Saturday, September 29, 2012

Worldwide Nuggets

Ruchir Sharma is a high-powered, globe-trotting executive with Morgan Stanley, in charge of Emerging Market Equities and Global Macro.  I just finished his new book, Breakout Nations:  In Pursuit of the Next Economic Miracles.

He points out that China, Russia, and India are yesterday's news and showing all the familiar signs of slowing.  The future lies with such nations as Mexico, Indonesia, Turkey and Korea, and he makes a convincing case for each.  Surprisingly, he also foresees two countries of Eastern Europe as real growth prospects, i.e., Poland and the Czech Republic.

While it was worth my time reading it, I would not recommend it to others.  Despite a pleasant writing style full of interesting anecdotes, the book lacks organization and statistical detail.  It is more of a travelogue by an investment manager, writing about what he did during his summer vacation.

Still, there were some great nuggets, that are worth repeating. such as:

India has more in common with Brazil than it does with China, as both India & Brazil are "high-context" societies that are family-oriented, "colorful, noisy, quick to make promises that can always be relied on."

China pursues "growth at any cost," while Brazil pursues "stability at any cost."  (I disagree with his conclusion on this.)

China may have embraced capitalism, but they have not embraced the bottom-line discipline.

"Supporting a welfare state is a rich man's disease."

A problem for breakout nations is the "trilemma" of managing exchange rates, interest rates, and the flow of foreign money in/out of the country.  (Amen!)

"CNBC Culture" is the obsession with the normal zigs & zags of the market and should be avoided.

Ten families in Mexico own one-third of their stock market, which is dangerous.

The richest man in India has a 27-story home with 400,000 square feet.

The Cambodian stock market opened i n July of last year and still doesn't have a single company listed on it.

The belief that commodity prices will continue to rise as the traditional BRIC nations continue to grow is as dangerous as the technology bubble.

My take is that it is imprudent for a U.S. based investment manager to take a bet on any particular company in some remote part of the world.  That's an ideal example of where mutual funds make sense for the average investor. 

Friday, September 28, 2012

Thelma & Louise

In that 1991 movie classic, two women choose certain death driving over a cliff rather than continue living in grinding disappointment.  At year-end, our country faces a similar decision.

Remember:  good economic policy requires both monetary policy AND fiscal policy.  Monetary policy is controlled by the Federal Reserve, which can make decisions much more easily than Congress, which controls fiscal policy.  The inability of Congress to compromise and control fiscal policy is driving the country over the cliff.

It is hard to think about the fiscal cliff without first thinking about the election.  If either party makes a clean sweep of the White House and Congress, then we might avoid the cliff.  If not, we will have continued gridlock and certainly go over the cliff, assuming the Republican Party remains a hostage of the Tea Party.

If we go over the cliff, I see three scenarios.  First, there is the pessimistic scenario of a 5-6% recession, not as bad as the last one but still quite bad.  Of course, the longer Congress refuses to compromise, the worse the recession will be.

Second, there is the cynical scenario.  Because the Bush tax cuts automatically expire at year-end, the Democrats may act to extend all those cuts, except those for "wealthy" taxpayers.  The remaining tax cut in 2013-dollars would be larger than the original Bush tax cuts in 2001 and 2003.  This would allow Republicans to vote for the Democratic proposal, the largest tax cut in history, without violating their blood oath to Lord Grover Norquist, who used to be a comedian, by the way.  This action could be done in days, avoiding a recession.

Then, there is the optimistic scenario.  We have become so cynical that we only expect the worst.  What if Congress actually re-structured our fiscal policy; raising taxes some and cutting entitlements a lot?  Our economy would boom!  Unemployment would drop slowly at first but then improve more quickly.

Just twelve years ago, we were running budget surpluses, paying down the national debt, and employment was high.  If we have fallen so far in such a short time, we can still fight our way back.  To steal a campaign slogan . . . Yes, we can!

While I have my preferences about who should win the election, I think it is more important that the election be decisive, with one party making a clean sweep.  While I have always admired the two-party system over the parliamentary system with many parties, the two-party system is useless when there is no compromise.  While I believe a one-party system is bad for America in the long-run, what is the alternative in the short-run, except more gridlock?

I hope we don't experience the feelings of Thelma & Louise as the canyon floor raced toward them!

Thursday, September 27, 2012

An Apology Tour

Yesterday was a long day, rising at 2AM and going back to bed at 1AM this morning.  During that 23-hour day, I caught four different airplanes . . . and heard 19 different apologies from the airlines.  By the end of the day, I was thinking about the purpose of apologies.  Here are the definitions:

a written or spoken expression of one's regret, remorse, or sorrow for having insulted, failed, injured, or wronged another: He demanded an apology from me for calling him a crook. 

a defense, excuse, or justification in speech or writing, as for a cause or doctrine. 

( initial capital letter, italics ) a dialogue by Plato, centering on Socrates' defense before the tribunal that condemned him to death. 

an inferior specimen or substitute; makeshift: The tramp wore a sad apology for a hat. 

Four of the apologies were for late departures.  Three were for late arrivals.  Two were for not providing drink cart service.  Two were for cutting the lights out and so on . . . One apology was for construction on a storefront concessionary in the hallway as we deplaned.

I think there is another definition of apology:  "I've already used the word apology or sorry.  Therefore, don't waste my time complaining about something I don't even care about!"

In other words, it is just a tool to maximize time effectiveness.  If you think that is just a cynical view of a nice gesture, I apologize . . .

Monday, September 24, 2012

Comprehending the Incomprehensible

Despite my best efforts to consume mass quantities of information, there are many things beyond my comprehension.  For example, I don't understand why whole nations would riot, even killing people, over some tasteless movie trailer in the U.S. or some cartoons in Denmark.  It just lies outside my realm of comprehension.

Likewise, I don't understand why it is "cute" to watch kids put unhealthy stuff into their mouths, like candy.

But, right now, I'm trying to understand why the Securities & Exchange Commission (SEC) has punted on the "fiduciary duty" of financial advisors?

I have a fiduciary responsibility to my clients, which means I have to always put their interests first.  That doesn't mean I will never make a bad investment.  But, it does mean I will never hide any fees.  It means I will never make any investment that pays me hidden fees or kickbacks.  It means I will never buy bonds in my own account and then sell the bond to clients at a higher price, which is called a "mark-up."  It does mean I will always be honest with them, not just technically honest but holistically honest.  All members of the National Association of Personal Financial Advisors are held to this fiduciary standard.

Stockbrokers are not!

When it was suggested that all financial advisors, including stockbrokers, be subject to the fiduciary standard, the brokerage houses had an unvarnished, old-fashioned "hissy-fit."  I'm embarrassed that the two Republican Commissioners kept insisting on "more study, more study," effectively killing the fiduciary requirement for stockbrokers.  Accepting the fiduciary standard would have been so much better for the investing public.  Indeed, the SEC Chairman, Mary Schapiro, said "I still think this is a really important thing for the SEC to do for investors."

I just don't understand why stockbrokers don't want to put their clients first?

Maybe, I should just mind my own business and try to comprehend something truly incomprehensible, like why my wife needs so many shoes?  After all, who really needs 13 pair of black heels?  Can anybody comprehend that??

Wednesday, September 19, 2012

Obama Wins . . . ??

The popular wisdom on Wall Street is that is the stock market can usually see six months or so down-the-road.  Historically, when the market goes up, the economy usually follows.  However, is it able to predict the election outcome?

The analysts at LPL Financial just completed an interesting analysis.  They divided the sectors of the economy that do well under Democrats and those that do well under Republicans.

The sectors that do well under Democrats are:  Health care, food & staples retailing, gas utilities, health care service, life sciences tool & services, construction materials, homebuilding and construction, and farm machinery.

The sectors that do well under Republicans are:  Coal, diversified financial services, oil & gas explorations, oil & gas drilling, managed care, electric utilities, specialty retail, and telecommunications.

So, which group of sectors have been performing the best over the six months before the election?  Drumroll, please . . . the Democrats.

I'll spare you the detailed numbers, but it also looks like the Democratic sectors are winning easily.  Investors are putting their money where they think it will do best, which means they think the Democratic administration will remain in place.

Wall Street seems remarkably sanguine about this.  Maybe, they realize that the stock market has performed better during Obama's presidency than any other president . . . ever.  (Of course, timing is everything.  He took office in January of 2009, and the market hit bottom in March of 2009.)  Still, he does have the bragging rights, and maybe that is all that matters on Wall Street?

Tuesday, September 18, 2012

Fiddle Faster, Nero !!

The Finance Ministers of Europe had a meeting last weekend to deal with (1) the bailout of  Spain's government, (2) a two-year extension for Greece, and (3) a common banking system for Europe.  The result of all that brain power was nothing, saying they were in "no rush."  After all, they have been in a crisis for three years, and the world is still alive.

My first thought is that they are irresponsible to delay resolution of this thorny, long-running problem.  However, from their perspective, they have already made a great deal of progress.  Everybody knows that a tighter political unification is essential, but as politicians, they know they cannot get too far ahead of their voters, who are largely opposed to political unification.  Besides, Angela Merkel said she is confident they have the crisis under control.

The Finance Ministers point to what they have accomplished during this three-year crisis.  They have created the EFSF (European Financial Stability Fund), the ESM (European Stability Mechanism), avoided "Grexit" or the disorderly exit of Greece from the Eurozone, and began the process of quantitative easing.  Give them credit for having accomplished that much!

Along the way, Greece is nearly in a depression.  Spain is heading that way, and God help us if Italy gets worse.  Austerity is the medicine for nations drunk on entitlements.  The Greeks who still have jobs are being asked to work a sixth day each week at no additional pay.  The Spanish have cut the salary of all public employees and retirees.

The nations of southern Europe, which generally have a higher level of entitlements, are now objecting to more austerity, arguing their failing economies need stimulus, not austerity.  This is the "Keynesian option" of large deficit spending to kick-start a failing economy.  I agree that the Keynesian option is a fine economic tool but only when the country is NOT already drowning in debt.  That option was forfeited, when those nations used good economic times to expand entitlements, rather than to reduce debt.

When the various European members come to the aid of a weak member, they impose conditions on the bailout.  This "conditionality" has become a dirty word in Europe, especially Spain, who has just refused to accept any additional bailout if any additional conditions or austerity measures are imposed.  The Spanish government says the people have suffered enough and will not tolerate any additional austerity.  So, what happens when the government is out of money -- when the bond markets shut them out?  If the fifth largest economy in Europe defaults, all other member nations will be severely impacted.  It reminds me of the Cuban missile crisis -- who will blink first?  Will the Europeans bail out a member nation without demanding more austerity?  It is high drama, indeed.

I'm glad Merkel and other European leaders think the crisis will be contained, but it also reminds me of Nero fiddling while Rome burned.

Sunday, September 16, 2012

Paging Dr. Bernanke

Since Fed Head Bernanke announced Quantitative Easing III (QE3) last week, I have been reading as much analysis about it as possible.  It is another in a series of bold steps to triage the patient.

But, first, quantitative easing occurs when the Fed Reserve buys bonds.  By accepting the bonds, the Fed then credits the checking account of whomever sold them the bonds.  In this case, the seller (U.S. Treasury) now has cash to spend.  That's how you finance a deficit.  It also provides a demand for bonds that did not otherwise exist, and, as everybody knows, if you increase demand for something, the price usually rises.  When the price of bonds increase, that means the yield goes down, since the interest rate is fixed.

Previously, when the U.S. Treasury sold bonds to finance its deficit, there were always plenty of buyers in the marketplace for those bonds.  Then, the Treasury started selling more than the market wanted.  In addition, the Chinese announced they had a bellyful and would increase their holdings of Treasury bonds much more slowly.  (Since they own over a trillion dollars of our bonds, that is probably enough, I think.)

To sell all these new bonds, when the demand is decreasing, the market would normally demand higher interest to be paid.  That would have increased the burden of interest expense for taxpayers and raised the borrowing cost for private debt, such as bank loans and mortgages.  Rising interest rates may be great for savers but awful for an economic recovery.

Does quantitative easing increase the Money Supply?  Theoretically, QE would not increase the money supply if the Fed "sterilized" its purchases, which means they sell a bond every time they buy one.  As a practical matter, I believe it absolutely does increase the Money Supply.

Is that inflationary?  Theoretically, it would not be inflationary if the Fed is agile in decreasing the money supply once the economic recovery becomes permanent.  As a practical matter, I believe it is absolutely inflationary.

Most analysts characterize QE as a "sugar-high."  All that new liquidity washes over the capital markets driving up the stock market.  When people see their 401Ks increase in value, they will feel more wealthy and spend more money, which is critical for a sustainable recovery.  Economists call this the "wealth effect."

It must be working because the stock market has rebounded much more than the economy has.  Maybe, that is because the new money created is not getting into the economy.  It is stuck in the capital markets, providing the "sugar-high."

Other analysts characterize the  Fed's action as a dope-dealer supplying drug-addicts on Wall Street.  The expectation is that there would be no other reason to buy stocks in the face of such a weak economy, which is struggling under the wet blankets of (1) the European financial crisis, (2) the elections, and (3) the fiscal cliff.

My perspective is that the Fed is a good, kind doctor, who is injecting large quantities of both blood and painkillers into one arm of a patient, while a grizzly bear gnaws lazily on the other arm.  Economic policy consists of monetary policy, controlled by the Fed, AND fiscal policy, controlled by Congress.  Both arms are essential to protect the body and fight recession.

As long as Congress is more protective of their political parties than the country, fiscal policy is useless, reducing economic policy to a one-armed fighter.  But, what happens when Dr. Bernanke runs out of blood plasma and painkillers? 

Thursday, September 13, 2012

Springtime in Europe

This Spring, things were improving rapidly in Europe.  The ECB had instituted its Long-Term Refinancing Operation (LTRO) program that essentially gave banks a new three-year funding mechanism or three year "lease-on-life."  Interest rates started falling.  Their stock markets were rising.  Optimism bloomed!

Then, it all fell apart . . .

This Fall, things are again improving rapidly in Europe.  The German Supreme Court didn't kill the European Stability Mechanism (ESM).  The European Commission has asked the ECB to supervise all European banks, which is another loss of sovereignty by each member.  The ECB has said it would start buying bonds of member nations, a type of quantitative easing.  Dutch voters approved more political integration.  Their stock markets are all up.  Optimism is blooming again.

And, I expect it will all fall apart again . . .

Nowhere is the problem of entitlements being addressed!  The debt of these nations reflects their level of entitlements.  Even Greece, who was the first country to enter the crisis, has barely touched their level of entitlements.  It took them a full year before they fired one single government employee.

To an economist, the problem is clear.  Entitlements must decline and discretionary spending must decline and taxes rise in some combination.  Eliminating discretionary spending like infrastructure in order to maintain entitlement spending is counter-productive, just as eliminating discretionary spending in order to maintain tax breaks are also counter-productive.

Entitlements are like herpes -- once you have it, you have it always, unfortunately.

So, I don't believe all the optimism blooming in Europe.  We've seen this movie before.

Tuesday, September 11, 2012

The Most Important Person In The World

On Wednesday, the most important person in the world will be Andreas Vosskuhle.  He is the head of the German Supreme Court, which will rule on the constitutionality of German support for the European Stability Mechanism (ESM).  It is widely believed that the court will support it, which is one of the three legs critically necessary to deal with the European financial crisis.  If the court rules it unconstitutional, the bears will start eating Europe quickly . . . as in tomorrow.

On Thursday, the most important person in the world will be Ben Bernanke.  He is head of the U.S. Federal Reserve system, who will announce the results of their latest meeting.  It is widely expected that he will announce another round of quantitative easing (QE3), which will weaken the dollar and drive up the price of commodities like oil and gold.  If he does not, the bears will be growling on Wall Street.

On Friday, all will return to normal when Angela Merkel is again the most important person in the world.  She is the head of Germany, of course.  Europe cannot recover without her, but she is besieged by her fellow Germans who insist it is better to let the Eurozone break apart -- than to spend the money necessary to save it.  With an occasional day off, she will remain the most important person in the world . . . at least until January 20, 2013.

Monday, September 10, 2012

Sunday, September 9, 2012

The Wrong Rand Book

Now that Paul Ryan has received the Republican nomination for Vice-President, there is a resurgence of interest in the writings of Ayn Rand.  The hero in her books is always an intense, self-confident, self-made man who fights over-whelming odds to remain true to his beliefs.

Ryan required his staff to read her book Atlas Shrugged, which describes how John Galt organizes a secret army of entrepreneurs seeking to avoid efforts to crush them by the central government.  This paranoia about government energizes and drives the Tea Party.  It is understandable that a refugee from the Communist revolution, like Ayn Rand, would be so focused on this possibility.  It is also understandable that such a story would resonate so strongly in a nation proud of having fought for its independence.

However, there is much to be learned from her other books.  In Fountainhead, the hero is Howard Roark, who is a brilliant architect that insists on designing buildings differently.  The architectural "establishment" and builders condemn him for championing a design that nobody likes.  Mr. Roark loses all his clients and is forced to become a common laborer but NEVER stops insisting he is right.  (Of course, he prevails in the end.)

In other words, Mr. Roark was not persecuted by government but was persecuted by his peers for not conforming.  Perhaps, that takes even more courage.  It is certainly more lonely.

Ben Bernanke could have refused to exercise his power as Chairman of the Federal Reserve system to make monetary policy responsive to a rapidly weakening economy in 2008.  He could have conformed to the wisdom of central bankers everywhere -- that good monetary policy cannot fix bad fiscal policy or that bankers cannot fix what elected politicians do wrong.  Bernanke argued that this is certainly true in the long-run, but monetary policy can buy enough time for slower-moving politicians to fix their mess in the short-run.  It also demonstrates a certain faith in the political process.  He behaved like Howard Roark in Fountainhead, standing up to his peers.

Mario Draghi is Chairman of the European Central Bank, the central banker of Europe.  He is clearly following the lead of activist central-banker Bernanke.  He has committed himself to saving Europe.  Like the Tea Party here that believes Bernanke is the problem, the Germans and Finns claim Draghi also doesn't have the power or authority to save anybody.  Like Bernanke here, Draghi has said "not on my watch" will there be a full-blown depression.  I wish him well.

The world economy was healthy when Bernanke moved desperately to prevent a depression here.  However, the world economy is not healthy enough now to survive a real depression in Europe.  A European collapse would more likely cause a global collapse.

I lose no sleep worrying about Federal storm-troopers swooping down in black helicopters, not in a nation of 310 million people with 440 million guns.  I do lose sleep worrying that I won't see freighters passing my home, going in and out of the harbor, that I won't hear airplanes landing at the Norfolk airport, that we have a global depression.

Bernanke and Draghi behave like Howard Roark.  They rail against the wind, against the conventional wisdom.  In the end, Roark was redeemed, as I believe Bernanke and Draghi will be.

Saturday, September 8, 2012

Jogging Resolution

While jogging through Seashore State Park yesterday morning, I was listening to talk radio and heard the disc jockey say he had to get to bed by 9PM in order to do his 6AM show and had missed Obama's speech the  night before.  Then, the conservative DJ and Romney-supporter added "but I heard it was a good one."

A few minutes later, an irate listener called in, complaining he shouldn't say that without also saying something bad about the speech.  Fumbling briefly, the DJ asked rhetorically if he could not repeat what somebody told him and was told by the irate caller he had an obligation to "badmouth bad people."

After an uncharacteristic silence, the annoyed DJ said -- he promised long ago never to badmouth his ex-wife and, if he was not obligated to badmouth her, then he was not obligated to badmouth anybody else.

Missing the point, the caller then insisted that Obama was going to surrender control of our military to the U.N. immediately after the election.  Realizing the caller was definitely a kook, the DJ said "I don't like you, but I'm not going to badmouth you either.  I'm just going to . . ."  Then, there was a dial tone.

That testy exchange on the radio forced me to make a resolution.  Therefore:  Be it resolved that I will not speak negatively of any person running for office, including Obama and Romney.  It serves no purpose and cheapens anything else I might have to say.  I wish the politicians and their handlers would do the same.

Now, about that ex-wife . . .

Friday, September 7, 2012

The Bad News and The Good News

When is good news really bad news?  The unemployment rate just dropped from 8.3% to 8.1% of the workforce.  That must be good news?  Nope!

The latest monthly Jobs Report, prepared by the Department of Labor, was issued this morning.  Economists were expecting about 125 thousand new jobs to be created last month.  Instead, it was only 96 thousand.  Once again, economists merely laugh at their embarrassment. 

The reason that the unemployment rate fell is that the workforce shrank.  368 thousand people gave up last month.  They're not receiving any unemployment benefits.  They're no longer part of the workforce, making the total workforce smaller -- small enough that the unemployment rate of that workforce actually decreased.  And, they're NOT laughing at their embarrassment.

In fact, the labor force participation rate or the percentage of working-age people who are actively working  (full-time & part-time) plus those looking for work has dropped to barely 65%, which is a 30-year-low.  That means one-out-of-three working age Americans is a student, a homemaker, or a drop-out.  That's historic.  What is the value of the work those people NOT doing?

I have an old friend who was a high-flying marketing executive until he lost his job in Atlanta over three years ago.  Since then, he has lost his house.  His family has left him.  He got a minimum-wage retail job for awhile but lost it.  I suspect he lost that job because he started drinking heavily.  I lost contact with him and, about a month ago, called his parents.  They have also lost contact with him and are worried to death about him.  They're not laughing either.  I didn't know what to say, other than I'm sure he'll show up . . . I hope!   

I assume he is out-of-the-workforce, that he is no longer "participating" and is no longer counted.  I suspect he feels like he no longer counts at all.  I'm confident he is not laughing.

Despite all the numbers issued by the DOL each month, they don't tell the full story of our lousy unemployment market.  It is more than a mere political football.  How will we re-integrate millions of people back into the workforce who have lost their jobs, their identify, and their self-esteem?  They sound like damaged goods to me, almost some type of economic PTSD.  I wouldn't hire them, who would?

So, what's the good news?  No matter how bad it is, it could always be worse?  That is right, isn't it? 

Tuesday, September 4, 2012

A New Tool In The Toolbox

Understandably, economists are always asked about the economy.  We rely on our training, and our experience, while trying to be mindful of our philosophical leanings between the Austrian, the Keynesian, and Supply-side schools of economics.

Some try to avoid the discussion by relying on "technical analysis," which means lots of charts and spooky terms like "double-inverted head & shoulders."  My thinking is that technical analysis is just an interesting way to avoid thinking.

Some months ago, I ran across a quote from Oliver Wendell Holmes.  He said  . . . "When I want to understand what is happening today, I try to decide what will happen tomorrow;  I look back; a page of history is worth a volume of logic."

As a lover of all-things Williamsburg and a proud graduate of William & Mary, his statement resonated with me.  I promptly shifted my reading program more toward history, reading such books as The Panic of 1907 and Manias, Panics, and Crashes.  While reading history is an important part of making predictions, it provides mostly anecdotal lessons and is more useful in predicting the economy than predicting the stock market, which is more quantitative or numbers-driven.

If you look at the stock market as a system of mathematical relationships over time, computers should be able to help make sense of that history. Finally, some bright, young guys from M.I.T. are making significant strides.  Their company name is Hidden Levers, which implies that non-obvious connections can impact each particular portfolio differently.  It is a massive multiple regression analysis between 14,000 stocks and 15,000 mutual funds and 130 economic indicators, requiring literally millions of computations everyday.

As an example, the program tells me that a particular client's portfolio will go down 8.1% if Congress takes us over the Fiscal Cliff.  That doesn't mean I believe it will go down 8.1%.  It tells me the obvious, of course -- that it will go down.  It also tells me that the mathematical probability is that it will go down somewhere between 5% and 10%.  It tells me how vulnerable this particular portfolio is, compared to all other portfolios I manage.  It even tells me some suggested changes I could make now to prevent that loss later.  It tells me a lot!

Will any computer ever predict the future?  No, not precisely!
Will any computer ever be able to predict "black swan" events?  Not a chance!
Will any computer replace human judgment?  No sane computer should even try!
Will any computer make me a better financial advisor?  I think so!
Will any computer improve investment management?  Of course, it already has!

For now, I have a bright, shiny new tool in my toolbox, and I like it!

Monday, September 3, 2012

BTW on Labor Day

From my window on Labor Day, I can see many Americans enjoying the beach.  Meanwhile in Europe, the leader of Germany has finished hiking the Alps, and the leader of France has returned from the Rivera to cobble together enough agreement to end their financial crisis.  At least, I hope so . . . it's only been three years since this crisis began!

Thursday will be an important meeting of the European Central Bank (ECB), when they may announce their own quantitative easing or buying the bonds of weak nations, in order to hold down their borrowing costs.  Next week, the German "Supreme Court" will rule on the constitutionality of the European Stability Mechanism (ESM).  (There will be much consternation if it is declared unconstitutional, which will make the Euro drop, the dollar rise, and gold to fall.)  The following week, all the European Finance Ministers will meet to debate the recommendation to give pieces of their sovereignty to the European Commission, which should be interesting.  I think the European financial crisis is coming to a head over the next 60 days, which means the stock market could be quite volatile during this period.

Domestically, this Friday is one of two days that might determine the presidential election.  They are  September 7th and October 5th.  On those days, the Department of Labor will issue their monthly "jobs report."  IF anybody in this country has not already decided how they will vote, they might be strongly influenced by this information.

Just remember, as you hear Republicans and Democrats warn of how bad America will be -- if the other side wins -- that it could be worse . . . you could be going back to work in Europe . . . or even worse, looking for work  in Europe -- where unemployment is 11.3% (25.1% in Spain)!

So, ignore the American politicians -- you already know how you will vote!  Instead, keep your attention on Europe . . . 

Saturday, September 1, 2012

Thank Goodness for Ava Gardner

There was an informal survey of financial advisors on CNBC yesterday, showing an over-whelming 68% of us think the most important event this year will be the November election.  I guess all those financial advisors watched the Republican Convention last week and are looking forward to the Democratic Convention this week . . . not me.

I plan to watch the exact amount of the Democratic Convention as I did the Republican Convention, which was zero, zilch, or none-at-all.

Nobody ever called any political convention a "no-spin zone."  They are giant, glossy infomercials, with a complete anti-intellectual bias.  Indeed, even face-to-face debates are mere contests in which candidate can remember the most applause lines, as pre-determined by focus groups.  It is pre-packaged spontaneity.

All suffer from the conceit that David Brooks described in his excellent column last week, i.e., they talk as if they will govern without the existence of the other party.  Why bother to listen to that?  The possibility does not even exist.   It would be an alternative reality.

Last week, I was fortunate to watch two old, classic Ava Gardner movies (Night of the Iguana and 55 Days at Peking) during the Convention coverage.  Let's hope the Turner Classic Movies channel will be as good next week.

I am among the 19% of financial advisors who believe the most important event of the year will be the European financial crisis.  While little has happened over the summer, as expected, the little that did happen was quite positive.  There is reason to believe that this September and October could be the critical months, when we finally achieve some clarity, if not resolution.  However, if we do get a clear resolution in the near future, I expect to get bullish again quickly.

My expectation about the November election is that it might alter the degree of gridlock but not end it.  My expectation about the Fiscal Cliff is that the elected Congressional cowards, who care more about their re-election than their country, will once again vote to "kick the can down the road" by simply changing the effective date to the following year.

So next week, I'll be looking for the remote control again.  Besides, what man wouldn't prefer looking at Ava Gardner instead of Romney or Obama?