Global Bi-Partisanship Needed

Republicans often argue that less regulation is always better.  Democrats are often seen arguing that more regulation is always better.  Sometimes, they are both right!

For years, during the Bush II administration, financial deregulation was a sacred objective.  Not surprisingly, the economy boomed, and the financial sector eventually became 22% of GDP.  Also, not surprisingly, a little deregulation soon became too much, financial deregulation became financial innovation, and we soon had the Crash of 2008.  (The subprime mortgage-backed-securities market would not have been even remotely possible during the 1990s.)

One of the really useful but really dangerous financial innovations was the explosive growth of credit default swaps.  If I loan money to somebody, I might get worried that person will not or cannot repay me.  Rather than risk losing the entire amount I have loaned, I might be willing to pay somebody else to take the risk of default.  So, if the borrower cannot repay me, I will still be repaid by "somebody else."  He was paid to take the risk that the borrower might default, i.e., the risk of credit default was swapped for a fee.

There have been many minor instances where the lender was repaid by the third party who had accepted the fee.  But, far and away, the biggest instance was the sudden failure of Lehman Brothers in September of 2008.  Credit markets froze up around the globe as a result.

The Republicans are right that the market is self-regulating.  Since then, investment banks and hedge funds have worked closely with the International Swaps & Derivatives Association (ISDA) to create real, legally binding procedures, more clearly defined what is actually a credit event, and written down the rules for settling contracts.  (It is hard to believe these basic rules did not exist prior to 2008!)

Largely because of this increased self-regulation, the credit default of Greece caused minimal problems.  Unlike the sudden Lehman collapse, the long lead-time before the Greek default also gave the swap markets time to prepare. The total of $70 billion was finally netted out to "only" about $3.2 billion.

The Democrats are right that more is needed.  The primary reason the credit markets froze up after Lehman's collapse was that nobody knew who owed how much to whom.  Would you loan overnight funds to another bank if you had no idea whether or not they were on the hook to pay out billions of dollars in swaps?  Of course not, because you might not get repaid.  Part of the massive Dodd-Frank bill requires all swaps to go through a central clearinghouse, so we will know who is "holding the bag" or the credit risk.  This is a good thing!

The problem is that this must be international.  If we create transparency in the U.S., investment banks and hedge funds will just enter into swap agreements in Europe and elsewhere.  This means we remain vulnerable to the problem of the Lehman collapse or another financial heart attack.  And, we will remain vulnerable until the Republicans and Democrats work together to implement this part of Dodd-Frank world-wide!

What . . . We Agree ???

One of my favorite conferences each year is the annual Policy Conference of the National Association of Business Economics, which starts today in Washington.  This is the first time in many years I have missed it and already regret missing it.

One of the opening events is the release of the latest member survey.  What strikes me as unusual with this new survey is the remarkable agreement among the members.  It is normally hard to pick the right adjective for economists when the choices are  "arrogant" and "confrontational," but neither is appropriate this time.

87% think tax increases have to be part of any realistic program to reduce the deficit.  (If it is true that Eric Cantor refused Obama's offer of $10 in spending cuts in exchange for every $1 of tax increase, I will be contributing to Cantor's opponent.)  

70% believe serious reform of our 70,000 page tax code is a top priority.

83% favor construction of the Keystone pipeline.

67% favor the "Volcker Rule," which would limit the ability of banks to risk their own capital in certain types of trading.

Such a high degree of agreement among economists is a good sign.  Now, if we can only get that kind of agreement among the elected children in Congress . . .

It's Only Been 46 Years

I bought my first share of stock in 1966.  Since then, there has never been one day that somebody wasn't predicting the sky is falling.  Of course, the sky does fall sometimes, like in 1929 and maybe in 2008.  But, it doesn't fall everyday.  Just because the S&P 500 fell half of 1% last week -- doesn't mean the sky is falling.

Last week might be psychologically important, because it was the first down week this year.  The Chinese PMI (manufacturing index) was below expectations, meaning there was new evidence that the growth engine of the world was not growing as fast as before . . . even though China's leadership said it WANTED to slow down its growth, in order to forestall inflation.  Then, mining giant BHP Billiton warned of slowing demand from China, affirming the PMI report.

Next, we learned the European Union PMI was also below expectations.  This may mark a new chapter in Europe, which may now focus more on growth and less on austerity, as suggested in this blog months ago.  (More ominously, Spanish bond yields started rising, suggesting it has not been as successful as Italy in strengthening its balance sheet.)

As the world began to see the U.S. last week as more of a growth engine, they started buying dollars, which increased the value of the dollar, which in recent history, has invariably hurt the stock market.

Did anybody notice that unemployment claims were less than expected last week or that Norfolk Southern said rail demand was greater than expected -- neither did Wall Street.

Most importantly, bull markets are never a straight line up.  It will pause every few months to consolidate before resuming its climb.  We are on a plateau for now.  Every day, we will nonetheless hear sirens of a pending crash, just like I've been hearing for 46 years.

Heads, I Win . . . Tails, the Shareholders Lose

Many analysts have concluded the global financial crisis resulted from bond salesmen who were simply working their incentive plan by selling mortgage-backed-bonds secured with subprime mortgages, which created large losses around the world.  How many have you seen doing the "perp-walk" when arrested?  The answer is NONE.  They made millions.  When things went bad, they walked away as winners.

Readers know I have long argued that we are over-regulated but under-punished.  The easy solution to every problem always seems to be yet more paperwork.

Brazil seems to have reached that conclusion as well, as they have just charged certain executives of Chevron, who live in that country, with criminal acts related to an offshore oil spill last November.  Now, I see no justice in charging a CEO who was unaware of the problem, but what about the executive who would benefit most from bringing in the project on time and within budget?  That executive could be motivated to cut corners.

HEADS -- If he cuts corners and succeeds, his career is enhanced.  TAILS -- If he cuts corners and fails, his company (and its shareholders) suffer, while the executive just moves on to another company.  There is more inconvenience to the executive than real downside risk if he cuts corners.

Proving criminal negligence is very difficult in a courtroom, but the stronger the probability that the executive will face legal charges, the less likely he will be recklessly cutting corners.  Staying out of court will motivate a person, just like an incentive plan . . . maybe more.

So, another law saying, for example, "Thou shalt not pollute" is unlikely to prevent reckless risk-taking.  Sending in experts to determine who made the reckless decision and publicly humiliating them is much more likely to protect the environment or whatever.

Civil rights lawyers rail against this approach, citing such examples as the security guard wrongly accused of the bombing at the Atlanta Olympics.  Should a serious, impartial investigation not be made of a reckless decision?  If evidence is found, shouldn't the reckless decision-maker/executive not be charged?  Why punish the company and its shareholders but not the decision-maker?

 Of course, lawyers benefit from the increased paperwork of increased regulation.  

"Once-In-A-Generation" . . . ""

The legendary and powerful Wall Street firm of Goldman Sachs made an interesting investment call this morning.

Yes, this is the same firm that was slimed by a former employee in The New York Times last week, setting off a firestorm of suspicion and hostility toward the firm.  He alleged the firm was, to be kind, ethically-challenged, referring to its clients as "muppets" to be fooled and fleeced.  Readers will recall that I do believe the allegations.  While I have no love nor respect for Goldman, I have great respect for their research.

Today, they stated that this is a "once-in-a-generation" opportunity to buy stocks!  They believe the long rally in bonds is finally over, and money will be forced into stocks, driving up the market.

A long-running theory of investment management is the "odd-lot theory," which suggests you should always invest in the opposite direction of the small, retail investor, who sometimes cannot afford a full 100-share lot or order and must buy odd-lots or a few shares.  Last week alone, these retail investors pulled $126 million out of stock mutual funds and put $10.7 billion into bond mutual funds.  (Bond mutual funds are almost certain to lose money when interest rates rise.)  Wall Street refers to this as "dumb money."

The rising stock market could only happen if new money was coming into stocks.  It has risen this year but the new money is not from the retail investor, who is still shell-shocked.  It is coming from "smart money," i.e., hedge funds and institutional investors.  If Goldman is right and if the retail investor remains out of the market, the divide between the 1% and the 99% will only get bigger.

My feeling is that the bull has indeed returned and that it is time to increase exposure or allocation to stocks.  That is not the same thing as saying "once-in-a-generation."  The bull is here.  Let's just enjoy the bull run for now and be prepared to get out of the way when the bear returns . . . in our lifetime . . . or even a few years, but not right now.

Google's Motto is "Do No Evil". . . ???

If you go to Google and type in the word "privacy," you can learn a great deal.  Its a shame Google doesn't do this . . . to learn what the famed jurist Louis Brandeis called "the right to be let alone."

Google makes money selling advertising.  The more targeted the advertising to particular users, the more revenue Google makes.  So, Google collects huge amounts of personal data about users.  They are currently under investigation for violating their own published Privacy policy in both the U.S. and Europe.

Now, they are also under investigation for spying on users of Apple's Safari browser software . . . a big deal to Apple users.

Some people, mostly young people, don't understand what the big deal is.  With this loss of privacy, the advertising they see is more tailor-made to their interests.  Isn't that a good thing?  Why should they be concerned with privacy anyway, since they have nothing to hide?  Since they have never known privacy, they don't know what they have lost.

Repeating myself, I was annoyed when Google informed me I could no longer post this blog until I downloaded their internet browser, Chrome.  All those years of work on this blog would have been lost.  Of course, subscribers used to receive copies within minutes, before Chrome was installed.  Now, after Chrome, it might take 24 hours for Google to send out the emails, which means I can no longer write anything too time-sensitive.  Grrrr . . .

It is called "data-mining" when companies spy on you online, and it is legal.  But, is it any different than hiring a private investigator to follow you?

Some languages, like Russian, don't even have a word for privacy.  Not every nation had jurists like Brandeis.  Fortunately, we do . . . or did.

Two-Speed Housing Market

A good friend of mine faithfully forwards each issue of The Kiplinger Lettter which I have studied for many decades now.  I like this newsletter because it is clear, concise, and non-partisan.

The current issue is unusually interesting.  Even though the average price of homes is expected to drop another 2% nationally this year, home prices have already been on the rise for a year in 38 states.  There are five states that are pulling down the national average.  Those states are Arizona, California, Florida, Michigan, and Nevada.

The common denominator for those five states is that they all use "judicial review" before a home can be foreclosed.  As a result, there is a huge over-hang of properties to be foreclosed and to be dumped on the market.  This depresses the market and prevents the free market from operating to clear the over-hang.

That is another "green shoot" of good news for the home market!  It is time to tell your kids to go buy their own home and to get out of your home!

Of course, I just received my annual notice from the City Assessor that my home lost almost 9% of its value last year.  Since this decreases my real estate taxes, I was privately told by a City Councilman that an increase in tax rates is coming soon.  Does that mean the tax rate will go down next year when my home starts increasing in value again?

Getting Past Losing

One of our basic values is that the lazy should not be rewarded with the earnings of people who work.

However, we have a poor, elderly relative, who is married to a husband who will not work.  When her health finally failed a year or so ago and could no longer work, we thought her husband would finally be forced to get a job.  We were wrong!  We wanted to help financially, but only if he was willing to do his share . . . by finally taking a job.  He never did, of course.

One of the most important lessons for every investment manager is NEVER, NEVER fall in love with a stock, because, sooner or late, it WILL break your heart!  That is one of the very few guarantees in the investing world.  Unfortunately, we had fallen in love with our value -- not to reward the lazy.  So, we started looking for ways to help her without concurrently helping him.

Finally, when we learned she had not enjoyed hot water for two months (during the wintertime, no less) we knew it was time to sacrifice that value or suspend it in this case.  The pain of NOT helping her exceeded any joy from adhering to one of our basic values . . . a difficult trade indeed.  When we learned she had no hot water, we knew we had lost.  He won!  What's really important anyway?

Since then, we have wondered why it is so difficult to admit defeat and move on.  Maybe, it is a mere macho win/loss issue.  But, nations are just as guilty.

Was the war in Iraq worth it?  Is the war in Afghanistan worth it?  Any intellectual discussion of those questions is prevented at this time by the emotions on both sides, but it is still the same question:  When will you know you have lost, and it is time to move on?

What has to happen before we accept the fact that the war on drugs is a futile effort, costing thousands of lives and billions of taxpayer dollars?  Even evangelist Pat Robertson thinks marijuana should be legalized.  What has to happen before we admit defeat and move on?

Shouldn't we ask those questions before we go to war and become irreversibly committed?  How do we get past failure?  There is nothing shameful about failure.  Remember:  the definition of a fool is somebody who keeps doing the same thing over and over again but expecting a different result.

When an old lady cannot take a hot bath during the winter, it is clear that some value must be sacrificed or at least suspended.

When we have lost thousands of our American boys, our entire national budget surplus (remember, we had it 13 years ago), and borrowed almost a trillion dollars from China, it is clear some value must be sacrificed or suspended.

When the Chinese won't loan us any more money to build prisons for our young people who use drugs, it is clear some value must be sacrificed or suspended.

Maybe, we should have one day every month when we admit both to ourselves and to the world . . . "OK, that didn't work.  Now, we'll do something different!"

Imagine a world less hesitant to admit defeat.  It would certainly be a less macho world, indeed . . . and more financially sound as well!

Wall Street's Dirty Little Secret

On Wednesday, a disgruntled employee wrote an open letter of resignation to the legendary Goldman Sachs which appeared on the Op-Ed page in the New York Times.  Since then, Wall Street has been obsessed with it.

Goldman Sachs has a long, storied history as an investment firm on Wall Street.  They were always considered "the smartest guys in the room."  They were feared by other firms.

However, the disgruntled employee claims Goldman Sachs has lost its moral compass, that the pursuit of profit is the ONLY thing that matters, that clients are mere "muppets" to be fleeced and fooled, and that this became the corporate culture during the reign of the current CEO, Lloyd Blankfein.

Do I believe this?  Absolutely!

While I have long been critical of the firm and frequently referenced its reputation as a Vampire Squid on the face of mankind, I do have respect for their research.  But, I have never trusted them.

It would be a mistake to assume, however, that Goldman Sachs was the only ethically-challenged investment firm.  When I started in banking decades ago, my annual bonus reflected whether the boss liked me or not.  Then, some management consultants read some Ayn Rand books and argued that people are motivated by money.  (In fairness to Ayn, she never said people are motivated "solely" by money.)  With that intellectual basis, compensation plans were changed.  It had the desired effect, changing the service culture of banks into a sales culture.  It also changed banks from being customer-centric to becoming self-centric.  And, it was painful to watch.

There are a good many people who have been unemployed for four years, sitting on the beach somewhere sipping drinks with tiny umbrellas, who made millions selling the toxic sub-prime mortgage-backed-securities.  All they did was work their incentive plans.  Its not their fault they helped send the American economy into the worst recession since the Great Depression.  They put "lipstick on the pig" and put the pigs into client portfolios.

The moment of truth for me came when I was told to put "structured products," which I refer to as neutron-CDs, into client portfolios.  I soon learned there was another operating model, where putting the client first was not mere lip-service, like it is with ALL investment houses, but is actually a legal requirement, enforced by the courts, i.e., a Registered Investment Advisor or RIA.  That legal responsibility is called a fiduciary responsibility, where my highest obligation is the best interests of the client.  Stockbrokers do not have that responsibility.

I'm proud to be an RIA and don't understand why anybody does business with stockbrokers at investment firms like Goldman Sachs.

Your Weekend Errand

From the late 1970's to the mid 1990's, home prices moved within a fairly narrow range.  Then, they spiked up dangerously.  Today, as indicated by this graph, home prices have returned to the bottom of that range.

With interest rates starting to tick up, that should send potential home buyers back into the market, making this the bottom of the market.  I know there are far too many months of supply on the market now, but the number of months of supply will drop quickly once demand increases even a small amount.

We have survived a stock market crash and a real estate crash simultaneously.  The stock market is recovering nicely.  Now, it is time for the real estate market to recover as well.

Now, if only the labor market would improve . . . at a faster pace . . .

A Guilty Victim

Last Friday, the Department of Labor released the all-important monthly Jobs Report.  Generally, it was better-than-expected, with 227 thousand jobs being created.  (This morning, High Frequency Economic,whom I respect, predicted over 300 thousands being created monthly by late Spring?)  Our U.S. unemployment rate did not drop, remaining at 8.3% of the workforce, because so many previously-discouraged people had re-joined the workforce to look for a job.  Otherwise, it would have dropped.

That afternoon, I read an economic report on Greece.  You know, that is the guilty country who led Europe in the current abyss with its high social safety net and no way to fund it, except for borrowing.  They were flatly irresponsible!

However, they are now facing 21% unemployment, and it is rising rapidly.  During the Great Depression, the U.S. unemployment rate was 25% for only a few months.  Greece will clearly exceed the U.S. rate.  Among young people, the unemployment rate is a volatile 51%.  (Keep it mind, that is the age group most likely to take to the streets and do something stupid.)  Their GDP fell a staggering 7.5% in the last quarter and is still dropping.  As I have written several times, if you have friends or relatives living there, send them a one-way plane ticket.

But, immigration is another problem for them.  Currently, Greece belongs to a pact of European nations that allow free movement between countries.  Unfortunately, Greece is the "Texas" of the European Union with a long, porous border between it and Turkey.  France, which is being over-run with Muslim immigrants, has threatened to withdraw from the pact if Greece does not stop the flow of Muslims into Europe.  With what resources?  Maybe, the unemployed could stand linked arm-in-arm on the Turkish border?

There is a price to be paid for being irresponsible!  Unfortunately, it is not paid by those who can afford it.  The average person gladly received the benefit of a lavish social safety net but must now suffer the collective aftershock.

The first step for Greece was to embrace austerity, which they are finally beginning now.  The second step is to promote growth, which means to liberalize business restrictions, which they must also start immediately.  When  the Greeks emerge from this long prison sentence to Hell, they will be a far better nation.  Guilty or not, I wish them well!

A Head Problem and a Heart Problem

Suppose, God forbid, that the stock market drops 50%.  Suppose unemployment rises from 8.3% to 13%.  Suppose home prices drop another 21% from already depressed levels.  And, suppose this all happens by the end of next year . . .

The Fed just announced another round of stress tests for major U.S. banks.  Generally, the results were surprisingly good, with only four banks failing to maintain adequate capital under such dire conditions.  The Dow rose a hundred points on this news.

Intellectually, this test doesn't give me the confidence that it gives to Wall Street.  The Fed did not attempt to identify and isolate which banks are vulnerable to a derivatives blow-up.  Maybe, it is just too difficult to measure that risk, but it is analogous to a doctor doing an annual physical on a patient and forgetting to check his heart.

Emotionally, it makes me sad that SunTrust was one of only four banks who flunked the test.  Having retired from there and accepting a pension check from them every month, I would like to be proud of them and my past association with them.  But, by the time of my retirement, I felt the bank wasn't as good as the many good and decent people who worked for them.  Now, I know I was right!

Still, I'm sad . . .

Basketball, Options, and the Fed

We were in Atlanta this weekend for an interesting conference, attended by investment strategists, whose idea of athletic prowess would be to draw macro-economic graphs upside-down on drink napkins during a polite barroom discussion on economic policy.

Ironically, we were surrounded by thousands of enthusiastic basketball fans attending the NCAA Tournament whose idea of physical prowess was certainly who could spill the most beer on their college basketball jersey.

Our conference focused on the latest techniques in trading options, i.e., puts, calls, etc.  I don't normally utilize options in my practice, except for "covered calls" to generate some additional income for clients with an income objective.  (I never use "naked calls" which can theoretically create unlimited losses for a client.)  However, there is one new strategy called the "Vertical Index Call Spread" that may be worthwhile for my clients, which I will be studying more.

I was more surprised by hallway conversations during breaks and lunches, which ignored options, focusing instead on the Fed and quantitative easing or QE3.  (I wondered if my profession was evolving from Fed-watching to Fed-stalking.)  More likely, the obsession reflected the fact that the Fed is meeting today (Tuesday).  Their report will be issued at 2:15 this afternoon and will likely dominate trading in the stock markets all day.

I don't expect anything important from the Fed today, as their next forecast will not be until April.  They won't make a big change in front of their own forecast.  Apparently, the stock market disagrees, as Dow futures are now up about 50 points.  If too disappointed by the Fed's lack of action today, traders may lighten up their equity exposure this afternoon, pushing down the stock market before the close.

Most traders (short-term market players) are hoping the Fed will announce more quantitative easing.  You'll recall this is the practice of the Fed buying  more bonds issued by the U.S. Treasury, lowering interest rates and injecting more liquidity into the market.  This invariably pumps up both the economy and the market over the short-term.

On the other hand, most investors (long-term market players) are less enthusiastic about QE, because they believe QE will only increase inflation down the road, especially with commodities like gold, oil, and foodstuffs, like soybeans and corn.

Of course, to all those howling basketball fans, I guess long-term only means the game goes into over-time?  The only inflation they're worried about involves ticket prices and beer.  Frankly, they're a lot more fun than investment nerds!

3:00 PM EST Today

That is when the deadline expires for owners of Greek government debt to either accept or reject a complicated offer to basically write off 53.5% of the face value of the bonds they hold.  (In other words, if I owe you $1 thousand, I will repay you only $465 instead.)

Over half of the bondholders have already announced their agreement.  However, we need 90% acceptance to clearly avoid a default which activates the credit default swaps.

One small advantage to today's action is that we finally get to see WHO actually owns the bonds.  You would expect that would be public information, but you would be wrong.  I fully expect a good number of hedge funds are holding the bonds and voting against the offer, hoping to force a better deal.

More importantly, this will be a good test of the credit default swap markets.  You'll recall the credit default swaps are like insurance.  If I buy a bond and am worried the borrower might not be able to repay, I can buy "insurance" that will pay me if the borrower cannot.  That is called a credit default swap.

After the Lehman collapse in 2008, payment on the swaps was chaotic, to be polite.  The credit markets quickly froze up because nobody knew who was liable to pay the swap or "insurance" claim.  Many commentators have worried that a default by Greece would affect the markets like the default by Lehman.

That will not happen!  As noted in this blog several months ago, those swaps "insuring" Greek bonds are now 90% collateralized.  That means we know who will have to pay the swaps, making the bondholders whole.  The credit markets will not freeze up this time . . . whew!

Still the next bailout for Greece will be closed on March 20th, and there will be a problem at the last minute, with commentators fretting the sky is falling.  The stock market will briefly drop sharply, but don't worry about it!!  This is expected and this too shall pass . . .

The Weight of News

Yesterday, the stock market was ugly, the worst loss since last November, but the question is whether it reflected the U.S. economy or simply the sheer weight of news.  For example, so far this week, we've learned that:

China's growth rate has dropped to "only" 7.5%, ignoring their announcement that they plan to target future growth among consumers instead of of export.

All of Greece's lenders have not yet agreed in writing to the new bailout deal and the deadline is this Thursday, but did anybody expect this deal would close without drama?

Brazil announced their GDP growth rate had dropped to 2.5%, ignoring their comments that there were some temporary weather-related factors contributing to this temporary drop.

Home foreclosures in January surged 28% as the wave of foreclosures delayed by the "robo-signing" crisis began to hit courthouses across the country.

The European Commission forecast a recession in Europe this year, forgetting they are already in one and ignoring their forecast of a recovery in the second half of this year.

The list goes on, but the point is that all this news is heavy and weighs down the market.  Of course, the heaviest news is always the first Friday of each month (yes, this Friday) when the Department of Labor releases its monthly "Jobs Report."  Wall Street is whispering some very large numbers, which means expectations are high that a good number of jobs were created last month.  If that is not the case, then the news will suddenly become much more heavy.  Stay tuned . . .

Does It Matter If You Vote Today?

Since today is the Republican primary and since I sit here with an "I Voted" sticker on my shirt,  it might be well to see which party has produced better results for Wall Street, which is predominantly Republican.

If you invested $1,000 in the S&P 500 when Kennedy took office and kept it invested only during Democratic administrations, you would have $10,920 today.

On the other hand, if you invested the same amount when Nixon took office and kept it invested only during Republican administrations, you would have a mere $2,087 today.

ADVANTAGE:  Democrats

The annualized returns during the 23 years Democratic administrations was 11% compared to only 2.7% during the 28 years of Republican administrations.

ADVANTAGE:  Democrats

However, if you remove the Democrat with the best investment record (Clinton) AND the Republican with the worst investment record (Bush II), the Democrats still win with $3,539 compared to $3,296 for Republicans, a much closer comparison . . . but still . . .

ADVANTAGE:  Democrats

Of course, facts are not nearly as important as "spin" anymore.  So, the Republican spin is that every Republican President since World War II has faced a recession in his first term, inherited from previous Democratic administrations.  (Nine of the last eleven recessions have started during Republican administrations.)

The Democratic spin is that this is proof that the Keynesian-stimulus approach works to the benefit of the economy and Wall Street.

My thought is that the Democrats are right to apply Keynesian-stimulus during recessions but derelict in not reducing the debt during good years (except for Clinton).  Additionally, Republicans are right that tax cuts will strengthen the economy, but not as much as the current level of debt weakens the economy.  

A Vertical Marathon

Years ago, when I lived in Dallas, I enjoyed participating in their annual Vertical Marathon, which was a race up the stairwell of the tallest building there -- all 72 floors.  Two participants at a time were permitted to start together, followed by another pair of participants two minutes later.  (Your time spent climbing was measured when you reached the top floor, based on when you started.)

I also noticed there were two types of participants, i.e., hares and tortoises.  The hares would quickly bound up  five or six flights of stairs and then stop to catch their breath.  We tortoises would plod up those five or six floors breathing deeply but slowly, stepping around the hares, whose ego then required them to bound up another five floors before stopping again.

The tortoises are like the overall economy, moving up steadily and quietly.  The hares are like the stock market, bounding up a thousand points and then resting.  The hares spent January bounding up.  February was spent resting.  In the meantime, the economy is steadily improving.  Yesterday's ISM report showed the service sector is expanding even faster than expected.

Also, while a sweaty climber in a stairwell might feel chest pains, the stock market is feeling a sudden rush of headlines out of Europe.  March 20th is the deadline for closing the Greek bailout.  I suspect there will be much posturing and apocalyptic warnings until then.  So, expect more chest pains and keep some 81 mg aspirins handy.

Of course, there is always the possibility an earthquake could damage the building, such as an Israeli attack on Iran, but it will not level the building.  So, just keep climbing . . .

Some Not-So-Final Thoughts

Alcoholics cannot begin to help themselves until they admit they have a problem.  In that vein, we need to repeat:  The American health care system in general and Medicare & Medicaid in particular are going to destroy this country!  There!  We said it!

We've all seen the statistics many times, maybe so many times that we're numb to facts, but the 800-pound gorilla in the room is still pronounced as "d-e-a-t-h  p-a-n-e-l-s."

Suppose I have prostate cancer, and there is a new drug that costs $90 thousand and will probably extend my life for 90 days.  Assuming the quality of my life is something other than miserable, why shouldn't I take the drug and enjoy my family another 90 days . . . since it doesn't really cost me anything?

And, since it doesn't cost my family anything to keep me around, why shouldn't they let Medicare spend the $90 thousand of taxpayer money for another 90 days with the old man?

Now, if you change the cost-sharing formula to, say, 50%, my family might or might not spend $45 thousand for another 90 days with the old man.  But, that is an option poor people would not have, and a "death panel" doesn't want to tell the poor family that another 90 days with their old man is not worth $90 thousand to the taxpayers.

Maybe, the decision should be made by China, since we borrow 40% of every dollar spent.  If you were China, would you loan the U.S. $36 thousand to keep me alive for 90 days?  That's not exactly an infrastructure investment.

Or, maybe the decision should be made by my grandson, since he is the one who will have to repay the Chinese?

To the cold, unblinking eyes of economists and accountants, the facts are harsh and demand an answer, which unfortunately can only come from our political class, useless as they are.  Democrats have taken an already complicated health care system and made it even more so.  By default, Republicans defend the indefensible current system, when they offer only philosophical bromides which are dead-on-arrival, such as the Ryan Plan.

However, during my recent tour through the world of intensive care, I witnessed an army of decent, hard-working people dedicated to saving lives and improving the quality of those lives.  I appreciate and salute those folks and the work they do.  It is a cruel irony that they seem so removed from the process of making decisions about the future of health care.  I would much prefer that they make the decision about my final days, instead of my family or, even worse, elected politicians.