Posts Tagged 'politics'

« Previous Entries
Next Entries »

Predictions for ’09 (and a review of my ’08 calls) …

Published December 28, 2008 Trivial , Universal 3 Comments
Tags: , , , , , , , , ,

In my most recent question column earlier this week, I asked for readers’ predictions for the upcoming year … aside from Genghis bravely predicting that Obama would become POTUS, I didn’t get too many responses.

So I’m going to ask for your predictions again, while repeating some of the predictions I made and adding a couple of more, before I revisit some calls I made this year.

First, the predictions for 2009. I’m sticking mostly to economics, with a few foolish forays into other areas (I was going to make a call that Prophet would finish his Top 10 2008 Albums list next February, but I see now he’s picked up the pace):

Economy

  • Unemployment, now at 6.7%, surges past 9 percent and falls just short of double digits
  • Gold now at about $845-$850, revisits all-time highs at $1000 an ounce, probably later in the year
  • Obama puts alternative energy initiatives on back burner at first, but then gets more involved as light crude oil, now at about $36 a barrel, rebounds first to $55-60 in short-term and then approaches $90 sometime next year. Gas prices again become a political issue.
  • ‘Class’ replaces ‘race’ and ‘immigration’ as the next big battleground in America. We see several examples like the factory sit-in we saw a couple of weeks ago. At least one of these protests turn violent and leads to a fatality. Unemployment benefits get extended again, and numerous other populist measures, including foreclosure relief, get passed by Washington.
  • The market has another down year, probably more than 10%, but stages a pretty decent rally early in the year, with the Dow hitting 10,000 again. IPOs remain few and far between, but Facebook does end up pulling off one of the few big new public stock offerings of the year next fall. The stock does well in the short-term, leading to another mini-rally.

Politics

  • The Obama inauguration attracts more than 3 million visitors, and the combined TV audience for his speech exceeds that for the Super Bowl, drawing more than 100 million viewers. There is at least one announced assassination attempt that is thwarted.
  • Biden was right after all and some terrorist organization or rogue state tests Obama’s resolve by the summer. We have the first attack on U.S. soil since 9/11 and it’s possibly a multi-city attempt that mimics the chaotic action in Mumbai. (Please god I hope I’m wrong on this one).

Sports

  • The Panthers meet either the Patriots or the Colts in the Super Bowl and win it all.
  • The Red Wings win the Cup. The Celtics repeat. (These are huge guesses).
  • The Yankees win the division, but flame out in the first round of the playoffs. Girardi is fired by the end of October. The Angels get to the World Series and play the Dodgers in an all-SoCal World Series. Angels win. My beloved Cards come in 3rd place in the NL Central division, which the Brewers win.

So should anyone listen to me? Probably not. My track record this year for predicting events was so-so. I was generally dead-on with economic trends, as I have been very negative for over a year now. On February 11, before I started blogging, I wrote an email to Jim Cramer, stating that we are heading into a ‘severe economic downturn that will last longer than most people are predicting,’ adding:

We are still in the early throes of this current crisis. We still haven’t seen any bankruptcies. Foreclosures and defaults have been at a minimum. The job market has only just begun to show signs of strain. The pain will of course spread to the rest of the world, which is wallowing in our debt and weak dollar, causing a global slowdown. Much more damage will be done, many more shoes will drop.

In a July post on pessimism, I predicted 50% odds for a multiyear recession, and 10% chance for a depression, fairly bold but probably not high enough odds for either. When the Lehman bankruptcy occurred on Sept. 14, I warned this wouldn’t be the end of the story and a systemic collapse was possible. When the Treasury first presented its bailout plan, I said there would be bumps along the way and that other industries would quickly be lining up for money, including the car manufacturers.

When it came to the financial markets, the record was much more mixed. I probably made my best call of the year on July 4, calling oil a bubble about to pop on the exact day it hit its high price for the year ($140+). Despite talk of new rules against speculation and for offshore drilling, I also correctly pointed out that the main reason for oil’s fall would be a rapidly weakening global economy. However, in that same piece, I said there’d likely be one more big run higher and that oil was not going to be heading to $50 anytime soon (It’s now in the $30s. Oops).

My calls for short-term bottoms and tops in the stock market were generally correct, but often early by a matter of days or even weeks, which makes a huge difference if you actually wanted to trade on the information (which I would NEVER recommend, as you have probably realized by now I like to talk out my ass a lot).

For instance, on Oct. 8, I called for a short-term bottom in the market, but it didn’t start happening until the next week. In a follow-up post on the 13th, I thought the rally could have some legs (somewhat true) with the Dow possibly hitting 11,000 (way untrue), but that we would revisit our earlier lows ‘in the next few months, if not sooner’ (true) and that we’d hover around the Dow 8K-9K for a year or more (to be determined).

I didn’t make many political calls, but wasn’t so impressive here either. In July, I predicted an Obama victory and said ageism would prove to have a bigger impact than racism (hard to judge the latter call, but I think it was a pretty good one).

On Sept. 3rd, I said McCain’s Palin could backfire but was the only thing he could to generate even a trace of the excitement of the Obama campaign.

On Sept. 24th, I called McCain’s announcement that he was postponing his campaign to focus on the economy as ‘just silly’ and ‘annoyingly hyperbolic.’

When the bailout was being debated and strongly questioned in Congress, I said it would surely pass; It was vetoed. To be fair, after the bill was vetoed, I did correctly predict a new bailout proposal ‘very similar’ to the rejected one would pass.

And in sports, the only prediction I made was a hopeful and ultimately correct one that St. Louis Rams Head Coach Scott Linehan would be fired after the bye week. Unfortunately, Linehan’s firing didn’t lead to ‘watchable football’ as I had hoped.

OK, now it’s YOUR turn. Go out on a limb. Make some calls. Trust me, if you’re right, you’ll look like a genius, a seer, a visionary. And if you’re wrong, no one will remember (at least not ’til I revisit these predictions next year)

Terror speaks … and again shows its true colors …

Published November 20, 2008 Deep , Universal Leave a Comment
Tags: , , , ,

So Al-Qaida’s No. 2 leader (or maybe its no. 1, if rumors of Osama’s demise have any credence) released a taped message today, re-declaring war on America and calling its new President-elect a ‘house negro.’

In the 11-minute audiotape message, Ayman al-Zawahri also used the same term to refer to Condoleeza Rice and Colin Powell, while the accompanying video shows Barack wearing a Jewish yamulke (skullcap) as he met with Jewish leaders. Al-Zawahri further warned that any attempt to send more troops to Afghanistan will be met with failure as the dogs of that country ‘have found the flesh of your soldiers to be delicious.’

Lovely. Just lovely.

My fear of course is that this message was also a call to action. With America’s economy teetering on the edge of collapse and with a lame duck administration running out the clock, it would be a smart tactical strategy on al Qaida’s part to strike again if they are capable of doing so given that we are apparently at our most vulnerable.

But while a successful attack, god forbid, could prove to be devastating in the short-term and cause plenty of havoc, I remain as confident as ever that this country will find a way to presevere.

Excuse me for going all jingoistic here for a moment, but is there any better example of America’s enduring character than what happened earlier this month … that without one drop of blood shed, the people of this country decided to reject the imperious, divisive policies and politics of the past eight years, and elected a black man … with Muslim ancestry … named Barack Hussein Obama … to the highest office of the land.

That one simple action – a democratic vote ushering in a new adminstration and guiding ideology -  provided a vivid display of the progressiveness and flexibility that has kept America strong and vibrant throughout its history. It’s also something that the Islamic fundamentalists, with their tactics of hatred and terror, their racial epithets and talk of flesh-eating dogs, will never understand.

Obama will mean the end of capitalism!!! (Whoops, too late) …

Published November 12, 2008 Deep , Universal 7 Comments
Tags: , , , , , ,

The day after Obama won the election, a Republican friend of mine on Facebook joined a group that planned on getting together on Inauguration Day to mourn ‘The End of Capitalism as We Know It’*.

Members of the group were waxing bitter in the message board, complaining about how Obama was a socialist who was going to destroy the U.S. economy.

I had to laugh … and cry.

Cry because these people were so caught up in their own right-wing economic philosophies (many of which I actually agree with) that they couldn’t even for one moment take the time to appreciate the historical significance of what this country’s voters had just done.

No matter what your politics, every one should be able to do what John McCain eloquently did on election night: Recognize that this country has taken a large, profound step to move past its racist beginnings (and recent history) and elected a candidate that preached unity and bipartisanship and re-engaged vast segments of the American people by inspiring a renewed sense of hope and idealism.

But many of Obama’s opponents don’t even want to give him a fighting chance. They believe he is doomed to fail and his liberal agenda will cause the collapse of the American empire and its glorious capitalist experiment … which is why I also had to laugh when I read those messages.

That experiment has already failed. The empire is already collapsing. Socialism is already here … And it all happened under a Republican administration.

Just today, Treasury Secretary Hank Paulson generously let the American people know that after careful deliberation, the $700 billion he asked for from Congress is now going to be put to a vastly different use than was originally intended.

Money that was supposed to be used to buy up bad loans and mortgages rotting away on the balance sheets of banks and gumming up our credit system is now going to be doled out  (in a command-control style, I may add) to buy stakes in troubled banks, as well as potentially help out a number of as-of-yet unspecified companies in as-of-yet unspecified non-financial industries.

(So much for the program’s name: TARP, Troubled Asset Relief Program. Calling it the Tits and Ass Relief Program would have made about as much sense).

Mark my words: The cost of this program will end up far exceeding $1 trillion (though we may eventually get some of that money back). And that’s in addition to the hundreds of billions the Fed has already spent trying to buck up our decrepit financial system.

Instead of facing the consequences of a decade-long U.S. consumer spending binge, which was encouraged and exacerbated by a housing/credit bubble caused by our government’s easy money policies, we are flailing around haphazardly, trying anything and everything to bail our way out of this mess. But all we are doing is throwing good money after bad, and leaving future generations of Americans an enormous, crippling pile of debt.

The most egregious example of this will likely be the auto industry bailout that is quickly becoming a political inevitability. Right now, the best I can hope for is that the money comes attached with some sort of regulatory plan and set of conditions. If changes aren’t made to the auto companies’ operating structure (i.e. mainly, a renegotiated contract with the labor unions), they’ll be facing the same dire situation a few months down the road because they just cannot currently compete with the lower-cost manufacturers in Japan and throughout the rest of Asia.

Do I think an auto bailout is a good idea? No way. I’d much rather see GM and Ford be allowed to go bankrupt, and work to restructure their operations through that process, while we spend the money we’ll be using in the bailout to retrain displaced workers and invest in start-ups pursuing new green energy technologies. But I understand millions of jobs are at stake. I understand that the American people would find it hard to understand why Wall Street and the fat cat elites who work there and produce nothing of tangible value got bailed out while the manufacturing engine of the country was left to wither on the vine.

The fact of the matter is, America has never been a purely capitalistic system. We came to grips some time ago that capitalism without safety nets ends up benefiting the few at the expense of the many, and will eventually destroy itself through social instability. That’s why we have Social Security, and welfare, and Medicare, and public schooling and student loan programs, etc. etc.

But it is still quite ironic that the biggest government nationalization and socialist expansion efforts in decades will be coming at the end of a Republican administration that never pursued the fiscal responsibility platform of the conservative movement and is now too afraid to deal with the nasty flip side of the free market policies it espoused.

——————————————–

*I think that was the name of the group – I can’t find it on Facebook any longer … maybe they, too, realized the insanity of their hypothesis

Bittersweet …

Published November 5, 2008 Deep , Universal Leave a Comment
Tags: , , , ,

Looks like Prop 8 is going to pass in California. It’s a shame that on a historic night in American politics, the voters of one of this country’s bluest states may have decided to take a step backward for civil rights. Hate to throw out anything negative out there on a day like today, but the lack of leadership on gay marriage by leading Democratic politicians, including our President-elect and Vice President-elect, is probably one of the reason the progress has been halting at best on the issue. Alas, support for gay marriage doesn’t appear to be feasible right now for politicians with national aspirations, or at the least, no one appears brave enough to test that piece of conventional wisdom.

On the positive front, marijuana decriminalization continues to take tiny steps forward, with measures being passed in Michigan and Massachusetts. Doctor-assisted suicide law passed in Washington. A renewable energy initiative passed in Missouri (though that doesn’t take the sting out of my hometown state’s likely pick of McCain). And somewhat surprisingly, pro-life initiatives were voted down in South Dakota and Colorado.

Best birthday ever …

Published November 5, 2008 Deep , Personal , Universal Leave a Comment
Tags: , , , ,

I turned 35 at midnight tonight, about the exact same time Obama began his acceptance speech in Chicago. I couldn’t have received a better birthday gift. I will never forget this night. You should have seen the love and camaraderie being displayed in New York, between and among complete strangers who like me just couldn’t stop smiling. If a night like tonight doesn’t make one proud to be an American, and hopeful for the future, I don’t know what could.

Just a quick note to to finish up before I TRY to go to bed tonight (the adrenaline may not let me), I wanted to post one of the more poignant signs I saw tonight, displayed at a Obama rally in New Jersey and shown during one of the local news reports. It read (with a little bit of editing):

Rosa sat,

so Martin could walk,

so Barack could run,

so our children could fly.

I’ll obviously never be able to understand the African-American experience, but I thought that was just beautiful poetry.

Question time …

Published November 1, 2008 Trivial , Universal Leave a Comment
Tags: , , , , , , , , , ,

Happy Halloween all! Last week, I threw out a bunch of questions I had been asking myself lately, and people seemed to enjoy the post, responding with some incredibly wise and insightful, or at least terribly smartass, answers. So, I figured I’d do it again, maybe even make it a weekly thing. Without further ado …

1) Will there be more Jokers or Joe the Plumbers out there tonight? (If you’re answering this and Halloween is already over, reply with the actual answer)

2) Why do parents wait until the last minute to buy Halloween costumes? The costume place by me was absolutely crawling with kids last night, and there was a line to get in the store. Don’t they know it comes the same time every year?

3) If you win a World Series and no one in the world is watching, have you really won a World Series? (No offense, Philly fans, I’m just so happy you out-underrated the 2006 World Series, when my Cardinals won the title and no one seemed to care because a New York and Boston team wasn’t playing)

4) Agree or disagree: Obama’s non-selection of Hillary as VP was one of his best moves of the campaign. I say yes, and not because Biden’s been a big help (I’m a fan but he’s been a neutral at best), but by not picking Hilary, it led McCain straight to Palin’s frigid Alaskan door, and that’s a gift that keeps on giving (They’re now talking about her as a leading candidate in 2012, which boggles the mind but warms the heart)

5) Give me your best guess of the percentages for voter turnout as well as Obama’s popular vote total on Tuesday? I say 64 and 53, respectively.

6) Can you think of any any worse, more terrfiying way to die than in an airplane crash? I’m talking only about relatively common and immediate forms of death, so no death by testicle tickle torture or long terminal illness. Seriously, the idea of having to endure ten or more minutes of being able to do nothing but imagine your imminent death while being surrounded by screaming people and unbelievable turbulence as a 100,000 lb. aircraft hurtles earthward at an accelerating pace, frightens me to no end. But maybe that’s just me.

7) Genghis got me thinking with his W. movie review, what was the last good Oliver Stone movie?

8) When was the last time you listened to music on a terrestrial radio that wasn’t in a car? Talk about a dead medium. And good riddance.

9) It’s not because of radio’s demise, but I feel I’ve stopped learning about good new music. How can I fix that?

10) And finally, shifting to a much more exciting medium, please rank the following positive, life-changing attributes of the Internet in order of greatness:

  1. E-commerce (Amazon, ebay, craigslist)
  2. E-mail and IM
  3. Comparison Shopping and Reviews
  4. Online gaming (social and multimedia)
  5. Facebook. Social Networking and the ability to transcend physical borders
  6. Maps and Step-by-step directions
  7. Free Porn available in any fetish imaginable
  8. Search, Wikipedia and the ability to find almost any piece of info
  9. dagblog.com
  10. Other (List your own piece of Internet enjoyment)

Dag? Nab it! …

Published October 29, 2008 Personal , Trivial Leave a Comment
Tags: , , ,

Just wanted to write a quick post to tout another pet project I’ve been working on with a couple of friends called dagblog.com, which just celebrated it’s one-month anniversary and is doing pretty well for such a new site. Right now, the blog is heavy into politics and business, not a surprise given current events,  but over time, we hope the scope of the content expands into entertainment, business, sports, satire and other areas of interest.

Most of what I write there is cross-posted here, but you really should read some of the other stuff on dagblog if you get a chance. If I may say so myself, I’ve been really impressed by the content so far.

And if you’re in the NYC area, dagblog plans on having a little election-night party, so stop by if you can – details to come.

The unspoken fear …

Published October 27, 2008 Deep , Universal Leave a Comment
Tags: , , ,

Take a step back from the day-to-day machinations and minutiae of the campaign for a moment. Put aside thoughts about the final stretch of polls and stump speeches and negative advertising and robo-calls and ground games and electoral map hypotheticals, and consider the enormity of what this country appears to be on the brink of doing one week from now: Electing an African-American to the highest office in the land.

Given the history of this nation, it is a remarkable prospect. It is exhilarating. It is almost unbelievable.

And that is why it is also very frightening.

Frightening because as the prospect of an Obama presidency becomes more real, I believe there are many in this country who are so sick and deranged that they would risk their own lives to make sure that doesn’t happen. Even with the best and most comprehensive security force, you cannot convince me that an assassination isn’t a very real possibility. Obama is attracting enormous crowds of tens of thousands of people, which are nearly impossible to totally manage. All it takes is one nut with a semiautomatic to be successful.

I now believe that an assassination is the only thing that will prevent Obama from being inaugurated as President of the United States come next January.

I hope I’m just being overly cautious or neurotic – with my personality, that would be within the realm of possibility – but I think a lot of people are wondering the same thing and just don’t want to express the unmentionable.

Am I wrong to worry??

ENOUGH!!! …

Published October 21, 2008 Uncategorized 2 Comments
Tags: , , , , , , , , , , , , , ,

I’ve had it.

This country has been on engorging on a cheap credit binge for the last decade, stuffing itself on the sugar highs and empty calories provided by ultra-low interest rates and fancy derivatives and zero-down mortgages. Now the chickens are coming home to roost, and everyone is looking for a way to get their butt saved.

It’s bad enough that Congress already spent $150 billion earlier this year on a fiscal stimulus plan that did nothing but allow us to buy IPhones and XBoxes for a few more months. The American people now want more, and it looks like Congress is going to give it to us with another huge stimulus package. It’s money we can’t afford right now and which won’t do anything but provide another very temporary boost to an economy and consumer that needs to retrench for an extended period of time before they can begin to reflate.

But spending money one doesn’t have is the American way. Just ask the country’s beleaguered homeowners now drowning under onerous interest payments, the folks who were too busy picking out Ikea furniture to read the fine print of those adjustable-rate, no-doc mortgages they were signing.  They, too, are soon going to get plenty of help from our friends in Washington.

You see, everyone says we need housing to rebound in order for the economy to recover, so by god, we are going to make the housing market rebound, even if it means the government has to buy up all those nasty little mortgages and restructure them, as Senator John McCain has so magnanimously offered to do (and to hell with the free market and the natural laws of supply and demand).

But really, who could possibly blame the American people for wanting to be spared the pain of an economic downturn?? They’re just following the lead of our most esteemed industry and financial leaders and watching with green eyes as the government tosses around hundreds and hundreds of billions of dollars like so much loose change.

How fitting that the first ones at the government trough were the Wall Street pigs who cooked up this unhealthy smorgasbord slop and fed it to the ravenous, greedy (but mostly unsuspecting) crowd of American consumers.

Oh, it may seem unseemly that the ones largely responsible for creating this mess would be the first to come begging for help, but The Powers That Be knew the financial system that Wall Street had so cleverly manufactured was so fragile that many of these banks couldn’t fail. They knew that the pyramid scheme would have to be unraveled slowly or the entire economy would shut down.

So in order to prevent exposing the rot in the system to the public, regulators forced Bear Stearns into the hands of the relatively well-capitalized JP Morgan Chase, guaranteed the losses with a $29 billion loan and then lowered interest rates in an emergency session.

But that was just the start. You know the rest of the story. The scope of the problems became obvious, and it was clear the cancer had metastasized to every corner of our financial system. Housing in particular was a disaster, so we nationalized Fannie Mae and Freddie Mac (which should never have been privatized in the first place, as one of the only things scarier than capitalism gone mad, is capitalism with implicit government backing gone mad ).

AIG, too, needed help since it had gotten caught insuring a lot of these failing institutions, so we rescued that firm with $85 billion (and then watched as some of that promised money was immediately spent on a lovely sales retreat, replete with a $23,000 spa bill).

And yet all that government assistance still wasn’t enough, so the Treasury and the Fed went to Congress and pleaded for another $700 billion, and only after getting that pork-laden package passed have they begun figuring out exactly how they are going to use that money to save our banking system and economy.

It is all just so very frightening, but the last straw for me was reading an article about some of those poor, poor folks in the hedge fund industry who are now hoping they’ll also see some of that bailout money. Treasury Secretary Paulson insists the money is just for banks and thrifts, but that ‘plans could change’.

You’ve got to be kidding me!!

I mean, for crying out loud, it was only a decade ago when the government and a bunch of banks bailed out a hedge fund company named (ironically enough) Long-Term Capital Management.

Long-Term Capital, with its use of insane leverage (at least 25x) in highly illiquid, poorly regulated financial instruments, including some of the very same derivatives and mortgage-backed securities that are now causing us grief, was in many ways Version 1. 0 of the current Wall Street mess. And yet we ultimately learned very few lessons from that clear early warning sign (This Working Group document has some great background on the LTCM debacle as well as a number of generally ignored conclusions and recommendations).

Frankly, we missed a golden opportunity to increase supervision and disclosure requirements to help rein in some of the industry’s excesses.

Even worse, the LTCM bailout (and the subsequent lowering of interest rates by then-Fed Chairman Easy Al Greenspan) helped fan the flames and foster the environment that we now find ourselves in by encouraging more ill-advised risk taking while institutionalizing the idea that the government will always be there to cover up for our mistakes.

But there is a price to be paid for that largess. Eventually, we’re going to have to pay for this misguided philosophy. I’m just worried that it’s too late, that we’ve dug ourselves into a hole so deep it will take a generation or more to climb out of.

So it’s time to stop the capital injections and bailout plans, the incessant pumping of liquidity into the markets and the careless printing of money, the debt issuance and the interest rate cuts. We’ve done enough to unfreeze the markets and prevent a systemic collapse. It’s time to let the brutally effective corrective mechanisms of capitalism take care of the rest.

As Obama said during the most stirring moment in his Denver keynote convention speech:

‘Enough!’

How The American Dream created this American nightmare …

Published October 19, 2008 Trivial , Uncategorized , Universal Leave a Comment
Tags: , , , , , , ,

You hear a lot of conservatives nowadays wanting to place blame for the country’s current economic crisis on the Community Reinvestment Act of 1977, which encouraged commercial banks to lend money to borrowers in low-income areas.

The implication is that the CRA, enacted and significantly expanded under two different Democratic administrations, led to the creation and proliferation of the risky subprime mortgages that have brought the U.S. banking system to the brink of collapse.

Never mind the fact that CRA-regulated commercial banks originated less than half the total subprime mortgages or that at least as much share of the blame for how things got out of hand has to be placed on the Republican-led repeal of the Glass-Steagall Act, which allowed investment banks and other less regulated institutions to engage in similarly risky lending (and to do so without the leverage restrictions placed on commercial banks).

But conservatives do have a point (even if it’s not the one they really intend to make): This country’s myopic focus on home ownership as the be-all and end-all of The American Dream did indeed help spawn the housing and credit bubble, and the CRA is just another in a long list of government policies that have encouraged home ownership as an important component of economic development and societal stability.

OK, maybe I’m just a bitter renter who’s trying to justify his lifestyle and puny net worth, but I do wonder … is home ownership really that important?

The National Association of Realtors certainly thinks so, and some of their rationale makes sense. For society as a whole, home ownership may in fact offer some advantages, as people who buy their homes are more likely to be invested in their communities and neighborhoods than renters. However, I would think these benefits have diminished over time as the nation has developed and become more settled.

Encouraging broad home ownership probably also acts as an alternative means of reducing income inequality in a capitalist economy, and at the same time instills in citizens the importance of private property rights, both of which lead to increased stability in our society. Given that our national savings rate is negative, home ownership also encourages people to invest and save funds they might otherwise not.

But that capital comes at a cost, an opportunity cost. Homes are static entities, non-productive investments. By themselves, homes don’t create anything of tangible value.

And homes are not particularly good investments, either. Robert Shiller did a hundred-year study and found that homes increased in value about 3% a year on average, not much more than the rate of inflation, with only a couple of temporary periods of dramatic outperformance.

Another study by two professors, Roger Ibbotson and Jack Clark Francis, found that housing increased in value about 8.6% a year from 1978 to 2004. Not bad, but not as good as commercial real estate at 9.5% and well behind stocks at 13.4%. (Granted, you can’t live in a stock).

The math gets a bit better when you account for the substitution costs of renting, but a lot worse when you include the other costs associated with home ownership – and there are plenty of them, such as mortgage interest, insurance, upkeep, refurbishing and property taxes. The WSJ estimated that a $300,000 house could end up costing an owner more than $1 million over 30 years. And that excludes the costs of buying and selling a home, which can add up to as much as 10% of the transaction value and make moving to a location that better suits one’s needs or skills a much more expensive prospect than it’d otherwise be.

A good trader friend of mine, who used to live in a rented NYC apartment, described his St. Louis home as a ‘money pit’ and usually wishes he was still renting.

Unlike with stocks, where diversification is possible and laudable, owning a home often requires a person putting almost of his or her eggs in one basket. And if you bought a home in the last couple of years, that’s a much smaller basket now.

Bottom line: Obviously, every locality is a bit different, but I think owning a home can make sense for people who plan on staying in the same place for about 5-10 years, or who enjoy the responsibilities of upkeep and maintenance (I, however, recoil at the prospect of lawn mowing and do-it-yourself repair projects).

But even in the best of scenarios, home ownership is rarely the best path to getting rich. And as we’ve found out in recent months, making it a key goal for a society – at the expense of other worthwhile goals and values – can lead to a rather unwise deployment of capital and some really nasty unintended consequences.

Some perspective on a Gray Monday …

Published October 6, 2008 Uncategorized 7 Comments
Tags: , , , , , ,

So, the market is down 555 points, almost 5 percent. Yet so far this is no October Black Monday, like when the market dropped 13 percent on October 28th, 1929 or when it dropped 22% on October 19, 1987. (Note: Things are moving fast, market down more than another 100 points since I started writing).

This is, in many ways, even worse – just another Gray Monday, where we get the continued, orderly drip-drip-drip of a market with no confidence, and no idea of where we are headed.

Did you know in the Great Depression the market fell 89% from its 1929 peak? And that it took us three years to get there? I’m not saying that’s what is going to happen now. The world is very different. The genesis of this crisis is very different (whether that’s good or bad, who knows?). But it’s something to consider. I think we’re headed toward that panic sell-off … but we’re not there yet, and even if we have it, I don’t expect to get the immediate recovery we got in 1987.

Things will likely get worse before they get better. Good people will suffer. But to complain seems rather silly when so many people around the world have much bigger problems. As far as I know, I’m healthy. My family is healthy. i have so much love in my life. I know how I’m going to find my next meal. I live in a country where I can speak my mind, and vote my conscience.

Yes, even on Gray Mondays, life goes on.  I walked my dog in Central Park this afternoon and the sun was still shining. It was a beautiful early fall day, and I enjoyed every moment, watching my cocker spaniel search for any bits of food left by careless picnickers and chase squirrels he’ll never catch and wouldn’t know what to do with even if he did.

This election both presidential candidates have been tossing out words like Hope and Change as if they were cheap plastic political buttons, offering very few specifics about how we are going to get out of this mess. But Hope and Change are powerful concepts, and if applied correctly can help people get through tough times.

Today, I’d like to add one more:

Gratitude.

You’re kidding, right?? ….

Published October 2, 2008 Trivial , Universal 2 Comments
Tags: , , , , ,

So yesterday I wrote about how the Senate was making the bailout plan bigger but not better in order to get reluctant legislators aboard.

Oh man, you have no idea. It makes me want to cry.

According to the WSJ, A bill that was originally 3 pages is now more than 400 pages. Among the useless ‘sweeteners’ tacked onto the plan:

  • Economic development credit to American Samoan businesses
  • 50% tax credit for some expenditures on maintaining railroad tracks
  • 7-year recovery period for motorsports racetrack property
  • Special expensing rules for film and TV productions
  • Income averaging for Exxon Valdez litigants for tax purposes
  • $10,000 tax credit for training of mine rescue team members
  • Deduction for income from domestic production in Puerto Rico
  • Increasing cover of rum excise tax revenues to Puerto Rico and the Virgin Islands

AND MY FAVORITE …

  • Exempting children’s wooden arrows from excise tax

YOU’VE GOT TO BE KIDDING ME!!!!

McCain says all the time that if he becomes President, we will know the names of the politicans who try to push their own pet earmarks. It’s one of the things he says that resonates with me.

I know people say this is the way Washington works. It’s how laws get passed. Give and take. You scratch my back, I’ll scratch yours. Gotta please the constituents … That’s bullshit.

It takes a lot for me to get outraged at something our government does. I’m as cynical as they come. But how dare these politicians use this moment, this time, with the economy on the edge of collapse and the financial fate of millions of Americans on the line, to muddy up an already outrageously expensive plan with such useless additions.

Let’s get something straight: These changes do not make the plan better. And they weren’t needed to get this deal passed. Politicians who voted against the bill were already worried that their ‘No’ vote pushed a teetering economy over the edge, and many of them were looking for a second chance to make amends. A couple of small, but relevant, changes to the plan would have provided all the cover they needed.

All this additional pork is a travesty of the legislative process. And if the candidates really mean it when they spout the word Change like it’s some kind of magical Buddhist mantra, it’s the kind of crap they’ll try to put a stop to when they get elected.

Is this a better bailout … or just a bigger, badder one?

Published October 1, 2008 Trivial , Universal 1 Comment
Tags: , , , , ,

So now the Senate is going to try its hand at passing a bailout plan. I’d make a prediction that the bill will almost certainly be passed by both chambers of Congress, but I apparently am a lot better at sports and market predictions than political ones.

The Senate bill seems extremely similar to the one rejected by the House earlier this week, save for a few sweeteners thrown in to try and mollify the politicians who thought the the original plan either did too much to blow up the deficit and prevent the market from self-cleansing (Republicans) or not enough to help lower- or middle-class Americans (Democrats).

Unfortunately, most of these ‘sweeteners’ really aren’t so sweet. Instead of exemplifying the wonderful compromises that can be created when a messy political system works its gridlocked magic, many of these proposed changes are just more sour examples of a broken Washington that encourages myopic legislation.

For instance, let’s take a look at perhaps the most controversial addition to the bill: Modification of the current mark-to-market accounting policies now in place that force banks to price their assets at current market levels.

This is a complicated issue, but mark-to-market basically forced banks to take huge writedowns on the mortgage-backed securities that are at the core of the current crisis and still mostly rotting away on balance sheets throughout the system.

Critics say the mark-to-market rule has a couple of main problems: 1) Banks which are forced to take writedowns must raise more capital and curb lending to satisfy reserve requirements or face insolvency, which only helps contribute to the spiraling meltdown 2) Mark-to-market leads to inaccurate or unnecessarily overstated writedowns, since in many cases the market for these mortgage securities is non-existent or in a state of unusual distress.

These critics say that if mark-to-market stands while the bailout plan is implemented, banks will be less likely to sell their bad assets to the government at low prices because that will mean they will have to book huge losses on the rest of their balance sheets. These critics instead want these assets to be valued by bank regulators … the same regulators who had little to no idea of the problems being created by the housing bubble.

In my opinion, getting rid of mark-to-market would be a big mistake. Marking to market ensures that banks take their lumps and move expeditiously to shore up their balance sheets. Japan’s decade-long retrenchment has lasted as long as it has partly because banks refused to face up to current realities. A report from a Credit Suisse analyst put it best: “Which information is more relevant, what you paid for an asset in the past or what it’s worth right now?”

This may be one of the worst changes, but almost all of the other ‘sweeteners’ in the Senate version of the bill will raise the total cost of the plan while producing, at best, unclear benefits. I fear that the cost of this bailout package will soar past initial estimates, and younger generations will be paying for this mess for decades to come.

Among the other changes being discussed in the Senate bill:

  • Temporarily raising FDIC insurance to $250,000 per account. This is a mostly cosmetic move designed to bolster people’s confidence in banks and keep them from moving funds out of the system, esp. with regards to smaller institutions. Alas, if a lot of banks go under, the FDIC won’t be able to afford the increased coverage and will have to borrow more from the Treasury. Ugh.
  • Relief from the alternative minimum tax, or the AMT. Call me biased, but this is a good idea. The AMT has gone far beyond what it was originally intended to do, which was to make sure that very rich folks do not use deductions to avoid paying their fair share of taxes. Because it hasn’t been indexed to inflation, the AMT now affects millions of middle-class Americans, including yours truly. But whether AMT reform makes sense or not, relief won’t come without a price (and stop me if you’ve heard this one before): An even bigger deficit.
  • The creation or extension of a slew of tax breaks, including an R&D credit for businesses, and local and state tax deductions for individuals. Some of these deductions do encourage desirable behavior, such as the purchase of solar panels, but I’m sure some of them will end up being as stupid as our ethanol subsidies, and all of them will come with a cost.
  • A mental healthy parity law, which requires certain health insurance companies to provide the same coverage for mental illness and addiction as they do for physical illness. OK, this may be a fine and worthwhile legislative initiative, but it has absolutely no place being added to a bailout plan.

Holy *%$# … Bailout defeated, Market collapses

Published September 29, 2008 Trivial , Universal Leave a Comment
Tags: , , , , ,

OK, I was wrong. Really wrong. I was sure politicians would approve this bailout bill, no matter how publicly unpopular it was. The short-term risks of not doing something seemed too enormous – a complete freeze of the credit markets and the subsequent collapse of the economic system that relies so heavily on that free flow of credit.

But apparently, there’s one other short-term risk I didn’t consider strongly enough: The fact that every last one of those 435 members of the House of Representatives are facing elections in a month and could be tossed out on their rear ends if they piss off their constituencies.

To put it mildly, the financial markets didn’t take too kindly to news of the plan’s defeat. Even with a pretty widespread short-selling ban in place, the Dow Jones average fell more than 700 points, while the Nasdaq plummeted more than 9 PERCENT!!!!!

So now what should you do? Well, here are my thoughts.

  • I obviously would never give specific investment advice here, but if you have money set aside and a long-term time horizon, putting some of that money to work doesn’t sound like a bad idea. I put an order in for a small amount of an S&P index mutual fund. But that’s been my strategy every year – put a little more money into the market during the bleakest time of the year. In general, you want to be buying when everyone is selling. As I’ve said in other posts, this situation could definitely end up being Armageddon and/or the next Great Depression (at some point, the American empire will collapse just like every other one in history), but that bleak forecast is probably not the most likely scenario. And even if it is, having a shoebox full of cash stashed under your bed won’t do you that much good. Eventually, at some point, I’d begin to look at the riskiest, hardest-hit sectors as possible places to invest – Homebuilders and real estate, financial institutions, etc. – but I’d wait awhile to see how things shake out.
  • While dipping a toe in these scary investment waters, I’d also hedge my bets a bit just in case things get appreciably worse. Personally, I’d spread out my money to separate institutions if I had to make sure my bank accounts were within the $100,000 FDIC insured level. Obviously, there are stronger banks and weaker banks, but in a crisis, it’s tough to be certain of the difference so there’s no harm in being prudent. Also, the government last week guaranteed against losses in money market funds for one year, but to be extra-safe, I’ve pulled money out of those accounts and into plain-Jane savings accounts.

It’s odd: I don’t agree with the free-market, deficit-hawk politicians who have opposed this bill and blocked its passage (I believe that we have no choice but to act), but on some level I actually admire them for sticking to their principles. The lessons of The Great Depression and subsequent crises suggest otherwise, but they could be right that we need to suffer the consequences of our actions and take the full extent of our medicine if we are truly going to cleanse the system. A bailout plan poorly executed will only make it worse down the road.

However, I still think the risk of inaction is too high, and that these politicians will look at the market and economic fallout of their No vote over the next couple of days and then pass a bailout plan that is very similar to the one they rejected.

After all, this decision wasn’t just about principles, but about politics. And the politics could change very quickly if the electorate realizes that The Powers That Be weren’t bullshitting when they warned that Wall Street blood would pour onto Main Street.

One $700B bailout coming up…

Published September 25, 2008 Deep , Uncategorized , Universal 3 Comments
Tags: , , , ,

OK, the market’s up big. The bailout plan is about to be unveiled. What does it all mean? Here are my immediate thoughts.

  • Of course, the bailout plan is coming. Talk earlier this week that Democrats or hard-core free-market Republicans would torpedo the agreement was totally asinine. Very few politicians in their right minds would say no to this deal and risk being seen as the ones who put the final nail in the economy’s coffin, creating nightmarish scenes of bank runs and bread lines. What is smart and totally predictable is for politicians to raise a lot of hay and ask a lot of questions, so they can a) try to get things added or subtracted from the bill which they find disagreeable and b) blame others if the deal doesn’t work. This week was truly the American political system working as it always does, with plenty of good, bad, and ugly (or at least messy).
  • One of the last sticking points to getting to a compromise on the bill appears to be related to the Democrats wanting the ability for bankruptcy judges to amend mortgages for primary residences. I’ve said in earlier posts that I don’t think a lot of people understood what they were signing (or were deliberately misled) when they entered into these adjustable-rate mortgages and bought houses they couldn’t afford. So I do feel like it’s OK if we help people stay in their homes even if they were the ones who made bad decisions, as long as we are talking about primary residences – and not second homes or investment properties. However, I also feel this country has for too long encouraged an unhealthy focus on home ownership as being a key element of that mythical American Dream, a subject I will soon expound upon in a future post.
  • There is now talk that Nancy Pelosi and the Democrats want to bring another stimulus package up for debate in the House as early as tomorrow. Please don’t. The first stimulus package didn’t work, and this one won’t either. Again, I understand their political appeal, esp. when Congress is authorizing hundreds of billions to help bailout the banking system, but these stimulus packages offer about the same benefit as energy drinks provide for someone who’s woefully short on sleep. The rush ends way too quickly and the problems end up being worse than before. If we’re going to further burden our already troubled balance sheet, it’d be so much better if we take any money for a stimulus package and use it to help displaced workers acquire new skills or go back to school, or if we used it to invest in our country’s deteriorating infrastructure, or for public transportation projects, or alternative energy development. (anything that will increase American employee productivity or lead to real, lasting tangible benefits, neither of which stimulus plans accomplish).
  • The announcement of the bailout package will hardly signal the end of the story. The details haven’t yet been revealed, but I can assure you if the process goes down anything like the S&L crisis of 20 years ago, there will be plenty of bumps along the way. I’m assuming whatever deal gets signed into law will leave a lot of leeway for the Treasury Dept. and the Federal Reserve in figuring out how to handle the situation, but Congress will be watching closely and they ultimately control the purse strings. Whichever candidate takes over the White House will probably be preoccupied with this issue for at least the first year or two of their term. Plus, financial institutions aren’t the only ones that will be needing financial assistance from the government, esp. if the credit markets don’t unfreeze very soon. I expect the next industry expecting a handout will be the automotive industry, which is struggling badly and loaded with debt. And because Michigan is such a key battleground for the November elections, it would be in their interest to come a-callin’ to the government kitty as soon as possible. (Actually, speak of the devil, the House just passed a $25 billion loan package for the auto industry. Ugh.)
  • Again, I wish I could say with certainty that this bailout package will solve our problems over time and that we’ve seen the worst of this crisis. The problem is, we are dealing with unprecendented events. The world is a lot more complicated than it was in the 1920s and 30s. The world’s economies are more intertwined, and the financial instruments at the heart of this mess are much more complex. I expect a prolonged global slowdown, with the only good news being that we may be further along the road than a lot of other markets, including the high-flying emerging economies that will likely see sharp downturns.
  • The market is up big today on the news of the impending announcement, but we’re nowhere near where we were even last week when the bailout plan was first bandied about. As investors start to realize what a long, hard slog this is going to be, I believe the enthusiasm will wane very quickly (let’s not forget we’re still working under the ill-advised SEC short selling ban, which is surely keeping the market at artificial levels). Even if we’ve seen the market lows this year (something I am not totally convinced of), we won’t revisit our old highs for a few years.

« Previous Page — Next Page »

 

June 2012
M T W T F S S
« Apr    
 123
45678910
11121314151617
18192021222324
252627282930  

Enter your email address to follow this blog and receive notifications of new posts by email.

Follow

Get every new post delivered to your Inbox.