide to make a turn, you can see it in the speed boats first, well before it becomes evident that the tankers have turned. Ironically, today, the political motivations are shifted. The fawning, Obama-entralled MSM is likely desperate to illuminate the leading indicators and small glimmers that indicate the economy is turning around. Natually the MSM is likely to flip the 2004 strategy on its head and begin to emphasize the household survey and studiously put the establishment survey in context, which they utterly failed to do in 2004. Look for the household survey to get heavy play along with assertions that this is all related to the "stimulus package" and/or anything at all the Barry O has done. Watch too for the establishment survey to get ruthlessly parsed and qualified.

Why Didn't They Stress Test Fannie Mae?

It takes some gaul for the Feds to pass judgement on the banks via the stress tests and their insistance on 4% tangible common equity when Fannie Mae has negative equity and is going hat in hand yet again for billions from you and I, while the banks are tripping over themselves to give the taxpayers their money back!

UPDATE: I shoulda thought of this..."Why Not Stress Test Pensions Too?"

Wednesday, May 06, 2009

Greens Saved from Certain Death By Oil Tanker

Great story. Not a surprise to me...Big Oil rocks.

Firing Back at Obama

I called the President's demagoguery against creditors in the Chrysler restructuring shameful. I am both a pipsqueak in the financial industry and anonymous to boot, so it didn't take much balls. But here is a guy with a $20 billion business that is willing to stand up and call the POTUS out on his shameful and destructive rhetoric. Good for him. (That said, this missive is going viral in the finance world, ironically amongst the very people that were all gaga over Obama during the campaign (see here) and insisted he was a clear thinking, new breed type moderate with the good sense to implement sound economic policies. As someone who couldn't quite figure how the finance world fell for this lie so hard, I'd relish the irony if President Obama wasn't so truly dangerous to our country's economic health and all our well-being.) Anyway...

Unafraid In Greenwich Connecticut
Clifford S. Asness
Managing and Foundin PrincipalAQR Capital Management, LLC

The President has just harshly castigated hedge fund managers for beingunwilling to take his administration's bid for their Chrysler bonds. He called them "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout." The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President (an exception, though still in the form ofa "group letter", was the superb note from "The Committee of Chrysler Non-TARP Lenders" some of the points of which I echo here, and a relatively few firms, like Oppenheimer, that have publicly defended themselves). Furthermore, one by one the managers and banks are said to be caving to the President's wishes out of justifiable fear.
I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President's comments (of course these are my own views not those of my company). Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called "Not Afraid Enough" as I am indeed fearful writing this... It's really a bad idea to speak out. Angering the President is a mistake and, my views will annoy half my clients. I hope my clients will understand that I'm entitled to my voice and to speak it loudly, just as they are in this great country. I hope they will also like that I do not think I have the right to intentionally "sacrifice" their money without their permission.
Here's a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It's not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders' contracts aside in order to help the company survive, all ofwhich are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds returnless than stocks) in good times only because they get more than shareholders in bad times. The above is how it works in America, or how it's supposed to work. ThePresident and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company andpartially paying off Chrysler's creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored theUnited Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse. Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients' money to share in the "sacrifice", they are stealing. Clients of hedge funds include, among others, pension funds of all kinds of workers, unionized and not. The managers have a fiduciary obligation to look after their clients' money as best they can, not to support the President, nor to oppose him, nor otherwise advance their personal political views. That'show the system works. If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could "share in the sacrifice", you would not be happy.
Let's quickly review a few side issues. The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.
Let's also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won't work because of this irresponsible hectoring.
Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along. The hedge funds were singled out only because they are unpopular, not because they behaved any differently from any other ethical manager of other people's money. The President's comments here are backwards and libelous. Yet, somehow I don't think the hedge funds will be following ACORN's lead and trucking in a bunch of paid professional protestors soon. Hedge funds really need a community organizer. This is America. We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.
I am ready for my "personalized" tax rate now.

Tuesday, May 05, 2009

What To Make of This????

Here's a stumper.  What politician said this:
"There should be a tax revolt in the state of _____ (I don't want to give it away!). We're the most inefficient state in the country.  We have more government per person than we need.  You would never manage a business the way we manage our government - we have overlapping provision of services and, in my opinion, it's insane."
Ron Paul?  Sorry.  Mark Sanford?  Whahhh!   Rick Perry? Mitt Romney?  Survey says, "XX"!!!!
OK, let me give a hint.  What DEMOCRAT politician said this?
Heath Schuler?  Phil Bredesen?   Pashaw!
OK, what northeastern Democrat said it?
John Baldacci (Maine)?  Gillibrand??  Puhlease.
OK, last hint, what black northeastern Democrat  said this?
Still stumped?  Here is your answer.  It wouldn't have been so hard if you have been a NBfPB reader since, well, 2006.
If you are inclined to be cynical and think that all politicians are deeply flawed, calculating, self promoting careerists, then this tidbit would lead you to think that there is at least one politician that is correctly reading the Tea Party tea leaves and is getting on the bandwagon rather than spewing bile on these concerned citizens.  Is this a barometer of local pols "getting it" while national pols remain laughably clueless?

This Is How Tyranny Begins

Don't like paying taxes? You might be an extremist. From the DHS "Extremist Lexicon":

(U) tax resistance movement
(U//FOUO) Groups or individuals who vehemently believe
taxes violate their constitutional rights. Among their beliefs
are that wages are not income, that paying income taxes is
voluntary, and that the 16th Amendment to the
U.S. Constitution, which allowed Congress to levy taxes on
income, was not properly ratified. Members have been
known to advocate or engage in criminal activity and plot acts
of violence and terrorism in an attempt to advance their
extremist goals. They often target government entities such
as the Internal Revenue Service and the Bureau of Alcohol,
Tobacco, Firearms and Explosives.
(also: tax protest movement, tax freedom movement, antitax

So the government spends billions of tax dollars on things I don't like, so I join with others to protest what our money goes to and the fact that the government that levies increasing amounts of taxes to spend that money inincreasing amounts. That makes me an extremist? Oh uh.

Letting the Enemy Into the House Via the Front Door

I said "Shame" but apparently, there is no capacity for shame in this matter. Obama is out to stamp down on capitalism and the rights of property owners. As a letter to the editor in the WSJ toady suggests, what is the difference between this and what Putin did to Yukos? Not much. Road to serfdom to be sure. This is a BIG deal. If true as reported, this is pure political thuggery of the worst kind emanating from the highest office in the land directed at the heart of American business in the middle of a recession. And, if true as reported, I can only hope that this creates some degree of revulsion among broad swaths of the American populace that believe in basic rule of law. This is dangerous ground. This is how economies are destroyed. Russia's economy began to crater the day that Putin jailed Khodorkovsky and stole Yukos. It fell into disarray quicker and sooner because Russia is solely a commodity economy, but no matter how large and diversified an economy is, the process of destruction is the same, only its duration is different.

Couple things in this article that confirm what I have been saying all along...1) Obama is no moderate when it comes to the American capitalist system, he wants to cripple it, 2) US business has buyer's remorse, no more so than the finance industry, which miscalculated or somehow let itself get snookered. Your typical Goldman Sachs liberal and Silicon Valley independent let their enemy into the house via the front door.

Healthcare Not a Right

Over at Pajamas Media, Paul Hsieh echoes, in point #2, one of my best blog posts ever...

US Banking, a Hinge of History

Aside from his political views, I never cease to be amazed at Warren Buffett's genius. It was no coincidence that over the weekend, before substantive details of the Treasury's bank "stress tests" are revealed, Buffett was waxing euphoric over Wells Fargo at the Berkshire Hathaway annual meeting. The Oracle went so far as to say that if there was one stock he would put his entire net worth into, it would be Wells. Wow. That is a public relations triple howitzer. Not surprisingly, it was good for a 20+% gain for WFC on Monday, muting the news that the government is going to ask Wells to raise capital. The good news for Wells is that, at worst, they raise a couple billion, of which Berkshire would take a big chunk. But frankly, as I've said before, if were them, I'd sue the feds. The TARP money was essentially forced upon them, the conditions were changed ex post facto, they are facing resistance in giving it back, they've been forced to cut their dividends, and now the government is demanding they dilute shareholders based on an unlikely Depression era economic scenario and arbitrary capital rules that run counter to decades of bank regulation practice. I repeat...I'd sue. All of this should be a bridge too far, especially for a company like Wells that did the government a favor by sweeping up the mess at Wachovia, which could have been a disaster for the FDIC.

Of course this is not the only tactic to employ. A strong bank could play along with the government and seek to benefit as the heavy hand of the government wrecks some of the competition. This appears to be the game plan that Jamie Dimon is following. Yesterday, he said that JPM stands ready to acquire banks that the feds think aren't up to snuff. While this is a tad cynical and not ultimately good for the dynamism of American capitalism, I am not too upset as a JPM shareholder. Obama has eight years at the most and his influence could easily wane much faster, so it is not implausible that JPM scoops up otherwise decent bank assets - long term assets - at distressed levels, which will accrue to JPM shareholders' benefit long after Obama is gone and US banking returns to normal. We could well look back on this era and say that JPM, posing as an altruistic corporate citizen, looted its competitors with the imprimatur of the federal government. (Concerning TARP, Dimon has spoke numerous times recently of "what is good for the country", despite being one of the most shareholder-focused CEOs in America.) Again, fine for JPM shareholders, but this is crony capitalism or some other such variant of directed capitalism, it is not dynamic, Schumpeterian American capitalism.

History hangs on individual actions, it is not foreordained. The direction of the US economy and American capitalism could be tied up in the actions of one or a handful of banking institutions in the next couple of months. Who goes along, who resists, who questions authority, who makes an alternative case, who stands on principle, who plays the angles? These are the questions of great import. These are the hinges on which history turns. It is both scary and exhilerating.

Obama Opens Another Front In the War On Capital

I've lost count on how many major assaults on American business Obama has launched in just over 100 days (five , I think). The latest is his push to tax overseas earnings. This is a huge mistake. It will accelerate the drive for American corporations to move corporate domiciles. Many of our best corporations are only a fraction "American". They were started here and are nominally run from here, but many get the overwhelming majority of their revenue from non-US markets and employ more people outside of the US than they do inside the US. Thus the reasons to remain a US corporation are relatively few. They could just as easily be a Swiss corporation or a Singaporean corporation and have "US Operations". Why would Obama give these corporations an excuse to make the move? And they will move, not because they are unpatriotic or greedy. All corporations have a duty to their shareholders, first and foremost, to stay in business. Maintaining a globally competitive tax burden is critical to competing around the world, and thus, staying in business. Over time these companies will grow and the marginal hires they bring on to accomodate that growth are less likely to be in the US. Over time, these companies will lose their American character and have even less allegiance to America's interests. This amounts to a donation of some of our best institutions to foreign countries.

Ultimately, I think this assault of Obama's will fail. Many of these companies are decades old and plan to be in business in perpetuity, in theory at least. To them, Obama is a blip. He holds sway for eight years at most, possibly only two, if the 2010 mid-term elections go against him. This is a meaningless timeframe on their clocks. Rather than bow to this and damage their competitiveness, corporations will fight it or maneuver around it and wait Obama out. Any aggressiveness in securing exactly what Obama intends will entail significant coercion and nastiness. The fallout of just the fight, let alone a victory, will cause great controversy and economic damage. That is not to say that the Obama administration will swear off coercion and nastiness, but after raising hackles by employing bully tactics against the banks and against auto company creditors, is he really going to go for round three with the broad spectrum of American business? Some in his party might begin to second guess the pugilistic approach to America's largest employers, and voters might begin (or continue) to wonder 'where does it end?' Will Obama have the political capital and energy to pull it off? We shall see, the fallout of the "stress tests" and of the automaker bankruptcies will have a significant impact on Obama's ability to continue to tinker with the US economy. If history is a guide, it will not go well and voters will rein him in.

UPDATE: My skepticism is warranted. Thankfully.