Really? Keynes Was Right?

Nobel Prize Laureate and NY Times OP-Ed Columnist Paul Krugman in his last Thursday's piece Keynes Was Right wrote;

"In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom. In Washington, in particular, the failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can't create jobs. But those of us who did the math realized, right from the beginning, that the Recovery and Reinvestment Act of 2009 (more than a third of which, by the way, took the relatively ineffective form of tax cuts) was much too small given the depth of the slump. And we also predicted the resulting political backlash.

So the real test of Keynesian economics hasn't come from the half-hearted efforts of the U.S. federal government to boost the economy, which were largely offset by cuts at the state and local levels. It has, instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans - and have suffered Depression-level economic slumps, with real G.D.P in both countries down by double digits."

He essentially makes the (intuitively plausible)case that spending cuts during a downturn can only exacerbate a nation's woes... And cites Greece and Ireland as proof...

Now, in my simplistic view of the world, I struggle with Mr. Krugman's assertions... For one, Greece and Ireland need "emergency loans". Greece and Ireland apparently subscribed fully to the Keynesian notion that when a government borrows from its own people and/or others, the deployment of the borrowed capital will provide offsetting stimulus and the wherewithal to later pay back the debt with interest... But, again, Greece and Ireland need "emergency loans"... And what's this about "savage fiscal austerity"? Yes, those who would offer aid to Greece demand that they show real fiscal restraint going forward (how dare they), that if they continue in their profligate ways, bailed-out they ain't... But "savage" is an awfully strong word, and wasn't Greece's austerity budget just passed the other day? Has there indeed been ample time for this "savagery" to cause a "Depression-level economic slump"? Or could it be that Greece is what becomes of a country when [virtually] its entire economy is at the mercy of bureaucrats spending other people's money on other people?

Our Brief New Year Message

Our 2012 objective, as a firm, remains to help our clients keep their heads about them... To maintain proper allocations, consistent with each individual/family's unique circumstances, time horizon and temperament - and to rebalance as needed... To encourage them, as always, to keep the blinders (to short-term volatility) on and maintain their long-term focus... To remind them that the equity portion of their portfolios' advances tend to (historically speaking) come in spurts (of varying lengths), and those who attempt to time the market's ups and downs risk missing the advances, as well as the buying of declines (through rebalancing), and thus risk blowing permanent holes in their long-term results...

As a commentator, my aim is to aggressively promote commonsense reasoning in a world dominated by media hyperbole and political confusion... To illustrate the unseen costs of every proposition - to, in essence, promote the free-market ideology... To take notice of the opportunities that lie ahead and, in the process, help our clients understand the logic behind our specific investment recommendations...

All of us here at PWA are sincerely grateful for the opportunity to work with a most wonderful group of clients... Please never hesitate to call on us at any time during the year (i.e., no need to wait for your semi-annual review date) when we can be of any service, in any manner, whatsoever!!

Wishing you and yours a healthy, happy, and enlightening New Year!!!!

Lessons from 2011 & Cause for Optimism

*If you're prone to earthquakes, never stick a nuclear plant on the beach...

*If you're a ruthless dictator, keep the peasants off the internet...

*Socialism is fiscally unsustainable... As Margaret Thatcher stated in February 1976, "Socialist governments traditionally do make a financial mess. They [socialists] always run out of other people's money. It's quite a characteristic of them." And in the words of Thomas Sowell; "Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it."

*We (President Obama) justify intervention (Libya) by "a moral imperative to prevent the massacre of citizens." Yet, when the same occurs elsewhere, our actions [in Libya] were inspired by a "unique set of circumstances"...

*Not smart to even suggest trying 9/11 terrorists in civilian courts in, of all places, New York City...

*Never mess with Navy Seals...

*Harold Camping doesn't know, after all, when the world's going to end...

*There's no buying an NBA title...

*The Amazon's current can wash away any Border (as in Amazon.com and Borders bookstores)...

*The banks of the Mississippi contain mother nature about as well as debt ceilings in Washington contain political ambition...

*Standard and Poor's couldn't foretell the disasters of Lehman and AIG, but they'll downgrade a country that prints its own money...

*Gold is no safe haven...

*By and large, pundits, politicians and the populace don't seem to understand that when you buy something, regardless of where it's made, with a U.S. dollar, you're supporting the U.S... Go find a Euro and try to spend it at Starbucks...

*Protesting cronyism is a worthy pursuit... That is until the politics are exposed... The "Occupiers" will never make a serious play at their own party...

*Those who would protest capitalism haven't the slightest clue what they're protesting...

*The last resort for failed socialist states is to privatize state-owned enterprises... Shoulda tried that first...

*Welfare states eventually become states on welfare...

*You can run [for President], but you cannot hide [your past]...

*Anyone who's aware of child abuse and doesn't do everything humanly possible to prevent its reoccurrence deserves prosecution (and should do time!!)...

*Payroll tax "holidays" cannot, by definition, produce long-term [positive] economic results... You have to come home [to reality] when your holiday's over, right?

*$trillions, stubbornly stuck, oncorporate cash and in bank excess reserves tell the 2011 story; uncertainty-induced inertia....

*Stocks can stay cheap for extended periods...

*Government intervention into the economy presents headwinds of its own, in that it generally comes laced with stifling new regulations... The current annual cost of regulatory compliance sucks $1.7 trillion annually from businesses... That would be roughly 40 million new jobs... Watch this 2 minute video...

*And lastly, in the words of Yogi Berra; "a nickel ain't worth a dime anymore"...

All that said, bumpy ride notwithstanding, there's cause for optimism going forward... As;

*Emerging nations, with their favorable demographics, have huge infrastructure needs, substantial growth prospects within, and welcome foreign investors...

*Better than 50% of the earnings of the companies comprising the S&P 500 come from abroad (emerging nations in particular)...

*Companies, by and large, are in good fiscal shape...

*Liquidity, interest rates and equity valuations line up nicely going forward...

*Pent-up demand will drive U.S. consumer purchases of autos and homes (ultimately).

*Pent-up demand will drive business investment (including acquisitions)... I.e., all that cash is burning a hole in balance sheets...

*Common-business-sense will [ultimately] outlast common-political-nonsense...

Who pays for the payroll tax holiday?

Market Commentary (audio)

Click here for today's commentary...

EU Crisis Update 12/23/11 (video)

The Monthly Statement Part 1

Correction: At the very end I said "added a hundred thousand dollars", meant to say "added a hundred dollars a month"...