86 HANDBAGS LEFT ON THE WALL, 86 HANDBAGS ARE LEFT . . .
. . . if one of those handbags should happen to fall, 85 handbags are left on the wall. Here‘s the website where you can read about the woman who made your bag. Here‘s where you find out how to buy one for your mother, daughter or bride at 20% off the already-too-low price. ‘While supplies last.’
BOROWITZ TAKES A SHOT AT OBAMA
CNN TAKES A SHOT AT BUSH
Up from $83 to $200 since April . . . if you haven’t already sold perhaps a third of it or so, I would. But I’d hang on to the rest.
TREASURIES, TIPS AND MUNIS
A friend who specializes in the ‘long bond’ says he’s never seen anything like it. Look at this chart to see the gap in what the bond was yielding Wednesday to where it opened Thursday (with yield continuing to fall from there). This is not business as usual. People are scared. There is an extreme flight to safety going on (no news there, obviously, but still). Even tax-free triple-A ‘general obligation’ municipal bonds (the ones backed by the full taxing authority of the state or city) – bonds which you might expect to be attracting interest from wealthy investors worried about an impending hike in their tax rates – are offering a dramatically higher yield than Treasuries, 5.14% for the 30-year muni versus 3.57% for the 30-year Treasury. Usually, munis yield less than Treasuries. People are worried that states and cities will go bankrupt. And here’s one: the 5-year Treasury yields 1.98% to maturity, while the 5-year inflation-adjusted Treasury (TIPS) yields 2.36%-plus-whatever-inflation-there-may-have-been-between-now-and-five-years-from-now (even if some deflation comes first). There may be other explanations for this (like the relatively small size of the TIPS market, or investors’ lack of familiarity with them), but one explanation is just that people don’t want to take the time to be clever, they just want to be safe.
THE REALLY IMPORTANT THING
For all the economic turbulence ahead, one core principle is worth highlighting. Having millions of talented, willing workers idle – whether in the U.S. or Mexico or China – can’t possibly help when there’s so much that needs doing in the U.S. and Mexico and China (and everywhere else).
Mindless massive deficits can’t do us any good. But purposeful massive deficits focused on productive ends – like building tens of thousands of windmills and an electric grid to support them to save $700 billion we would otherwise need to send abroad each year – those are deficits that will employ millions of people and provide a return on investment for as long as the wind comes sweepin’ down the plain. (We know we belong to the land . . . and the land we belong to is grand . . . but I digress.)
I am oversimplifying. It’s not just windmills. And finding reasonable ways for government to help without disincentivizing private enterprise or skewing the free market too badly is unquestionably a challenge. But does anyone doubt that the massively expensive Interstate Highway System was a good investment? The same would be true of energy independence. And a great time to make such a big investment is when there are talented, able-bodied people with nothing else to do.
Another example – if harder to quantify its payback and doubtless thornier to effect – would be redirecting a million talented, college educated people losing their jobs in department stores, brokerage houses, and auto dealerships (for example), toward an educational Marshall Plan. At its core, our future rests with the talent, health, and character of our kids. (Check out Democrats for Education Reform. Check out Harlem Success Academy. Check out PS 65Q.) I’ve been telling folks I want to see Bill Cosby named Secretary of Education. But maybe it should be Colin Powell. Either way: I’d love to see a hugely high profile appointment, because nothing is more important.
The Federal Government has no separate ‘capital account.’ It treats $1 spent on rations for the troops – necessary, but here today, gone tomorrow – the same as it treats $1 spent on a windmill that will last 30 years or aid to education that will last a lifetime.
We need to do all we can not to borrow for ‘operating expenses,’ just as you or I should not borrow to buy dinner. But if you’re borrowing to buy a sewing machine that will allow you to start your own little business, or borrowing to get an education – that’s okay. Indeed, nervous-making, but more than okay – in the long-run, that’s the borrowing that offers the promise of a brighter future.
So the really important thing to keep in mind these next few years, I think, is not the size of the deficits incurred here and abroad (they will be huge, and should be); but to make sure they are incurred with a clear purpose, for investments in our future that cry out to be made.
Quote of the Day
Years ago, in the Carter term, a stockbroker tried to explain what Schlumberger did. 'It goes to 100,' the broker said, exaggerating only a little bit. 'Then it splits three-for-two and goes back to 100 again.'~GRANT'S Interest Rate Observer
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