At Least We Should Try

SOUTH PACIFIC

I don’t usually miss a Frank Rich column, but I missed this one. Turns out, he got choked up, too. (Thanks, Paul.)

EARTH 2100 – NEEDLESSLY ALARMIST?

Andy Long: “I have five words (well, two names and three words): Ricardo . . . Malthus . . . Club of Rome.”

☞ Let’s hope they were wrong and not just early. And actually, isn’t the larger point that human ingenuity rose to the challenges – we found ways to farm more productively, extract more effectively – and that, with luck and lots of good judgment and hard work, we still will? But it just won’t “happen,” we need to make it happen. Which is why we need to see the challenges for what they are (crises? inconvenient truths?) and then come together in devising and accepting solutions. It’s not clear we’ll succeed – tax cuts seem about the only “solutions” to anything we readily accept – but, inasmuch as civilization hangs in the balance, we should probably try.

WHEELTUG®

Dudley: “In view of the length of time that you and, by extension, all of your readers have been following the saga of the Wheel Tug, I don’t think there is any need to let us know your thoughts on this conundrum anytime soon: what can possibly be the reason the airlines are not immediately embracing the Wheel Tug in order to capture the obvious cost savings? I think I speak for legions of readers who would sure like to know.”

☞ You speak for me as well. I think partly they’re skeptical the WT management can pull this off (where, for example, is a single plane with such a motor actually installed and working?) and don’t see it as their role to provide the capital still required to bring the motors into production . . . partly because airplane makers suffer as much as anyone from the “not invented here” syndrome (winglets were the same story and took forever to be adopted) . . . partly – perhaps – because by making inefficient planes more economical it extends their useful life, which cuts down on the demand for new airplanes, which is what airplane makers are in business to sell.

CRTX

Mark Klein: “Cornerstone is up nicely. Is it time to unload?”

☞ Suggested here by Chris Brown of fledgling Aristides Capital at $3.80 in April, CRTX closed last night at $8.47. It’s always nice to more than double your money in under two months, so of unloading here, Chris responds, “There’s certainly no sin in doing so. I still like it better than the market, so I’ve kept some. It’s all a matter of valuation. I think it’s going to earn $1.20 in 2011, and I think it is going to continue to have the sort of stable eps growth that will garner about a 14 multiple on that, so that would make fair value about $16.80 two years out. My plan is to hold it, at least until we are late into an earnings season and I have so many good new ideas that have the potential to make money quicker that I need to make space in the fund, at which point it would probably be first on the list of long-term positions that would be cut.”

BILL GROSS’S LATEST OVERVIEW

Here. Two short excerpts (it’s worth reading the whole piece):

. . . The fact is that supply-side economics was a partial con job from the get-go. Granted, from the 80% marginal tax rate that existed in the U.S. and the U.K. into the late 60s and 70s, lower taxes do incentivize productive investment and entrepreneurial risk-taking. But below 40% or so, it just pads the pockets of the rich and destabilizes the country’s financial balance sheet. Bill Clinton’s magical surpluses were really due to ephemeral taxes on leverage-based capital gains that in turn were due to the secular decline of inflation and interest rates that at some point had to bottom. We are reaping the consequences of that long period of overconsumption and undersavings encouraged by the belief that lower and lower taxes would cure all.

. . . The obvious solution to both dollar weakness and higher yields is to move quickly towards a more balanced budget once a sustained recovery is assured, but don’t count on the former or the latter. It is probable that trillion-dollar deficits are here to stay because any recovery is likely to reflect “new normal” GDP growth rates of 1%-2% not 3%+ as we used to have. Staying rich in this future world will require strategies that reflect this altered vision of global economic growth and delevered financial markets. Bond investors should therefore confine maturities to the front end of yield curves where continuing low yields and downside price protection is more probable. Holders of dollars should diversify their own baskets before central banks and sovereign wealth funds ultimately do the same. All investors should expect considerably lower rates of return than what they grew accustomed to only a few years ago. . . .