The Chair of the New York Fed – Fed Up June 16, 2003February 23, 2017 It turns out a frog in cold water that is gradually heated will jump out once it gets too hot. My world view is shattered. Click here for details. Some of you have written to say good-bye (so you’re probably not reading this) – there’s just too much here about politics, not enough money and boiling frogs. Mea culpa. But I tell you what I think. I think bad things are happening to our country – but gradually and in slow motion and with double-speak. (The tax cut, we’re told over and over, was not designed to help the rich but, rather, the unemployed.) It comes so fast and furious, to those relatively few of us who follow the details, that it’s hard to keep up and it’s hard to write about anything else. (With just that in mind, Matt Bivens offers ‘The Daily Outrage’ at thenation.com. This one is about the third-ranking Republican in the House, Roy Blunt.) So it’s great to learn that the frog jumps out of the water before it’s too late. It gives me hope that we will too. And most of these things are about money! Certainly this excellent piece by Pete Peterson, that many of you commended to my attention, is. It’s from last Sunday’s New York Times Magazine. (I’m that far behind.) Peterson, as you know, was Nixon’s Commerce Secretary and is Chairman of the New York Federal Reserve Bank. It begins: I have belonged to the Republican Party all my life. . . . Among the bedrock principles that the Republican Party has stood for since its origins in the 1850’s is the principle of fiscal stewardship — the idea that government should invest in posterity and safeguard future generations from unsustainable liabilities. . . . Over the last quarter century, however, the Grand Old Party has abandoned these original convictions. Without ever renouncing stewardship itself — indeed, while talking incessantly about legacies, endowments, family values and leaving ”no child behind” — the G.O.P. leadership has by degrees come to embrace the very different notion that deficit spending is a sort of fiscal wonder drug. . . . ☞ Oh, and how can I resist excerpting this part?: For the first time ever, a Republican leadership in complete control of our national government is advocating a huge and virtually endless policy of debt creation. The numbers are simply breathtaking. When President George W. Bush entered office, the 10-year budget balance was officially projected to be a surplus of $5.6 trillion — a vast boon to future generations that Republican leaders ”firmly promised” would be committed to their benefit by, for example, prefinancing the future cost of Social Security. Those promises were quickly forgotten. . . . ☞ And how can I resist excerpting this?: So there you have it: in just two years there was a $10 trillion swing in the deficit outlook. Coming into power, the Republican leaders faced a choice between tax cuts and providing genuine financing for the future of Social Security. (What a landmark reform this would have been!) They chose tax cuts. After 9/11, they faced a choice between tax cuts and getting serious about the extensive measures needed to protect this nation against further terrorist attacks. They chose tax cuts. After war broke out in the Mideast, they faced a choice between tax cuts and galvanizing the nation behind a policy of future-oriented burden sharing. Again and again, they chose tax cuts. . . . The entire piece is worth reading, because it’s about your kids’ future prosperity, or lack thereof. ‘If this is class warfare, then my class is winning.’ – Warren Buffett
Paying Your Bills – The Sequel June 13, 2003January 22, 2017 It was now weeks ago I wrote about paying small monthly bills several months in advance to save time – and actually come out ahead financially as well. I had meant to print your very good responses immediately thereafter, and then went off on innumerable political jags. (Thanks, by the way, for your help – now up to 2% of you. Ninety-eight more days, give or take, and it will be unanimous.) Here they are: Ed Shoben: ‘FIFITY CENTS A TRANSACTION? Why pay over $100 a year (assuming you pay 50 bills a quarter) when it could be free? check out the 1st Internet Bank of Indiana. No fees for bill paying, a rebate of your ATM fees anywhere (even in Barcelona) and an interest rate of 1.34%. They will even go pull money out of my local checking account without cost.’ Brad Hurley: ‘You wrote << and because Quicken charges 50 cents a transaction (if memory serves), much of the above math can still make sense. >> I think Quicken Bill Pay actually costs $10/month. The cost per transaction thus varies according to the number of bills you pay each month: If you routinely pay only electricity, gas, telephone, and Internet, for example, you’ll pay $2.50 per transaction. Ouch!’ Gloria: ‘I use Billpay at Yahoo! It is easy to customize and completely free (if you use the basic service, which is all I need).’ Paul Johns: ‘My credit union has long offered online bill paying for free. As soon as the bill comes, you enter it to be paid later (near the due date). Very easy, no stamps. Wonderful! Bank of America is advertising free online bill payment, too.’ Emerson Schwartzkopf: ‘Your method of paying several months in advance makes sense, as long as you don’t run into an ICP (Inane Corporate Policy). With some companies, a check that’s too large (such as the amount for a year’s worth of cable service) sets off a red flag, because you’re now the teeny-tiniest of liabilities on the books. The result is that you end up with a refund check for your overpayment and, if the eclipses are aligned correctly, a bill with a late charge (because they refunded your money before the monthly charge on your account).’ Chris Petersen: ‘Years back I signed up with Wells Fargo’s online account management system. It allows me to send money to anyone, even my dear old dad. Wells Fargo guarantees safety (as long as you don’t divulge your password). The only downside is that they require a minimum balance of $5,000 total in all managed accounts for the service to be free. My box of 200 checks that I bought 2 years ago, still has about 195 checks left.’ Jim Thorp: ‘Thanks! I thought I was the only weirdo doing this. But…the biggest thing for me is not the return but the time involved, which for most of us far outweighs the savings on the stamps.’ Eric E. Haas: ‘I liked your discussion today about saving money by paying in advance. You also discussed electronic bill paying. I thought you’d like to know about a good deal along these lines. If you open up an e-Checking account at pcbanker.com and keep at least $1,000 in it, here’s what you get: A great interest rate on your money (it fluctuates, but has been consistently higher than good money market mutual fund yields for at least the past two years). ATM fee reimbursements. They refund you up to $1.50 in ATM usage fees for each of up to four times per month that you use anybody’s ATM. Free on-line bill payment service. No monthly fee — pretty good deal. Free business reply envelopes for mailing deposits. I’ve had an account there for some time and it works great. P.S. I have no affiliation with pcbanker.com except being a satisfied customer.’ # ‘If this is class warfare, then my class is winning.’ – Warren Buffett
Double Click June 12, 2003March 25, 2012 If you missed Tom Friedman in the New York Times yesterday, click here. Then click here. Tomorrow, Finally (I Think): Paying Your Bills, the Sequel
Should the Dow Go to Jail for Speeding? June 11, 2003March 25, 2012 So Sam Waksal may have helped to cure cancer, but he cheated on sales tax and grossly violated insider trading rules – seven years in jail. Leaving aside that George W. Bush also appears to have grossly violated insider trading rules (he was on the three-man audit committee and sold all his holdings just days before the release of very bad news), seven years seems like a long time. I think prison was warranted, but I hope he gets out after two (and that Bush gets out after four). Meanwhile, the Dow is over 9000 again, and people wonder whether it’s becoming safe to jump back in. Of course, for those of you who put $100 or $1,000 a month into the market come thick or thin, and plan to do so all your lives, there’s nothing to wonder about. ‘Timing the market’ is very tough to do successfully, particularly in a taxable account, and your consistent life strategy is a good one. But note that it was six and a half years ago that Alan Greenspan, alarmed that the Dow had shot more or less straight up to 6500, and fearing a Japanese-style bubble, floated the phrase ‘irrational exuberance.’ (What he should have done, I think, in addition, was gradually raise the margin requirements, as a less subtle way of putting the brakes on uninformed speculation.) For the Dow to have risen from 6500 to 9050 in 6.5 years is for it to have grown at 5.2% a year, plus another 2% or so for dividends – not far shy, that is, from the ‘normal’ 9% or so annual return one used to expect from the stock market. So you might say that, adjusted for 6.5 years of normal returns, the Dow is not much below the level it was when Greenspan, alarmed, made his speech. That is certainly a simplistic way of looking at things – many people don’t know that my middle initial, P, stands for Psymplistic – and one can certainly construct the case that stocks, though up dramatically since October, are still cheap here. That case generally rests on an expectation of low interest rates far out into future . . . without the bad economic environment that sometimes accompanies low interest rates. I feel strongly that it’s better to invest at today’s levels than at the totally crazy levels of 2000 – obviously. But that the market may be displaying a bit of the exuberance Greenspan was alluding to on December 5, 1996. The NASDAQ quadrupled from there, so rationality only goes so far anyway, at least in the short run. I guess my point is just that it’s safer to jump back into the market before it rises 25%, as it just has, and somewhat riskier to jump once, having risen, it seems safer. PS – Many thanks to the 1% or so of you who clicked here yesterday to help avoid four more years of Bush/Ashcroft. That’s actually not a bad response rate for direct mail – and this direct mail costs nothing. If my math is right, I just have to run this link 99 more times.
Help Me Win a Bumper Sticker My Meeting with John Ashcroft June 10, 2003January 22, 2017 OK, it wasn’t a meeting, it was a near meeting. Like the time I was five feet from Oliver North in the lobby of the Mayflower Hotel, or the time I literally brushed elbows with Bob Barr at the Atlanta Airport. Or the time I actually shook hands with Ralph Reed. I was walking across the broad sidewalk in front of the temporary quarters of the Democratic National Committee and saw, sauntering slowly toward me from up the street a man I immediately recognized as a senator – but which Senator? – and as he came a few feet closer I realized . . . oh, wait – a former senator, now Attorney General, John Ashcroft. Having no calico cat handy to fling in his path – fortunately, because I would not do well in Guantanamo – I just kept walking. I was reminded of this over the weekend when I read that the Justice Department had banned its gay and lesbian employee group’s traditional Gay Pride event. Last year, reports the New York Times, Deputy Attorney General Larry Thompson – the second-ranking official at the department – spoke to about 150 people at the event in the Great Hall of the department. Not any more. ‘Every other association at the department has its recognized month and event,’ the Times quoted the group’s leader, ‘except us.’ It almost makes you wonder whether Ashcroft was truthful at his confirmation hearing when he denied that his motivation for blocking James Hormel’s ambassadorial confirmation was Hormel’s being gay. (As with Martha Stewart, it is not the alleged act that bothers me so much as the possibility that Ashcroft may have lied to the government. Like the seven tobacco executives who never got in trouble with the Republican Congress for swearing under oath that they did not believe tobacco was addictive.) ‘I find it particularly outrageous,’ Senator Frank Lautenberg (D-NJ) wrote Ashcroft, ‘that the Department of Justice, whose mission is to ensure fairness for all Americans, would deprive its own staff members of the right to gather on public property.’ According to a report in Newsday, ‘Lautenberg noted that Ashcroft was asked by Sen. Russ Feingold, D-Wis., during his confirmation hearing in September 2001 whether he would continue to allow DOJ Pride to hold its annual meeting at the department’s headquarters, as other groups and minority employees are permitted. Ashcroft responded, ‘It would be my intention not to discriminate against any group that appropriately constituted in the Department of Justice.” I worry about the possibility of four more years of Bush/Ashcroft. In just two and a half years, President Bush has managed to turn massive surpluses into massive, long-term structural deficits . . . has managed to shift the balance of wealth and power significantly further in favor of the already wealthy and powerful . . . and (icing on the cake) has managed to turn a world that largely liked us into a world that largely does not. So now comes my chance to win a bumper sticker and your chance to have the satisfaction of knowing you are part of the solution. Click here if you can spare a few bucks to help.* It’s set up so that I’ll see that you did, and so that if enough of you give, I’ll get a DNC bumper sticker. (Indeed, if enough of you give, I’ll get tickets to the Democratic Convention in Boston next summer!) *Visit the RNC website if you’re a Tom DeLay, John Ashcroft fan.
Real Estate, Real Inflate June 9, 2003January 22, 2017 Caption of the main photo in yesterday’s New York Times real estate section: ‘Anthony Gordon, a photographer, paid $625,000 for his 2,200-square-foot loft five years ago and was recently offered $3.5 million for it.’ Thesis of my story in yesterday’s PARADE: Real estate prices have run up so far so fast in some areas, they may be ripe for a correction. Sorry there’s no link to the story, but it’s not exactly rocket science: Someday, mortgage rates may rise. That will make high home prices harder to support. Uh, oh. Or perhaps the economy will stay sluggish and interest rates won’t rise. High unemployment does not ordinarily a robust housing market make. Uh, oh. (And rising property taxes to cope with massive state budget deficits won’t make home ownership any more attractive, either.) The Administration and the Fed appear to be pulling out all the stops to keep rates low and housing strong, at least through January, 2005. Adrian Van Eck, a long-time observer of these are other markets, writes in his latest newsletter (Box 1697, Naples, ME 04055): ‘When I began to write this newsletter, just seven days ago, I personally was skeptical about the likelihood that the Fed or Fannie Mae or banks and other lenders could prevent a traditional post-boom decline in home prices. Now I’m starting to believe they can succeed!’ To real estate investors, it is a variation on the old stock market saw: ‘Never fight the Fed.’ If the federal government and, especially, the Federal Reserve, are determined to keep real estate prices strong, as seems to be the case – at least through the next election – they may well succeed. And a strong housing market could be a major lift to the U.S. economy, which is something the rest of the world’s far too sluggish economy sure could use. Still, if I were photographer Anthony Gordon, I would take the $3.5 million and run. Tomorrow: My Meeting with John Ashcroft
ABBA June 6, 2003February 23, 2017 Steve Golder: ‘Old folks I talk to say that never in their lifetime have they seen such a concentrated dose of venality and embrace of greed for the wealthy as with Bush2.’ Jim Reed: ‘Yesterday I was listening to ABBA and heard what should be the theme song for the Bush administration: Money, money, money — (it’s) always sunny in a rich man’s world Liz Langley (from her column at alternet.org): ‘I’m starting my own political afterparty. That’s a political party that doesn’t exist until after someone gets nominated. It has a single issue: unity. My party is called ABBA: Anyone But Bush Again. ABBA is an SOS to those who didn’t want George W. Bush the first time, which was most of us, and those who don’t want an encore. It has no Democratic disorganization: the focus of ABBA is sharp enough to shave a pig. All you have to do is one thing: vote for the one guy running against Bush who has a shot of winning. One guy. Case closed.’ (‘I’m all for your right to express yourself,’ Langley chides Nader types, ‘but for chrissakes, make a quilt.’)
Tell Him Your Plans June 5, 2003January 22, 2017 W Dan Flikkema: ‘Where do you get the idea we ‘all want to like George W. Bush’? I don’t. I flat out hate the guy. We live in the 21st century Soviet Union or the book 1984. Everything that emanates from this administration starting at day one with the fabrication about Clinton’s people destroying the West Wing (gluing down the W keys? remember that?) to whatever lie they told today is simply untrue. They lie about everything. No matter how cynical you get it is impossible to keep up. I don’t ‘want to like this guy’ – I want to get rid of this guy!’ ☞ Are you registered to vote? Have you become an eCaptain? Geoff Wisner: ‘I’ve noticed that when you criticize Republican policies you typically bend over backwards to be fair-minded and see the other guy’s point of view. Your column today is blunter than usual, and I expect you will get some flak for it. I’d like to say that I think you’re right, and are saying what needs to be said. I can’t think of a single important decision George W. Bush has made since he took office that I can agree with: on the economy, on the environment, on civil rights, on foreign policy. Even Richard Nixon opened up relations with China and passed some environmental legislation. When I find myself wishing we had Dick Nixon to kick around again, something is wrong.’ ☞ I’m afraid we need to be blunt. Not mean or nasty – and we need to find a lot more humor to make our point than I’ve mustered lately – but we owe it to the 44-kids-in-a-classroom and the veterans-losing-their-health-care-benefits and the seniors-who-still-can’t-afford-their-medication to be blunt. We owe it to the kids of hard-working low-income parents who have no health insurance to be blunt. We owe it to those who feel they have a right to privacy to be blunt. We owe it to those who cherish fundamental fairness and the separation of church and state to be blunt. We owe it to a world that sees us as arrogant and bullying to be blunt. (But you see? There I go getting preachy again. We need to find a way to make this funny.) NOAM I’ve always known Noam’s name and always assume that anyone from M.I.T. is smarter than I am. But there are different kinds of smart, and judging from the e-mails several of you sent, I might not have been terribly smart in linking to Chomsky. Douglas Symes: ‘Chomsky was just as vitriolic against US intervention in Kosovo and Bosnia. Don’t take my word for it. Read how Brad DeLong (Deputy Assistant Secretary for Economic Policy in the Clinton Administration) describes Chomsky.’ GOD And speaking of M.I.T. – which I did not attend but which I have, on more than one occasion, driven by – I have arrived at my 35th college reunion. How is this possible? Leaving that aside, the best thing I’ve heard here so far is this simple reflection: Do you know how to make God laugh? Tell Him your plans.
Does It Matter? June 4, 2003February 23, 2017 But first: Sound advice from the Consumer Credit Counseling Service on kids and money: Ages 3-6: Start an allowance for your child at age five or six. Discuss money with your child when shopping, going to the bank, or attending church. Teach and set a good example by using the 50-40-10 rule: 50% spending, 40% savings and 10% charitable giving. Ages 7-12: Comparison shop with your child. Clip coupons, and provide opportunities for your child to earn extra cash. Ages 12-15: Invite your child to join in family budget conferences. Help your child set short-term financial goals and save for special items. Consider matching their savings. Ages 15-18: Have your child open a checking account, and teach record-keeping skills. Let them make mistakes now so they will learn skills and avoid more costly mistakes later on. Ah, the innocence of it. And now for something less innocent. Consider: The Clintons invested and lost $40,000 in an ill-fated real estate tax shelter. Endless investigations. Endless press coverage. Over what? But Bush’s $800,000 insider stock trade . . . which was so egregious on its face (he was on the three-man audit committee, for crying out loud) that the S.E.C. chose to investigate (and did not exonerate him, as Bush told people it did) . . . well, that gets a pass. His daddy was President of the United States and the S.E.C. chose not to pursue it. Case closed. No hoo-hah. ‘Get over it,’ as the bullying Republicans endlessly repeat. ‘Stop whining.’ Knock 91,000 African Americans off the Florida voter roles, almost all of them legally entitled to vote? ‘Get over it!’ ‘Stop whining!’ OK, so an election was stolen in this and a couple of other ways. Should that be a big deal? Get over it! Candidate Bush tells us that – even with the recession that he predicts (and may have helped precipitate or worsen by talking down the economy) – we can have a massive tax cut for the wealthy, prescription drug assistance for the elderly, a major build-up for the military, and still not have to raid the Social Security surplus or return to deficit. And it is a multi-trillion dollar lie. Not a miscalculation – they knew all along these numbers didn’t add up. Does deceit of this magnitude matter? President Bush said he barely even knew Ken Lay – and it turns out they were tight. Does this matter? He says the latest tax cut was designed for job creation. In fact, it was heavily skewed to the people who already have all they want and will pump up the economy least. What credible economist looks at this tax bill and agrees it was crafted as the best way to create jobs? Does this matter? We all want to like George W. Bush. He’s our President, and a great looking, personally likable guy. That counts for a lot. But is that really the most important thing? And then there’s Iraq. Click here.
TIPS – Tipsy? June 3, 2003February 23, 2017 Diane Anderson: ‘Please reconsider your recommendation on TIPS [Treasury Inflation Protected Securities]. I’ve been strongly pro-TIPS, but I’ve changed my mind based on their huge run-up over the last 1-1/2 years.’ ☞ I haven’t recommended them in a while, because I agree. Recommended here more than once, when they were trading around par (100 cents on the dollar), today they are around 123, meaning a 23% gain in the last year, plus the 3.375% interest they were geared to pay at par, plus the slight accretion for inflation. Not bad for the safest investment on the planet! But at 123, the roughly $33.75 interest you get on each bond no longer works out to 3.375%, but, rather, to more like 2.25% as the yield to maturity. That’s because you have to pay $1,230 or so to get the $33.75, not $1000 (which works out to 2.75% interest) . . . and because (if there were no inflation) the bonds would eventually be redeemed in 2032 at $1,000, not the $1,230 you paid (which chips away at the compounded annual return still further, bring the YTM down to about 2.25%). Of course there likely will be inflation, which these bonds protect you against, which is what makes them so appealing. But when you pay so much for them today, your overall return will be lower than if you had bought them at par, when first recommended. I’ve sold a chunk of mine, planning very possibly to buy them back lower, if they go lower.