Yesterday I wrote this post, in which I noted how the S&P has been around the 1180-1190 level several times in the past few months and, in fact, a year ago this week. Thus suggesting that overly-active management has pitfalls. Because in some market conditions, if you wait long enough, you'll see the market return to a level.
However, while discussing the post with a friend, I articulated a key facet of overly-active management, or timing, that makes it so dangerous and prone to overestimation of success.
Consider the following datapoints pairing dates and closing values of the S&P500 Index.
6/24/2011 1268.45
6/27/2011 1280.1
6/28/2011 1296.67
6/29/2011 1307.41
6/30/2011 1320.64
7/1/2011 1339.67
7/5/2011 1337.88
7/6/2011 1339.22
7/7/2011 1353.22
10/19/2011 1209.88
10/20/2011 1215.39
10/21/2011 1238.25
10/24/2011 1254.19
10/25/2011 1229.05
10/26/2011 1242
10/27/2011 1284.59
10/28/2011 1285.09
11/1/2011 1218.28
11/2/2011 1237.9
11/3/2011 1261.15
11/4/2011 1253.23
11/7/2011 1261.12
11/8/2011 1275.92
In each case, the last datapoint is the local maximum, from which the S&P fell. Yesterday's close was 1192.98.
When index gains seem to be part of a monotonic upward series, there's nothing magical about the peak closing value. A priori, amidst the justifications of many pundits who suddenly appear on cable networks, an investor is prone to be concerned that if he sells now, he'll miss a big move in an obviously upward-trending market.
This is where discipline makes a difference. Investing discipline is particular in its meaning to the style of the investor. It may involve adhering to signals and rules, rather than letting contemporaneous market conditions affect sentiment which overrides those signals or rules. Or it may involve some target rate of return, after the attainment of which positions are closed to cash or some fixed income instruments.
On one extreme, one might be a dollar-averaging, long term buy-and-hold index investor. In which case trends are moot. Or one might engage in some hyper-active style which buys upon a certain percentage downward index movement and sells upon a corresponding move upward. These are, of course, simplistic examples meant to mark the poles of market timing.
But rest assured, local equity index maxima don't come with identification tags or warnings. Attempting active timing without some well-founded, researched approach invites disaster.
Tuesday, November 22, 2011
Google Speeds Cable Disintermediation Via YouTube Celebrity Channels
After reading a piece in the Wall Street Journal yesterday concerning Google's $100MM bet on celebrity channels on YouTube. It reminded me of my old mentor, Gerry Weiss' insights into competition and colliding arenas.
Gerry and his colleagues developed the concept as strategic planners at GE under Jack McKittrick. Essentially, a technology that is at the core of one entity in one 'arena,' or business area, uses said technology to expand into a new business. The entity's technological and/or other business model attributes strike at a vulnerability of existing occupants of the new business, causing a radical upheaval.
That's what seems to be about to occur at Google/YouTube.
I've been writing about the disintermediation of cable television for a few years. Now I realize that Google's recent staking of various media celebrities to $100MM worth of channels for their own creative usage will only speed that disintermediation. The Journal article cites several actors having broken into work on cable television programs via viral YouTube videos.
I've contended for several years that a writer/producer like Larry David would be foolish to bother putting his next series on cable. He could easily go right to streaming video from a website.
Then Glenn Beck departed Fox News for his own website-based media empire.
The Journal piece ended on a cautionary tone, noting that Google isn't likely to be earning revenues from any of this YouTube effort anytime soon. But offered a silver lining that in just three years, its Android cell phone alternative has grown to take half of the smart phone market.
My own sense of Google and YouTube is that, in the simplest case, they get eyeballs on which to earn advertising revenues. Then, over time, as viewers are trained to watch streaming web videos as their natural way of viewing heretofore broadcast- and cable-only frequently-aired (i.e., weekly programs) content, the step to paying for new content from a bankable talent like David or some other writer will be simple.
At that point, it wouldn't be a stretch for Google to be straying into signing and backing new talent, would it?
Even if not, just by migrating more and more viewers to their streaming video, they'll drain the last drops of life from broadcast network television, while accelerating the problems at cable providers.
That's one of the hallmarks of arena competition. Whether it's smart or not, the new entrant can afford to subsidize its intrusion into the new business with profits from its existing businesses. In Google's case, they aren't unconnected. But its targets don't really have multiple revenue sources on which to rely in the coming video content sourcing battle.
Gerry and his colleagues developed the concept as strategic planners at GE under Jack McKittrick. Essentially, a technology that is at the core of one entity in one 'arena,' or business area, uses said technology to expand into a new business. The entity's technological and/or other business model attributes strike at a vulnerability of existing occupants of the new business, causing a radical upheaval.
That's what seems to be about to occur at Google/YouTube.
I've been writing about the disintermediation of cable television for a few years. Now I realize that Google's recent staking of various media celebrities to $100MM worth of channels for their own creative usage will only speed that disintermediation. The Journal article cites several actors having broken into work on cable television programs via viral YouTube videos.
I've contended for several years that a writer/producer like Larry David would be foolish to bother putting his next series on cable. He could easily go right to streaming video from a website.
Then Glenn Beck departed Fox News for his own website-based media empire.
The Journal piece ended on a cautionary tone, noting that Google isn't likely to be earning revenues from any of this YouTube effort anytime soon. But offered a silver lining that in just three years, its Android cell phone alternative has grown to take half of the smart phone market.
My own sense of Google and YouTube is that, in the simplest case, they get eyeballs on which to earn advertising revenues. Then, over time, as viewers are trained to watch streaming web videos as their natural way of viewing heretofore broadcast- and cable-only frequently-aired (i.e., weekly programs) content, the step to paying for new content from a bankable talent like David or some other writer will be simple.
At that point, it wouldn't be a stretch for Google to be straying into signing and backing new talent, would it?
Even if not, just by migrating more and more viewers to their streaming video, they'll drain the last drops of life from broadcast network television, while accelerating the problems at cable providers.
That's one of the hallmarks of arena competition. Whether it's smart or not, the new entrant can afford to subsidize its intrusion into the new business with profits from its existing businesses. In Google's case, they aren't unconnected. But its targets don't really have multiple revenue sources on which to rely in the coming video content sourcing battle.
Monday, November 21, 2011
What Did I Miss? Evidently Nothing.
As I write this post at 11:15AM today, the S&P500 Index is at 1187. My proprietary vvolatility measure, which more or less tracks the VIX, has been above a critical threshold since early August.
Interestingly, you could have been gone for the past two months and missed nothing in terms of S&P level. Or three months, since mid-August, for that matter, if you're a buy-and-hold kind of guy.
Or a year, for that matter! The S&P was at today's levels a year ago this week.
Of course, if you were invested for the past year, but rebalanced gains or were incredibly lucky with your market-timing, perhaps you sold above 1300, realizing a 10%+ gain.
But the point is, volatility has been above my threshold more than not since early 2008, or three and a half years! The interval between the US equity market turnaround in March of 2009, and the initial Greek debt crisis was only about 13 months. The highs of 1400+ on the S&P of early 2008 have never been revisited.
At present, November's S&P monthly return is below -5%.
Which is why market-timing on relatively small gains and losses in the indices is such a dangerous practice. Especially now.
Interestingly, you could have been gone for the past two months and missed nothing in terms of S&P level. Or three months, since mid-August, for that matter, if you're a buy-and-hold kind of guy.
Or a year, for that matter! The S&P was at today's levels a year ago this week.
Of course, if you were invested for the past year, but rebalanced gains or were incredibly lucky with your market-timing, perhaps you sold above 1300, realizing a 10%+ gain.
But the point is, volatility has been above my threshold more than not since early 2008, or three and a half years! The interval between the US equity market turnaround in March of 2009, and the initial Greek debt crisis was only about 13 months. The highs of 1400+ on the S&P of early 2008 have never been revisited.
At present, November's S&P monthly return is below -5%.
Which is why market-timing on relatively small gains and losses in the indices is such a dangerous practice. Especially now.
This Morning's Stupid Remark on CNBC
Howard Ward, a growth portfolio manager at GAMCO, made a rather naive and stupid pair of remarks this morning, and it's not even 8AM.
First he asserted that there have been 'five or six weeks of good economic news' in the US, so "we're doing okay."
Really? 9% unemployment and 2%+ GDP growth is okay Howard? Wow, I'd hate to see bad.
Ward then proceeded to declare that even as Europe slips into a recession,
'The rest of the world can keep on growing and Europe can have its recession separately.'
Where has Ward been for the past two decades? Global interconnection of supply chains and US companies' dependencies, especially recently, for growth overseas has resulted in a much more correlated global economic picture than ever before.
Europe is a huge economic trading bloc. Growth in one of its larger member countries, Italy, is projected to be negative next year.
I guess CNBC is desperate for guests if they're getting this caliber of pundit on their morning program.
First he asserted that there have been 'five or six weeks of good economic news' in the US, so "we're doing okay."
Really? 9% unemployment and 2%+ GDP growth is okay Howard? Wow, I'd hate to see bad.
Ward then proceeded to declare that even as Europe slips into a recession,
'The rest of the world can keep on growing and Europe can have its recession separately.'
Where has Ward been for the past two decades? Global interconnection of supply chains and US companies' dependencies, especially recently, for growth overseas has resulted in a much more correlated global economic picture than ever before.
Europe is a huge economic trading bloc. Growth in one of its larger member countries, Italy, is projected to be negative next year.
I guess CNBC is desperate for guests if they're getting this caliber of pundit on their morning program.
Friday, November 18, 2011
More Housing Missteps By Congress
Yesterday's Wall Street Journal's lead staff editorial reported the disappointing news that, with so much public attention focused on Fannie Mae and Freddie Mac, the FHA is being granted a rise of about $100K in value, to almost three quarters of a million dollars, in the size of mortgages it can guarantee.
Various data detailing the FHA's precarious capital position (about .25%, rather than the mandated 2.5% or so) and enormous, though underestimated future defaults on its portfolio.
FHA was supposed to be the original low-income government-assisted housing loan program. I recall selling my first home some twenty years ago to a veteran who received special treatment under the FHA loan for which he applied. Incredibly, as the seller, I had to pay his points. Imagine my surprise at the closing when I learned the couple had therefore gone and borrowed significantly more than they had initially represented in their purchase offer, sticking me with higher fees for selling my house.
The FHA program was designed long ago as a vehicle to assist the emerging middle class in what was then viewed as a laudable goal- home ownership.
It's hard to see how even in the New York Metro area, at this time, a $725K home can be considered either a starter, or deserving of any sort of special government assistance.
No doubt those defending this increase in FHA mortgage size will claim it is to boost housing demand in order to rescue the housing sector, create sales and, somehow, magically, ignite housing starts.
How many times have you heard pundits and, of course, National Association of Realtors officers blather on about how a US recovery must begin with housing? How we have to get housing fixed to fix the economy? How much the US economy relies on the construction sector which is sustained by housing?
What happened to letting the US economy, with its hundreds of millions of actors, determine sector activity through their genuine demand for various goods and services?
From my youth, to now, I can cite three industries which were supposed to be the backbone of the US economy in their day- steel, autos and, now, housing.
Each had a parasitic union which ultimately sapped its host nearly to death. Each sector had its productivity peak, the bulk of its value-added fall victim to lower-wage, and thus, higher-productivity foreign competitors. Which led to the exit of US producers as the products became more commoditized and the US lost competitive advantage in those products.
Housing, being a locally-produced and -consumed good, didn't get sent offshore. We killed this one by over-subsidizing it.
I've been very impressed by the studies I've read that demonstrate home ownership to be the enemy of the once-vaunted mobility of the US labor market. And never moreso than....at the low end of the income distribution. The absolute worst thing you can do for the lower income worker is to chain her/him to a home, so that when their semi-skilled job vanishes, they can't pick up and move immediately. Oh, and by the way, when that job does vanish, probably with hundreds or thousands of others like it, local property values will plummet, causing them to lose what little savings they had, as the home goes upside down with respect to its mortgage.
Maybe it's time we finally just stop subsidizing any sectors out of an arrogance which assumes a few legislators, with the 'help' of lobbyists for a sector, know what's best for American consumers and the US economy.
As of 2011, we've reaped a moribund housing industry from too many years of subsidizing the consumption of ever-larger houses by ever-more Americans. We've binged on housing, and now the value of that housing stock has fallen.
Market economics would lead us to let housing prices go where supply and demand take them. In this case, falling to a point where a newly-enabled tranche of buyers can afford that which was previously beyond their means, and at realistic interest rates and by appropriately careful lending standards.
No other path will resolve the housing sector's ills, nor cause it to have a positive effect on the US economy.
Rather than listen to politicians and pundits who declare we need this or that special program to incent consumers or business owners to behave in a certain way, to 'jump start' the US economy, perhaps, now, after several years of lackluster growth and a subsidized-housing-sector financial crash, we might just let market forces, in their own time, produce a real, sustained recovery driven by genuine market demand and, consequently, supply.
Various data detailing the FHA's precarious capital position (about .25%, rather than the mandated 2.5% or so) and enormous, though underestimated future defaults on its portfolio.
FHA was supposed to be the original low-income government-assisted housing loan program. I recall selling my first home some twenty years ago to a veteran who received special treatment under the FHA loan for which he applied. Incredibly, as the seller, I had to pay his points. Imagine my surprise at the closing when I learned the couple had therefore gone and borrowed significantly more than they had initially represented in their purchase offer, sticking me with higher fees for selling my house.
The FHA program was designed long ago as a vehicle to assist the emerging middle class in what was then viewed as a laudable goal- home ownership.
It's hard to see how even in the New York Metro area, at this time, a $725K home can be considered either a starter, or deserving of any sort of special government assistance.
No doubt those defending this increase in FHA mortgage size will claim it is to boost housing demand in order to rescue the housing sector, create sales and, somehow, magically, ignite housing starts.
How many times have you heard pundits and, of course, National Association of Realtors officers blather on about how a US recovery must begin with housing? How we have to get housing fixed to fix the economy? How much the US economy relies on the construction sector which is sustained by housing?
What happened to letting the US economy, with its hundreds of millions of actors, determine sector activity through their genuine demand for various goods and services?
From my youth, to now, I can cite three industries which were supposed to be the backbone of the US economy in their day- steel, autos and, now, housing.
Each had a parasitic union which ultimately sapped its host nearly to death. Each sector had its productivity peak, the bulk of its value-added fall victim to lower-wage, and thus, higher-productivity foreign competitors. Which led to the exit of US producers as the products became more commoditized and the US lost competitive advantage in those products.
Housing, being a locally-produced and -consumed good, didn't get sent offshore. We killed this one by over-subsidizing it.
I've been very impressed by the studies I've read that demonstrate home ownership to be the enemy of the once-vaunted mobility of the US labor market. And never moreso than....at the low end of the income distribution. The absolute worst thing you can do for the lower income worker is to chain her/him to a home, so that when their semi-skilled job vanishes, they can't pick up and move immediately. Oh, and by the way, when that job does vanish, probably with hundreds or thousands of others like it, local property values will plummet, causing them to lose what little savings they had, as the home goes upside down with respect to its mortgage.
Maybe it's time we finally just stop subsidizing any sectors out of an arrogance which assumes a few legislators, with the 'help' of lobbyists for a sector, know what's best for American consumers and the US economy.
As of 2011, we've reaped a moribund housing industry from too many years of subsidizing the consumption of ever-larger houses by ever-more Americans. We've binged on housing, and now the value of that housing stock has fallen.
Market economics would lead us to let housing prices go where supply and demand take them. In this case, falling to a point where a newly-enabled tranche of buyers can afford that which was previously beyond their means, and at realistic interest rates and by appropriately careful lending standards.
No other path will resolve the housing sector's ills, nor cause it to have a positive effect on the US economy.
Rather than listen to politicians and pundits who declare we need this or that special program to incent consumers or business owners to behave in a certain way, to 'jump start' the US economy, perhaps, now, after several years of lackluster growth and a subsidized-housing-sector financial crash, we might just let market forces, in their own time, produce a real, sustained recovery driven by genuine market demand and, consequently, supply.
Thursday, November 17, 2011
Non-Breaking News On Tom Keene's Bloomberg Program
Sometimes I think Tom Keene purposely acts stupidly in order to make his guests feel smart. Other times, I think he really is as clueless as he periodically makes out.
Take this afternoon's closing segment on Keene's noontime program.
Keene's guest used the UBS announcement that it is simplifying its business model by shedding a few thousand investment banking employees. After a few minutes of discussion, Keene had his 'gee whiz, I'm surprised' moment regarding the rise of privately-held financial services boutiques. Then he let on that he knew Blackstone has a very healthy and large M&A advisory business.
Subsequently, the term 'brain drain' was used to describe the movement of talent from publicly-held formerly investment banks, now commercial banks (Goldman Sachs, Morgan Stanley & the IB divisions of legitimate commercial banks such as Chase, Citi and BofA/Merrill Lynch).
Except this isn't news. It's been going on for over a decade.
Ever here of a little outfit called Long Term Capital Management, Tom? That was 1998 when it imploded.
I've written a handful of posts dating back over several years observing the history of Wall Street- the real Wall Street, not the commercial money center banks outsiders incorrectly call by that term.
Hutton, Shearson, Lehman Brothers, Kidder Peabody, First Boston, Salomon, Morgan Stanley, Bear Stearns, et.al., rushed to go public in the first big hoodwink of investors back in the 1970s and '80s. I've argued that since then, investment bankers discovered how to get a one-time huge windfall for dumping risk onto public shareholders at a premium.
Some former partners hung around for the lush paychecks and options. Others quickly moved back into private partnerships. That's how Blackstone, BlackRock and other private shops were founded. Add in hedge funds for the veterans of the formerly-private firms' trading desks, and you pretty much have the recreation of the old, old Wall Street of the partnership era.
Then there's Dillon Read, which has sold itself at a market top, then gone private at the bottom, so many times that it makes your head spin.
Schwarzman's Blackstone has even initiated round two of the big bilk, selling a slice of the private equity firm a few years ago, at what astutely proved to be a market top. You gotta love these equity mavens- convincing investors to buy shares of their own firm, while forgetting they were putting themselves on the other side of the trade from the sharpest equity valuation guys around.
What passes for the public face of it has been run by mediocre talent for some time. Even Goldman let itself get tangled up in seamy, public messes rising from originating, then betting against mortgage-backed structured instruments.
Meanwhile, the new barons of the financial sector are people like BlackRock's Larry Fink, Wilbur Ross, and Blackstone's Stephen Schwarzman, along with hedge fund titans like Steve Cohen and James Simons.
How this has escaped Keene for over a decade is beyond me.
Even in commercial banking, two of the nation's largest, old money centers Citi and BofA, are headed up by inexperienced, inept seat-warmers Vik Pandit and Brian Moynihan. A failed hedge fund manager and a lawyer. Some talent, eh?
As nearly the entire publicly-held US financial sector had to be rescued in 2008, thanks to poor risk management, it should tell you where the real brains of finance were- in private practice. Where they've been moving since the first wave of mergers after the original going-public wave of the '70s and '80s.
Take this afternoon's closing segment on Keene's noontime program.
Keene's guest used the UBS announcement that it is simplifying its business model by shedding a few thousand investment banking employees. After a few minutes of discussion, Keene had his 'gee whiz, I'm surprised' moment regarding the rise of privately-held financial services boutiques. Then he let on that he knew Blackstone has a very healthy and large M&A advisory business.
Subsequently, the term 'brain drain' was used to describe the movement of talent from publicly-held formerly investment banks, now commercial banks (Goldman Sachs, Morgan Stanley & the IB divisions of legitimate commercial banks such as Chase, Citi and BofA/Merrill Lynch).
Except this isn't news. It's been going on for over a decade.
Ever here of a little outfit called Long Term Capital Management, Tom? That was 1998 when it imploded.
I've written a handful of posts dating back over several years observing the history of Wall Street- the real Wall Street, not the commercial money center banks outsiders incorrectly call by that term.
Hutton, Shearson, Lehman Brothers, Kidder Peabody, First Boston, Salomon, Morgan Stanley, Bear Stearns, et.al., rushed to go public in the first big hoodwink of investors back in the 1970s and '80s. I've argued that since then, investment bankers discovered how to get a one-time huge windfall for dumping risk onto public shareholders at a premium.
Some former partners hung around for the lush paychecks and options. Others quickly moved back into private partnerships. That's how Blackstone, BlackRock and other private shops were founded. Add in hedge funds for the veterans of the formerly-private firms' trading desks, and you pretty much have the recreation of the old, old Wall Street of the partnership era.
Then there's Dillon Read, which has sold itself at a market top, then gone private at the bottom, so many times that it makes your head spin.
Schwarzman's Blackstone has even initiated round two of the big bilk, selling a slice of the private equity firm a few years ago, at what astutely proved to be a market top. You gotta love these equity mavens- convincing investors to buy shares of their own firm, while forgetting they were putting themselves on the other side of the trade from the sharpest equity valuation guys around.
What passes for the public face of it has been run by mediocre talent for some time. Even Goldman let itself get tangled up in seamy, public messes rising from originating, then betting against mortgage-backed structured instruments.
Meanwhile, the new barons of the financial sector are people like BlackRock's Larry Fink, Wilbur Ross, and Blackstone's Stephen Schwarzman, along with hedge fund titans like Steve Cohen and James Simons.
How this has escaped Keene for over a decade is beyond me.
Even in commercial banking, two of the nation's largest, old money centers Citi and BofA, are headed up by inexperienced, inept seat-warmers Vik Pandit and Brian Moynihan. A failed hedge fund manager and a lawyer. Some talent, eh?
As nearly the entire publicly-held US financial sector had to be rescued in 2008, thanks to poor risk management, it should tell you where the real brains of finance were- in private practice. Where they've been moving since the first wave of mergers after the original going-public wave of the '70s and '80s.
Phil Angelides on Bloomberg TV Last Week
Former FCIC chairman Phil Angelides appeared on Bloomberg TV last week one afternoon for a fawning interview during which he was asked to dispense his wisdom on a variety of topics.
What stuck with me was his insistence that the recent nearly-trillion dollar stimulus bill wasn't enough, and more must be spent to create jobs.
There were several other topics on which he was asked to opine. So many that I reasonably thought he must have some broad, long career in business, prior to his California political career. To ascertain that, I found and read Angelides' biography on a Stanford FCIC webpage.
To my disappointment, but, frankly, not surprise, he has a degree from Harvard in 'government' and absolutely no private sector experience. The Wikipedia page offers more detail on Angelides' political life. Suffice to say, he plunged into California Democratic politics upon graduation. Becoming Treasurer opened many more doors, including leading to his stint at CALPERS.
I suppose that career path, coupled with a Democratic Congress in 2008, with a Speaker from California, led to Angelides' chairing the FCIC.
What's curious is that there's nothing in his background to suggest he would actually comprehend all of the complex nuances of the events and actions by many players, including those in government, GSE and the private sector, which led to the boiling over of the crisis three years ago this fall.
Yet, having served on the FCIC, I guess Angelides is viewed as an expert on all things governmentally financial.
Nevermind that California's finances are a mess, and CALPERS has had its share of serious missteps, as well. Both of which you'd like to think would disqualify Angelides from being considered an expert on anything.
Which brings me to Bloomberg's producers. They must know that Angelides is essentially an empty suit. Like many other career politicians having no business experience, he would seem to have no basis on which to answer many of the questions a business cable television channel would ask of him.
But that doesn't stop Bloomberg from interviewing him on topics far afield from Angelides' experience, or the former FCIC chair from launching into lectures on such topics.
It seems to me telling that Bloomberg- and CNBC- focus so much on guests with essentially no business background but, rather, experience as government officials dabbling in business.
As they used to say in Hollywood.....that's entertainment!
What stuck with me was his insistence that the recent nearly-trillion dollar stimulus bill wasn't enough, and more must be spent to create jobs.
There were several other topics on which he was asked to opine. So many that I reasonably thought he must have some broad, long career in business, prior to his California political career. To ascertain that, I found and read Angelides' biography on a Stanford FCIC webpage.
To my disappointment, but, frankly, not surprise, he has a degree from Harvard in 'government' and absolutely no private sector experience. The Wikipedia page offers more detail on Angelides' political life. Suffice to say, he plunged into California Democratic politics upon graduation. Becoming Treasurer opened many more doors, including leading to his stint at CALPERS.
I suppose that career path, coupled with a Democratic Congress in 2008, with a Speaker from California, led to Angelides' chairing the FCIC.
What's curious is that there's nothing in his background to suggest he would actually comprehend all of the complex nuances of the events and actions by many players, including those in government, GSE and the private sector, which led to the boiling over of the crisis three years ago this fall.
Yet, having served on the FCIC, I guess Angelides is viewed as an expert on all things governmentally financial.
Nevermind that California's finances are a mess, and CALPERS has had its share of serious missteps, as well. Both of which you'd like to think would disqualify Angelides from being considered an expert on anything.
Which brings me to Bloomberg's producers. They must know that Angelides is essentially an empty suit. Like many other career politicians having no business experience, he would seem to have no basis on which to answer many of the questions a business cable television channel would ask of him.
But that doesn't stop Bloomberg from interviewing him on topics far afield from Angelides' experience, or the former FCIC chair from launching into lectures on such topics.
It seems to me telling that Bloomberg- and CNBC- focus so much on guests with essentially no business background but, rather, experience as government officials dabbling in business.
As they used to say in Hollywood.....that's entertainment!
Wednesday, November 16, 2011
Puzzling Economic News
This passage appeared yesterday evening in a daily email from a financial services provider which attempts to explain the drivers of US equity and fixed income market performance,
"Retail sales in the US were stronger than anticipated and prices at the wholesale level cooled markedly from the levels seen the month prior, while the first read on manufacturing activity for November coming from the New York region unexpectedly moved back to a level depicting expansion and business inventories were flat."
Yet we know that the real median consumer income has declined in the last decade, and unemployment remains high- in the 9% neighborhood on the narrowest definition, probably 16% on the widest one.
If there wasn't a large and high-profile environmental variable, i.e., the European sovereign debt/banking crisis, currently causing uncertainty, these slightly positive economic data reports might be seen as harbingers of economic recovery.
However, as I wrote yesterday, in retrospect, the signs of mounting trouble in 2007 didn't prevent hope and cheerleading by the financial community through much of 2008.
I believe it was Larry Fink, in his CNBC appearance yesterday, who proclaimed that when an economic and financial market recovery occurred, it would be a surprise which moved faster than investors might expect. Isn't that always how it is?
The overall macroeconomic picture today seems very cloudy. Even Fink agreed that while current economic signals appear weakly positive, the environment is gloomy. By that he apparently meant the political climate of excessive, intrusive governmental policy, weak employment picture, and low GDP growth.
It's been written that during the Great Depression, things were tight but bearable if you had a job. Those who were employed at larger companies tended to weather the period pretty much intact. But new job growth was absent, so the unemployed remained so for a long time.
Our current economic situation is beginning to resemble that scenario. There were brief periods of equity market rises and seeming economic expansion during the 1930s, but none of them lasted for long.
With that example in mind, I wonder whether profits from US companies, by themselves, are sufficient to trickle through to shareowners and drive a US economic recovery in the face of stagnant employment. It wouldn't seem that's a likely recipe for a robust US economic expansion.
"Retail sales in the US were stronger than anticipated and prices at the wholesale level cooled markedly from the levels seen the month prior, while the first read on manufacturing activity for November coming from the New York region unexpectedly moved back to a level depicting expansion and business inventories were flat."
Yet we know that the real median consumer income has declined in the last decade, and unemployment remains high- in the 9% neighborhood on the narrowest definition, probably 16% on the widest one.
If there wasn't a large and high-profile environmental variable, i.e., the European sovereign debt/banking crisis, currently causing uncertainty, these slightly positive economic data reports might be seen as harbingers of economic recovery.
However, as I wrote yesterday, in retrospect, the signs of mounting trouble in 2007 didn't prevent hope and cheerleading by the financial community through much of 2008.
I believe it was Larry Fink, in his CNBC appearance yesterday, who proclaimed that when an economic and financial market recovery occurred, it would be a surprise which moved faster than investors might expect. Isn't that always how it is?
The overall macroeconomic picture today seems very cloudy. Even Fink agreed that while current economic signals appear weakly positive, the environment is gloomy. By that he apparently meant the political climate of excessive, intrusive governmental policy, weak employment picture, and low GDP growth.
It's been written that during the Great Depression, things were tight but bearable if you had a job. Those who were employed at larger companies tended to weather the period pretty much intact. But new job growth was absent, so the unemployed remained so for a long time.
Our current economic situation is beginning to resemble that scenario. There were brief periods of equity market rises and seeming economic expansion during the 1930s, but none of them lasted for long.
With that example in mind, I wonder whether profits from US companies, by themselves, are sufficient to trickle through to shareowners and drive a US economic recovery in the face of stagnant employment. It wouldn't seem that's a likely recipe for a robust US economic expansion.
Selective Memory In The Economist
I've subscribed to The Economist for over two decades now. I can't recall when the magazine's editorial pages didn't insist American tax rates had to be higher.
You'd think, given the publication's pedigree, that this would not be so. But, it is.
Yet, there's more to it than simply a stance on taxes that favors making the US more like, well, European welfare states. You know, like Britain.
There's also selective reporting to slant events.
For example, in an editorial regarding the Congressional supercommittee in the magazine's November 12th edition, you would read,
"Mr Obama and the House Speaker, John Boehner, discussed just such a grand bargain back in July, before the anti-tax wing of the Republican Party took fright."
Implying, of course, that Boehner succumbed to pressure from his more conservative House members. But that's not what happened at all.
Rather, as Boehner explained, he and Obama had a deal, then Obama succumbed to pressure from his base and added one more tax demand. Boehner walked on both principle and the particular tax issue.
But you'd never know it from reading that editorial.
It's tough to evaluate business and economic information when the reporting sources don't even get their facts straight.
You'd think, given the publication's pedigree, that this would not be so. But, it is.
Yet, there's more to it than simply a stance on taxes that favors making the US more like, well, European welfare states. You know, like Britain.
There's also selective reporting to slant events.
For example, in an editorial regarding the Congressional supercommittee in the magazine's November 12th edition, you would read,
"Mr Obama and the House Speaker, John Boehner, discussed just such a grand bargain back in July, before the anti-tax wing of the Republican Party took fright."
Implying, of course, that Boehner succumbed to pressure from his more conservative House members. But that's not what happened at all.
Rather, as Boehner explained, he and Obama had a deal, then Obama succumbed to pressure from his base and added one more tax demand. Boehner walked on both principle and the particular tax issue.
But you'd never know it from reading that editorial.
It's tough to evaluate business and economic information when the reporting sources don't even get their facts straight.
Tuesday, November 15, 2011
Europe's Crisis & US Equities
Two asset managers appeared on CNBC this morning- Mario Gabelli and Larry Fink.
Of course, these days every manager is asked about Europe. I didn't pay enormous attention to Gabelli's comments, but recall him pushing industrial sector equities, which probably means that's where his book is.
Fink, however, was more interesting for several reasons. First, his firm, BlackRock, runs much more money than Gabelli. And Fink tends to be more thoughtful and expansive in his comments.
Listening to Fink, I was struck by two aspects of his remarks.
First, like many pundits and observers, he continues to see the prospect of countries leaving the Euro to return to their own currencies strictly in economic terms. This morning, Fink sort of threw up his hands and contended that it would be unmanageable for a country to have Euro-denominated liabilities while leaving the currency. But that's not really true. The country would simply have to manage its positions with the Euro like any other foreign currency. It's liabilities in Euro terms would require FX transactions to settle payments, just like dollar-denominated obligations.
Second, Fink began to describe the US economic condition as not getting worse, but a terrible surrounding environment. Then he generally recommended dividend-paying equities, as if to suggest that it would be unwise to expect price-based total returns going forward for the next several years.
When someone like Larry Fink, who controls the allocation of billions of dollars of investments, makes remarks like the ones he did this morning, I think you have to read between the lines. Fink knows that blunt remarks from the likes of him will move markets. That's not the type of book-talking he can afford to do. It might even make him, and BlackRock, liable for damages resulting from such gloomy public remarks which would negatively affect returns in the portfolios which the firm manages.
In that vein, Fink asserted that the current situation is not at all like that of 2008-09.
Yet, I can't help thinking that it actually is, in several respects.
Back in 2007, there was already a lot of discussion about commercial bank-sourced SIVs. Remember when those off-balance sheet holders of mortgage-backed instruments began to run into problems? Then in late 2007, several large US financial firms began to scour the globe for additional equity investments as they wrote off large losses on mortgage-related assets. By the spring of 2008, Bear Stearns was pushed into bankruptcy as counterparties withdrew funds and short term lending lines dried up.
My own proprietary equity allocation signal moved from long to short by the summer of 2008. In retrospect, the signs of a building problem with US equity valuations could have been said to have been building for nearly a year before the collapse of equity prices in the fall of 2008.
In the current situation, we've seen the European debt crisis begin in earnest in the spring of 2010. Things haven't really gotten better since then. Granted, the Greek and Italian governments have changed, but the realities of outstanding debts haven't.
Meanwhile, some fancy footwork avoided an outright default on Greek debt which would have triggered credit default swaps to pay off. But now, as Fink acknowledged, Europe is entering a recession. His comments about the US economy and equity strategies are tepid, at best.
Will we look back, from a year or so from now, and wonder how anyone could have missed the building signs of problems with global equity values which began to be apparent in the spring of 2010?
Perhaps in that sense, the current developing global financial strains do resemble the period of 2007-2009. A series of unresolved, connected and deepening financial problems that can't be magically resolved by climbing equity values.
It's one thing for equity prices to climb 'a wall of worry' about environmental variables which are missed or misread. But it's an entirely different matter for equities to rise amidst a large scale environmental variable such as global deleveraging in the wake of the 2007-09 financial crisis and its impact on Europe's large economies and nations. That's more like climbing in the face of real problems, not simply worries about whether problems exist.
Of course, these days every manager is asked about Europe. I didn't pay enormous attention to Gabelli's comments, but recall him pushing industrial sector equities, which probably means that's where his book is.
Fink, however, was more interesting for several reasons. First, his firm, BlackRock, runs much more money than Gabelli. And Fink tends to be more thoughtful and expansive in his comments.
Listening to Fink, I was struck by two aspects of his remarks.
First, like many pundits and observers, he continues to see the prospect of countries leaving the Euro to return to their own currencies strictly in economic terms. This morning, Fink sort of threw up his hands and contended that it would be unmanageable for a country to have Euro-denominated liabilities while leaving the currency. But that's not really true. The country would simply have to manage its positions with the Euro like any other foreign currency. It's liabilities in Euro terms would require FX transactions to settle payments, just like dollar-denominated obligations.
Second, Fink began to describe the US economic condition as not getting worse, but a terrible surrounding environment. Then he generally recommended dividend-paying equities, as if to suggest that it would be unwise to expect price-based total returns going forward for the next several years.
When someone like Larry Fink, who controls the allocation of billions of dollars of investments, makes remarks like the ones he did this morning, I think you have to read between the lines. Fink knows that blunt remarks from the likes of him will move markets. That's not the type of book-talking he can afford to do. It might even make him, and BlackRock, liable for damages resulting from such gloomy public remarks which would negatively affect returns in the portfolios which the firm manages.
In that vein, Fink asserted that the current situation is not at all like that of 2008-09.
Yet, I can't help thinking that it actually is, in several respects.
Back in 2007, there was already a lot of discussion about commercial bank-sourced SIVs. Remember when those off-balance sheet holders of mortgage-backed instruments began to run into problems? Then in late 2007, several large US financial firms began to scour the globe for additional equity investments as they wrote off large losses on mortgage-related assets. By the spring of 2008, Bear Stearns was pushed into bankruptcy as counterparties withdrew funds and short term lending lines dried up.
My own proprietary equity allocation signal moved from long to short by the summer of 2008. In retrospect, the signs of a building problem with US equity valuations could have been said to have been building for nearly a year before the collapse of equity prices in the fall of 2008.
In the current situation, we've seen the European debt crisis begin in earnest in the spring of 2010. Things haven't really gotten better since then. Granted, the Greek and Italian governments have changed, but the realities of outstanding debts haven't.
Meanwhile, some fancy footwork avoided an outright default on Greek debt which would have triggered credit default swaps to pay off. But now, as Fink acknowledged, Europe is entering a recession. His comments about the US economy and equity strategies are tepid, at best.
Will we look back, from a year or so from now, and wonder how anyone could have missed the building signs of problems with global equity values which began to be apparent in the spring of 2010?
Perhaps in that sense, the current developing global financial strains do resemble the period of 2007-2009. A series of unresolved, connected and deepening financial problems that can't be magically resolved by climbing equity values.
It's one thing for equity prices to climb 'a wall of worry' about environmental variables which are missed or misread. But it's an entirely different matter for equities to rise amidst a large scale environmental variable such as global deleveraging in the wake of the 2007-09 financial crisis and its impact on Europe's large economies and nations. That's more like climbing in the face of real problems, not simply worries about whether problems exist.
Government-Sanctioned Ponzi Schemes Come Under Pressure- Here & Abroad
This past week's changes of government in Greece and Italy brought forth the following headline in the weekend edition of the Wall Street Journal: Europe Pulls Back from Brink.
Indeed, the last two days of the week saw a rise in the S&P500 of a combined nearly 4%. Hooray! All is well!
Ah.....not quite.
I've had discussions with several people over the past week on this topic. A few were kindred business persons, while several others were not. It's very good practice to explain these matters to economic neophytes, because one's reasoning has to be tight and sensible.
Simply put, since 1971, when the US dollar was decoupled from gold and became a fiat currency, inflation has raged. The Euro, too, is a totally fiat currency. As such, both have have been debauched by the governments which control them, promising ever-larger benefits and engaging in larger budget deficits so that politicians could buy re-elections.
When was the last time you heard a genuine discussion in the US Congress about cutting one or more programs in order to afford spending elsewhere? No, it's just spend more and print or borrow the money.
But the Ponzi scheme hasn't been confined to only government-provided defined benefit schemes.
In the November 7, 2011 edition of the Wall Street Journal, the Marketplace section's headline screamed Pension Trusts Strapped. It seems that the UAW and USW are finding their VEBAs- Voluntary Employee Beneficiary Associations- running out of money to satisfy the pension and health care obligations they were created to serve. VEBA's were conceived so that otherwise-bankrupt companies could off-load their legacy pension and health care obligations to the unions whose members were owed the benefits. In effect, for the unions and their members, it was take some money and manage the mess themselves, or see it all vanish in bankruptcy.
The UAW's VEBAs cover 820,000 employees and is said to be short some $20B for meeting its obligations.
Now, union officials are the ones telling recipients to expect higher premiums, larger contributions by retirees, or perhaps further benefit cuts. It seems that, once in union hands, the UAW VEBAs quickly cut some of the lusher medical benefits, such as prescription Viagra. Returns for the funds under custody of the unions aren't clearing hurdles of 9% per annum, thus squeezing the VEBAs from that side, as well.
Everywhere you turn, somebody's pie-in-the-sky, group defined benefit plan is being threatened by economic reality. Whether Greek public sector unions, Italy's generous social spending, US Social Security or the remaining private sector union defined-benefit pension and health care plans, they are all under pressure as a generation of retirees has pushed these legal Ponzi schemes to the breaking point.
You think any of this is going to be fixed in the next year or so? Or right after the 2012 election in America, if either party runs the table at the federal level to hold the White House and both chambers of Congress?
Think again.
Slowly, people in Western democracies are waking up to the reality that, whether public or private sector in nature, many retirement and medical benefit promises simply won't ever be kept. They can't be because they were never realistic in the first place.
If someone informs you that you will only collect, for argument's sake, half of the benefits you were promised, what would you do? The people with whom I discussed this all automatically said the same thing:
"spend less, save more."
Guess what will happen to OECD nation GDP growth rates for the next decade or more?
Forget any more "stimulus" spending by the major economies' governments. Who will be be lending to meet such borrowing? Which countries, while cutting entitlements, will simultaneously be splurging on other debt-fueled spending?
Due to a confluence of several factors, we're probably on the threshold of a phenomenon nobody's ever seen before- the vaporization of expected benefits for hundreds of millions of people which will affect spending and saving behavior, causing unexpected consequences at the macroeconomic level on a global scale.
I don't think it necessarily means equity market crashes. But I do think it means we are entering a period of heretofore unexperienced changes in the factors which will drive those markets.
Indeed, the last two days of the week saw a rise in the S&P500 of a combined nearly 4%. Hooray! All is well!
Ah.....not quite.
I've had discussions with several people over the past week on this topic. A few were kindred business persons, while several others were not. It's very good practice to explain these matters to economic neophytes, because one's reasoning has to be tight and sensible.
Simply put, since 1971, when the US dollar was decoupled from gold and became a fiat currency, inflation has raged. The Euro, too, is a totally fiat currency. As such, both have have been debauched by the governments which control them, promising ever-larger benefits and engaging in larger budget deficits so that politicians could buy re-elections.
When was the last time you heard a genuine discussion in the US Congress about cutting one or more programs in order to afford spending elsewhere? No, it's just spend more and print or borrow the money.
But the Ponzi scheme hasn't been confined to only government-provided defined benefit schemes.
In the November 7, 2011 edition of the Wall Street Journal, the Marketplace section's headline screamed Pension Trusts Strapped. It seems that the UAW and USW are finding their VEBAs- Voluntary Employee Beneficiary Associations- running out of money to satisfy the pension and health care obligations they were created to serve. VEBA's were conceived so that otherwise-bankrupt companies could off-load their legacy pension and health care obligations to the unions whose members were owed the benefits. In effect, for the unions and their members, it was take some money and manage the mess themselves, or see it all vanish in bankruptcy.
The UAW's VEBAs cover 820,000 employees and is said to be short some $20B for meeting its obligations.
Now, union officials are the ones telling recipients to expect higher premiums, larger contributions by retirees, or perhaps further benefit cuts. It seems that, once in union hands, the UAW VEBAs quickly cut some of the lusher medical benefits, such as prescription Viagra. Returns for the funds under custody of the unions aren't clearing hurdles of 9% per annum, thus squeezing the VEBAs from that side, as well.
Everywhere you turn, somebody's pie-in-the-sky, group defined benefit plan is being threatened by economic reality. Whether Greek public sector unions, Italy's generous social spending, US Social Security or the remaining private sector union defined-benefit pension and health care plans, they are all under pressure as a generation of retirees has pushed these legal Ponzi schemes to the breaking point.
You think any of this is going to be fixed in the next year or so? Or right after the 2012 election in America, if either party runs the table at the federal level to hold the White House and both chambers of Congress?
Think again.
Slowly, people in Western democracies are waking up to the reality that, whether public or private sector in nature, many retirement and medical benefit promises simply won't ever be kept. They can't be because they were never realistic in the first place.
If someone informs you that you will only collect, for argument's sake, half of the benefits you were promised, what would you do? The people with whom I discussed this all automatically said the same thing:
"spend less, save more."
Guess what will happen to OECD nation GDP growth rates for the next decade or more?
Forget any more "stimulus" spending by the major economies' governments. Who will be be lending to meet such borrowing? Which countries, while cutting entitlements, will simultaneously be splurging on other debt-fueled spending?
Due to a confluence of several factors, we're probably on the threshold of a phenomenon nobody's ever seen before- the vaporization of expected benefits for hundreds of millions of people which will affect spending and saving behavior, causing unexpected consequences at the macroeconomic level on a global scale.
I don't think it necessarily means equity market crashes. But I do think it means we are entering a period of heretofore unexperienced changes in the factors which will drive those markets.
Monday, November 14, 2011
More Warren Buffett Cornpone On CNBC This Morning
Warren Buffett appeared on CNBC this morning with plenty of his trademark cornpone and increasingly annoying guffaws.
This time he was spewing socialistic comments on taxing the rich, plus issuing ridiculous calls for higher taxes in general. Put Warren down as a limousine liberal. Would he have thought the same twenty years ago? More?
Absent on Buffett's part were such important aspects of the consequences of his views as the fact that taxing all of the income of the top 1% won't fund the government for even a year, if I recall Kyle Bass' analysis correctly. And there's the dangerously slippery slope which Buffett, having billions to give to charity, won't have to endure, i.e., how much 'more' is enough, and who judges that?
A young entrepreneur looking at confiscatorily high rates at the upper income ranges will likely behave differently than an old 'fat cat' like Buffett who has already amassed his fortune. Buffett's lifestyle won't be affected by almost anything the federal government does with tax policy, but that's not true for the younger, upcoming millionaires and billionaires of tomorrow. The more the chance to keep one's own earned money is reduced, the more the entire idea of the American Dream is subjected to socialism.
What's more sickening is that CNBC can't even dare to question Buffett's views, airing them with absolutely no critical challenges whatsoever. How about having Kyle Bass on the phone available to engage Buffett in defending his rank socialist views?
On the professional front, Buffett's big announcement was that he's accumulated about 5.5% of IBM's equity. Then he went on to babble about 11% of the firm's equity changing ownership in a year, and that turnover is so high these days. Of apparent note was that IBM is considered a technology company, which is a sector Buffett has historically shunned out of lack of understanding.
It was a charming throwback to antiquity when Buffett told how he actually read the recent annual report and, gosh darn it, liked what he read, so he bought 5.5% of the firm. And encouraged other investors to read that report, too!
Unfortunately, real investing is a bit more complicated than reading annual reports. At least it is if you plan on owning equities that constitute a portfolio which consistently outperforms the S&P500.
What Buffett doesn't seem to acknowledge, regarding the share turnover question, is that, in the decades since the Big Bang on the NYSE which cut brokerage fees, and the subsequent explosion of volume and mutual funds, people have access to cheaper professional management of their money. Especially via 401Ks invested with mutual funds. Buy and hold a la Graham and Dodd was conceived in an era of a 14% round trip charge on trades, versus flat dollar fees today.
The volatility and erratic performance that individuals might have to live with when investing on their own is probably less tolerable from a paid manager. Thus, more trading occurs in the quest for better returns all the time.
Now consider what Buffett reiterated this morning regarding his own holdings- Wells Fargo and BofA. They are erratic. Buffett no longer behaves like a typical manager, in that he doesn't even attempt to mitigate inconsistencies in his company's returns. While IBM has been moving toward being a consistently superior equity for years, BofA and Wells Fargo are not. BofA is a disaster, and Wells has tracked the S&P, meaning you'd be exposed to similar returns for far less risk by owning the index, rather than WFC. These price series are illustrated in the first nearby chart.
I contend that if Berkshire's price charts were labeled Fund X and compared to other funds, Buffett's company would be judged inadequate, inconsistent and, at best, mediocre.
But being Buffett, people forgive performance lapses because they buy into a now decades-old performance that no longer exists.
A firm Buffett said he can't and won't buy- Microsoft- tells you something about his judgement.
Microsoft, as my prior posts have illustrated, has had a lost decade of flat returns. It's been a disaster. Yet Buffett claimed he won't invest because, as a friend of Bill- Gates, that is- he would be accused of having inside information. He didn't just bust out laughing at the prospect of throwing his investors' money away on a moribund has-been technology company if he bought shares of MSFT.
To illustrate the inconsistency of Buffett's firm's performance, consider the next three price series charts. They compare BerkshireA with the S&P500 Index for the past 1, 2 and 5 years.
For the past year, the S&P has outperformed Buffett by 10 percentage points. For the past 24 months, they are even. For the past five years, Berkshire outperforms the S&P by 20 percentage points.
Berkshire has become something of a timing stock, at best. At worst, whether due to size of the portfolio, or Buffett's outdated selection strategy, it's simply seen its returned attenuating toward the index.
For what its worth, IBM has been near qualifying as an equity in my portfolios because of its increasingly-consistent relative performance on several key criteria. But, unlike Buffett, my strategy doesn't blindly hold for years. It continually assesses consistency of performance.
Of course, I'm not Buffett. As I noted earlier in the post, investors have long since given up measuring him by the same standard as they would other managers. Thus my point that if Berkshire were included as a choice among funds to choose, with its name changed, I doubt it would get the investment it does because it's affiliated with Buffett.
Frankly, anyone who would seriously consider investing in Microsoft would, on that basis alone, scare me off.
But that's the world according to Buffett. It's a different investing world with different rules. Performance doesn't matter as much as it does for lesser-publicized investment managers.
This time he was spewing socialistic comments on taxing the rich, plus issuing ridiculous calls for higher taxes in general. Put Warren down as a limousine liberal. Would he have thought the same twenty years ago? More?
Absent on Buffett's part were such important aspects of the consequences of his views as the fact that taxing all of the income of the top 1% won't fund the government for even a year, if I recall Kyle Bass' analysis correctly. And there's the dangerously slippery slope which Buffett, having billions to give to charity, won't have to endure, i.e., how much 'more' is enough, and who judges that?
A young entrepreneur looking at confiscatorily high rates at the upper income ranges will likely behave differently than an old 'fat cat' like Buffett who has already amassed his fortune. Buffett's lifestyle won't be affected by almost anything the federal government does with tax policy, but that's not true for the younger, upcoming millionaires and billionaires of tomorrow. The more the chance to keep one's own earned money is reduced, the more the entire idea of the American Dream is subjected to socialism.
What's more sickening is that CNBC can't even dare to question Buffett's views, airing them with absolutely no critical challenges whatsoever. How about having Kyle Bass on the phone available to engage Buffett in defending his rank socialist views?
On the professional front, Buffett's big announcement was that he's accumulated about 5.5% of IBM's equity. Then he went on to babble about 11% of the firm's equity changing ownership in a year, and that turnover is so high these days. Of apparent note was that IBM is considered a technology company, which is a sector Buffett has historically shunned out of lack of understanding.
It was a charming throwback to antiquity when Buffett told how he actually read the recent annual report and, gosh darn it, liked what he read, so he bought 5.5% of the firm. And encouraged other investors to read that report, too!
Unfortunately, real investing is a bit more complicated than reading annual reports. At least it is if you plan on owning equities that constitute a portfolio which consistently outperforms the S&P500.
What Buffett doesn't seem to acknowledge, regarding the share turnover question, is that, in the decades since the Big Bang on the NYSE which cut brokerage fees, and the subsequent explosion of volume and mutual funds, people have access to cheaper professional management of their money. Especially via 401Ks invested with mutual funds. Buy and hold a la Graham and Dodd was conceived in an era of a 14% round trip charge on trades, versus flat dollar fees today.
The volatility and erratic performance that individuals might have to live with when investing on their own is probably less tolerable from a paid manager. Thus, more trading occurs in the quest for better returns all the time.
Now consider what Buffett reiterated this morning regarding his own holdings- Wells Fargo and BofA. They are erratic. Buffett no longer behaves like a typical manager, in that he doesn't even attempt to mitigate inconsistencies in his company's returns. While IBM has been moving toward being a consistently superior equity for years, BofA and Wells Fargo are not. BofA is a disaster, and Wells has tracked the S&P, meaning you'd be exposed to similar returns for far less risk by owning the index, rather than WFC. These price series are illustrated in the first nearby chart.
But being Buffett, people forgive performance lapses because they buy into a now decades-old performance that no longer exists.
A firm Buffett said he can't and won't buy- Microsoft- tells you something about his judgement.
Microsoft, as my prior posts have illustrated, has had a lost decade of flat returns. It's been a disaster. Yet Buffett claimed he won't invest because, as a friend of Bill- Gates, that is- he would be accused of having inside information. He didn't just bust out laughing at the prospect of throwing his investors' money away on a moribund has-been technology company if he bought shares of MSFT.
For the past year, the S&P has outperformed Buffett by 10 percentage points. For the past 24 months, they are even. For the past five years, Berkshire outperforms the S&P by 20 percentage points.
For what its worth, IBM has been near qualifying as an equity in my portfolios because of its increasingly-consistent relative performance on several key criteria. But, unlike Buffett, my strategy doesn't blindly hold for years. It continually assesses consistency of performance.
Of course, I'm not Buffett. As I noted earlier in the post, investors have long since given up measuring him by the same standard as they would other managers. Thus my point that if Berkshire were included as a choice among funds to choose, with its name changed, I doubt it would get the investment it does because it's affiliated with Buffett.
Frankly, anyone who would seriously consider investing in Microsoft would, on that basis alone, scare me off.
But that's the world according to Buffett. It's a different investing world with different rules. Performance doesn't matter as much as it does for lesser-publicized investment managers.
Is There Really US Income Inequality & What Exactly Would Be Its Impacts?
Some months ago, I had a discussion with a friend regarding income inequality. Being a systems engineering consultant primarily working with he military and its suppliers, he cited an author who claimed that significant income inequality had presaged the fall of great powers in the past.
Currently, the Occupy Wall Street crowd focus on income inequality, screaming about the "1%" versus the "99%."
Income inequality is often measured via some variant of the Herfindahl Index, described in that linked source as it applies to its original subject, market share concentration,
"It is defined as the sum of the squares of the market shares of the 50 largest firms (or summed over all the firms if there are fewer than 50) within the industry, where the market shares are expressed as fractions. The result is proportional to the average market share, weighted by market share. As such, it can range from 0 to 1.0, moving from a huge number of very small firms to a single monopolistic producer. Increases in the Herfindahl index generally indicate a decrease in competition and an increase of market power, whereas decreases indicate the opposite."
As applied to incomes, one simply substitutes that variable for market shares. The principle is the same.
However, regardless of how one measures income concentration, the question is the same: what exactly are the impacts of various levels of income equality or inequality?
I can't answer those questions, because I don't have primary research data to support any specific response. But the constant harping by many liberals on this question causes me to ask three more related ones:
1. What would be the empirical relationship, were we to have the data to assess it, between income concentration and periods of human innovation and growth in average standards of living?
2. What were US income concentrations in past eras? Particularly, for example, after the Revolutionary War, during the pre-Civil War era, then 1880s-1890s, and the early 20th century?
3. What are the percentages of various income levels that change to higher or lower levels through time?
Let's take the first question. What I'm attempting to get at is the phenomenon of capital accumulation and its effect on civilization. Whether it involves infrastructure such as roads, dams, water provision, sewage or art, such non-subsistence-level human activities require capital. And capital comes from savings, which is, definitionally, the positive difference between production and consumption.
If a society doesn't have capital accumulating, it's not going to advance on any significant dimension. Historically, unless you sign up for hereditary monarchies or feudalism, capitalism is the economic system which has done the best job combining merit-based wealth accumulation and the ability of a society to accumulate capital for which allow investments that, over time, improve general standards of living.
Specifically, in the US, I'd love to know the answer to the second question. Has the US experienced major changes in income concentrations over these eras? What do you think income concentration was like before the middle class ushered in by the Industrial Revolution?
Further, what does it say about US income concentration that Steve Jobs, Bill Gates and Mark Zuckerberg, none of whom apparently completed a four-year college degree, all became billionaires within the past two decades? And Larry Page and Sergey Brin, the co-founders of Google, did so within the past several years, though they finished college.
It appears that the potential for Americans to create wealth for themselves still exists. Perhaps not all are created equal and, thus, incomes won't ever be equal. Or perhaps some of the now-vocal 99% are simply lazy, or have made poor career choices.
Thirdly, from years in business, and my own proprietary equity research, I'm rather distrustful of simple static analyses. Simple static pictures of US income concentrations aren't as useful, informative or actionable as would be quintile-quintile migration tables for US incomes. Or any of several other ways of depicting the dynamics of US income concentration among specific groups of Americans.
What percent of the current top 5% of US income earners are children of similar income earners? How many years, on average, do people remain in a particular income strata?
The existence of Jobs, Gates, Zuckerberg, Page and Brin tell us that it's still quite possible in America to vault from median income to substantial wealth, even to the level of the top 1% of American incomes, in just a few short years.
So we know that US income mobility is still alive and well. And, really, that was one of the fundamental purposes of our nation's founding. You know, that old line,
"....life, liberty and the pursuit of happiness...."
If, as I hypothesize, the early days or our Republic were marked by greater income concentration than that over which people currently Occupy parks in various US cities, perhaps they weren't all that discouraged. After all, having liberty was not a trivial thing. And still isn't.
And the pursuit of happiness was, for many homesteaders both before and after the Civil War, the ability to have and work their own farm or business, regardless of its economic prosperity.
It seems to me that we have far too little evidence of a problem with the dynamics of US income concentration at this time. There will always be a lower echelon of income earners. And, if I'm correct in my hypothesis about the early years of our nation, income disparities didn't prevent people from immigrating to America- it spurred it. As it has until very recently, when the economic growth of the nation began to slow.
How people got to an income level, and for how long, on average, people stay there, and how many rise, is of more interest in determining both if there is a problem in the US with income concentration, and what to do about it.
Currently, the Occupy Wall Street crowd focus on income inequality, screaming about the "1%" versus the "99%."
Income inequality is often measured via some variant of the Herfindahl Index, described in that linked source as it applies to its original subject, market share concentration,
"It is defined as the sum of the squares of the market shares of the 50 largest firms (or summed over all the firms if there are fewer than 50) within the industry, where the market shares are expressed as fractions. The result is proportional to the average market share, weighted by market share. As such, it can range from 0 to 1.0, moving from a huge number of very small firms to a single monopolistic producer. Increases in the Herfindahl index generally indicate a decrease in competition and an increase of market power, whereas decreases indicate the opposite."
As applied to incomes, one simply substitutes that variable for market shares. The principle is the same.
However, regardless of how one measures income concentration, the question is the same: what exactly are the impacts of various levels of income equality or inequality?
I can't answer those questions, because I don't have primary research data to support any specific response. But the constant harping by many liberals on this question causes me to ask three more related ones:
1. What would be the empirical relationship, were we to have the data to assess it, between income concentration and periods of human innovation and growth in average standards of living?
2. What were US income concentrations in past eras? Particularly, for example, after the Revolutionary War, during the pre-Civil War era, then 1880s-1890s, and the early 20th century?
3. What are the percentages of various income levels that change to higher or lower levels through time?
Let's take the first question. What I'm attempting to get at is the phenomenon of capital accumulation and its effect on civilization. Whether it involves infrastructure such as roads, dams, water provision, sewage or art, such non-subsistence-level human activities require capital. And capital comes from savings, which is, definitionally, the positive difference between production and consumption.
If a society doesn't have capital accumulating, it's not going to advance on any significant dimension. Historically, unless you sign up for hereditary monarchies or feudalism, capitalism is the economic system which has done the best job combining merit-based wealth accumulation and the ability of a society to accumulate capital for which allow investments that, over time, improve general standards of living.
Specifically, in the US, I'd love to know the answer to the second question. Has the US experienced major changes in income concentrations over these eras? What do you think income concentration was like before the middle class ushered in by the Industrial Revolution?
Further, what does it say about US income concentration that Steve Jobs, Bill Gates and Mark Zuckerberg, none of whom apparently completed a four-year college degree, all became billionaires within the past two decades? And Larry Page and Sergey Brin, the co-founders of Google, did so within the past several years, though they finished college.
It appears that the potential for Americans to create wealth for themselves still exists. Perhaps not all are created equal and, thus, incomes won't ever be equal. Or perhaps some of the now-vocal 99% are simply lazy, or have made poor career choices.
Thirdly, from years in business, and my own proprietary equity research, I'm rather distrustful of simple static analyses. Simple static pictures of US income concentrations aren't as useful, informative or actionable as would be quintile-quintile migration tables for US incomes. Or any of several other ways of depicting the dynamics of US income concentration among specific groups of Americans.
What percent of the current top 5% of US income earners are children of similar income earners? How many years, on average, do people remain in a particular income strata?
The existence of Jobs, Gates, Zuckerberg, Page and Brin tell us that it's still quite possible in America to vault from median income to substantial wealth, even to the level of the top 1% of American incomes, in just a few short years.
So we know that US income mobility is still alive and well. And, really, that was one of the fundamental purposes of our nation's founding. You know, that old line,
"....life, liberty and the pursuit of happiness...."
If, as I hypothesize, the early days or our Republic were marked by greater income concentration than that over which people currently Occupy parks in various US cities, perhaps they weren't all that discouraged. After all, having liberty was not a trivial thing. And still isn't.
And the pursuit of happiness was, for many homesteaders both before and after the Civil War, the ability to have and work their own farm or business, regardless of its economic prosperity.
It seems to me that we have far too little evidence of a problem with the dynamics of US income concentration at this time. There will always be a lower echelon of income earners. And, if I'm correct in my hypothesis about the early years of our nation, income disparities didn't prevent people from immigrating to America- it spurred it. As it has until very recently, when the economic growth of the nation began to slow.
How people got to an income level, and for how long, on average, people stay there, and how many rise, is of more interest in determining both if there is a problem in the US with income concentration, and what to do about it.
Friday, November 11, 2011
Regarding Investing In Commercial Banks
This week's European government and financial tumult brings me to once again review the position of large US commercial bank CEOs, led by Chase's Jamie Dimon, that their firms should be allowed to take risks, presumably in order to drive high total returns.
At issue currently are two changes which bank managements despise: the Volcker Rule and higher primary equity capital requirements. The former strips large commercial banks of the ability to pursue riskier profits via proprietary trading, while the latter adds capital, which will depress returns on assets.
It's fair to say that, with recent hindsight, on average, the Volcker Rule will minimize societal costs of banks trying, but usually failing, to earn profits on risky trading with their own capital. The recent financial crisis demonstrated that those financial concerns capable of not losing on such risky trades are small in number, and often privately-held, while the larger US commercial banks carry deposit insurance, and, thus, indirectly, are themselves insured by the US federal government. The Dodd-Frank bill has made such insurance of firms explicit.
After several decades of US commercial money center banks cyclically posting large losses on everything from sovereign lending to credit cards, mortgages, and energy lending, requiring higher capital levels doesn't seem so harsh. For example, as I noted in this recent post, fund manager Ron Baron declined to invest in Jon Corzine's now-failed MF Global in part because, with capital constituting only 3% of assets, the risk of total loss of equity from trading positions was too great. Today's US money center banks are fighting to avoid capital levels only a little higher, i.e., going from 7% to 9%. It seems like a lot when seen as a percentage of balance sheet assets. But it's trivial when seen as the potential loss in a trading position. What's another 3, 4 or 5 percentage points of loss once a derivative or badly-hedged asset goes wrong? It's rounding error.
But to CEOs of these companies, that means relegating them to a role much more like energy utilities than like investment banks or faster-growth firms.
Which brings me to the central point about this debate over permissible money center bank activities and their primary capital levels.
My now-deceased mentor at Chase Manhattan Bank, Gerry Weiss, observed decades ago that since banking is a derivative industry, it can't, in total, grow faster over time than the economy which it serves. Thus, shorter-term, faster growth typically comes by taking more risks. Which pays off for management when it works, and leaves shareholders with losses when it doesn't. Only, in reality, those losses now become spread to taxpayers, as well.
So long as a bank is allowed access to taxpayer money for insuring deposits, and is allowed to become sufficiently large that its collapse would create counterparty problems for the nation, it has to be restricted to a role as a financial utility. Much as CEOs like Dimon want to have the latitude to chase total returns that match the US equity market's best, doing so as a money center bank simply isn't in society's interest.
Time and again over the past several decades, US money center banks and their managements have exhibited poor judgement and incompetence at avoiding bank-collapsing risks. When enough commercial bank assets pursue similar risks, which typically occurs, the resulting systemic risk endangers the US economy.
Dimon and his fellow CEOs like Vik Pandit at Citi or Brian Moynihan at BofA may grouse about being shackled and prohibited from pursuing brisk income growth which outstrips that of their markets. But to allow them to talk their way out of both measures- restraint of proprietary trading and higher equity capital requirements- will more quickly and certainly lead to the occasion of another taxpayer-rescue of a US money center bank.
At issue currently are two changes which bank managements despise: the Volcker Rule and higher primary equity capital requirements. The former strips large commercial banks of the ability to pursue riskier profits via proprietary trading, while the latter adds capital, which will depress returns on assets.
It's fair to say that, with recent hindsight, on average, the Volcker Rule will minimize societal costs of banks trying, but usually failing, to earn profits on risky trading with their own capital. The recent financial crisis demonstrated that those financial concerns capable of not losing on such risky trades are small in number, and often privately-held, while the larger US commercial banks carry deposit insurance, and, thus, indirectly, are themselves insured by the US federal government. The Dodd-Frank bill has made such insurance of firms explicit.
After several decades of US commercial money center banks cyclically posting large losses on everything from sovereign lending to credit cards, mortgages, and energy lending, requiring higher capital levels doesn't seem so harsh. For example, as I noted in this recent post, fund manager Ron Baron declined to invest in Jon Corzine's now-failed MF Global in part because, with capital constituting only 3% of assets, the risk of total loss of equity from trading positions was too great. Today's US money center banks are fighting to avoid capital levels only a little higher, i.e., going from 7% to 9%. It seems like a lot when seen as a percentage of balance sheet assets. But it's trivial when seen as the potential loss in a trading position. What's another 3, 4 or 5 percentage points of loss once a derivative or badly-hedged asset goes wrong? It's rounding error.
But to CEOs of these companies, that means relegating them to a role much more like energy utilities than like investment banks or faster-growth firms.
Which brings me to the central point about this debate over permissible money center bank activities and their primary capital levels.
My now-deceased mentor at Chase Manhattan Bank, Gerry Weiss, observed decades ago that since banking is a derivative industry, it can't, in total, grow faster over time than the economy which it serves. Thus, shorter-term, faster growth typically comes by taking more risks. Which pays off for management when it works, and leaves shareholders with losses when it doesn't. Only, in reality, those losses now become spread to taxpayers, as well.
So long as a bank is allowed access to taxpayer money for insuring deposits, and is allowed to become sufficiently large that its collapse would create counterparty problems for the nation, it has to be restricted to a role as a financial utility. Much as CEOs like Dimon want to have the latitude to chase total returns that match the US equity market's best, doing so as a money center bank simply isn't in society's interest.
Time and again over the past several decades, US money center banks and their managements have exhibited poor judgement and incompetence at avoiding bank-collapsing risks. When enough commercial bank assets pursue similar risks, which typically occurs, the resulting systemic risk endangers the US economy.
Dimon and his fellow CEOs like Vik Pandit at Citi or Brian Moynihan at BofA may grouse about being shackled and prohibited from pursuing brisk income growth which outstrips that of their markets. But to allow them to talk their way out of both measures- restraint of proprietary trading and higher equity capital requirements- will more quickly and certainly lead to the occasion of another taxpayer-rescue of a US money center bank.
Thursday, November 10, 2011
CNBC's GOP Event & Flaming Media Liberal Bias
I'm sorry to find out how right I was in my predictions in yesterday's post regarding last night's CNBC GOP presidential candidate roast...errr....event. Because it was on CNBC, and ostensibly about economics and business, I'm writing this review on this blog, rather than my political one.
Here are some of the passages from that post,
"...you can bet most of the two hours will consist of baiting the GOP candidates with questions designed to create convenient sound bites for the current president's re-election staff to use in subsequent campaign commercials.
This won't be anything remotely resembling an honest, non-partisan attempt to ascertain the candidates' views on the economy and business.
At present, I think it's fair and accurate to say that the truly conservative candidates would, ideally, say that the most they can do is to reduce growth-retarding uncertainty caused by the federal government. This would largely consist of reversing excessive energy- and finance-related regulations, a tax-code overhaul to reduce rates, remove preference items and simplify the code, and the exit of federal government from subsidizing any businesses, such as so-called 'green energy' investing and mortgage bond guarantees, to the detriment of private sector efforts to do the same things.
The problem, of course, is that these reasonable steps will sound insufficient, because they don't purport to immediately "create jobs."
Never mind that conservatives, and most of the GOP candidates, don't believe government should directly create jobs. They will be pummeled by most of the CNBC panel for being cold-hearted, uncaring and, in effect, promising a priori to do nothing to help millions of unemployed Americans."
There's actually quite a bit to cover, so let me highlight the four themes I'll discuss. The first three are the CNBC panel's:
1. Attempt to criticize GOP candidates for their conservative, non-Keynesian economic views.
2. Attempt to engage candidates on non-economic issues and invite mutual attacks.
3. Cluelessness on the publics' intolerance for liberal media attacks, via my second point, on the GOP candidates.
The fourth is the after-event panel's explicit liberal slant, used to lament how weak the GOP field was.
An example of the first point was the panel's question regarding three issues- student loan debt, housing and health care. The panel characterized the second as 'complex and large,' of which America's housing problem is really only the latter- large. Regarding student loan indebtedness, the panel was clearly looking to draw the candidates into competitive bids to please the student audience. But, in a larger sense, the questions were formed with a Keynesian, government-activist bias. It was a 'what would you do, as President,' not, 'is it appropriate for government to attempt to solve' sort of bias.
Regarding student loans, Gingrich fired back accurately, and quickly, given the usual inane sub-minute time limits. He concisely traced the history of the program, from LBJ onward, and dismissed it as having led to excessively-inflationary higher education costs. Summing up, he essentially pronounced the program a typical failure of government by causing unintended consequences. Newt slipped in a competing model, which was, I believe, College of the Ozarks, where students work while at school. They leave, on average, with no debt, except for students who purchased cars during their enrollment. Gingrich, as usual, had amazing facts at his command, ticking off the lengthier college careers of students borrowing money to attend.
When it came to housing, the CNBC panel focused on Romney, who is already on record, in Nevada, as having called for normal foreclosures and an end to the administration's many attempts to subsidize homeowners who are underwater on their mortgages, relying on market-clearing forces to eventually help the sector find its bottom.
For once, Romney didn't disappoint, reiterating, with vigor, his earlier comments. He chided the panel, asking if they thought the federal government should buy up every home in America to fuel economic growth?
The reactions of the panel members to these replies seemed muted, due in large part to the roars of approval by the audience in each instance.
On health care, Bartiromo asked Gingrich what he would do to solve America's health care mess. Newt grinned and baited his own trap, saying he'd been writing whole books on the topic, and did Maria really expect him to answer this complex question in less than a minute? The audience shouted its approval for his reply, and Bartiromo then said, 'take as much time as you need.'
Newt replied with another question, noting that his fellow candidates wouldn't like him taking up the remainder of the evening. Bartiromo tried to one-up him, arrogantly closing with, to paraphrase,
'Then you don't want to answer how you'd handle health care?'
On the second point, Maria Bartiromo asked Herman Cain if it was appropriate for Americans to elect him as CEO of the country, when he was being assailed for character flaws. Cain shot back fluidly and effectively, explaining that Americans don't want anonymous, unspecified character assassination to decide whom they will elect as president. Cain got cheers, and the audience was clearly cool to the panel.
Then Bartiromo unwisely followed up by asking Romney if he'd retain Cain in management if he were a private equity buyer of a firm including Cain, given the recent sexual harassment allegations.
Romney rose to the challenge and pointedly rejected Bartiromo's bait, while the audience, just after her question, but before Romney began to reply, loudly booed and jeered the CNBC reporter.
What Romney actually said was that he wasn't going to answer, that it was Cain's issue to handle with voters.
Regarding my third point, the CNBC panel seemed really tin-eared and ham-handed in how the audience and general public would react to its attempts to rough up and bait the GOP candidates. The audience reacted quite angrily to Bartiromo's questions regarding Cain and the alleged harassment charges. On Fox News just minutes later, Sean Hannity actually covered that segment, castigating CNBC for trying to manipulate the candidates into non-economic issues during an event ostensibly about economics and business, then bait Romney into criticizing Cain.
Later, in their own after-event program, Carl whathisname congratulated himself, Harwood and Bartiromo, smugly, on their performances in bringing the enemy, i.e., the GOP candidate field, to account, completely ignoring the audience's reaction to their attempted baiting of the candidates. Wildman Jim Cramer went so far as to criticize Romney and Gingrich for daring to take on the panel, rebuking them for pushing back against the media.
Cramer then went on a rant, claiming that voters didn't want candidates reacting to the media, only to answer questions about the economy. Totally off base and, as usual, wrong.
It was, however, quite surreal to see the action on CNBC, then see it covered live on Fox News only minutes later.
Finally, in the CNBC spin zone, two rather bizarre scenes occurred.
One was Larry Kudlow being seated with three prominent former Democratic administration officials to critique the event. All three of course lambasted the performances, trying to essentially close the door on all but Romney. Kudlow didn't look all that comfortable, but it was clear that CNBC's liberal producers and management wanted to give a final, anti-GOP spin to the event with an all-Democratic review of the two hour program.
Separately, minutes prior to that panel, Carl whathisname gave Cramer the stage to spin some false history of his own, while extensively criticizing all the GOP candidates, and the whole party, for good measure.
One has to have some perspective on Cramer's career journey to understand his views and actions. Harvard-educated, he began as a wannabe reporter, eventually realizing a desire to run money, working as a broker at Goldman Sachs along the way. He's not an experienced business person, nor economist. He's politically very liberal.
During his hedge fund running days, he engaged in explicit manipulation of media, including an admission of using CNBC floor reporter Bob Pisani, to spread rumors allowing Cramer to finish the second half of 'pump and dump' schemes. If Cramer were remembered for his hedge fund antics, he'd probably be under indictment, rather than on CNBC.
Thus, he's tickled pink to have exited that earlier career, and been refurbished and rehabbed as a cable business news anchor. To be seen on the panel of a presidential candidate debate is extremely tall cotton indeed for the hotheaded, big-mouthed former hedge fund manager of questionable practices.
In response to GOP calls for the repeal of excessive and ineffectual regulation, Cramer assailed them all as wrong-headed and small-minded. He cited Eisenhower's highway-building program to claim that Republicans needed to act like that again, spending hundreds of billions for public works to employ, well, construction workers.
Never mind that the current administration chose to ignore a key highway bill several years ago, and now has let much nearly-automatic road building lapse. Or that, per this recent post of mine, anything economically worthwhile will be done anyway, and needn't require government funding.
The GOP and its candidates don't believe we should let US highways disintegrate. Simply that, to refurbish them, after decades of excessive social welfare spending instead, other cuts have to be made to do so within balanced federal budgets.
Then Cramer engaged in his personal, wrong history of the recent financial crisis. He began by erroneously contending that the US has to bail out Europe, or the contagion will spread here. That may well occur, but even the US, borrowing, as it does, 40 cents of every dollar it prints/spends from China, doesn't have enough wealth to fix Europe's over-indebted social welfare spending mess.
Cramer routinely, and wrongly, calls the European crisis a banking crisis, when it's a social spending and governmental crisis. US funding won't fix that.
Then Cramer rolled on unabated to charge that the recent US financial crisis was all about criminal capitalistic behavior. Somehow, Jimbo overlooked, and never mentioned, Barney Frank, Kent Conrad, Chris Dodd, Fannie Mae or Freddie Mac. Or how Countrywide's ex-CEO, Angelo Mozillo, is alleged, on pretty good evidence so far, to have bribed Frank, Dodd and Conrad, and maybe more, to mandate Fannie and Freddie to accept Countrywide's low-quality mortgages for securitization.
In short, the Fed's low-rate policies and Congress' mandates of expanded GSE activity set the table for private finance's participation in the crisis. Moreover, there were sufficient agencies and regulations in existence to have stopped wrongful behavior.
The problem is, the regulations don't work. The people aren't adequately skilled, motivated, compensated and/or enabled to ever catch such activity. In fact, the very existence of the regulatory framework fools investors into a false sense of security. Something Cramer will never acknowledge.
Too bad Cramer won't let facts get in the way of his anti-GOP view of the nation's financial and economic history.
That's my current take on last night's GOP event. More to come....
Here are some of the passages from that post,
"...you can bet most of the two hours will consist of baiting the GOP candidates with questions designed to create convenient sound bites for the current president's re-election staff to use in subsequent campaign commercials.
This won't be anything remotely resembling an honest, non-partisan attempt to ascertain the candidates' views on the economy and business.
At present, I think it's fair and accurate to say that the truly conservative candidates would, ideally, say that the most they can do is to reduce growth-retarding uncertainty caused by the federal government. This would largely consist of reversing excessive energy- and finance-related regulations, a tax-code overhaul to reduce rates, remove preference items and simplify the code, and the exit of federal government from subsidizing any businesses, such as so-called 'green energy' investing and mortgage bond guarantees, to the detriment of private sector efforts to do the same things.
The problem, of course, is that these reasonable steps will sound insufficient, because they don't purport to immediately "create jobs."
Never mind that conservatives, and most of the GOP candidates, don't believe government should directly create jobs. They will be pummeled by most of the CNBC panel for being cold-hearted, uncaring and, in effect, promising a priori to do nothing to help millions of unemployed Americans."
There's actually quite a bit to cover, so let me highlight the four themes I'll discuss. The first three are the CNBC panel's:
1. Attempt to criticize GOP candidates for their conservative, non-Keynesian economic views.
2. Attempt to engage candidates on non-economic issues and invite mutual attacks.
3. Cluelessness on the publics' intolerance for liberal media attacks, via my second point, on the GOP candidates.
The fourth is the after-event panel's explicit liberal slant, used to lament how weak the GOP field was.
An example of the first point was the panel's question regarding three issues- student loan debt, housing and health care. The panel characterized the second as 'complex and large,' of which America's housing problem is really only the latter- large. Regarding student loan indebtedness, the panel was clearly looking to draw the candidates into competitive bids to please the student audience. But, in a larger sense, the questions were formed with a Keynesian, government-activist bias. It was a 'what would you do, as President,' not, 'is it appropriate for government to attempt to solve' sort of bias.
Regarding student loans, Gingrich fired back accurately, and quickly, given the usual inane sub-minute time limits. He concisely traced the history of the program, from LBJ onward, and dismissed it as having led to excessively-inflationary higher education costs. Summing up, he essentially pronounced the program a typical failure of government by causing unintended consequences. Newt slipped in a competing model, which was, I believe, College of the Ozarks, where students work while at school. They leave, on average, with no debt, except for students who purchased cars during their enrollment. Gingrich, as usual, had amazing facts at his command, ticking off the lengthier college careers of students borrowing money to attend.
When it came to housing, the CNBC panel focused on Romney, who is already on record, in Nevada, as having called for normal foreclosures and an end to the administration's many attempts to subsidize homeowners who are underwater on their mortgages, relying on market-clearing forces to eventually help the sector find its bottom.
For once, Romney didn't disappoint, reiterating, with vigor, his earlier comments. He chided the panel, asking if they thought the federal government should buy up every home in America to fuel economic growth?
The reactions of the panel members to these replies seemed muted, due in large part to the roars of approval by the audience in each instance.
On health care, Bartiromo asked Gingrich what he would do to solve America's health care mess. Newt grinned and baited his own trap, saying he'd been writing whole books on the topic, and did Maria really expect him to answer this complex question in less than a minute? The audience shouted its approval for his reply, and Bartiromo then said, 'take as much time as you need.'
Newt replied with another question, noting that his fellow candidates wouldn't like him taking up the remainder of the evening. Bartiromo tried to one-up him, arrogantly closing with, to paraphrase,
'Then you don't want to answer how you'd handle health care?'
On the second point, Maria Bartiromo asked Herman Cain if it was appropriate for Americans to elect him as CEO of the country, when he was being assailed for character flaws. Cain shot back fluidly and effectively, explaining that Americans don't want anonymous, unspecified character assassination to decide whom they will elect as president. Cain got cheers, and the audience was clearly cool to the panel.
Then Bartiromo unwisely followed up by asking Romney if he'd retain Cain in management if he were a private equity buyer of a firm including Cain, given the recent sexual harassment allegations.
Romney rose to the challenge and pointedly rejected Bartiromo's bait, while the audience, just after her question, but before Romney began to reply, loudly booed and jeered the CNBC reporter.
What Romney actually said was that he wasn't going to answer, that it was Cain's issue to handle with voters.
Regarding my third point, the CNBC panel seemed really tin-eared and ham-handed in how the audience and general public would react to its attempts to rough up and bait the GOP candidates. The audience reacted quite angrily to Bartiromo's questions regarding Cain and the alleged harassment charges. On Fox News just minutes later, Sean Hannity actually covered that segment, castigating CNBC for trying to manipulate the candidates into non-economic issues during an event ostensibly about economics and business, then bait Romney into criticizing Cain.
Later, in their own after-event program, Carl whathisname congratulated himself, Harwood and Bartiromo, smugly, on their performances in bringing the enemy, i.e., the GOP candidate field, to account, completely ignoring the audience's reaction to their attempted baiting of the candidates. Wildman Jim Cramer went so far as to criticize Romney and Gingrich for daring to take on the panel, rebuking them for pushing back against the media.
Cramer then went on a rant, claiming that voters didn't want candidates reacting to the media, only to answer questions about the economy. Totally off base and, as usual, wrong.
It was, however, quite surreal to see the action on CNBC, then see it covered live on Fox News only minutes later.
Finally, in the CNBC spin zone, two rather bizarre scenes occurred.
One was Larry Kudlow being seated with three prominent former Democratic administration officials to critique the event. All three of course lambasted the performances, trying to essentially close the door on all but Romney. Kudlow didn't look all that comfortable, but it was clear that CNBC's liberal producers and management wanted to give a final, anti-GOP spin to the event with an all-Democratic review of the two hour program.
Separately, minutes prior to that panel, Carl whathisname gave Cramer the stage to spin some false history of his own, while extensively criticizing all the GOP candidates, and the whole party, for good measure.
One has to have some perspective on Cramer's career journey to understand his views and actions. Harvard-educated, he began as a wannabe reporter, eventually realizing a desire to run money, working as a broker at Goldman Sachs along the way. He's not an experienced business person, nor economist. He's politically very liberal.
During his hedge fund running days, he engaged in explicit manipulation of media, including an admission of using CNBC floor reporter Bob Pisani, to spread rumors allowing Cramer to finish the second half of 'pump and dump' schemes. If Cramer were remembered for his hedge fund antics, he'd probably be under indictment, rather than on CNBC.
Thus, he's tickled pink to have exited that earlier career, and been refurbished and rehabbed as a cable business news anchor. To be seen on the panel of a presidential candidate debate is extremely tall cotton indeed for the hotheaded, big-mouthed former hedge fund manager of questionable practices.
In response to GOP calls for the repeal of excessive and ineffectual regulation, Cramer assailed them all as wrong-headed and small-minded. He cited Eisenhower's highway-building program to claim that Republicans needed to act like that again, spending hundreds of billions for public works to employ, well, construction workers.
Never mind that the current administration chose to ignore a key highway bill several years ago, and now has let much nearly-automatic road building lapse. Or that, per this recent post of mine, anything economically worthwhile will be done anyway, and needn't require government funding.
The GOP and its candidates don't believe we should let US highways disintegrate. Simply that, to refurbish them, after decades of excessive social welfare spending instead, other cuts have to be made to do so within balanced federal budgets.
Then Cramer engaged in his personal, wrong history of the recent financial crisis. He began by erroneously contending that the US has to bail out Europe, or the contagion will spread here. That may well occur, but even the US, borrowing, as it does, 40 cents of every dollar it prints/spends from China, doesn't have enough wealth to fix Europe's over-indebted social welfare spending mess.
Cramer routinely, and wrongly, calls the European crisis a banking crisis, when it's a social spending and governmental crisis. US funding won't fix that.
Then Cramer rolled on unabated to charge that the recent US financial crisis was all about criminal capitalistic behavior. Somehow, Jimbo overlooked, and never mentioned, Barney Frank, Kent Conrad, Chris Dodd, Fannie Mae or Freddie Mac. Or how Countrywide's ex-CEO, Angelo Mozillo, is alleged, on pretty good evidence so far, to have bribed Frank, Dodd and Conrad, and maybe more, to mandate Fannie and Freddie to accept Countrywide's low-quality mortgages for securitization.
In short, the Fed's low-rate policies and Congress' mandates of expanded GSE activity set the table for private finance's participation in the crisis. Moreover, there were sufficient agencies and regulations in existence to have stopped wrongful behavior.
The problem is, the regulations don't work. The people aren't adequately skilled, motivated, compensated and/or enabled to ever catch such activity. In fact, the very existence of the regulatory framework fools investors into a false sense of security. Something Cramer will never acknowledge.
Too bad Cramer won't let facts get in the way of his anti-GOP view of the nation's financial and economic history.
That's my current take on last night's GOP event. More to come....
Jerry Yang's Recent Antics At Yahoo
The comedy that is Yahoo continues, even in the wake of Carol Bartz' departure.
Jerry Yang, in a Wall Street Journal article last week, was described as claiming to be 'Chief Yahoo' and wanting to organize holding of a significant percentage of the firm's equity, while also allegedly fielding overtures for sale.
Yang, as the piece noted, can't be both buyer and seller, and acting CEO. There are too many conflicts.
Personally, I can't understand why anyone takes Yang seriously. Or, for that matter, Yahoo while Yang remains at the firm in any capacity.
Carol Bartz must be kicking herself for ever accepting Yang's invitation to his home to discuss taking the CEO job at Yahoo. Before then, she was a widely-respected leader due to her phenomenal accomplishments at AutoDesk.
Now, she's criticized for her Yahoo tenure and, I think, misunderstood. In my opinion, she shares company with Lou Gerstner, Art Ryan and, to some extent, John Thain. All had some accomplishment at a firm which they headed, although Ryan didn't really do anything at Chase, but sort of seat-warmed the CEO job.
Gerstner moved from RJR Nabisco to IBM, Ryan to Prudential, then in the throes of litigation, and Thain from Goldman to the NYSE to Merrill Lynch. In each case, I believed that they couldn't really lose. If any of them succeeded in turning around the mess they inherited, they'd become even more wealthy, and receive credit for their work. If they failed, many would view the situation as too far gone for rescue.
I think Gerstner did that at IBM, and Thain at the NYSE. Ryan didn't tank Prudential, but I wouldn't say he worked miracles. But Thain at Merrill and Bartz at Yahoo clearly weren't able to succeed. Thain exhibited some bizarre behavior. Remember the extravagant office redecoration? And then there were the conflicting stories regarding year-end bonuses paid out amidst the firm's near-collapse.
Perhaps Bartz' reputation will be regained if and, as I expect, when, Yahoo slides further in valuation. So long as Yang remains a part of the firm's grappling with its future, it's almost certain that shareholders will see Bartz in a different light.
Jerry Yang, in a Wall Street Journal article last week, was described as claiming to be 'Chief Yahoo' and wanting to organize holding of a significant percentage of the firm's equity, while also allegedly fielding overtures for sale.
Yang, as the piece noted, can't be both buyer and seller, and acting CEO. There are too many conflicts.
Personally, I can't understand why anyone takes Yang seriously. Or, for that matter, Yahoo while Yang remains at the firm in any capacity.
Carol Bartz must be kicking herself for ever accepting Yang's invitation to his home to discuss taking the CEO job at Yahoo. Before then, she was a widely-respected leader due to her phenomenal accomplishments at AutoDesk.
Now, she's criticized for her Yahoo tenure and, I think, misunderstood. In my opinion, she shares company with Lou Gerstner, Art Ryan and, to some extent, John Thain. All had some accomplishment at a firm which they headed, although Ryan didn't really do anything at Chase, but sort of seat-warmed the CEO job.
Gerstner moved from RJR Nabisco to IBM, Ryan to Prudential, then in the throes of litigation, and Thain from Goldman to the NYSE to Merrill Lynch. In each case, I believed that they couldn't really lose. If any of them succeeded in turning around the mess they inherited, they'd become even more wealthy, and receive credit for their work. If they failed, many would view the situation as too far gone for rescue.
I think Gerstner did that at IBM, and Thain at the NYSE. Ryan didn't tank Prudential, but I wouldn't say he worked miracles. But Thain at Merrill and Bartz at Yahoo clearly weren't able to succeed. Thain exhibited some bizarre behavior. Remember the extravagant office redecoration? And then there were the conflicting stories regarding year-end bonuses paid out amidst the firm's near-collapse.
Perhaps Bartz' reputation will be regained if and, as I expect, when, Yahoo slides further in valuation. So long as Yang remains a part of the firm's grappling with its future, it's almost certain that shareholders will see Bartz in a different light.
Wednesday, November 09, 2011
Andrew Sorkin's Revealing Limousine Liberal Moment On CNBC This Morning
If you doubted that CNBC co-anchor, and New York Times columnist Andrew Sorkin is a limousine liberal, consider this moment from this morning's Squawk Box program.
A guest who was a former CEO of Staples was discussing the effects on the average American household of increasing taxes. He explained how most Americans would react to threats of higher taxes by cutting spending elsewhere and treating the planned tax increases as a negative uncertainty.
Sorkin chimed in with this gem, as closely paraphrased as I can recall,
'Do you really think people do that? Do they really notice tax increases?'
I think Sorkin has finally marked himself as a liberal now completely out of touch with the average American, what with his three careers- columnist, CNBC anchor, and published writer with an HBO movie based on his book.
You can't make this stuff up, can you?
A guest who was a former CEO of Staples was discussing the effects on the average American household of increasing taxes. He explained how most Americans would react to threats of higher taxes by cutting spending elsewhere and treating the planned tax increases as a negative uncertainty.
Sorkin chimed in with this gem, as closely paraphrased as I can recall,
'Do you really think people do that? Do they really notice tax increases?'
I think Sorkin has finally marked himself as a liberal now completely out of touch with the average American, what with his three careers- columnist, CNBC anchor, and published writer with an HBO movie based on his book.
You can't make this stuff up, can you?
Tonight's CNBC GOP Presidential Candidates' Event
It appears to be CNBC's turn to create havoc among the sheep-like field of GOP presidential candidates this evening in a 2-hour event I won't dignify with the term 'debate,' but, rather, the more appropriate term 'event.'
I've written a series of posts over on my companion political blog regarding the prior events here, under the 'debate' label.
After the September Fox News/Google event, I wrote this post wherein I suggested a better format for cable channels to provide voters with access to candidates and their ideas,
"I think what would be more meaningful to me would be something like the following. A network provides a weekly two-hour slot for its 'candidate of the week.' One of the GOP presidential hopefuls sits on a set with one or two moderators and answers questions from online feeds and a live audience. Moderators provide follow-up questions and/or fill in background on the candidate's prior remarks on the topic. Or contrast their stance with other candidates, etc.
And, for good measure, the original audience/online questioner gets a few minutes of give-and-take with the candidate, so if the latter evades the question, the questioner can complain about that and note it for everyone else.
I really don't care so much what Mitt thinks about Rick. Or what Newt thinks about anyone. Or what Rick (Santorum) does to try to look relevant.
In the end, I care more about how these people interact with prospective voters than how they fence with each other. I don't expect them to agree with each other, so what's the surprise in these bear-baiting formats?"
Fox News subsequently began something like that with Brett Baier's Special Reports "Center Seat" segment. Once each week, they invite a major GOP candidate to spend about 10 minutes taking questions from and discussing issues with Baier's panel, usually including Charles Krauthammer, Juan Williams or Mara Eliason, and Steve Hayes. Last night Newt Gingrich was the guest candidate. It's a far better approach, because the focus is on one candidate and his/her positions.
For example, coming immediately after Herman Cain's tension-filled press conference to address his anonymous and named accusers of sexual harassment, Juan Williams asked Newt, point blank, if his various marriages, infidelities and the story of his serving divorce papers to his wife while she was in the hospital, didn't constitute too much baggage for him to win the Oval Office. Gingrich answered calmly, referring to his daughter's accusations, which he never the less labeled as false.
With this as background, let me comment on the face which will take place on CNBC this evening from 8-10PM, EST. With a panel including Maria Butt-iromo and her annoying lisp and general air-headedness, and socialist political commentator and New York Times correspondent "Red" John Harwood, you can bet most of the two hours will consist of baiting the GOP candidates with questions designed to create convenient sound bites for the currend president's re-election staff to use in subsequent campaign commercials.
This won't be anything remotely resembling an honest, non-partisan attempt to ascertain the candidates' views on the economy and business.
I've been hearing CNBC's self-aggrandizing promos for this event for days now. Breathless soundbites alleging that this is what voters have been waiting for, it's the big moment to underpin their decisions. That we'll learn how each candidate plans "to jumpstart the economy." That's a direct quote.
So let's examine it.
A conservative's approach to the economy specifically eschews the belief that government can 'jumpstart the economy" in some direct, active manner.
At present, I think it's fair and accurate to say that the truly conservative candidates would, ideally, say that the most they can do is to reduce growth-retarding uncertainty caused by the federal government. This would largely consist of reversing excessive energy- and finance-related regulations, a tax-code overhaul to reduce rates, remove preference items and simplify the code, and the exit of federal government from subsidizing any businesses, such as so-called 'green energy' investing and mortgage bond guarantees, to the detriment of private sector efforts to do the same things.
The problem, of course, is that these reasonable steps will sound insufficient, because they don't purport to immediately "create jobs."
Never mind that conservatives, and most of the GOP candidates, don't believe government should directly create jobs. They will be pummeled by most of the CNBC panel for being cold-hearted, uncaring and, in effect, promising a priori to do nothing to help millions of unemployed Americans.
You need to remember that most CNBC on-air anchors believe in failed Keynesian economics and the current administration's economic policies.
However, with the exception of Rick Santelli, a former CME trader and executive, who I believe will be on the panel of questioners, the rest of the CNBC panel will likely be liberals who simply don't believe, if they even understand, how conservatives approach government's role in the US economy.
Which brings me to a post entitled Ronald Reagan's 11th Commandment & The CNN Las Vegas GOP Event, which I wrote on my political blog late last month. In it, I opined,
"Why aren't the top 8 candidates coordinating how they will control so-called debates at which they appear? Didn't anyone's communications directors or campaign managers realize that attending a CNN event was to invite disaster and humiliation?
Perhaps the RNC should get between the candidates and the networks, brokering formats so that the focus is on moderator or audience questions, not candidate-to-candidate criticism. Honestly, voters are smart enough to figure out what they want to know from each candidate. They don't need other candidates to help them on that score.
Networks want to create newsworthy events, which typically means force in-fighting and embarrassing gaffes. The RNC and the candidates should all want to provide voters with opportunities to learn more about each candidate's positions, not how the candidates feel about other candidates' positions.
I would really love to see the RNC chair now step forward and take control of future candidate events, mislabeled as 'debates,' and enforce formats that minimize violations of Reagan's 11th commandment, i.e., Thou shalt not criticize a fellow Republican."
How I wish the RNC had taken my advice prior to tonight's CNBC event.
Will I watch it- almost certainly not. I'll likely Tivo it, in order to fast forward through the questions from the more liberal, less intelligent CNBC staffers, stopping where I see Santelli participating.
I've written a series of posts over on my companion political blog regarding the prior events here, under the 'debate' label.
After the September Fox News/Google event, I wrote this post wherein I suggested a better format for cable channels to provide voters with access to candidates and their ideas,
"I think what would be more meaningful to me would be something like the following. A network provides a weekly two-hour slot for its 'candidate of the week.' One of the GOP presidential hopefuls sits on a set with one or two moderators and answers questions from online feeds and a live audience. Moderators provide follow-up questions and/or fill in background on the candidate's prior remarks on the topic. Or contrast their stance with other candidates, etc.
And, for good measure, the original audience/online questioner gets a few minutes of give-and-take with the candidate, so if the latter evades the question, the questioner can complain about that and note it for everyone else.
I really don't care so much what Mitt thinks about Rick. Or what Newt thinks about anyone. Or what Rick (Santorum) does to try to look relevant.
In the end, I care more about how these people interact with prospective voters than how they fence with each other. I don't expect them to agree with each other, so what's the surprise in these bear-baiting formats?"
Fox News subsequently began something like that with Brett Baier's Special Reports "Center Seat" segment. Once each week, they invite a major GOP candidate to spend about 10 minutes taking questions from and discussing issues with Baier's panel, usually including Charles Krauthammer, Juan Williams or Mara Eliason, and Steve Hayes. Last night Newt Gingrich was the guest candidate. It's a far better approach, because the focus is on one candidate and his/her positions.
For example, coming immediately after Herman Cain's tension-filled press conference to address his anonymous and named accusers of sexual harassment, Juan Williams asked Newt, point blank, if his various marriages, infidelities and the story of his serving divorce papers to his wife while she was in the hospital, didn't constitute too much baggage for him to win the Oval Office. Gingrich answered calmly, referring to his daughter's accusations, which he never the less labeled as false.
With this as background, let me comment on the face which will take place on CNBC this evening from 8-10PM, EST. With a panel including Maria Butt-iromo and her annoying lisp and general air-headedness, and socialist political commentator and New York Times correspondent "Red" John Harwood, you can bet most of the two hours will consist of baiting the GOP candidates with questions designed to create convenient sound bites for the currend president's re-election staff to use in subsequent campaign commercials.
This won't be anything remotely resembling an honest, non-partisan attempt to ascertain the candidates' views on the economy and business.
I've been hearing CNBC's self-aggrandizing promos for this event for days now. Breathless soundbites alleging that this is what voters have been waiting for, it's the big moment to underpin their decisions. That we'll learn how each candidate plans "to jumpstart the economy." That's a direct quote.
So let's examine it.
A conservative's approach to the economy specifically eschews the belief that government can 'jumpstart the economy" in some direct, active manner.
At present, I think it's fair and accurate to say that the truly conservative candidates would, ideally, say that the most they can do is to reduce growth-retarding uncertainty caused by the federal government. This would largely consist of reversing excessive energy- and finance-related regulations, a tax-code overhaul to reduce rates, remove preference items and simplify the code, and the exit of federal government from subsidizing any businesses, such as so-called 'green energy' investing and mortgage bond guarantees, to the detriment of private sector efforts to do the same things.
The problem, of course, is that these reasonable steps will sound insufficient, because they don't purport to immediately "create jobs."
Never mind that conservatives, and most of the GOP candidates, don't believe government should directly create jobs. They will be pummeled by most of the CNBC panel for being cold-hearted, uncaring and, in effect, promising a priori to do nothing to help millions of unemployed Americans.
You need to remember that most CNBC on-air anchors believe in failed Keynesian economics and the current administration's economic policies.
However, with the exception of Rick Santelli, a former CME trader and executive, who I believe will be on the panel of questioners, the rest of the CNBC panel will likely be liberals who simply don't believe, if they even understand, how conservatives approach government's role in the US economy.
Which brings me to a post entitled Ronald Reagan's 11th Commandment & The CNN Las Vegas GOP Event, which I wrote on my political blog late last month. In it, I opined,
"Why aren't the top 8 candidates coordinating how they will control so-called debates at which they appear? Didn't anyone's communications directors or campaign managers realize that attending a CNN event was to invite disaster and humiliation?
Perhaps the RNC should get between the candidates and the networks, brokering formats so that the focus is on moderator or audience questions, not candidate-to-candidate criticism. Honestly, voters are smart enough to figure out what they want to know from each candidate. They don't need other candidates to help them on that score.
Networks want to create newsworthy events, which typically means force in-fighting and embarrassing gaffes. The RNC and the candidates should all want to provide voters with opportunities to learn more about each candidate's positions, not how the candidates feel about other candidates' positions.
I would really love to see the RNC chair now step forward and take control of future candidate events, mislabeled as 'debates,' and enforce formats that minimize violations of Reagan's 11th commandment, i.e., Thou shalt not criticize a fellow Republican."
How I wish the RNC had taken my advice prior to tonight's CNBC event.
Will I watch it- almost certainly not. I'll likely Tivo it, in order to fast forward through the questions from the more liberal, less intelligent CNBC staffers, stopping where I see Santelli participating.
MF Global's Regulatory Lessons
Holman Jenkins, Jr., wrote a thoughtful piece in his weekend edition column regarding MF Global's demise. Jenkins rebuked those who were disappointed with the regulatory failure involving the firm. He celebrated that a financial firm engaged in overly risky activity and paid the price with bankruptcy, without government intervention.
I agree with him on that point.
However, I think he misinterprets the motivation for some, including me, to express consternation that new regulatory agencies, powers and legislation did nothing to prevent the collapse of MF Global.
I actually don't support the bulk of existing financial regulatory legislation and agencies. In my opinion, they represent the foolish wishes of largely inept, naive members of Congress and various administrations that it is practical or effective to have our existing, expensive and intrusive regulatory machinery.
It doesn't work. It gives investors, borrowers and depositors false hope. It risks making those parties insensitive to the realities of the marketplace and the vendors with whom they choose to do business.
I'd prefer to see government leave the business of deposit insurance, financial statement regulation, and most other detailed, intrusive financial regulatory areas.
Without such government-provided, monopolistic services, private solutions would arise. Firms would offer competitively-priced deposit insurance, differing by bank, thus providing an implicit credit rating. The same would be true for the purchase of various levels of audit attestation.
I'm not upset that government regulatory personnel failed to understand MF Global's condition until it was too late, or that it may have failed to identify the wrongful use of customer funds by the firm, if that occurred.
Rather, I see MF Global as the latest poster child for throwing in the towel on regulatory solutions and ripping out most of them as ineffective and overly expensive.
What's worse, looking out for your own interests, or wrongly believing the government's regulators will inform you, in advance, when your interests are in jeopardy?
I agree with him on that point.
However, I think he misinterprets the motivation for some, including me, to express consternation that new regulatory agencies, powers and legislation did nothing to prevent the collapse of MF Global.
I actually don't support the bulk of existing financial regulatory legislation and agencies. In my opinion, they represent the foolish wishes of largely inept, naive members of Congress and various administrations that it is practical or effective to have our existing, expensive and intrusive regulatory machinery.
It doesn't work. It gives investors, borrowers and depositors false hope. It risks making those parties insensitive to the realities of the marketplace and the vendors with whom they choose to do business.
I'd prefer to see government leave the business of deposit insurance, financial statement regulation, and most other detailed, intrusive financial regulatory areas.
Without such government-provided, monopolistic services, private solutions would arise. Firms would offer competitively-priced deposit insurance, differing by bank, thus providing an implicit credit rating. The same would be true for the purchase of various levels of audit attestation.
I'm not upset that government regulatory personnel failed to understand MF Global's condition until it was too late, or that it may have failed to identify the wrongful use of customer funds by the firm, if that occurred.
Rather, I see MF Global as the latest poster child for throwing in the towel on regulatory solutions and ripping out most of them as ineffective and overly expensive.
What's worse, looking out for your own interests, or wrongly believing the government's regulators will inform you, in advance, when your interests are in jeopardy?
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