Must Watch Videos!!

You'll find these rap videos produced by John Papola and George Mason University's Russ Roberts to be exceedingly entertaining (that is if your ideology doesn't get in your way), but please pay close attention to their message...

Guess Who's Buying Treasuries

I read a blurb recently that said bond traders disagree with Bill Gross's (manages the largest bond fund in the world) opinion (he's selling) of treasuries... They contend that there's still value - that record low interest rates will remain as far as the eye can see...

Gross has apparently sold all his fund's treasury holdings and moved substantially to cash... You'd think that yields would've spiked on the news that the Warren Buffet of bonds has left the building... But no, somebody out there, other than the Fed even, is still willing to buy... Guess who -- China...

According to Forbes.com's March 10th Streettalk column China Buys PIMCO's Treasuries and a Great Deal More, our trading partner just added $262 billion worth to its portfolio... China's traders did this incognito, having a UK bank do their bidding...

As I keep preaching, the day the Chinese dump the dollar, and royally screw themselves by the way, is not in the offing...

So is there or isn't there a bond market bubble? Oh yes indeed there is... But as we've learned (you and me that is, right?), bubbles can bubble for a long time before bursting - think tech stocks and real estate...
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Guess Who's Buying Treasuries

I read a blurb recently that said bond traders disagree with Bill Gross's (manages the largest bond fund in the world) opinion (he's selling) of treasuries... They contend that there's still value - that record low interest rates will remain as far as the eye can see...

Gross has apparently sold all his fund's treasury holdings and moved substantially to cash... You'd think that yields would've spiked on the news that the Warren Buffet of bonds has left the building... But no, somebody out there, other than the Fed even, is still willing to buy... Guess who -- China...

According to Forbes.com's March 10th Streettalk column China Buys PIMCO's Treasuries and a Great Deal More, our trading partner just added $262 billion worth to its portfolio... China's traders did this incognito, having a UK bank do their bidding...

As I keep preaching, the day the Chinese dump the dollar, and royally screw themselves by the way, is not in the offing...

So is there or isn't there a bond market bubble? Oh yes indeed there is... But as we've learned (you and me that is, right?), bubbles can bubble for a long time before bursting - think tech stocks and real estate...
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"Laissez Faire" THE ANSWER!!

I can't tell you how many times, while listening to interviews with today's politicians and business leaders, and news conferences like Wednesday's with B. Bernanke, I've thought "my God, these people truly believe that government is THE ANSWER to the world's economic woes..." They believe that initiatives, regulations, incentives (adding a few pages to the 55,000 page tax code), disincentives (adding a few pages to the 55,000 page tax code), money-printing and bond-buying, more spending, etc., - i.e., the very elements that led to our current predicament - are the solutions to our current predicament...

Whether you consider yourself conservative, liberal, or libertarian, unless of course you are totally dependent on government aid, I can't help but believe that you see the undeniable correlation between the challenges of the day and our ever-growing government... Take healthcare for example; there's an unmistakable relationship between growth in government involvement in (and spending on) healthcare and the growing problems existing in the system... The question is, is this simply a matter of coincidence or does it reflect causality? Are today's problems in fact the direct result of ever-growing government intervention?

320 years ago France's finance minister Jean-Batiste Colbert asked business leader M. Legendre what the government could do to help industry. Legendre replied "Laissez Faire" - (Let us do)... That, plain and simply my friends, is THE ANSWER!!

"Laissez Faire" THE ANSWER!!

I can't tell you how many times, while listening to interviews with today's politicians and business leaders, and news conferences like Wednesday's with B. Bernanke, I've thought "my God, these people truly believe that government is THE ANSWER to the world's economic woes..." They believe that initiatives, regulations, incentives (adding a few pages to the 55,000 page tax code), disincentives (adding a few pages to the 55,000 page tax code), money-printing and bond-buying, more spending, etc., - i.e., the very elements that led to our current predicament - are the solutions to our current predicament...

Whether you consider yourself conservative, liberal, or libertarian, unless of course you are totally dependent on government aid, I can't help but believe that you see the undeniable correlation between the challenges of the day and our ever-growing government... Take healthcare for example; there's an unmistakable relationship between growth in government involvement in (and spending on) healthcare and the growing problems existing in the system... The question is, is this simply a matter of coincidence or does it reflect causality? Are today's problems in fact the direct result of ever-growing government intervention?

320 years ago France's finance minister Jean-Batiste Colbert asked business leader M. Legendre what the government could do to help industry. Legendre replied "Laissez Faire" - (Let us do)... That, plain and simply my friends, is THE ANSWER!!

Those Bastards!!

Okay, soooo, gas prices are astronomical... Oil company profit margins haven't budged... Reelection bids are always compromised by higher energy prices... Consumers vote... Consumers are paying out the nose at the pump... Politicians need a villain... The consumer is quick to play the victim... Voila! Politicians demonize oil companies - punish them for their greed... Eliminate tax incentives for exploration, etc. Hit them where it hurts and the consumer will love it!!

Hmm... higher taxes on oil companies + less exploration, etc. = lower or higher gas prices??

Hmm... oil companies are owned by shareholders, which are largely mutual funds and pension plans, which have accounted for a substantial percentage of gains to everyday peoples' 401(k)'s and pension accounts over the past two years...

Yeah, let's all get behind that!! Let's punish those bastards!! It'll be worth paying $5 bucks a gallon, it'll be worth the hit to our retirement portfolios just to get back at those bastards... Let's cut off our noses to spite our faces!!

Seriously folks, I'm not big on subsidies to any industry... I'm all for a lower corporate tax rate, with your basic expense deductions... In a perfect world (ha) we'd have a zero corporate rate - read How About a Zero Corporate Tax Rate...

Oh and take a look at what you paid for groceries last month. Food prices have risen more than gas prices... How come we're not going after the big bastard grocery chains??

Too Many Meds??

I sometimes wonder if, in my old age, I haven

April 27, 2011 Market/Economic Report (video)

What Can He Say?

Tomorrow's Ben Bernanke press conference is being billed as a can't-miss for serious investors. I wonder what he'll say:

Do you suppose he'll confess his fears? Will he use the Fed's mandate (to essentially keep the world's economy afloat) to justify the bailouts and intervention (in the trillions)? Will he tell of sleepless nights as he lies in wonder of whether the massive injection of liquidity is something he can truly reign in when he deems necessary? Will he tell of his fear that he may have created an epic bubble in the bond market? Will he tell of his fear of following in his predecessor's footsteps, whose policies during the last recession were likely the biggest factor leading to the real estate bubble and bust? Will he tell of his fear that perhaps Milton Friedman was right when he said "inflation is always and everywhere a monetary phenomenon"?

Or

Will he take credit for the economic rebound? Will he assign responsibility for the stock market's recovery to the programs the Fed implemented during and post the recession? Will he blame record commodities prices on purely supply/demand factors (not meaning the supply of newly printed dollars growing faster than newly produced goods)? Will he in essence suggest that the timing of Fed action relative to higher commodities prices reflects correlation but not causality - after proudly declaring that the improving economy/stock market reflects causality and not just correlation?

The latter's a safe bet...

In terms of going forward policy; I don't suspect he'll tell us that the Fed will be measurably less accommodative anytime soon. I imagine we'll hear that it's their intent to complete QE2, and that QE3 is probably not necessary - but not out of the cards should the economy take an unanticipated dip.

Myopic Wall Street will eat it up... Free Marketers will boo and hiss...

I personally feel for the guy, he's doing what he thinks is best. But I can't help but wonder, if he were on the outside looking in, if someone else were doing this bidding, if he wouldn't be an outspoken critic....

Who Needs 12 Flavors of Yogurt Anyway?

As the debate rages on over deficits and debt-limits, and due to feedback I've received from recent posts on the subject, let's briefly revisit the popular idea that increasing taxes on the wealthy, particularly (for this essay's sake) the mega-wealthy, might serve a constructive economic end.

note; I have no special affinity for the super-rich (i.e., billionaires), I don't know any, I don't always agree with their politics, and I absolutely believe they should pay their taxes. I will confess however that in the case of a few tech-geniuses who come to mind - as I here type on a feather-light wireless keyboard linked to a paper-thin notebook (all for less than a thousand U.S. bucks) - I so appreciate how they exploited every opportunity to pursue their separate interests...

The case for raising taxes on ten-figure Americans rests in the notion that they're flush with ever-increasing idle cash to the tune of tens, if not hundreds, of millions that should be disgorged from their multi-billion dollar estates and allocated elsewhere (for the greater good) by the government.

Now contrary to populist opinion, Bill and Melinda, while they can easily afford to pay higher income taxes, are not hoarding rubber-banded stacks of green pieces of paper behind some revolving bookcase or in a wall safe hidden behind a portrait of Great Grandpappy Gates. Nor are the far-stretching digits and commas representing their bank account balance balanced with the inventory of rubber-banded stacks of green pieces of paper locked away in their bank's vault. Nope, their tax-worthy fortune is in fact sitting in plain view.

It's in that new office complex going up on Main Street, it's in your neighbors' house, it's in the dozen frozen yogurt dispensers at the corner Yodigity, it funded your niece's tuition to Stanford and it's stopped at the red light in front of you. I.e., it's been efficiently distributed throughout the economy. Which begs the question; is it truly in our collective best interest for the likes of the Gateses (even if they themselves believe it is) to pay higher taxes?

Now the wealth-redistribution advocates do not at all appreciate that sentiment. They contend that, on balance, the economy will not take a hit if we simply transfer a few digits and commas from all the top-earners' bank accounts to the U.S. Treasury. That while construction plans would be cancelled, the neighbors' mortgage rate would be higher or they'd be someone else's neighbor in a less attractive neighborhood, your niece would do just fine at Chico State, and who needs twelve flavors of yogurt anyway, overall consumption will remain stable. It's just that our politicians will handle the resource allocation, as opposed to the private sector.

And on that, I rest my case....

April 20, 2011 Market/Economic Report (video)

Absolutely Buy American

According to Diane Sawyer, per her recent TV special, if every American spent just $64 more this year on American-made products, 200,000 new jobs would be created.

As you might imagine, per my previous commentaries, I would question the accuracy (on a net-effect basis) of her assumption. For it entirely ignores, as does virtually every jobs estimate related to targeted spending, the effect of diverting dollars that were previously allocated elsewhere. The estimates never reflect the job-losing impact on the prior recipients of the, in Ms. Sawyer's example, $20 billion...

That said, far be it for me to discourage anyone from spending whatever they please at whatever price they're willing to pay on whatever item they desire from whatever nation it was produced... All I want is the freedom to buy whatever I need from wherever I choose to buy it. If I'm compelled to spend a few extra bucks on an American-made product, I have the freedom to do it. If on the other hand I choose to save a few bucks and buy the product made on the other side of the Pacific and spend my savings at the American-family-owned Yodigity Yogurt, I demand the freedom to do it...

That's all...

Time For a Little Soul-Searching

It seems to me that (aside from those who are physically unable to work) there are two types of people in this world; those who desire freedom and welcome its attendant challenges/opportunities, and those who desire privilege and its attendant indolence

Guido Says We Have a Debt Problem!!

Good News! Standard and Poors just downgraded the U.S. debt outlook to negative. Yes, of course the market

How About a Zero Corporate Tax Rate? (video)

The following comes from a spirited debate, via email, I had with a good friend last Friday. Prompted by that day’s post Get Fat Cat.

He stated: “The real problem I have is with USA corps being allowed to avoid any taxation at all on monster profits because of the way their lobbyists write tax law for our congress to pass. Think GE. and before you start……….screw their stock holders……….we should all pay “friggin” something. You are a fair man…..certainly on this we can agree.”

My reply: “How about a zero corp. tax rate? There’d be less lobbying, much more capital investment, and substantial economic growth. Ultimately individuals pay all the tax in one way or another anyway.”

He got the last word with something about my zero chance of ever holding public office due to my frequent use of “friggin” and, as evidenced by “crap” such as the disgraceful notion of no corporate tax, that I have surely “slipped into using drugs”.

The funny thing is, aside from being sober, I wasn't trying to be funny. Indeed, what is a corporation? Is it not an inanimate entity? Is it not simply the things "it" owns – i.e., buildings, equipment, inventory, etc.? And, as Milton Friedman pointed out, buildings don’t pay income tax, people (customers, employees, and, yes, stockholders) do.

Think about it; the existence of a corporate tax, as my dear friend suggests, allows for the politician to effectively divert private-sector profits into campaign contributions. I’d go so far as to say that if we were to eliminate it altogether, and thus the lobbying it inspires, overall tax receipts would grow significantly.

I therefore retract my prior pleas for a more business-friendly government. Clearly, we don’t need, nor should we want, our policymakers to be more business-friendly. What we need is for them, aside from enforcing laws protecting one man from harm at the hands of another, to friggin stay out of business altogether.

As for my friend’s assertion that I’m a fair-minded man, I prefer to think myself a free-minded man. Freedom is an easily distinguishable concept; fairness on the other hand is entirely subjective. And truly, as Mr. Friedman so aptly put; “a society that puts fairness before freedom will get neither, while a society that puts freedom before fairness will end up with a great degree of both.”

Get Fatcat

There's a growing contingent of well-meaning folk who, inexplicably, believe that raising tax rates for those they deem "wealthy" will literally solve our nation's budget woes.

They've waged a war of words against the "rich". "They're not paying their fair share" is the battle-cry. "We wouldn't need to cut spending, we wouldn't need to leave cold the needy if we would make the "fat cat" pay up."

At some level, and I have to dig deep to find it, I understand. But that's a level that makes absolutely no practical sense. Every presumption in the Robin Hood of today's position is one to be easily refuted. So easily that each, upon objective consideration, provides its own refutation. See if you agree:

#1: That the politician would be more stewardly with Fatcat's money than he would be himself.

#2. That the politician is better at creating jobs than Fatcat.

#3. That Fatcat's investing in his own or other people's enterprises is not an economy-expanding and tax-generating effort.

#4. That Fatcat's lavishness is not helping the economy by supporting producers, wholesalers, retailers and their employees...

#5. That Fatcat putting his undeserved excess in the bank does not add liquidity to the economy, that it does not keep interest rates low and fund loans to businesses and home-buyers.

And #6. That if we balance the budget through tax increases the politician will stop there, that he'll not find new vote-garnering causes to exploit, and that he'll never again turn our nation's balance sheet into an utterly disgusting financial obscenity (don't you dare take sides on this one, both parties have had their way with our money).

Over-Coddled

As I suggested Monday, in my arrogant opinion, Adam Smith was right on; protecting the individual's freedom to pursue his separate interests is clearly in the best interest of society. There is however a place, as one reader commented, where a glaring distortion exists... That would be the building on 1st Street, nestled (ironically) between Independence and Constitution avenues in Washington, DC.

In the world of big government (today's world), the self-interested politician is in a unique position to exploit the confused state of the voter who believes the essential role of government is to ensure his well-being... It's in the politician's self-interest, or so he believes, to promise this voter a heavily subsidized piece of the pie...

It appears however as though the glad-hander, at long last, is beginning to realize that promising that which he can no longer deliver (and is in no one's best interest) is anything but a self-serving act... That bloated budgets and debt-ridden balance sheets ultimately lead to attack from the very people he pretends to help...

Take Europe for example... Governments have borrowed and spent way beyond their means, have entitled and taxed all they can, and are left with literally no choice but true austerity... Consequently, thousands of public-sector employees (500,000 in London just last month) are in the streets, screaming for the printing of more money - oblivious to the fact that their life-long reliance on bureaucrats (like over-coddled children) is the very cause of their angst... and that their bureaucrats' short-sighted distorted view of the world (like over-coddling parents) is the very cause of their country's (like the over-coddled/coddling family) predicament...

Now take our bureaucrats, please, someone, take our bureaucrats...

Have a nice day!
Marty

April 13, 2011 Market/Economic Commentary (video)

Repeat Pizza

My idea of a good time, as you may have gathered, is immersing myself in the kind of stuff that would cure most insomniacs... Specifically, economic history and theory...

As I travel back through the days of Milton Friedman, F.A. Hayek, J. Maynard Keynes, Karl Marx and Adam Smith, I realize that, when it comes to economics, there are two distinct schools of thought; one advances the notion that the economy cannot effectively function without the helping hand of government (ala Keynes and, at the extreme, Marx), the other says the economy is best served in the hands of the private sector, leaving the individual free to pursue his own separate interests (ala Smith, Hayek and Friedman)...

Would you agree that the latter, whether or not you view it as the path to macroeconomic success, is simply human nature - that whether we're pizza chefs or politicians*, each of us, in our own way, will always pursue our own separate interests? And is it not in the pizza purveyor's self-interest to provide his customer with the absolute best pie he can profitably produce? It is if he hopes for repeat business... And is not the pizza purveyor's profitability in the self-interest of the pizza lover? It is if he hopes for repeat pizza...

(*we

April 6, 2011 Market/Economic Report (video)

Unequivocally Balanced

Every now and then a most well-meaning allegiant will debate with me the notion that the unilateral opening of our borders to any country desiring to sell us its wares is (as I suggested last week) a good thing... "How can higher unemployment be a good thing?" he contends... Implying, rightly so, that the import of low-cost foreign-made goods hits certain U.S. producers...

As Milton Friedman was fond of saying, "it's a case of the visible versus the invisible." The visible being the man who loses his job due to his employer's inability to compete in the global marketplace. The invisible being the man who, were the government to protect any domestic industry with quotas and tariffs, would either lose his job due to the attendant decline in consumer discretionary income (i.e., the consumer pays more for the protected product) or will not advance into the otherwise expanding U.S. industries - which would include those benefitting from our capital/financial account* surplus... That's right, we do indeed have a surplus, a substantial one in fact...

*The capital account lists capital transfers and transactions involving natural and intangible assets... The financial account, a subdivision of the capital account, lists trade in businesses, stocks, bonds and real estate...

Influenced as we are by the media, the pundit and the politician, we (consumers) simply don't consider what happens to all the U.S. dollars we send to places like China... The truth is, our trading partners happily take those dollars and buy (or invest in) stuff from the U.S., or they buy stuff from other countries and those countries buy stuff from the U.S... U.S. dollars, you see, are nothing more (or less) than claims on U.S. stuff...

Therefore, contrary to populist opinion, the rest of the world desperately wants U.S. stuff - even, if not especially, low-yielding U.S. treasuries...

Simply put; they trade stuff they produce for dollars we produce, and vice versa... I.e., while it comes and goes in different forms, foreign trade is indeed "trade", and is therefore always, and unequivocally, balanced... don't let anyone convince you otherwise...

Have a nice week!
Marty