I had planned to sit down this evening and write a little something in honor of the wonderful Milton Friedman on the 101st anniversary of his birth. But I just read last year's post and realized that, in terms of what this great man means to me, I couldn't express myself any better than I did then (save for adding Frederic Hayek and Don Boudreaux).
Today marks the 101st anniversary of the birth of one of modern history's truly great American citizens, Nobel Laureate Economist Milton Friedman (1912-2006). I believe I have quoted Dr. Friedman more than any other individual since I began blogging almost three years ago. And of all the personalities who have influenced my thinking, when it comes to economics, he is right up there with Frederic Hayek and, more recently, Don Boudreaux. He was indeed a most gifted communicator.
While he was a passionate champion of free markets, limited government and, most of all, personal liberty, I was always struck by the sincere respect he displayed for those who would challenge his ideology. Not that he wasn't direct when necessary, but, in spite of his utter command of every debate, he always expressed his views in gentlemanly fashion.
While there's much to be said about his wisdom, and his talents as an economist; his character, his style and his effectiveness as a communicator is what, to me, made him most unique among the "dismal scientists" of the 20th Century.
Here is Dr. Friedman, a true gentleman and scholar, helping Phil Donahue (who confused, as so many do today, capitalism with cronyism) understand the importance of the free enterprise system:
http://www.youtube.com/watch?v=RWsx1X8PV_A&feature=youtube_gdata_player
Wednesday, July 31, 2013
Yellin for Yellen...
A group of senators, the New York Times editorial board, Paul Krugman, Dean Baker, and lots of other folks who share a common bent are pounding their fists for Janet Yellen to succeed Ben Bernanke.
She’s Yale educated, professor emeritus at the University of California, Berkeley, was on the Fed board in the 1990s, was president of the Federal Reserve Bank of San Francisco from 2004 to 2010, and has been vice chairwoman ever since. But let’s not hold all that against her.
In fact, I think her tenure at the Fed has to be a huge positive: Having served under Greenspan (the architect of mammoth bailouts and the facilitator of the mother of all modern bubbles), then under Bernanke (the, well, the Greenspan on steroids), if anyone has witnessed how not to handle monetary policy it would be Ms. Yellen. Of course the aforementioned "experts" are betting on her living up to her rep as the doviest of doves (ultra easy money advocate). I'm betting that a woman with the intellect and tenacity that her resume displays---having firsthandedly experienced the past 20 years of monetary folly---possesses the courage to renounce the faulty theories she was reared on and put monetary policy on a legitimate track.
I bet I lose my bet...
She’s Yale educated, professor emeritus at the University of California, Berkeley, was on the Fed board in the 1990s, was president of the Federal Reserve Bank of San Francisco from 2004 to 2010, and has been vice chairwoman ever since. But let’s not hold all that against her.
In fact, I think her tenure at the Fed has to be a huge positive: Having served under Greenspan (the architect of mammoth bailouts and the facilitator of the mother of all modern bubbles), then under Bernanke (the, well, the Greenspan on steroids), if anyone has witnessed how not to handle monetary policy it would be Ms. Yellen. Of course the aforementioned "experts" are betting on her living up to her rep as the doviest of doves (ultra easy money advocate). I'm betting that a woman with the intellect and tenacity that her resume displays---having firsthandedly experienced the past 20 years of monetary folly---possesses the courage to renounce the faulty theories she was reared on and put monetary policy on a legitimate track.
I bet I lose my bet...
Today's TV Segment (video)
This morning Jenny and I had a good discussion on the Fed and the market. Click here to view...
Tuesday, July 30, 2013
Voila! GDP (the number that is) is better than we thought...
Concerned about our anemic economic growth rate? How about our debt-to-GDP ratio? Don't sweat it too much, things are about to look a little bit better. Not that the economy is about to get better mind you, it's how we look at (or measure) it that's been adjusted. It's pretty slick actually: Research and distribution (R&D) expenses are, voilà!, no longer costs of doing business. From this week forward the GDP calculation will consider R&D to be investment---which is the "I" in the formula:
GDP = C (private consumption) + I (gross investment) + G (government spending) + X-I (exports minus imports).
And to sweeten the number just a bit more, the Bureau of Economic Analysis (BEA) is also adding unfunded pension liabilities and creative works (like creating a TV series) to the economy's bottom line.
All this takes into account what the BEA deems to be 21st Century components---although they're rerunning the numbers all the way back to 1929. Brent Moulton, the manager of national accounts for the BEA, says "we are essentially rewriting history". Beautiful!
So if you're California, the land of creative works and unfunded government pensions, you're about to look a whole lot better on paper. And if you happen to preside over the world's largest economy, post the Great Recession, you're happy---the new calculation will add a few basis points to your recovery. Nice timing!
Conspiracy? The right say "Hell Yes! They're manipulating the numbers to make themselves look good". The left say "No Way! They're just updating the numbers to reflect an evolving economy". Now if the tables were turned (if a Republican were president)---make no mistake---the right would justify it till the cows come home and the left would be screaming bloody murder.
So again, conspiracy? Well, would any politician---presented with intellectual cover---conspire to improve how the economy looks (presuming he's on the side that would benefit) in the absence of an improving economy? Of course he would! Does that undeniable truth, itself, make these revisions a conspiracy of the current administration? Nope. They monkey with the formula every few years. And while we might call the latest a gorilla (compared to prior revisions), the BEA says they "come from a 2008 international agreement that has already been implemented in nations including Canada and Australia."
Stay tuned: I have an idea for a GDP revision that, unlike the latest, would be truly meaningful going forward. I'll crunch a few numbers and get back to you shortly...
GDP = C (private consumption) + I (gross investment) + G (government spending) + X-I (exports minus imports).
And to sweeten the number just a bit more, the Bureau of Economic Analysis (BEA) is also adding unfunded pension liabilities and creative works (like creating a TV series) to the economy's bottom line.
All this takes into account what the BEA deems to be 21st Century components---although they're rerunning the numbers all the way back to 1929. Brent Moulton, the manager of national accounts for the BEA, says "we are essentially rewriting history". Beautiful!
So if you're California, the land of creative works and unfunded government pensions, you're about to look a whole lot better on paper. And if you happen to preside over the world's largest economy, post the Great Recession, you're happy---the new calculation will add a few basis points to your recovery. Nice timing!
Conspiracy? The right say "Hell Yes! They're manipulating the numbers to make themselves look good". The left say "No Way! They're just updating the numbers to reflect an evolving economy". Now if the tables were turned (if a Republican were president)---make no mistake---the right would justify it till the cows come home and the left would be screaming bloody murder.
So again, conspiracy? Well, would any politician---presented with intellectual cover---conspire to improve how the economy looks (presuming he's on the side that would benefit) in the absence of an improving economy? Of course he would! Does that undeniable truth, itself, make these revisions a conspiracy of the current administration? Nope. They monkey with the formula every few years. And while we might call the latest a gorilla (compared to prior revisions), the BEA says they "come from a 2008 international agreement that has already been implemented in nations including Canada and Australia."
Stay tuned: I have an idea for a GDP revision that, unlike the latest, would be truly meaningful going forward. I'll crunch a few numbers and get back to you shortly...
Thursday, July 25, 2013
What about those other fellow Americans?
Bet you didn't know that every time you fill your tank you're supporting the makers of big giant boats. But that's okay because you're supporting only American big giant boat makers and the Americans they employ. There's this 93 year old law that requires any big giant boat that carries goods or commodities in U.S. waters be American made, owned and operated. How's that for patriotism protectionism!
Cool then, you say; we're buying the oil (for example) so it's only right that we have fellow Americans do the transporting. Okay fine, but what about those fellow American entrepreneurs (and the fellow Americans they would've employed) who'd love to capture your would've been discretionary income---and enrich your life with would've been more affordable (they frequent filling stations too) goods and services?
One estimate has you and I paying .30 cents extra per gallon due to a lack of transporting capacity resulting from the invisible, yet all too real, stranglehold Washington---in knowing support of its friends---maintains on our pocketbooks.
As politicians forever strive to convince you that some (perceived) economic injustice is the result of a failure of free-enterprise---or the conspiracy of the other party---know that the number of intrusions into the marketplace by government are too numerous to count, or fathom. The next time you hear a politician, or an economist, blame some pain on "market failure" know that what we're almost surely experiencing is the market's effort to correct some politically-induced distortion. As we allow, for example, the existence of a thirty-cent times billions upon billions of gallons distortion, know that we leave the market to compensate accordingly, subtly or otherwise...
Cool then, you say; we're buying the oil (for example) so it's only right that we have fellow Americans do the transporting. Okay fine, but what about those fellow American entrepreneurs (and the fellow Americans they would've employed) who'd love to capture your would've been discretionary income---and enrich your life with would've been more affordable (they frequent filling stations too) goods and services?
One estimate has you and I paying .30 cents extra per gallon due to a lack of transporting capacity resulting from the invisible, yet all too real, stranglehold Washington---in knowing support of its friends---maintains on our pocketbooks.
As politicians forever strive to convince you that some (perceived) economic injustice is the result of a failure of free-enterprise---or the conspiracy of the other party---know that the number of intrusions into the marketplace by government are too numerous to count, or fathom. The next time you hear a politician, or an economist, blame some pain on "market failure" know that what we're almost surely experiencing is the market's effort to correct some politically-induced distortion. As we allow, for example, the existence of a thirty-cent times billions upon billions of gallons distortion, know that we leave the market to compensate accordingly, subtly or otherwise...
Wednesday, July 24, 2013
A few market-timing/forecasting thoughts...
A friend of mine just got back from an investment committee meeting where he listened to a mutual fund wholesaler forecast low interest rates well into 2016. I attended a presentation recently by a government pension portfolio manager who all but predicted, among other things, a 9% stock market gain for the second half of the year. I read a Seeking Alpha article yesterday that deftly dispelled any notion that the present bull market is anywhere near long in the tooth. Oh, and my investment committee friend also commented on how the fund wholesaler's company was ranked number one by Barron's for its 10 year results (as a fund family).
Pardon my skepticism, but:
As for low interest rates into 2016: They (the people who pay the young man to address investment committees)---believing it'll be good forstocks their assets under management---so want rates to stay low into 2016. So much so that they see low single-digit economic growth, troubles in emerging markets and a walking-dead bond market for many years (well, at least 3) to come. All the bias confirming data they glom onto notwithstanding, making a 3 year interest rate prediction is a very dangerous game to play with other people's money.
As for a 9% gain for the second half of this year: Bless his heart, the pension portfolio manager is so hopeful, and inexperienced---and wanting to please his audience---that he was willing to parrot what he heard that hedge fund guy say the day before on Bloomberg. God help him if that hedge fund guy is wrong!
As for the Seeking Alpha article: The author makes great points, but at the end of the day he's long stocks and needs to be right.
As for the best fund group over the past 10 years: For this one I'd ask the gentleman; "So were you the highest ranked 10 years ago?" (That would be a no btw.) "Oh, so who was the best?" (He wouldn't know---but let's say he did.) "Oh, and where did they rank for the past 10?" (Not near number one [I'm speculating from experience] btw.) "Oh, so I guess we better stay away from you guys then." My point: 10 year mutual fund track records are almost worthless. There's absolutely no reason to believe that the number one strategy for 10 years (could've been 3 or 4 phenomenal years which produced the best average over 10) will remain such going forward. The odds of a mere human fund manager possessing the insight, and humility (after having been the best for 10 years), to know when the old strategy's luck has run out---and what to do to remain number one going forward---are, well, you tell me.
Pardon my skepticism, but:
As for low interest rates into 2016: They (the people who pay the young man to address investment committees)---believing it'll be good for
As for a 9% gain for the second half of this year: Bless his heart, the pension portfolio manager is so hopeful, and inexperienced---and wanting to please his audience---that he was willing to parrot what he heard that hedge fund guy say the day before on Bloomberg. God help him if that hedge fund guy is wrong!
As for the Seeking Alpha article: The author makes great points, but at the end of the day he's long stocks and needs to be right.
As for the best fund group over the past 10 years: For this one I'd ask the gentleman; "So were you the highest ranked 10 years ago?" (That would be a no btw.) "Oh, so who was the best?" (He wouldn't know---but let's say he did.) "Oh, and where did they rank for the past 10?" (Not near number one [I'm speculating from experience] btw.) "Oh, so I guess we better stay away from you guys then." My point: 10 year mutual fund track records are almost worthless. There's absolutely no reason to believe that the number one strategy for 10 years (could've been 3 or 4 phenomenal years which produced the best average over 10) will remain such going forward. The odds of a mere human fund manager possessing the insight, and humility (after having been the best for 10 years), to know when the old strategy's luck has run out---and what to do to remain number one going forward---are, well, you tell me.
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