Sunday, October 26, 2008

Cafe Hayek: Ordinary Americans Growing Wealthier Over the Long-Run

So will this destroy the myth of stagnating income:
"after adjusting the Census Bureau data for three key factors — inflation-adjusted median household income for most household types increased by roughly 44 percent to 62 percent from 1976 to 2006. The only household types with substantially lower growth were “working-age male householder without spouse present” and “male householder with children but without spouse,” but these types constitute just 10 percent of all households. Household income inequality increased notably over this period; nonetheless, middle American households had substantial income gains."
With regards to the data, I noted some time ago that single male income was stagnant to lower. I wish the data was available to dig into this statistic and determine why single men were commanding less wages. The biggest question is the roll of immigration in the data.

Changing times

My favorite economist has this to say out our current times:
"We must do better. Making the invisible hand of the market visible -- and showing that, even when it's a bit unsteady, the invisible hand is always more reliable and less bossy than is the visible fist of government -- must become an even higher priority for people who care about the kind of society we will bequeath to our children."
It really is sad that basic economic education is so lacking. Do people just not want to know?

Klaus for President

I want Klaus to be my president, if only because he sees socialism for what it is and understands economics:
"Klaus concludes that the EU plans to better regulate the financial markets and reform the International Monetary Fund will not lead to a 'new capitalism', as termed by French President Nicolas Sarkozy, but will represent a return to an 'old socialism.'

401(k) Changes?

This is a possible change in the coming years:
"Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

[T]he House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.

A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal.

Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation. "
Sorry. No thanks. I don't want the government to touch one cent of my retirement money. Social Security is a shell game that holds no assets; why should I trust them with even more of my retirement?

Of course, the rational is just attempting to take advantage of a crisis:
"At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months."

Monday, October 20, 2008

Fairwell Letter from a Hedge Fund

If you have millions, you can leave like this
"Yesterday the 37-year-old told his clients that he had hated the business and had only been in it for the money. And after declaring he would no longer manage money for other people, because he had enough of his own, Lahde said that instead he intended to repair his stress-damaged health; he made it clear he would not miss the financial world.≈

'The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking,' he wrote. 'These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government,' he said.

'All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades."
If I won the lottery, I would not be as harsh. Yeah right.

The Curse of History

So, will our lawmakers learn from history?:
"'We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.'"
Probably not.

Warming Goes Poof?

As the global temperatures demonstrate a flat-to-downward trend, will science's credibility go poof along with the Global Warming theory?:
"While not stooping to such name-calling, weather-satellite scientists David Douglass of the University of Rochester and John Christy of the University of Alabama at Huntsville nonetheless dealt the True Believers a devastating blow last month.

For nearly 30 years, Professor Christy has been in charge of NASA's eight weather satellites that take more than 300,000 temperature readings daily around the globe. In a paper co-written with Dr. Douglass, he concludes that while manmade emissions may be having a slight impact, 'variations in global temperatures since 1978 ... cannot be attributed to carbon dioxide.'"

Jay Cutler, Young Elway?

I "came of age" watching John Elway reject the Baltimore Colts to come to the Broncos. Of course, I have been watching and cheering for the Broncos since 1975 so 1983 was a great year.

I watched Elway try and carry the team and make amazing plays in the attempts. Too often, those attempts resulted in interceptions and defeats. Of course, he led them to the Superbowl three times and lost three times. Each time, my heart broke. I never lost the desire to see them in the Superbowl unlike some of my relatives that hoped they would lose in the playoffs rather than see them lose again. When 1996 rolled around and they finished with a 13-3 record, a bye week and home field advantage. The upstart Jacksonville Jaguars came into Mile High and ended the Broncos hopes. Fast forward to 1997 and a spectacular 12-4 record only to finish 2nd in the AFC West to the Chiefs. Then it was revenge game and a 42-17 drubbing of Jacksonville. Then it was into the Chief's house for a 14-10 victory. A Davis touchdown in the 4th quarter sealed the deal. The AFC Championship game was then played against the Steelers in which the Broncos squeaked out a win 24-21.

Then came the Superbowl. The Green Bay Packers were the defending Superbowl champs having defeated Patriots. Brett Favre was the superstar quarterback and media darling. The Broncos weren't given a chance at victory and were a 11 1/2 point underdog. They played it cool and let all the pressure be on Green Bay. I was cautious having watched the previous four losses (yes, I was a boy in 1977 and have hated the Cowboys since that year). I always thought the Broncos had a chance with Davis supporting Elway.

Game day came and I was too much of a wreck to go to a Superbowl party so I watched it by myself. The Packers stuck first followed by 17 Bronco points. Greenbay scored late in the 2nd to bring it to 17-14.

The 2nd half was then a back and forth affair leaving the Broncos up 24-17 going into the 4th Quarter. Green Bay tied it early in the quarter and then the Broncos scored late to go up 31-24 with 1:45 left. It was not until the Broncos tightened up at their own 35 and stopped Favre and Packers on 4th down to end the game. I was then able to take a breath and celebrate the first Bronco Superbowl victory. The next year, they beat the hapless Atlanta Falcons for their second. That was not a game worth discussing.

So the punch line is this: is Cutler a young Elway. Um. No. He needs to show me something first. Show me "The Drive". Show me some playoff births and playoff victories. Show me a Superbowl. show me a Ring. Show me the Ring. Then you can take the mantle.

Until then. Stop the Elway talk.


I could not have said it better:
"If the 'Masters of the Universe' really do crave the high-wire, much better that they do so with money not given to them by the taxpayer."
If I want stock in a bank, I'll buy it myself.

Oh wait. Sorry Tony, please accept a contribution from my Vanguard account.

Fail Your Way to a Bonus

You too can fail and still get your bonus
"Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash"
Now, not only are the stock holders paying for incompetence, it has now been democratized to the rest of us!

Not at the Point of a Gun, but A Pen

Coyote Blog provides this "mob related" link.
"The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left."
How is this different than "making them an offer than cannot refuse" with the proverbial horse head in the bed?

The difference is Tony Soprano is up front about what he is doing. Paulson denies it is asset confiscation via fountain pen.

Unrelated thought: Where is my copy of Atlas Shrugged?

Friday, October 17, 2008

Hate Retractable Leashes?

Read this from a woman who takes issue with retractable leashes
"I hate retractable leashes. I hated them when I worked in the pet store 100 years ago. I hated them during my years in the vet clinic. And I hate them now, when I see them on the streets.

To put it mildly, they are useless. Yeah, they keep your dog from getting more than 15 or 25 feet from you, but that's about it."
I guess I disagree. I think they are a wonderful tool. I walk my dogs with them all the time and they are great. Except I pay attention while they are on the leash. I never let it get long enough so they can run in traffic. I always watch for other dogs and possible fights. I only extend the leash when they are going to the bathroom in the grass and not while we are walking. When we walk, they are right by my side.

I think any tool is dangerous if you aren't paying attention. But why penalize those of us who know the limitations of the tool and use it responsibly?

Don't Shoot the Messenger

It is a fundamental truth that financial markets and price signals tell the story. Silencing the messenger does not change the underlying facts:
"I can't imagine Pearlstein suggesting closing newspapers for a week, or banning them from printing bad finance news for a few weeks. So Pearlstein doesn't get it: financial markets are news institutions, just like newspapers! The fact that newspapers report a lot less news on this crisis on weekends shows that most crisis news now comes via financial markets. Don't blame the messenger for telling you bad news; blame those who caused the bad news, and who keep you from learning sooner."

Thursday, October 16, 2008

Away From The Troubles

In these times, everyone seeks to escape from economic or life troubles. I really don't have life issues outside of a troublesome, yet manageable work situation. And yet, being "away" from life has its place.

What I am reading: The Mind of the Market by Micheal Shermer

What I am listening to: Staind: The Illusion of Progress + a mix of Train music recommended by someone special.

What I am watching: the original and only CSI (Miami and NY suck, bad), The Unit, and NCIS (my favorite because they have the best stories). Other than that, it is Denver Bronco football and a sad, 4-2 record. I am having post-hurricane Ike issues recording HD programs on the local CBS station. I don't know if it is the new DVR or the repaired receiver. I am troubleshooting.

That is my escape...what is yours?

Is There Hope?

Claudia Rosett has hope:
"And yet, despite the drum roll of crises above, America over the years has found ways not only to cope but to lead the world into an era of extraordinary opportunity and progress. Thanks to creative destruction, productivity has taken off in ways hard to measure but clear to anyone who surfs the Web for news or browses the global markets for merchandise from places that two generations ago were barely on the map."
I hope she is right.

H/T Instapundit (where most of my good links start)

Which Way Will It Go?

Over the course of five days, we have witnessed historic swings in the stock market as show by this picture:
Anyone who tells you they know where things are headed in the short term, is just guessing.

So I guessed with a couple of purchases on 10/2, 10/8 and 10/10 trying to work my way in where I thought the bottom was. Of course, it went down from the first two trades and is barely even for the 10/10 trade. They were not big positions as they total <6% of my net worth, but in hindsight, I should have waited.

So, my investment strategy is to let things find a bottom and then work their way up with some strength. What I mean by strength is up moves on good volume and several days of sustained increase. Sure, I will miss the real bottom, but that is better than falling for a bear trap.

I should mention that I am looking for the bottom within the next four weeks, a decent rally and then a top followed by another bear market decline. Of course, we could continue the downward trend in the run up and following the election. In that case, I will sit here with cash and wait for better times and better deals.

That is my guess. What is yours (backed up with cash entering the market of course)?

Remembering the Hit and Forgetting the Misses

Megan McArdle is a brilliant economic commentator who has this to say about being correct regarding the current economic crisis:
"This is what comes from not reading economics commentators besides Paul Krugman. Though I don't know how Brian can quote me on Krugman almost a year ago, while somehow not noticing that I myself have been predicting that there would be economic trouble when the housing bubble popped."
Of course, this says nothing about how many times he predicted doom when it did not come. This is the common fallacy of predictions -remembering the hit and forgetting all the misses.

Another way to tell if someone is serious about their economic predictions is to have them put their money where their mouth is. If Krugman had placed bets following his economic predictions, he would have been bankrupt a long time ago. Being correct once does not make up for all the prior mistakes.

Update: As soon as I finish and post, I scroll down to see that Megan made the same point in a previous post:
If you keep predicting a recession, eventually you will be right. Every time there was the slightest downturn in the numbers, Paul Krugman predicted a recession. Eventually he was right. Do we give him credit for the one he got right, or the multiple ones he got wrong?
I would like to take credit for agreeing with Megan, but I just got lucky.

Tuesday, October 14, 2008

Only One Way Out

Minyanville is a new site that I heard about on Business Radio Houston and stumbled across a link in Yahoo. They offer this Mises widsom: "
Only One Way Out

'All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production.
- Ludwig von Mises, The Causes of the Economic Crisis

Mises certainly found out there is no popularity to be gained from being right about economic doom. Being 'right' is the quickest way to lose all of your friends and create more enemies than you can shake a stick at.

That is really the only way to explain why the very people in charge of driving the global economy over the cliff - global central banks - are now charged with rescuing it from the death dive."

Luskin on Krugman

Luskin piles it on:
"This year, the prize for economics is going to Paul Krugman, an economist who died a decade ago.

To clarify, the person named Paul Krugman, the living and breathing man who will accept the Nobel in Stockholm this December , is merely a public intellectual — a person operating in the same domain as, say, Oprah Winfrey.

The living Krugman’s rabidly liberal New York Times column has, for nine years now, traded on the dead Krugman’s reputation as an economist, a reputation that only will be burnished by the award of the Nobel Prize."
Did you get the sense that Luskin does not like Krugman?

Paul Krugman: #1 Most Partisan Columnist in U.S.

CARPE DIEM: Paul Krugman: #1 Most Partisan Columnist in U.S.: "Final Rankings for Partisanship:

2002: #1 Paul Krugman

2003: #1 Ann Coulter, #2 Paul Krugman

2004: #1 Ann Coulter, #2 Paul Krugman

2005: #1 Paul Krugman

2007: #1 Ann Coluter, #2 Paul Krugman (tied with Joe Conason)

2008: #1 Paul Krugman"

Imagine my surprise. No wonder Krugman got a Nobel Prize.

No Risky Borrowers to Blaim

Shannon Buggs says Hogwash:
"In the search for a scapegoat in this economic crisis, some pundits and politicians lay the blame on a 'welfare state' law that 'forced' bankers to make ultra-risky, high-priced loans to uncreditworthy borrowers.

The problem is that's hogwash."
Really? Government policy led to distorted incentives to lend to less credit worthy borrowers. This, matched with securiterization of such loans and the purchase by Fannie Mae and Freddie Mac in addition to mark-to-market accounting standards got us here. Without the CRA, I find it unlikely this crisis would have happened.

I find it amazing that Buggs cannot make a causal link between government policy regarding lower economic strata and the current crisis as long as their is a racial element involved. It is not racial, it is economic.

If you read the comments, Buggs is being savaged. I won't do that, but I find it interesting that cloudy thinking has drifted (and is tolerated) from Loren Steffy to Buggs. Hopefully, Buggs will shake the muddle-headedness that appears to inhabit the Houston Chronicle business pages.

Be Opaque

I am not sure it is a good thing to have markets opaque:
"I've been told by an experimental economist that in some market models, more (true) information actually makes the market outcomes less efficient. This seems to be the mental model that Hank Paulson is working on."
To me, I would like to see what the government is doing with my money and which institutions are weak so they can necessarily fail. But that is just me.

Monday, October 13, 2008

Chrysler CEO "meltdown"

I've been discussing this for awhile:
“Bob Nardelli, just 14 months into his tenure as CEO of Chrysler LLC, now fears the collapse of an ‘extremely fragile’ auto industry amid the credit crisis and Wall Street meltdown.”
I wish I had sold GM and Ford short.

Nobel Prize = Out of Retirement

I have not been blogging for quite some time due to personal reasons, but today, my voice can no longer be silent. For today, Paul Krugman got a Nobel Prize in Economics. I read that this morning before going to work and was in shock. The Nobel prize used to mean something, but after Al Gore got the Nobel Peace Prize for his mythology (or mainly poking a President in the eye), I thought the Nobel committe could go no lower, but did. They gave the prize to someone who used to be a decent economist but now engages in zero sum thinking as exemplified in this quote (H/T Cafe Hayek):
Although America has higher per capita income than other advanced countries, it turns out that that's mainly because our rich are much richer. And here's a radical thought: if the rich get more, that leaves less for everyone else. That statement -- which is simply a matter of arithmetic -- is guaranteed to bring accusations of ''class warfare.''
Yes, that is engaging in class warefare and, in my opinion, zero sum thinking - the ultimate intellectual disqualifier if any existed in the field of economics. So, I ask dear Krugman, who did you steal from to receive the $1.4 that the Nobel committee gave to you? It is a matter of simple arithmetic, right?

Pathetic. Embarrassing.

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