How Superdelegates Should Vote March 17, 2008March 10, 2017 BEARISH So Bear Stearns, $107 last November and $30 Friday night, is being bought out at $2 a share. This can’t be good for New York City real estate prices, but it’s the right resolution: the institution is bailed out but not its shareholders. The financial system is defended, as it must be; but at the least possible expense to taxpayers. The irony is that Bear had apparently had good earnings this quarter. More than anything, it was ‘a run on the bank,’ albeit at a higher level than the run on the Bailey Building and Loan in ‘It’s a Wonderful Life.’ There may be others. But so long as the financial markets recognize that central banks will do what they need to to keep the entire system from failing up, confidence – and even its evil twin, greed – should gradually return. (Surely some big player out there is already thinking: $2 a share . . . maybe I should have offered $3?) It’s not nice to kick an investment bank when it’s down, but Bear has not always been as benign as the Bailey Building and Loan. I have no doubt most of Bear’s dealings and people have been beyond reproach. But 30-odd years ago I did a piece for New York Magazine called, ‘Has Bear Stearns Got a Deal for You?’ (it did not), followed by a sequel in Forbes a couple of years later, when they still hadn’t stopped the practice of ‘special offerings’ despite the glare of publicity (‘Has Bear Stearns Still Got a Deal for You?’ – it still did not). This was never a firm known for its gentleness. And, in this decade, neither its subprime borrowers nor the investors to whom those mortgages were sold, after Bear took an ample cut, may be feeling they got a great deal either. UPDATE ON THE HOUSING BUBBLE From the Los Angeles Times: Southern California home prices are now 19% below their peak last year, and the surprisingly rapid decline is leading experts to predict that the housing slump will be worse than initially thought — surpassing the severe downturn of the 1990s. Home values also plunged 19% during the last real estate bust, but that was over a six-year period ending in 1997. Prices have now fallen just as much in less than a year. That trend is causing analysts to rethink their previous forecasts. Delores A. Conway, director of USC’s Casden Real Estate Economics Forecast, last fall predicted a 15% decline in home values. But now, “20% to 25% looks more likely,” she says, “and that’s not to say we won’t see 30%.” Los Angeles economist Christopher Thornberg is even more bearish. He projects that home values will sink 40% from their peaks reached last year, double his previous estimate. “It’s the speed of the decline,” said Thornberg, of Beacon Economics, a consulting firm. Betty Palacios has no doubt that the slump is worse than originally thought. She’s trying to sell her Upland condo for $140,000 — or close to 40% less than what similar units in her complex were selling for two years ago. Palacios, 46, said she had received only one offer, for $90,000. . . . ☞ We live in a fast-paced world, so maybe the decline will be swift and sharp. Or maybe not. There’s something to be said for spreading it out over time, giving the natural growth in the economy (population, inflation, productivity) a chance to help absorb the impact. It’s worth noting that the bubble was a lot more distended in some places than others. In thinking about what to do, it could be helpful to come up with a year – 2002? 2001? 2003? – that becomes a benchmark for your own thinking and around which an informal consensus might even form. I haven’t looked at closely enough to know which year might be best; and of course all kinds of other factors would play their role in determining how the housing market fares . . . including, especially, interest rates, the state of the economy, inflation (oh, and let’s not forget supply and demand!). Stability might be reached when appraisals retreat to more or less their early-bubble levels. For some properties, that could be a 50% drop or even more from their peak value; for millions of others that had relatively little run-up, the bottom may not be far off. HOW SUPERDELEGATES SHOULD VOTE First, they should decide whether one candidate, in their view, is more likely to beat McCain than the other. If so, that’s the one they should vote for. Period. (And, yes, into this calculus must go the factor of how the superdelegate vote itself might affect the chances of one or the other having the best chance to win in November.) End of story. If they decide that the electability difference is minor or impossible to discern (or that it doesn’t matter because either will almost surely win), then they should decide whether one candidate, in their view, would do a significantly better job as President. If so, that’s the one they should vote for. If, finally, they think each is more or less equally electable and more or less equally likely to be an outstanding President – albeit with different strengths and story lines – then they should simply ratify the will of the voters. If they can determine what it is. More on that tomorrow.
The Biggest Threat We Face March 14, 2008March 10, 2017 Republican state representative Sally Kern spoke recently on homosexuality. ‘I honestly think it’s the biggest threat our nation has, even more so than terrorism or Islam,’ she said. She chairs the Oklahoma House Education Committee, no less. If you take three or four minutes to listen, I think you’ll realize she’s sincere, just (in my view) ignorant and misguided. But I bring this to your attention because her speech elicited this remarkable letter from a high school senior: Letter From Tucker Rep Kern: On April 19, 1995, in Oklahoma City a terrorist detonated a bomb that killed my mother and 167 others. 19 children died that day. Had I not had the chicken pox that day, the body count would’ve likely have included one more. Over 800 other Oklahomans were injured that day and many of those still suffer through their permanent wounds. That terrorist was neither a homosexual or was he involved in Islam. He was an extremist Christian forcing his views through a body count. He held his beliefs and made those who didn’t live up to them pay with their lives. . . . I was five years old when my mother died. I remember what a beautiful, wise, and remarkable woman she was. I miss her. Your harsh words and misguided beliefs brought me to tears, because you told me that my mother’s killer was a better person than a group of people that are seeking safety and tolerance for themselves. As someone left motherless and victimized by terrorists, I say to you very clearly you are absolutely wrong. . . . I’ve spent 12 years in Oklahoma public schools and never once have I had anyone try to force a gay agenda on me. I have seen, however, many gay students beat up and there’s never a day in school that has went by when I haven’t heard the word **** slung at someone. I’ve been called gay slurs many times and they hurt and I am not even gay so I can just imagine how a real gay person feels. You were a school teacher and you have seen those things too. How could you care so little about the suffering of some of your students? Let me tell you the result of your words in my school. Every openly gay and suspected gay in the school were having to walk together Monday for protection. They looked scared. They’ve already experienced enough hate and now your words gave other students even more motivation to sneer at them and call them names. After all, you are a teacher and a lawmaker, many young people have taken your words to heart. That happens when you assume a role of responsibility in your community. I seriously think before this week ends that some kids here will be going home bruised and bloody because of what you said. I wish you could’ve met my mom. Maybe she could’ve guided you in how a real Christian should be acting and speaking. I have not had a mother for nearly 13 years now and wonder if there were fewer people like you around, people with more love and tolerance in their hearts instead of strife, if my mom would be here to watch me graduate from high school this spring. Now she won’t be there. So I’ll be packing my things and leaving Oklahoma to go to college elsewhere and one day be a writer and I have no intentions to ever return here. I have no doubt that people like you will incite crazy people to build more bombs and kill more people again. I don’t want to be here for that. I just can’t go through that again. You may just see me as a kid, but let me try to teach you something. The old saying is sticks and stones will break your bones, but words will never hurt you. Well, your words hurt me. Your words disrespected the memory of my mom. Your words can cause others to pick up sticks and stones and hurt others. Sincerely Tucker
Chickens Flying In From All Points To Roost? To Roosters? Whatever It Is, It's Already Painful March 13, 2008March 10, 2017 RECORD BUDGET DEFICIT According to this from Reuters: The U.S. government turned in a $175.56 billion budget deficit for February, a record for any month . . . a 46.3 percent increase over the previous all-time single-month deficit . . . [and] for the first five months of fiscal 2008, which began last October 1, the deficit reached a record $263.26 billion, up 62.3 percent from the $162.16 billion for the same period of fiscal 2007. The previous record deficit for the first five months of a fiscal year was set in 2004, a year in which the government also reached its previous record full-year deficit of $413 billion. The White House last month estimated that the fiscal 2008 deficit would hit $410 billion, but that excludes undetermined supplemental spending requests for war funding in Iraq and Afghanistan. ☞ Of course, not only does the reported deficit not include spending for the wars, it also omits the money we are looting from the Social Security Trust Fund. Figure a true deficit by fiscal year’s end that could be within hailing distance of $1 trillion. The National Debt – $9.4 trillion (up $400 billion since Labor Day) – will, as I’ve long suggested, be $10 trillion by the time Bush leaves office. Three-quarters of that, accumulated since 1776, will have been racked up under just 3 of our 43 presidents: Reagan, Bush, and Bush. Worse, the National Debt has grown relative to the size of our economy. It was 30% of our GDP when Reagan took office; it will be about 70% of GDP when Bush leaves. Overall, more than 85% of the debt will have been racked up under Republican Administrations. The interest on this mostly Republican debt now amounts to about 40% of all the personal income tax we pay. The closer it gets to 100%, the less we have to spend on anything else. OIL Just so you know, half-pint, there are two pints in a quart, four quarts in a gallon, and – my point – 42 gallons in a barrel. So with oil at $110 or so, that’s $2.62 a gallon before the cost of refining it or moving it thousands of miles to the pump or paying for the gas station’s overhead and labor . . . and before profits for the refiner and pipeline and gas station . . . and before the state and national gasoline taxes that go to maintain some of our highways. Say hello to $4 gasoline. They pay more than double that abroad. M.I.T. PECULIAR So I had that little item titled THE QUICKBROWSE FIREFOX JUMPED OVER THE LAZY BLOG and two of you – within minutes of each other – emailed to point out that my attempted pangram was missing an ‘N’ (a pangram is a sentence that uses all 26 letters of the alphabet) and I wrote back to explain it was not an attempted pangram, it was an attempt at levity. And in replying to the first correspondent, I noticed from the e-address he was at (or a graduate of) M.I.T. All my life I’ve been intimidated by these guys (though grateful they’re there). They are the smart ones. And then I noticed that the second one, almost identical, was also from M.I.T. Was this some sort of ‘campaign’ against inadequate pangrams? Is there an M.I.T. group formed to preserve pangrammic integrity? (Might they also be on the look-out to guard against 18-syllable haiku?) I wrote the first asking if he knew the second (surely, they shared a cubicle?), but he did not. So out of thousands of people who (unaccountably) read this column each day, exactly two of them wrote in about the missing N, within minutes of each other, both from M.I.T. Tell me this isn’t a little bit scary.
Superpowers, Nose Rings, and Buddhism March 12, 2008March 10, 2017 SIEGELMAN Andrew Krauss: ‘Yes, they have television sets at the White House, but you may recall that several years ago, they told us that they were permanently tuned to Fox News.’ CASABLANCA Jonathan Young: ‘No, no. It’s just the girl who is coming to Captain R’s office and she’s going to be there at six. Otherwise true.’ ☞ You’re half right. See script page 88. THE SMELL OF FRESH CARBON PAPER IN THE MORNING Marie Coffin: ‘I had a conversation just last week with two college students who wanted to know what the ‘cc:’ in their email program stood for. I explained that it stood for ‘carbon copy,’ and then had to explain what carbons were and how you used them in a typewriter. I had just started describing the smell of freshly mimeographed, still-damp handouts in grade school when I decide to shut up. Some things just don’t translate well to the 21st Century.’ ANALOGIES ARE TO THE SATs . . . Eric Batson: ‘Sit down, I have some bad news. Ready? The analogy questions are no more. The new and improved SAT dropped them a few years ago. Sorry to be the one to have to tell you.’ ☞ . . . as (a) images soon will be to analog TV sets that lack converter boxes; (b) sea bass soon will be to the waters off Chile; (c) pennies are to utility; (d) Pluto is to planets. MY SUPERPOWERS Jack: ‘Are you a super delegate? If so, are you saying whom you will support? And if you are undecided, how do you think you will make your decision?’ ☞ I am. But from Florida, so I don’t count – and am enthusiastically neutral anyway because of my DNC post. If Florida winds up holding a revote and the kryptonite is removed from my neck, I would remain neutral until the last moment. At the last moment, if it were apparent who was going to win, I would probably vote that way, because the wider the win, the better. If it were not apparent who was going to win, I’d likely abstain – because the DNC’s role in this is to remain scrupulously neutral. (If I were a ‘normal’ superdelegate, my only criterion would be who I thought would make the best president, unless I were persuaded one stood a significantly better chance of winning November 4 than the other, in which case that would be my candidate.) MORE JEWISH HAIKUS J. Kasley offers these, only some of which had I seen before: Lacking fins or tail the gefilte fish swims with great difficulty. On Passover we opened the door for Elijah. Now our cat is gone. Today I am a man. Tomorrow I will return to the seventh grade. Testing the warm milk on her wrist, she sighs softly. But her son is forty. The sparkling blue sea reminds me to wait an hour after my sandwich. The same kimono the top geishas are wearing: I got it at Loehmann’s. Seven-foot Jews in the NBA slam-dunking! My alarm clock rings. Today, mild shvitzing. Tomorrow, so hot you’ll plotz. Five-day forecast: feh A lovely nose ring, excuse me while I put my head in the oven. And. since we’re in an Eastern mode, Mr. Kasley offers some Jewish Buddhism: If there is no self, whose arthritis is this? Be here now. Be someplace else later. Is that so complicated? Drink tea and nourish life; with the first sip, joy; with the second sip, satisfaction; with the third sip, peace; with the fourth, a Danish. Wherever you go, there you are. Your luggage is another story. Zen is not easy. It takes effort to attain no thingness. And then what do you have? Bupkis. The Tao does not speak. The Tao does not blame. The Tao does not take sides. The Tao has no expectations. The Tao demands nothing of others. The Tao is not Jewish. The Torah says, Love your neighbor as yourself. The Buddha says, There is no self. So, maybe we’re off the hook.
There Is A Pattern Here March 11, 2008January 5, 2017 THE TEETERING CREDIT EDIFICE ‘The superstructure of credit is now too vast for the foundation. It must be gradually brought within more reasonable dimensions or it will tumble.’ Yes? No? I put that in quotes but thought it could be fun to give you a little time to consider the source. (Democrat? Republican?) A GRAND OLD PARTY INDEED ‘This is not about morality – this is about winning,’ says Allen Raymond, GOP Consultant, in his new book, How to Rig an Election: Confessions of a Republican Operative. Publisher’s Weekly: ‘Raymond achieved some notoriety when he plead guilty in federal court to jamming Connecticut phone lines in a 2002 Democratic get-out-the-vote effort – small potatoes compared to what he had gotten away with for more than a decade, vividly and hilariously chronicled in this outrageous career retrospective. For 13 years, Raymond worked his way up the ranks of GOP operatives by smearing opponents and worse in campaigns across the country. . .’ For balance, you might also want to pick up, Confessions of a Political Hitman: My Secret Life of Scandal, Corruption, Hypocrisy and Dirty Attacks That Decide Who Gets Elected (and Who Doesn’t) by Stephen Marks, another Republican operative. Publisher’s Weekly: ‘Marks’s tone and language drip with sleaze heightened by passages about his womanizing. In fact, that and often poor treatment of candidates and staff members might lead readers to conclude that Marks fell lower than his clients. Marks has written an important book that fills a gap in the popular literature about American politics, but it is not a pleasant read.’ Okay, so that’s not exactly balance. But in recent years – say, from Nixon’s attempt to bug Democratic National Committee headquarters through the subversion of the 2000 election by people like Katherine Harris, who supervised the process even as she served as Florida co-chair of the Bush campaign . . . and the Swiftboating in 2004 . . . and the politicization of the Justice Department to subvert the 2006 elections (ultimately firing 9 U.S. Attorneys who had the integrity not to play along) – I think the Republicans really dominate this field. And my preference would be to see us never give them any competition. (The occasional indictment might be in order, however.) SO? HAVE THEY PARDONED GOVERNOR SIEGELMAN? Speaking of subverting Justice, did you find time to watch the ’60 Minutes’ report I wrote about a couple of weeks ago? Every day that goes by without this man being released from prison with an apology digs the hole of Republican dishonor deeper. If that sounds pompous or sanctimonious, you haven’t watched the report. Has no one in the White House a television set? UPSIDE DOWN TEXT If I only I knew the html command for ‘upside down’ text, this would be showing up like the answers to the brain teasers in My Weekly Reader. Anyway, the source of the market commentary at the top of the page was neither Democrat nor Republican but Federalist – yes, I am still listening to the life of Alexander Hamilton – and he wrote those words, as Treasury Secretary, to William Seton of the Bank of New York in 1792 on the brink of a financial panic. Some people were ruined (perhaps most notably a wealthy, prominent friend of Hamilton and junior founding father named William Duer who spent the next seven years – and then died – in debtor’s prison), but Hamilton engineered some smart psychology-boosting market transactions and our fledgling nation righted itself. The situation today is 10,000 times more complex; but the basic idea may be somewhat the same.
Nervous, Yes; Gorgonized – Never! March 10, 2008January 5, 2017 BOREF There are people who have never seen Casablanca. (No, really.) They will miss this reference. But like the eager young Bulgarian couple (who will be in Captain Renault’s office ‘at eight,’ while he will be there ‘at ten’), we wait . . . . . and wait . . . . . . . . . . and wait. Hollywood being Hollywood, the Bulgarians do ultimately get their exit visa, and (I would guess) make their way to America where they open a highly successful blini chain, send two kids to the University of Michigan, the younger of whom becomes a doctor, the older of whom gets swept up in alternative theater and aromatherapy (and comes up smelling like roses), but I digress. But I have time to digress . . . I have years to digress . . . because if there is one thing we can count on from Borealis it is perpetually good news . . . but no actual well, er, sales. And yet. And yet. Here is the latest re Borealis subsidiary Chorus Motors subsidiary WheelTug, from Flight International. And here is the latest re all those millions of tons of Canadian iron ore we own via Borealis subsidiary Roche Bay. If either or both these pieces work out over the next few years, as I continue to believe they may, we will ultimately be well rewarded for our patience. If not, then – writing down the entertainment value of it all to zero – we will have lost money we could truly afford to lose. RICE-A-RONI Many moons ago (well, 107, to be more or less exact, there being 29.53 days in your average lunar month and this having taken place July 9, 1999) I wrote about the Hungersite. Every time you clicked, you caused 3 cents to be donated to combat world hunger. We’re all against world hunger, but at 3 cents a click (it was described as ‘a meal’ not as 3 cents) . . . well, not only could your time be better spent, the site could even be harmful if it led someone to think ‘he had done his bit’ by, say, contributing a meal to a hungry person every day of the year. Because all that effort would really have amounted to only ten bucks or so (365 x 3 cents), which would be on the low side of all but the skimpiest annual charitable budgets. Then again, the site may have raised awareness of the problem, and every little bit helps. Now comes this iteration (new to me, anyway), freerice.com, with the twist that it’s a vocabulary game – and you cause 20 grains of rice to be contributed for every right answer. Again, for people bright enough to know that fecundate means fertilize – and to guess that gorgonize (a word they’ve never heard of) is more likely to mean petrify than any of the other three choices – this cannot be a great use of their time. Then again again, neither is web boggle such a good use of time. And if I had a nickel – or in this case if a hungry villager had 20 grains of rice – for every time I played web boggle, Mauritania would by now be a First World country. (At freerice.com, I reached 320 grains of rice without error, but then guessed that ‘wapiti’ was a ‘seaslug’ when in fact, as any moose knows, it is an elk. At which point – two seconds ago – I quit playing. Bon appetit.) PS: To say freerice.com may be of interest to high schoolers preparing for the SATs would be to the obvious as (a) obtuseness is to opacity; (b) honey is to bees; (c) honey is to bears; (d) batting practice is to ballplayers. The ads displayed while I was playing were for musical instruments. Who drives the purchase of musical instruments? Kids in the band! Something tells me there may never be a lot of ads on freerice.com for football helmets.
Ah, the Smell of Carbon Paper in the Morning March 7, 2008March 10, 2017 THE QUICK BROWSE FIREFOX JUMPS OVER THE LAZY BLOG Okay, 83% of you got it – and 17% of you are . . . so young! Once upon the time, you see, there were typewriters and, as one of you reminisced in the comment field, ‘Ribbons. Correction fluid. Keys that stuck if you typed too fast. Forms in triplicate with carbon paper between the sheets. Ah, good times, good times…’ (Several others of you correctly noted I had it wrong – I had ‘JUMPED’ when it should be ‘JUMPS.’) Wikipedia explains it all better than I can: “The quick brown fox jumps over the lazy dog” is a 35-letter pangram (a phrase that uses all the letters of the alphabet) that has been used to test typewriters and computer keyboards because it is nicely coherent and short. It was known in the late 19th century, and used in Baden-Powell‘s book Scouting for Boys (1908) as a practice sentence for signalling.[1] In later years, the phrase was popularized by Western Union and the Telephone Company to test Telex/TWX data communication equipment for accuracy and reliability. It was often used for testing the teletype services (a procedure known as “foxing”) . . . Many minor variations exist, including replacing one of the “the”s with an “a”. Although it is the most popular, many other sentences are shorter and use each letter of the alphabet, such as “The five boxing wizards jump quickly.” ☞ So it was a play on that. All in the cause of promoting the new Quickbrowse for Firefox. (Another of you commented, ‘I love QB, and I do use Firefox.’) Thanks for all your other wonderful comments as well. (‘Elmer Bittleston, my typing teacher in 1956, taught me this to check out all the keys.’) (‘It helped that in 9th grade Miss Rhodes, the typing teacher with large firm breasts, walked around the room while we were typing that and smacked us with a 12″ wooden ruler.’) (‘And you should read a great book, Ella Minnow Pea.’) This survey thing is fun. Of course, the other famous typing sentence is this one: “Now is the time for all good men to come to the aid of the party.” Do you know who said that? (Obviously, a long time ago, or would have been ‘all good women and men . . . ‘) Patrick Henry? Andrew Jackson? Teddy Roosevelt? No, it was Charles Weller in 1867, a court reporter whose pal Christopher Stoller had invented the first workable typewriter. Which brings us – the aid of their party – back to politics. DELEGATE COUNTER Slate offers you this handy gadget. WEEKEND VIEWING Tuesday’s endlessly long column included this link to a ’60 Minutes’ piece on the group of volunteers who have begun offering free weekend health care clinics in America as they do in the jungles of the Amazon. I can’t imagine many of you found time to watch it; but with the weekend coming up, maybe you now can.
The Rules Rule March 6, 2008January 5, 2017 THE QUICK BROWSE FIREFOX JUMPED OVER THE LAZY BLOG* The new Quickbrowse for Firefox is up at quickbrowse.com, together with a one-minute demo video. Because it’s integrated as a Firefox add-on, it works with almost all Web sites – saving time by combining any sites you visit daily into a single combined page. All free, of course. * It occurs to me some of you – perhaps most of you – may have no idea what this headline refers to. And I’m curious to know. So here is the world’s shortest (one-question) survey – designed with SurveyMonkey.com in two minutes – to find out. Please click here to let me know. Thanks! WHAT NOW? Jill: ‘What is the DNC going to do to solve the Florida/Michigan problem that its rules contributed to?’ ☞ We’re going to do the only possible thing: Stick to the rules (unless both campaigns agree on how they’d like them changed). These are rules everyone agreed to before the game started – and before anyone knew which states (if any) would break them or which candidates would thereby be disadvantaged. The rules do allow either state to do a re-vote . . . the DNC can’t force them to – or not to. Here‘s the background posted a few weeks ago. But here’s the thing to focus on: we have two superb candidates. The Democratic turnout has been amazing. If we keep our eye on the ball – and come together when the primary is over, as our two candidates have pledged to do, regardless of the outcome – we will win the White House in November, widen our hair-thin majority in the Senate, stanch the rightwing slide of the Judiciary, and begin to get America back on a progressive, hopeful track. It would have been good to have the presumptive nominee sooner. But June – the likely endpoint – is time enough. That’s when Bill Clinton clinched it in 1992. NOT THAT THERE’S ANYTHING WRONG WITH IT Can I say one thing? Every time I hear one or the other of the two candidates confirm that Barack is not a Muslim, I keep expecting them to say, ‘Not that there’s anything wrong with being Muslim. The vast majority of America’s millions of Muslims are hard-working, patriotic, tax-paying citizens like the rest of us.’ Maybe that goes without saying – but I thought I’d say it anyway.
Tips and Dips March 5, 2008March 10, 2017 TIPS Prasanth Manthena: ‘I’ve been actively buying TIPS for over six months because the housing market and threat of inflation had/has me worried. I tried to balance my fears out as well with the dollar and inflation by also buying T. Rowe Price’s International Bond Fund. Holding cash as some have suggested seems really scary with the prospect of inflation so bad that TIPS yield less than zero now, as you pointed out yesterday. Both funds have done well but now maybe both of them are not safe bets either. This is a scary time as nothing really seems safe even after the financial shocks should have created areas where value should be found. I wasn’t able to glean from your post yesterday what you would do with TIPS – i.e., if you had them in a fund like Vanguard’s?’ ☞ When I first suggested them, the long-term TIPS yielded about 4% above inflation (more than twice what they yield now). To me, it was a pretty easy call, at least as a core holding in a retirement plan. And I made the case for buying the longest term TIPS (which at the time was nearly 30 years). By now, with the ample appreciation they’ve enjoyed (both from the inflation adjustment and the rising price of the bond), they represent about half my mom’s IRA. Would I buy more now? No. Would I sell? I’m torn. In my own retirement plan, I did sell, hoping to sit on cash until some irresistible opportunities come along. Whether with hindsight that will have proved smart remains to be seen. So far, I’d have been smarter holding onto the TIPS. Short-term TIPS, meanwhile, may not yield much, but they do rank high in terms of safety. I think you can sleep pretty well with your Vanguard fund. DIPS George Hamlett: ‘If you haven’t seen this from the London Telegraph [‘The Federal Reserve’s rescue has failed’], you really should consider it. The bottom is not yet in sight, and maybe not even close. Evans-Pritchard may be something of an alarmist, but he’s not a fringe voice.’ ☞ George is right; the link is worth clicking. Getting out of this box will not be easy. Gloom! Doom! We need something to lighten things up. How about an original limerick? There once was a trader from Bristol Losing money by hand over fistful He said with a moan As the bank called his loan ‘Watch me blow out my brains with this pistol!’ No, wait. That’s not good. How about: Roses are red, Forsythia, whitish; The future will really be brightish! That’s the ticket. This too shall pass.
Less Than Zero And, Eventually, the Good News March 4, 2008March 10, 2017 Let’s start with these two data points . . . Item: INFLATION FEARS – As my great friend Joe Cherner pointed out to me yesterday, the 5-year Treasury Inflation Protected Securities (TIPS) are now yielding less than zero. (Click the link and scroll down.) That is, they promise to pay 2% a year interest . . . but so concerned are folks about inflation that they were yesterday willing to shell out $1,084 for each $1,000 bond. On April 15, 2012, when the bonds mature, yesterday’s buyers will have lost a hair more on each bond – $84 – than they will have received in interest payments from it. That’s why the yield works out to less than zero. Except that the face value of these bonds is inflation adjusted. And that’s why people are paying so much for them. The math is a little complicated, but it all boils down to a return of ‘three-hundredths of one percent below inflation.’ And to some, being protected against ‘all but three-hundredths of one percent of inflation’ seems pretty attractive these days. With the Fed flooding the financial system with money, and with the US dollar sinking against foreign currencies, rising inflation is likely. Not good. Item: CREDIT FEARS – As another great friend pointed out to me yesterday, S&P and Moody’s last week both reaffirmed their triple-A ratings of the bonds of a company called MBIA, an insurer of those ‘collateralized mortgage obligations’ that have everyone so spooked. And yet (here was my friend’s punch line), MBIA’s bonds yield 14%. See? The rating agencies are saying, ‘Not to worry – MBIA is a top quality credit. Triple-A. Highest rating there is.’ The market, demanding 14%, is saying, ‘You have got to be kidding.’ This is important, because if MBIA is a triple-A credit, then the bonds it insures are triple-A. If MBIA is dropped down a few notches, so too many of the bonds it insures. (How did S&P and Moody’s come to reaffirm MBIA’s triple-A rating? I have no idea. But I am reminded of Roger Lowenstein’s wonderful Sunday Times Magazine piece recently in which he describes how, to get then Fed Chairman William McChesney Martin to lower interest rates, LBJ allegedly slammed him against a wall and physically beat him.) With home prices falling, foreclosures rising, and a recession looming, there is the fear of a vicious cycle: more foreclosures leading to further home-price declines leading to worsening consumer confidence, a deeper recession, and . . . Not good. What are we to draw from these data points? First, that this is an even better time than usual to live beneath your means . . . to save for a rainy day . . . to diversify . . . to keep your transaction costs low . . . to take risk seriously . . . to expect lower interest rates but higher inflation which leads to higher interest rates which leads to more business failures, deeper recession, and lower interest rates . . . in short, a roller coaster ride. The world rarely ends, so this will ultimately be a column of good news, but first it does appear that the chickens, as they had to, are indeed coming home to roost. We laughed at Europeans in their funny little cars as we drove ever bigger and bigger SUVs . . . but guess who’s going broke? We looked the other way when homes and condos were rising to crazy heights and mortgage lenders were making ‘no doc’ loans and ‘liars loans’ – loans the Fed and other regulators could easily have tamped down but didn’t. We borrowed massively to cut taxes on the rich and then to finance an ill-conceived war, taking our National Debt up from under $1 trillion (about 30% of GDP) at the start of Reagan’s first term to $10 trillion (nearly 70% of GDP) by the end of George W. Bush’s. We allowed the gap between the rich and everyone else – and the ranks of the uninsured – to chasm. (Did you see this past Sunday’s ’60 Minutes’ piece on the group of volunteers who have begun offering free weekend health care clinics in America as they do in the jungles of the Amazon? It will leave you shaking your head in sad disbelief.) We watched – or, rather, didn’t watch – as Wall Street paid itself gigantic bonuses for creating securities and taking risks whose magnitude we do not yet know. (But we do know that when the CEO exited a hemorrhaging Merrill Lynch, he left with $161 million in cash and benefits.) And as long ago as 1974, we stamped our foot at the notion of increasing the gas tax by a dime a year, forever (and using that flood of revenue to lower the income tax, so we would be taxing the thing we wanted to discourage while reducing the tax on work and investment that we wanted to encourage). Yes, this would have sent the price per gallon to $4 by 2008 . . . but it got there anyway. The difference is, had we launched this in 1974, spurred on by OPEC’s quadrupling the price of oil, our vehicles would today get 80 miles to the gallon (so the cost of driving a mile would actually be lower in real terms than it was), Detroit would lead the automotive world, our trade deficit would be far lower, our dollar stronger, our air cleaner, our families more prosperous, our military less entangled, and more.* *I blame Detroit, specifically its top executives. I blame the oil companies and their lobbyists. I blame our political system. I blame the woman I saw on TV screaming hysterically when Clinton raised the gasoline tax 4.3 cents a gallon – it was gonna kill her, she wailed. I blame the TV reporter on that story for not immediately pointing out she was being an idiot . . . that this tax hike would cost her just $36 over the course of a year . . . and that she could easily avoid it altogether just be making sure her tires were properly inflated. I blame myself for not advocating for the dime-per-year-per-gallon tax even more strongly. So here we are . . . and here, now, the good news . . . Begin with this delightful perspective from the New Yorker: . . . A few minutes later, it was Arthur Gray on the line, from the Virgin Islands. Gray, who is eighty-five and a money manager at a firm called Carret, has been in the game since 1945. Age and experience incline him to the long view. ‘As Herman Kahn pointed out, two hundred years ago almost everyone was poor,’ he said. ‘Today, somebody on welfare in our country lives better than a maharaja did two hundred years ago. The maharaja had two hundred slaves fanning him; today, you push a button and have air-conditioning. So, as Kahn said, two hundred years from now everybody will be affluent. I think it’s a wonderful world. I can’t call this thing more than a hiccup.’ We have, I think, at least four macro forces going for us. First, of course, we are a hard-working, ingenious people. Our political and economic system is flawed, but it’s still about the best there is for adapting to changed circumstances. Second, the dollar has sunk so low, with no end necessarily in sight, that America is on sale – 40% off! There should be increasing demand for our goods and services (good for employment) and a market for a lot of our assets. (Sell your condo to a foreign investor and then rent it back from him?) It won’t be fun seeing some of our premier companies and real estate being bought up by overseas investors. But we insisted on trading our dollars for gasoline and VCRs, and now the gasoline has been burned up and the VCRs dumped in landfills, but those dollars – I.O.U.’s – are still out there. They may be redeemed by buying stuff. As a practical matter, this may help put a floor on some real estate; may help keep our stock market from falling as far as it otherwise might. Third, we will have a new President soon who may be able to sweep into office much as Reagan did, when things were also precarious (nearly unprecedented inflation married to nearly unprecedented unemployment, with no way out) and infuse us, and our neighbors around the world, with confidence and hope. Psychology can be self-fulfilling (all we have to fear is fear itself), and markets have as much to do with psychology as with economics. (But economics matters, too, so the next President will, I hope, make the kinds of smart decisions Bill Clinton did, not repeat the disastrous ones of the past seven years.) Fourth, there is technology. Faithful readers may recall Ray Kurzweil’s prediction that technological progress will be 32 times as rapid over the next half century as over the last. There are all sorts of perils in this; but also the potential for a tremendous wave of prosperity that will lift billions of boats, and overwhelm (in a good way) today’s seemingly intractable economic problems. The sun will come out tomorrow. But maybe not literally tomorrow.