As an established, and most fortunate, firm, taking the best possible care of our existing clientele is our number one priority... I.e., we're no longer beating bushes to find new customers (that said, we will always take on our established clients' clients, extended family, close friends, business associates, directors, officers and board members [I suppose that's a bit short of bush-beating])... On occasion therefore, we find ourselves pressed to find other advisors to whom we can refer the prospect we really shouldn't take... I.e., while we may not be a good fit for the soul who wanders through our doorway, somebody out there is, and we'll never leave the wanderer without direction... The problem is, that 'somebody out there' is generally going to be somebody building a practice; i.e., somebody who'll work with anybody with a pulse and a pin number... And therefore, somebody whose chief concern could very well be next month's rent payment... Thus our challenge is finding the investment professional who isn't principally out to make a buck... We're in search of the advisor who's simply looking for people to help, who understands that putting his/her clients' needs ahead of his/her own is how one builds a successful practice...
In the olden days that was about it; when we'd find someone - sufficiently knowledgeable of course - with the requisite ethics, he'd get the referral... But these days, alas, we have an additional concern that, while less idealistic, is every bit as critical (in terms of whether he'll get the nod): Does the prospective adviser suffer from that client-portfolio/advisor-career destroying delusion; the belief that one can, with long-term success, time the market? Does he not indeed know what he can't know? Does he not know that the market makes no concession for cockiness? I.e., does he possess humility?
I blame the advent, and the fervent, of financial television for bringing a bravado to our business the likes of which I never imagined... We investment counselors were once a humble lot - our mantra; "anyone who says he can time the market is either a fool or a liar"... But, alas, today's media brings us daily doses of dunderheads and deceivers - in high definition no less... Turning would-be fine investment consultants (not to mention consumers) into dunderheads themselves...
This was recently brought home to me yet again (it's happened before) while discussing with a prospective advisor the prospects for us referring him prospects... He happened to be a fine, very sharp, well-mannered, seemingly honest young gentleman (you know you're getting old when you call a 40ish guy "young gentleman")... I was at one point encouraged; he works with an independent firm, no inventory of stocks to sell, no proprietary mutual funds, initials behind his name - the whole nine yards... But, alas, as I was on the verge of signaling that he is to anticipate the occasional referral, he dropped what I suspect he thought was the clincher, but unfortunately for him (fortunately for the vagabond prospect), it turned out to be the killer; he began telling me how he timed, with surgical precision, some recent correction with his clients' money... I believe he rambled on with all the detail, but he lost me at "I timed the corre"... That's the moment my heart sank and my brain went into how-to-end-conversation mode; for I knew the name I just crossed off my list belonged to either the unluckiest (and innocent) of advisors (if his story's true, his clients are doomed, for he'll think he can do it again) or one who's just plain dishonest...
Assuming the former; I could have tried to educate him on the ills, the risks, the impossibility of market timing, but how can I compete with the entertainers on CNBC? He'll need to learn for himself... He'll need to study the empirical evidence (there's loads), and to take note of today's prognostications - then follow the prognosticators going forward... It shouldn't take long before he begins to get it; for every single one of them (no exceptions!) will prove themselves wrong over and over again... That is they'll be right (lucky), then wrong, then wrong, then wrong, then right (lucky), then wrong, then wrong and so on (and those would be the success stories)...
And we'll say a prayer for his clients in the meantime...
Here are a few links to past columns on market timing... Take note of the dates, particularly the first - the Dow closed that day at 8,763...
Fools and Liars
Monday, April 30, 2012
Tuesday, April 24, 2012
Despicably Subtle
So let’s say you’re a bank (I know, nobody can “be” a bank, but just go with it), and let’s say you have this deal where you provide a convenience to your customers – a debit card that allows them to buy stuff with their money in checking without having to mess with checks. This is not only great for them, but imagine the efficiencies gained by retailers; time saved at the register, processing, etc. You set up the system and provide the cards. You have no problem, therefore, asking retailers to pay to play (the now infamous swipe fee). A fine example of the market at work; everyone pursuing their own separate interests, and society benefits.
Now let’s say you’re Wal-Mart (just go with it), the world’s largest retailer, and you’ve expanded insanely fast just south of the border. And, of course, as many an American who’s motored through Mexico knows, you can’t penetrate far without knowing extortion at the hands of the Federales. The thing is, for the motorist, bribing a Mexican officer gets one out of, not into, trouble. But for the likes of Wal-Mart, bribing a foreign official is a prosecutory offense. But hey, till the other day, it was working just fine. And besides, what’s the harm? The economically-challenged Mexican consumer gets goods at a price only Wal-Mart can deliver (not to mention the jobs) and a great (now in question) American brand makes out. Forget about laws, ethics even; when it comes to bottom lines, the ends justify the means.
That’s why collusion among CEOs and lawmakers in America is perfectly legal. Even when the consumer gets screwed. Like when Wal-Mart slipped a fundraiser and a few grand into the pocket of one Senator Richard Durbin in exchange for his “Durbin Amendment” – an outright hijacking of the aforementioned swipe fee arrangement. That’s right, Señor Durbin through the good old American legislative process, got the swipe fee halved, got his cut, and the economically-challenged U.S. consumer now gets to pay up to offset the billions Durbin and Wal-Mart extorted from the banks. Subtle, and, like the Mexican bribery case, utterly despicable!
Now let’s say you’re Wal-Mart (just go with it), the world’s largest retailer, and you’ve expanded insanely fast just south of the border. And, of course, as many an American who’s motored through Mexico knows, you can’t penetrate far without knowing extortion at the hands of the Federales. The thing is, for the motorist, bribing a Mexican officer gets one out of, not into, trouble. But for the likes of Wal-Mart, bribing a foreign official is a prosecutory offense. But hey, till the other day, it was working just fine. And besides, what’s the harm? The economically-challenged Mexican consumer gets goods at a price only Wal-Mart can deliver (not to mention the jobs) and a great (now in question) American brand makes out. Forget about laws, ethics even; when it comes to bottom lines, the ends justify the means.
That’s why collusion among CEOs and lawmakers in America is perfectly legal. Even when the consumer gets screwed. Like when Wal-Mart slipped a fundraiser and a few grand into the pocket of one Senator Richard Durbin in exchange for his “Durbin Amendment” – an outright hijacking of the aforementioned swipe fee arrangement. That’s right, Señor Durbin through the good old American legislative process, got the swipe fee halved, got his cut, and the economically-challenged U.S. consumer now gets to pay up to offset the billions Durbin and Wal-Mart extorted from the banks. Subtle, and, like the Mexican bribery case, utterly despicable!
Saturday, April 21, 2012
"Government intervention gone awry!!"
A dear friend, who at times might challenge this assertion, sent me this article with her comment
The magic ingredient...
Do anything for almost 28 years (my professional tenure), and you will consider yourself an expert... And indeed, I see myself as such in the following...
In investor nature...
In how not to invest...
In spotting charlatans...
In the lessons of randomness...
Of all the folks I've counseled over the years, there is a special group of individuals who, as a result of a beautiful (in retrospect) experience prior to our introduction, have discovered investing's Holy Grail - financial peace of mind... They would be the tech-investors of the final days of the last century...
My letter to the investor of 1999...
Dear Friend,
You are most-blessed among the people I counsel... You were baptized by the fire of the tech bubble inferno... Having watched, in horror, your dotcom-rich portfolio take a (then) once in a generation hit, for all the years since, prudence has found its place in your heart...Your home, your cars and your vacations are paid for... Your portfolio, while yet 60% in equities, is an impressive potpourri of securities of all shapes, sizes, domiciles and sectors... Yes my dear friend, diversified you are...
Without having experienced the aftermath of your over-indulgence to tech in December of 1999, you might have maxed on mortgage-backed securities and real estate investment trusts by October 2007... And, perhaps even worse, you might very well be $600,000 into a $250,000 home, pondering the unthinkable; the skipping of a few mortgage payments in hopes of inclusion in the next government vote-buying, I mean mortgage-rescue, program...
Today, aside from the peace of a pristine balance sheet, you rest in the knowledge that you'll never again fall prey to a prognosticator... The gurus of the '90s, their genius having, in the span of three short years, failed them (and, alas, their followers), are long gone... And you, knowing the ravages of randomness, can spot today's incarnation of the Pied-Piper thousands of miles away (they come from universities the worldwide these days)...
Yes, there is indeed a magic ingredient to the investment process (humility) that only a fortunate few have discovered... Congratulations my friend...
In investor nature...
In how not to invest...
In spotting charlatans...
In the lessons of randomness...
Of all the folks I've counseled over the years, there is a special group of individuals who, as a result of a beautiful (in retrospect) experience prior to our introduction, have discovered investing's Holy Grail - financial peace of mind... They would be the tech-investors of the final days of the last century...
My letter to the investor of 1999...
Dear Friend,
You are most-blessed among the people I counsel... You were baptized by the fire of the tech bubble inferno... Having watched, in horror, your dotcom-rich portfolio take a (then) once in a generation hit, for all the years since, prudence has found its place in your heart...Your home, your cars and your vacations are paid for... Your portfolio, while yet 60% in equities, is an impressive potpourri of securities of all shapes, sizes, domiciles and sectors... Yes my dear friend, diversified you are...
Without having experienced the aftermath of your over-indulgence to tech in December of 1999, you might have maxed on mortgage-backed securities and real estate investment trusts by October 2007... And, perhaps even worse, you might very well be $600,000 into a $250,000 home, pondering the unthinkable; the skipping of a few mortgage payments in hopes of inclusion in the next government vote-buying, I mean mortgage-rescue, program...
Today, aside from the peace of a pristine balance sheet, you rest in the knowledge that you'll never again fall prey to a prognosticator... The gurus of the '90s, their genius having, in the span of three short years, failed them (and, alas, their followers), are long gone... And you, knowing the ravages of randomness, can spot today's incarnation of the Pied-Piper thousands of miles away (they come from universities the worldwide these days)...
Yes, there is indeed a magic ingredient to the investment process (humility) that only a fortunate few have discovered... Congratulations my friend...
Friday, April 20, 2012
Great Economic News!!
Here are four of the more stress-evoking, market-moving headlines of the past week or so... Each followed by a nonintuitive, stress-relieving, and legitimate, interpretation... I.e., think longer-term and don't sweat the headlines...
Employers added just 120,000 new jobs in March, the fewest since last November... I.e., employers remain cautious - not ramping up spending until they're comfortable with their nearer-term outlook... This will lessen the potential for future shocks, and give new hires more assurance of lasting employment... It will also inspire policymakers to think twice before enacting more angst-inducing regulations... This bodes very well for the economy longer-term...
Oil prices remain stubbornly high... I.e., demand remains high and oil companies, in the pursuit of profits, will ramp up production... It also inspires capitalists to explore alternative energy sources... I.e., we'll have no worries over supply disruptions and we'll see an increase in the pace of technological advance... This bodes very well for the economy longer-term...
Spanish bond yields above 6% again... I.e., investors require a greater rate of return on risky sovereign debt... This will inspire Spain (and others) to take proper measures to assure creditors that its profligate ways are over... This bodes very well for the economy longer-term...
Consumer Confidence Slipped in March... I.e., the consumer has decided to spend less, save more and/or pay off her credit cards... I.e., when she's ready to spend, it'll be from a much healthier financial base... This bodes very well for the economy longer-term...
I.e., inner peace is all about perspective...
..
Employers added just 120,000 new jobs in March, the fewest since last November... I.e., employers remain cautious - not ramping up spending until they're comfortable with their nearer-term outlook... This will lessen the potential for future shocks, and give new hires more assurance of lasting employment... It will also inspire policymakers to think twice before enacting more angst-inducing regulations... This bodes very well for the economy longer-term...
Oil prices remain stubbornly high... I.e., demand remains high and oil companies, in the pursuit of profits, will ramp up production... It also inspires capitalists to explore alternative energy sources... I.e., we'll have no worries over supply disruptions and we'll see an increase in the pace of technological advance... This bodes very well for the economy longer-term...
Spanish bond yields above 6% again... I.e., investors require a greater rate of return on risky sovereign debt... This will inspire Spain (and others) to take proper measures to assure creditors that its profligate ways are over... This bodes very well for the economy longer-term...
Consumer Confidence Slipped in March... I.e., the consumer has decided to spend less, save more and/or pay off her credit cards... I.e., when she's ready to spend, it'll be from a much healthier financial base... This bodes very well for the economy longer-term...
I.e., inner peace is all about perspective...
..
Thursday, April 19, 2012
Quantitative Pleasing - or - The Road to Serfdom is Paved with Good Intentions...
Let's be honest, it would be a rare individual who, while owing allegiance to a political party, doesn't believe that the opposition, is, either somewhat or stupendously corrupt... The "left" consumer sees the Republican politician as the bid-doer for big business... The "right" sees the Democrat as the unions' usurper of the marketplace...
The left believes bailouts and bonuses come at the expense, if not the destruction, of the bourgeoisie... The right sees the left dedicating their lives in politics to the death of the American way...
Upon the slightest inspection, and introspection, we would know better... We would know that neither side believes their best interests are to be met by the rich or the middle class meeting with material destruction... Indeed no my friends, while politicians are a most fallible lot, they seek not to have us kneel as beggars, but rather to worship them for their superior intellect... For they know, better than us, what is good for us... Indeed yes my friends, today's fundamental problem is that the politician is one condescending self-absorbed know-it-all, while the consumer is, alas, profoundly submissive...
The answer to our economic woes is so utterly, unequivocally and, yes, profoundly, simple - yet not without short-term pain (avoidance of the latter inspiring our submissiveness) ... We must, and will (sooner or later), begin running this country aswe would a successful household, and a successful business; i.e., soundly principled in the ways of saving, borrowing and spending...
We can (and do) babble ourselves blue over the dueling economic ideologies, however, as the failures of Europe (currently) and third-world countries (perpetually) have shown, lasting prosperity will not be had at the hands of the Fed, through quantitative easing (QE), nor at the hand of the politician, through quantitative pleasing, but at the hands of prudent, hard working Americans guided by the invisible hand of the free enterprise system...
The left believes bailouts and bonuses come at the expense, if not the destruction, of the bourgeoisie... The right sees the left dedicating their lives in politics to the death of the American way...
Upon the slightest inspection, and introspection, we would know better... We would know that neither side believes their best interests are to be met by the rich or the middle class meeting with material destruction... Indeed no my friends, while politicians are a most fallible lot, they seek not to have us kneel as beggars, but rather to worship them for their superior intellect... For they know, better than us, what is good for us... Indeed yes my friends, today's fundamental problem is that the politician is one condescending self-absorbed know-it-all, while the consumer is, alas, profoundly submissive...
The answer to our economic woes is so utterly, unequivocally and, yes, profoundly, simple - yet not without short-term pain (avoidance of the latter inspiring our submissiveness) ... We must, and will (sooner or later), begin running this country aswe would a successful household, and a successful business; i.e., soundly principled in the ways of saving, borrowing and spending...
We can (and do) babble ourselves blue over the dueling economic ideologies, however, as the failures of Europe (currently) and third-world countries (perpetually) have shown, lasting prosperity will not be had at the hands of the Fed, through quantitative easing (QE), nor at the hand of the politician, through quantitative pleasing, but at the hands of prudent, hard working Americans guided by the invisible hand of the free enterprise system...
Wednesday, April 18, 2012
Tuesday, April 17, 2012
Monday, April 16, 2012
Let's hope our grandkids are the fogiving sort...
So the present Administration throws a few billion at solar companies (could be talking a prior Admin and ethanol, or whatever)... They say we're investing in the future; the future of the energy industry, future jobs, and the future of this planet... It's therefore - given high unemployment, rising oil prices and melting ice caps - worth every dollar "we" can throw at it...
Breaking News! No kidding! As I type this: First Solar, the Nation's largest (and heavily govt-subsidized) solar-maker, just announced it will cut its workforce by 30% to align its operations more closely with current opportunities... Its stock is up 6%, to $22.05, in the pre-market... By the way, it traded north of $120 just a year ago... But hey, we're thinking long-term...
Now you and I know that all government spending is taxpayer funded - so why haven't, being that we ain't runnin no surplus, these "investments" required an immediate increase in our income taxes? Well, as a practical matter, had the powers-that-promote-green-power proposed a tax hike to fund these grand "investments", us voters would be none too friendly come this November... So then, alas, they borrow... For they know that us consumers will allow the worst sort of chicanery when we're given 30 years to pay for it (let's hope our grandkids are the forgiving sort)...
That's why the costs of proposed schemes are forever fed to us in 10 year servings: "The CBO estimates the cost of XYZ over the next 10 years will be $X"..."Over the next 10 years the deficit will be reduced by $X if we raise taxes on people who earn above $Y"... Sound familiar?
Prudence, alas, is lost on tomorrow's, and other people's, money...
Breaking News! No kidding! As I type this: First Solar, the Nation's largest (and heavily govt-subsidized) solar-maker, just announced it will cut its workforce by 30% to align its operations more closely with current opportunities... Its stock is up 6%, to $22.05, in the pre-market... By the way, it traded north of $120 just a year ago... But hey, we're thinking long-term...
Now you and I know that all government spending is taxpayer funded - so why haven't, being that we ain't runnin no surplus, these "investments" required an immediate increase in our income taxes? Well, as a practical matter, had the powers-that-promote-green-power proposed a tax hike to fund these grand "investments", us voters would be none too friendly come this November... So then, alas, they borrow... For they know that us consumers will allow the worst sort of chicanery when we're given 30 years to pay for it (let's hope our grandkids are the forgiving sort)...
That's why the costs of proposed schemes are forever fed to us in 10 year servings: "The CBO estimates the cost of XYZ over the next 10 years will be $X"..."Over the next 10 years the deficit will be reduced by $X if we raise taxes on people who earn above $Y"... Sound familiar?
Prudence, alas, is lost on tomorrow's, and other people's, money...
Tricky...
Big news last week... Our leaders saved the economy from collapse and turned us a profit on all that bailout $ at the same time... Yes, we're out an estimated 60 billion bills on TARP... However the Fed's making money hand over Geithner's (braggadocio) fist... The net estimated gain on all those taxpayer dollars thrown at all corners of the crisis is somewhere between $10 billion and $100 billion (now that's a big somewhere between)...
It's Bernanke and company, those incredibly intelligent scholars that saved our bacon... Of course the complexity of what they pulled off is mind boggling, but I'll do my best to describe their intricate seven-step process for you here...
Step 1: Print money (euphemism for adding digits to the Fed's checking acct)...
Step 2: Buy debt securities from financial institutions...
Step 3: Collect the interest on those securities...
(Stop here for a sec: 1-3 seem simple enough, but when the economy didn't respond, that's when they had to dig deep and get really creative)...
Step 4: Print more money...
Step 5: Buy more debt securities from financial institutions...
Step 6: Collect the interest on those securities...
Step 7: Pay their profits to the treasury...
Amazing!! And what are those instruments they're buying? Mortgage Backed Securities and U.S. Treasury Debt...
Now wait a minute; the Fed pays its profits to the Treasury - and a great deal of those profits come from Treasury debt? So the taxpayer pays interest on the debt to the Fed, the Fed books that as profit, then pays it back to the Treasury? And it's heralded as a win-fall to the taxpayer? Hmm... Tricky...
So now what happens? Well, the Fed now sports a nearly $3 trillion portfolio of fixed income securities... And because of all the Fed buying of bonds, interest rates remain phenomenally low... When (not if) bond investors (other than the Fed) say enough's enough and look elsewhere, interest rates will rise... And what happens to bond values when interest rates rise? They fall... Hmm... a little conflict of interest maybe???
It's Bernanke and company, those incredibly intelligent scholars that saved our bacon... Of course the complexity of what they pulled off is mind boggling, but I'll do my best to describe their intricate seven-step process for you here...
Step 1: Print money (euphemism for adding digits to the Fed's checking acct)...
Step 2: Buy debt securities from financial institutions...
Step 3: Collect the interest on those securities...
(Stop here for a sec: 1-3 seem simple enough, but when the economy didn't respond, that's when they had to dig deep and get really creative)...
Step 4: Print more money...
Step 5: Buy more debt securities from financial institutions...
Step 6: Collect the interest on those securities...
Step 7: Pay their profits to the treasury...
Amazing!! And what are those instruments they're buying? Mortgage Backed Securities and U.S. Treasury Debt...
Now wait a minute; the Fed pays its profits to the Treasury - and a great deal of those profits come from Treasury debt? So the taxpayer pays interest on the debt to the Fed, the Fed books that as profit, then pays it back to the Treasury? And it's heralded as a win-fall to the taxpayer? Hmm... Tricky...
So now what happens? Well, the Fed now sports a nearly $3 trillion portfolio of fixed income securities... And because of all the Fed buying of bonds, interest rates remain phenomenally low... When (not if) bond investors (other than the Fed) say enough's enough and look elsewhere, interest rates will rise... And what happens to bond values when interest rates rise? They fall... Hmm... a little conflict of interest maybe???
Sunday, April 15, 2012
Q and A on the Auto Bailout...
Our friends Q (your everyday consumer) and A (your free-market-obsessed advisor) are back... Q read an article that claims the TARP (bailout) program will net a profit to the taxpayer... As you'd guess, I have a somewhat different take - one that I'll deliver in a series of columns... We'll start with the auto industry...
Q: You always bemoan bailouts, but I just read that TARP is going to net a profit to the taxpayer, and we saved a bunch of jobs in the process...
A: We'll get to the profit myth later... Today I want to get your thoughts on the auto industry bailout, which was part of the TARP program...
Q: Okay fine...
A: If Chrysler had gone out of business in 2008, would folks be buying fewer cars today?
Q: Probably not, but they'd (A interrupts)
A: If people wouldn't be buying fewer cars today, would there be fewer U.S. jobs?
Q: Yes... Beca(A interrupts again)
A: Why?
Q: Well if you'd friggin let me talk!!
A: Sorry...
Q: There'd still be fewer jobs, because while some ex-Chrysler employees would've gone to work for GM and Ford, some of those would've-been-Chrysler buyers would've bought foreign cars...
A: So all the would've-been-Chrysler buyers aren't the buy-only-U.S. types? I mean who goes looking for a Chrysler?
Q: What about the Dodge Ram? Or the Jeep Grand Cherokee?
A: Oh you're right... But there'd still be a bunch that'd go Ford or GM before going Toyota, right?
Q: Yes, but some of that business would still go to Toyota..
A: I agree... So all those new-Toyota-buyers would fly to Japan to buy those cars and trucks?
Q: That's stupid! Of course not! They'd just go to their local Toyota dealership...
A: You mean the dealership owned and run by all those folks Toyota flies in from Japan?
Q: No... my cousin Johnny manages a Toyota dealership...
A: Oh.... So if demand for Toyota pickups picks up, there might be a few new U.S. jobs created at Toyota dealerships - to replace some of those Chrysler dealer and manufacturing jobs, right?
Q: I guess so...
A: I wonder if there'd be new jobs to be had in Mississippi, Kentucky, Texas, Indiana, Alabama and West Virginia?
Q: Why just those, there's Toyota dealers in all 50 states...
A: No, I'm talking about Toyota manufacturing plants...
Q: No kidding?
A: No kidding... Toyota has manufacturing plants in all those U.S. states...
Q: I didn't know that...
A: I know you didn't... That's because you knowing that doesn't jive with protectionist politicking... Often inspired by the UAW (United Auto Workers Union)...
Q: Say what?
A: Those Toyota plants are non-union... And the UAW has huge political influence - and they lobby violently for politicians who'd pay them rents...
Q: What do you mean by "rents"?
A: Have you ever heard the term "rent-seeking"? That's an economist's term for currying political favor... The rents being things like ownership of GM (17.5% to VEBA) and exempting them out of the Affordable Care Act...
Q: That's disgusting!
A: Yyyyep...
Q: But still, we're going to lose some business to Japan...
A: You're right - auto business... But what are those Toyota-buyers going to buy those Toyotas with?
Q: Say what?
A: What currency?
Q: Duh! Dollars...
A: And what are those Japanese going to do with those dollars?
Q: Spend them I suppose...
A: And what can you spend U.S. dollars on?
Q: Huh?
A: U.S. stuff of course... You see the only reason Toyota sells us cars is because there's something they want that only U.S dollars can buy... In essence, when someone in the U.S. buys a car made in Japan, somebody in Japan either buys, or invests in, something in the U.S. - or buys something from somebody else who needs those dollars to buy, or invest in, something in the U.S...
Q: So you're saying jobs would be created in U.S. export industries - to offset lost Chrysler jobs...
A: You got it...
Q: I never thought of it that way...
A: You're not supposed to....
Q: How come you didn't mention GM?
A: Because, from what I gather, GM could've filed bankruptcy, per the laws (which were broken in the bailout), restructured and stayed in business right off the bat... Chrysler probably would've had to liquidate...
Q: Oh well... At least folks are still working at Chrysler...
A: Yep, a Chrysler that should be out of business... A Chrysler that our money was used to prop back up - at the expense of American exporters, etc.. That's the government picking winners and losers...
Q: That doesn't sound like capitalism to me...
A: It's not... It's what you call cronyism... And it's a bad thing!!
Q: You always bemoan bailouts, but I just read that TARP is going to net a profit to the taxpayer, and we saved a bunch of jobs in the process...
A: We'll get to the profit myth later... Today I want to get your thoughts on the auto industry bailout, which was part of the TARP program...
Q: Okay fine...
A: If Chrysler had gone out of business in 2008, would folks be buying fewer cars today?
Q: Probably not, but they'd (A interrupts)
A: If people wouldn't be buying fewer cars today, would there be fewer U.S. jobs?
Q: Yes... Beca(A interrupts again)
A: Why?
Q: Well if you'd friggin let me talk!!
A: Sorry...
Q: There'd still be fewer jobs, because while some ex-Chrysler employees would've gone to work for GM and Ford, some of those would've-been-Chrysler buyers would've bought foreign cars...
A: So all the would've-been-Chrysler buyers aren't the buy-only-U.S. types? I mean who goes looking for a Chrysler?
Q: What about the Dodge Ram? Or the Jeep Grand Cherokee?
A: Oh you're right... But there'd still be a bunch that'd go Ford or GM before going Toyota, right?
Q: Yes, but some of that business would still go to Toyota..
A: I agree... So all those new-Toyota-buyers would fly to Japan to buy those cars and trucks?
Q: That's stupid! Of course not! They'd just go to their local Toyota dealership...
A: You mean the dealership owned and run by all those folks Toyota flies in from Japan?
Q: No... my cousin Johnny manages a Toyota dealership...
A: Oh.... So if demand for Toyota pickups picks up, there might be a few new U.S. jobs created at Toyota dealerships - to replace some of those Chrysler dealer and manufacturing jobs, right?
Q: I guess so...
A: I wonder if there'd be new jobs to be had in Mississippi, Kentucky, Texas, Indiana, Alabama and West Virginia?
Q: Why just those, there's Toyota dealers in all 50 states...
A: No, I'm talking about Toyota manufacturing plants...
Q: No kidding?
A: No kidding... Toyota has manufacturing plants in all those U.S. states...
Q: I didn't know that...
A: I know you didn't... That's because you knowing that doesn't jive with protectionist politicking... Often inspired by the UAW (United Auto Workers Union)...
Q: Say what?
A: Those Toyota plants are non-union... And the UAW has huge political influence - and they lobby violently for politicians who'd pay them rents...
Q: What do you mean by "rents"?
A: Have you ever heard the term "rent-seeking"? That's an economist's term for currying political favor... The rents being things like ownership of GM (17.5% to VEBA) and exempting them out of the Affordable Care Act...
Q: That's disgusting!
A: Yyyyep...
Q: But still, we're going to lose some business to Japan...
A: You're right - auto business... But what are those Toyota-buyers going to buy those Toyotas with?
Q: Say what?
A: What currency?
Q: Duh! Dollars...
A: And what are those Japanese going to do with those dollars?
Q: Spend them I suppose...
A: And what can you spend U.S. dollars on?
Q: Huh?
A: U.S. stuff of course... You see the only reason Toyota sells us cars is because there's something they want that only U.S dollars can buy... In essence, when someone in the U.S. buys a car made in Japan, somebody in Japan either buys, or invests in, something in the U.S. - or buys something from somebody else who needs those dollars to buy, or invest in, something in the U.S...
Q: So you're saying jobs would be created in U.S. export industries - to offset lost Chrysler jobs...
A: You got it...
Q: I never thought of it that way...
A: You're not supposed to....
Q: How come you didn't mention GM?
A: Because, from what I gather, GM could've filed bankruptcy, per the laws (which were broken in the bailout), restructured and stayed in business right off the bat... Chrysler probably would've had to liquidate...
Q: Oh well... At least folks are still working at Chrysler...
A: Yep, a Chrysler that should be out of business... A Chrysler that our money was used to prop back up - at the expense of American exporters, etc.. That's the government picking winners and losers...
Q: That doesn't sound like capitalism to me...
A: It's not... It's what you call cronyism... And it's a bad thing!!
Friday, April 13, 2012
The Road Most Traveled By.....
"By three lessons we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is bitterest."Confucius
I'm not crazy about the term "Obamacare"... Partly because it's derogatory, and partly because nobody named Obama had anything to do with the plan's design... The President merely recognized the issues, saw government as the solution, wanted healthcare reform on his list of achievements, and seized an opportunity...
At the risk of being labeled fatuous (it happens, regularly on this topic) by those more informed, I'll herein offer my critique... And yes, today I'm the griper who offers no 'acceptable' solution... That said, I'd rather confess my ignorance when it comes to our health care challenges, than suggest government would be the solution..
Even someone as far-removed from health care finance - from the understanding of the challenges of balancing services and reimbursement - as myself (as a good friend, kindly and accurately, reminded me recently) can speak to the importance of addressing, first and foremost, philosophically, any undertaking that would reach deep into the very fabric of everyday life...
(Before we move on; make note of that point; the consumer of health care services is "far-removed from health care finance"... That, by itself, I suspect, is a large part of the problem...)
I know, you're thinking the time for philosophizing has passed; that we need expedience! That we need to meet this monster head-on and contain it! And believe me, being a business-owner myself, oh how I can relate... But, alas, we humans tend to follow the road most traveled, the path less resisted, and that my friends makes all the difference (and that is why our nation is $16 trillion in debt)... We must know thyselves, we must know from whence we came, and proceed in a manner consistent with the philosophy that made this very young country the very greatest on earth!
"I have never known much good done by those who affected to trade for the public good."Smith
I believe the fundamental problems stem from the view that this is "our healthcare system". Operative words being "our" and "system". "Our" as in "ours collectively" - i.e., we are to somehow accommodate for each other's health care needs... And "system", as in a source of systemic risk - something to manage, something to protect the public against...
In terms of "our"; would you agree that as we attempt to handle more things collectively - as government extends its reach - that the things we might do well, well, we're not doing so well? I won't name all the government agencies that, if held to private-sector standards, would be failing... Or should I say, I won't name all the government agencies?
As for viewing it as a "system"; that view, in and of itself, is fine - and, by definition, accurate... However "our" problem lies in our seeing it as a system to be managed by government, like say "our" educational system... As opposed to a free market system...
A managed system would be governed top-down by some planning or controlling group, generally consisting of well-intended individuals and those intent on exploiting well-intended individuals... While a free market system, having no controlling body, comes together as a result of individuals acting, not in the interest of the greater good, but in their own separate interest... Which, unlike any managed or "social" system, inspires quality, frugality, efficiency and integrity...
The Affordable Care Act is beautiful, utopian even, on the surface: Everyone is covered (the "richest nation" loses a stigma), no preexisting condition denied, men and women are treated like children to the age of 26, seniors pay less for drugs, insurance companies compete within the strictest of boundaries for your business, etc.... Forgive me, but I must ask that oft-asked question; who pays for it? The young healthy members of the group who currently opt for no coverage (not an option after 1/1/14)? Government (that would be all taxpayers)? Do we truly know what we're getting ourselves into?
Here's one of our politicians, a proponent, from a CNBC interview two weeks ago:
"Many parts of this plan are very popular: Not having insurance companies able to preclude you from getting insurance because of preexisting conditions - everybody that I've talked to thinks that's a good thing... Having the ability for young people able to stay on their parents policy up to the age of 26 is a very popular policy... Bringing down the cost of senior's prescription drugs which has already been effected and will be phased out over the next 8 years so they'll be more available to seniors is a very popular provision... So many of the parts of this bill are very popular with the public..."
You mean no preexisting preclusions, "kids" eight years into adulthood still on their parents' plans, lower cost meds for seniors "are very popular with the public"? Ya think? I imagine Social Security was very popular with the public back when politicians promised voters their basic retirement needs would be met through a nationwide spreading of the cost...
When we consider the road we're traveling, when we consider the efficacy of present government-run programs, regardless of your role in the balancing act of our current system, do you truly, in your heart of hearts, believe government can ultimately make it better?
What do you suppose would happen if we went entirely in the opposite direction, if we took the road less traveled by? What would happen if providers had the right to refuse service to anyone? Would we allow the uninsured to die in the street? Or would caring people of means provide the basics? What does our history tell us?
What would happen if insurance companies could refuse to cover anyone for any reason, charge what they wish, and drop anyone on a whim? Do they need government-imposed restrictions, or would they learn to profit in a world where they'd compete based on service, price and benefit payment history? What if, for once, we truly lived the free market philosophy? Dare we?Fear not my good central planners, for, alas, it will not come to pass...
Now as you reflect - as you yourself philosophize over "our" conundrum - before entertaining the notion proffered by ACA proponents - that "our" healthcare crisis is an example of a market failure - understand that that's literally impossible... The healthcare "system" has been rife with government intrusion for a very long time...
Read the following from a study published April 2006 by Georgetown University's Health Policy Institute:
"The federal government has historically respected the state
Thursday, April 12, 2012
Pyrrhic Victories...
I took it upon myself to count the number (one at a time) of victories (Acts) of Congress from 1789 to present (please don't tell anybody how I spend my free time)... And I can tell you this, our leaders have been a hard-working bunch!
For the 122 years from 1789 to 1901, Congress succeeded in passing over 136 Acts (over, because a few years data wasn't available)... So let's add another 50% (I'm sure that's generous), for a total somewhere around a couple hundred... Amazing!!
For the 111 years from 1901 to 2012 (
For the 122 years from 1789 to 1901, Congress succeeded in passing over 136 Acts (over, because a few years data wasn't available)... So let's add another 50% (I'm sure that's generous), for a total somewhere around a couple hundred... Amazing!!
For the 111 years from 1901 to 2012 (
Wednesday, April 11, 2012
The copay for stitches...
So Monday evening I'm playing basketball with my oldest and his buddies... My right eyelid collides with the opposing point guard's skull - splitting it wide open... A little more than an hour later (I know, that was pretty quick) I'm on the table getting stitched up... Of course I never waste an opportunity, so I say "Doc, what are your thoughts on health care reform?" His reply was your standard right-wing "we need to do something, but we live in a country where some work hard and earn what they get, while others prefer not to work but demand all the benefits that would come from hard work"... It was the old "who's gonna pay for it?" line...
He went on to describe how certain areas of medicine, specialists for example, still make a ton of money... He said that they'll (he works at an urgent care unit of a local medical group) receive "a couple hundred bucks" for my visit... But if I went to a plastic surgeon, it'd probably be a couple thousand... And the hospital emergency room would cost a great deal more as well... That was interesting because on the way there Nick and I discussed the who-should-do-it question... Being that it was my face, were there such a being as an emergency plastic surgeon, it'd be a (pardon the pun) slam-dunk decision... And as a consumer with health insurance, I wasn't thinking in the least about cost...
Now were I, to a consequential degree, on the hook financially for the decision as to how much of a scar I'll be seeing in the mirror the remainder of my days, presuming a plastic surgeon was available, I'd have had a financial as well as a facial decision on my hands... And I suspect that in a system where it's in the consumer's immediate interest to, himself (as opposed to a bureaucrat), assess the cost of a given service, competition would influence its price (not to mention quality)...
Clearly the current (heavily regulated) system is fundamentally flawed... The question is are we moving any closer to a market under the Affordable Care Act?
The President's Right!!
From the President's speech yesterday in Boca Raton:
"I believe the free market is the greatest force for economic progress in human history. But here's the thing, I also agree with our first Republican president, a guy from my home state, a guy with a beard, named Abraham Lincoln. And what Lincoln said was that through our government we should do together what we cannot do as well for ourselves. That's the definition of a smart government."
"Together we build this safety net that allows all of us to take risks." "Because we know that there's this base that we can rely on."
Do you think maybe the folks at The General Services Agency were enjoying their "safety net" (see below)? --- (of course the President was alluding to welfare, social security, medicare, medicaid, etc., but you get the point) --- Do you think this is what Lincoln had in mind? Is this us doing "together what we cannot do as well for ourselves"? Now this was not an Obama Administration creation by the way... And, to his credit, the President jumped all over this one... This would be a great one to close down and hand over to the private sector...
Do you think maybe we calculate risk a little better when there's no safety net? Do you think the Solyndra, etc. debacle would've happened were there real accountability in Washington? Do you think maybe the President's right - that "the free market is the greatest force for economic progress"? Do you think maybe, for once, we should give it a shot?
http://www.youtube.com/watch?v=iqmZOjsTAY8&feature=youtube_gdata_player
http://www.youtube.com/watch?v=-JcQcn6-bIs&feature=youtube_gdata_player
http://www.youtube.com/watch?v=qqTb73j-VYE&feature=youtube_gdata_player
"I believe the free market is the greatest force for economic progress in human history. But here's the thing, I also agree with our first Republican president, a guy from my home state, a guy with a beard, named Abraham Lincoln. And what Lincoln said was that through our government we should do together what we cannot do as well for ourselves. That's the definition of a smart government."
"Together we build this safety net that allows all of us to take risks." "Because we know that there's this base that we can rely on."
Do you think maybe the folks at The General Services Agency were enjoying their "safety net" (see below)? --- (of course the President was alluding to welfare, social security, medicare, medicaid, etc., but you get the point) --- Do you think this is what Lincoln had in mind? Is this us doing "together what we cannot do as well for ourselves"? Now this was not an Obama Administration creation by the way... And, to his credit, the President jumped all over this one... This would be a great one to close down and hand over to the private sector...
Do you think maybe we calculate risk a little better when there's no safety net? Do you think the Solyndra, etc. debacle would've happened were there real accountability in Washington? Do you think maybe the President's right - that "the free market is the greatest force for economic progress"? Do you think maybe, for once, we should give it a shot?
http://www.youtube.com/watch?v=iqmZOjsTAY8&feature=youtube_gdata_player
http://www.youtube.com/watch?v=-JcQcn6-bIs&feature=youtube_gdata_player
http://www.youtube.com/watch?v=qqTb73j-VYE&feature=youtube_gdata_player
Tuesday, April 10, 2012
"The defining issue of our time". Really??
From President Obama's speech today in Boca Raton:
"We've got to ask ourselves a central fundamental question as a Nation: What do we have to do to make sure that America is a place where if you work hard, if you're responsible, that that hard work and that responsibility pays off? And the reason it's important to ask this question right now is that there are alternative theories, there's a debate going on in this country right now; can we succeed as a nation, where a shrinking number of people are doing really really well but a growing number are struggling to get by? Or are we better off when everybody gets a fair shot? And everybody does a fair share? And everybody plays by the same set of rules? That's what the debate in America is about right now. This is not just another run of the mill gabfest in Washington. This is the defining issue of our time, this is a make or break moment for the middle class, and everybody who's aspiring to get into the middle class."
I'd say this is indeed a defining moment for our country. I don't believe however that we're addressing the right, or legitimate, issue. The President is playing the class card in a big way, and he believes he has the data to support the position that the middle class has sat idle for decades, while the rich got richer... But here's the thing, when we consider the median household, as opposed to the median tax unit, and count the various forms of compensation, the middle class has done pretty well over the past 40 years... Here's a snippet from Cafehayek.com... If this issue troubles you, I highly recommend you take a listen to Russ Roberts' interview with Cornell University'sRichard Burkhauser...
The Great Distortion
by RUSS ROBERTS on APRIL 9, 2012
in PODCAST, STANDARD OF LIVING
This week
"We've got to ask ourselves a central fundamental question as a Nation: What do we have to do to make sure that America is a place where if you work hard, if you're responsible, that that hard work and that responsibility pays off? And the reason it's important to ask this question right now is that there are alternative theories, there's a debate going on in this country right now; can we succeed as a nation, where a shrinking number of people are doing really really well but a growing number are struggling to get by? Or are we better off when everybody gets a fair shot? And everybody does a fair share? And everybody plays by the same set of rules? That's what the debate in America is about right now. This is not just another run of the mill gabfest in Washington. This is the defining issue of our time, this is a make or break moment for the middle class, and everybody who's aspiring to get into the middle class."
I'd say this is indeed a defining moment for our country. I don't believe however that we're addressing the right, or legitimate, issue. The President is playing the class card in a big way, and he believes he has the data to support the position that the middle class has sat idle for decades, while the rich got richer... But here's the thing, when we consider the median household, as opposed to the median tax unit, and count the various forms of compensation, the middle class has done pretty well over the past 40 years... Here's a snippet from Cafehayek.com... If this issue troubles you, I highly recommend you take a listen to Russ Roberts' interview with Cornell University'sRichard Burkhauser...
The Great Distortion
by RUSS ROBERTS on APRIL 9, 2012
in PODCAST, STANDARD OF LIVING
This week
Monday, April 9, 2012
Sunday, April 8, 2012
You be happy :)...
The consensus said there'd be 200k new jobs found last month... They were off by 80k...The consensus said China would see a 3.3% inflation rate for March. They were off by 30 basis points... Last week, famed strategist Byron Wien forecast higher stock prices for the remainder of this year... Mark Faber (editor and publisher of The Gloom, Boom and Doom Report) says the "market's at the start of a more significant downturn"...
So what's the market going to do come tomorrow? Just like any other weekday, it'll simply do its thing - provide the auction platform for individuals to react to the latest news/opinions by swapping cold hard cash for shares of corporate stock...
Two Monday's ago, on comments from Ben Bernanke, folks with cash came to market in search of shares... Of course the owners of shares became all of a sudden stingy... They forced the buyers to pay dearer prices than they would have the Friday before... The Dow Jones Industrial Average (an index tracking 30 stocks) jumped 160 points...
Last Friday, the blah jobs number was announced... The auction was closed (it was Good Friday)... I suspect come tomorrow morning the owners of shares will be the ones coming first to market... In fear of suffering the paper loss of this year's paper gains, they'll be offering up their shares to the highest bidder... Problem is, the bidder's will be all of a sudden stingy... They'll force the sellers to sell at less dear prices than they would have last Thursday... Look for the Dow to fall triple digits at the open...
So who are these buyers and sellers - these reactors to news? They would be the trained-trader, the untrained-trader and the untrained-investor... Everyone except the trained-investor... That's you... You watch the news, you shrug your shoulders, you go to work, or golf, or tennis, or swimarobics, or whatever... You know that if the market trades lower between now and your next rebalancing date (like last fall) you'll be a buyer... If the market trades higher between now and then (like this spring) you'll be a seller... You're forever buying while stocks are falling, and selling while they're rising...
Your world is simple, calm... You don't worry, you be happy :)...
So what's the market going to do come tomorrow? Just like any other weekday, it'll simply do its thing - provide the auction platform for individuals to react to the latest news/opinions by swapping cold hard cash for shares of corporate stock...
Two Monday's ago, on comments from Ben Bernanke, folks with cash came to market in search of shares... Of course the owners of shares became all of a sudden stingy... They forced the buyers to pay dearer prices than they would have the Friday before... The Dow Jones Industrial Average (an index tracking 30 stocks) jumped 160 points...
Last Friday, the blah jobs number was announced... The auction was closed (it was Good Friday)... I suspect come tomorrow morning the owners of shares will be the ones coming first to market... In fear of suffering the paper loss of this year's paper gains, they'll be offering up their shares to the highest bidder... Problem is, the bidder's will be all of a sudden stingy... They'll force the sellers to sell at less dear prices than they would have last Thursday... Look for the Dow to fall triple digits at the open...
So who are these buyers and sellers - these reactors to news? They would be the trained-trader, the untrained-trader and the untrained-investor... Everyone except the trained-investor... That's you... You watch the news, you shrug your shoulders, you go to work, or golf, or tennis, or swimarobics, or whatever... You know that if the market trades lower between now and your next rebalancing date (like last fall) you'll be a buyer... If the market trades higher between now and then (like this spring) you'll be a seller... You're forever buying while stocks are falling, and selling while they're rising...
Your world is simple, calm... You don't worry, you be happy :)...
Friday, April 6, 2012
Thursday, April 5, 2012
The one thing they can agree on...
Technology... The one thing the entrepreneur and the [intellectually honest] environmentalist can agree on!!
No government here... No subsidies... Just pure capitalism...
Got the idea from Russ Roberts' blog post,Worth A Thousand Words...
25 YEARS AGO
TODAY
No government here... No subsidies... Just pure capitalism...
Got the idea from Russ Roberts' blog post,Worth A Thousand Words...
25 YEARS AGO
TODAY
Wednesday, April 4, 2012
Tuesday, April 3, 2012
After the dust settles...
A week ago Monday a dovish Ben Bernanke inspired a buying spree that pushed the Dow some 160 points higher... Released yesterday; the minutes from the FOMC's last get together - suggesting Bernanke's cohorts don't necessarily share their fearful leader's sentiment - inspired an immediate 90 point sell off...
Of course we all want the market higher, but this is clearly one of those careful-what-you-ask-for moments... And one of those moments where we separate traders from investors... Traders are forever after the quick hit, and, for them, there's nothing better than the printing of money... Investors, on the other hand, are looking for sustainability...
Being an investor (and one who counsels investors), in terms of the recent "Fed" news, I'm liking the latter; the idea that they don't see a strong need for round number three of asset purchases... If they stick to those guns, bonds will suffer (they're over-due), but the impetus (a strengthening economy) should be bullish for stocks... After the dust settles that is....
Stay tuned....
Of course we all want the market higher, but this is clearly one of those careful-what-you-ask-for moments... And one of those moments where we separate traders from investors... Traders are forever after the quick hit, and, for them, there's nothing better than the printing of money... Investors, on the other hand, are looking for sustainability...
Being an investor (and one who counsels investors), in terms of the recent "Fed" news, I'm liking the latter; the idea that they don't see a strong need for round number three of asset purchases... If they stick to those guns, bonds will suffer (they're over-due), but the impetus (a strengthening economy) should be bullish for stocks... After the dust settles that is....
Stay tuned....
Give a man a fish - or bait his hook?
Mitt Romney's senior advisor shakes up his boss's campaign by suggesting the candidate will reset his platform, as needed, like an 8 year-old resets an etch-a-sketch... President Obama whispers in Russian President Medvedev's ear that he'll show more flexibility after his election...
Now that we have that (a reminder that politicians are, well, politicians) out of the way, we can focus on the business at hand... Choosing the candidate whose platform best fits "our" ideology... We'll see if, as a nation, our ideology is any different today than it was almost four years ago...
As confusing as the competing narratives can be, doesn't it always narrow down to the basic "we'll give you the fish vs. we trust you to catch your own (after we bait the hook for ya)"? Or you might say; whose bait (which the informed individual [per below] will take with the proverbial grain of salt) will hook this November's voter?
http://youtu.be/5DmtPA02SNk
http://youtu.be/4aWFxSNMguk
Now that we have that (a reminder that politicians are, well, politicians) out of the way, we can focus on the business at hand... Choosing the candidate whose platform best fits "our" ideology... We'll see if, as a nation, our ideology is any different today than it was almost four years ago...
As confusing as the competing narratives can be, doesn't it always narrow down to the basic "we'll give you the fish vs. we trust you to catch your own (after we bait the hook for ya)"? Or you might say; whose bait (which the informed individual [per below] will take with the proverbial grain of salt) will hook this November's voter?
http://youtu.be/5DmtPA02SNk
http://youtu.be/4aWFxSNMguk
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