Thursday, November 29, 2012

Perception vs. Thought

Obviously, there is a difference between careful, structured thoughts, which I prefer, and mere anecdotal observations, which  I try to avoid.  Still, at a large public function last night, I was struck by the intense anger I observed over the Fiscal Cliff . . . not fear but anger!

Although I yield to no one in my disgust for the elected partisans in Washington, who represent their parties instead of their country, I actually felt some small sympathy for them last night.  My sense is that the anger of the American people is rising rapidly, and that the elected partisans don't realize the tsunami of anger they will face, if they cannot agree on a deal in time.  This will far exceed the anger and shock they faced after the clown show raising the debt ceiling last year.  It will be all anger and no shock this time.

Maybe . . . just maybe . . . if they realized the pent-up anger of the American people was more important than the revenge of their political party . . . but, if frogs had wings, they wouldn't bump their back end on the ground . . .

Wednesday, November 28, 2012

Running With One Eye Open

Factoid-of-the-Day:   Averaging $161,579 per taxpayer -- the most recent IRS data shows that the top 5% of income earners enjoyed 37.4% of all "adjusted gross income" but paid 59.1% of total Federal income taxes in 2010.

Political types take that as proof-positive that the highest marginal tax rates need to be reduced, and then they're off-and-running.

Economic types take that as just another interesting data-point.

While the top 5% pay 59.1% of all Federal income taxes, what percentage of total taxes do they pay, including payroll taxes and sales taxes?   I think we all agree that workers earning salaries of $50,000 annually probably have less portfolio income (dividends & long-term capital gains) than workers making $250,000 annually.  It is important to note that portfolio dividend income pays lower income tax rates (15%)  AND that portfolio income pays no payroll tax, therefore producing more "take-home pay" than salary does.  So, why do we treat income earned from hard, sweaty work less favorably than income earned from merely owning?  (The trusty old bromide from the Supply-side school of economics is that owners or "job-creators" need lower taxes to create jobs.)

Shouldn't we also consider the sales tax, which is truly regressive.  Since poor people must spend every single dollar and save/invest nothing, that means every dollar of their income is subject to sales tax.  Since "rich" people can afford to save and/or invest some of their income, they are sheltering income from the sales tax.  So, why should the poor pay a higher percentage of their income in sales tax than "rich" people?  (The trusty old bromide from the Keynesian school of economics is that "rich" people benefit more from police and fire protection services, which are funded by sales taxes, since the "rich" have more to protect.)

Some policy wonks argue we should end the reliance on taxing income and start taxing assets instead.  I personally know a large number of people who have millions in assets but need very little income.  Therefore, they dial-down their taxable income and have their portfolios managed for lower-taxed growth, instead of higher-taxed income.  (There is a trusty old bromide from the Austrian school of economics that "if you want less of something, tax it.")

The point is NOT that the "rich" do or do not pay their fair share.  The point IS that a single factoid -- like the top 5% paying 59.1% of the taxes -- tells you precious little about the subject . . . unless you're a politician, of course.

Monday, November 26, 2012

Generational Fairness ?

Despite all the coverage of America's Fiscal Cliff, the most intransigent obstacle to America's stock market recovery is the continuing drama in Europe.  Of the 27 member states, most realize that Greece needs help -- badly.  The nation most opposed to helping is Germany (along with Finland & Denmark).  In fact, even the IMF has had harsh words for German obstructionism in the last week.  Still, I can understand the sentiment shared by 78% of the Germans of -- why should they decrease their standard of living to benefit the "lazy" Greeks, who retire at age 50?

I recall talking with a European tourist in Williamsburg one day, when she said -- "You Americans do so love your history.  It's a pity you have so little of it."  Maybe, Europe should study its history.

Imagine your grandfather owed money to my grandfather and then your grandfather fell on hard times. Fortunately, my grandfather helped your grandfather and forgave the debt.  Imagine your father owed money to my father and then your father also fell on hard times.  Fortunately, my father helped your father and again forgave your family debt.  Now, imagine I owe you money and have fallen on hard times.  Would you forgive my debt and help my family -- as my father and grandfather did to help your family?

After World War I, Germany was deeply in debt.  Some of it was written down, but most of it was forgiven, including Greece's share.  After World War II, reparations against Germany for starting the war was crippling its recovery.  Germany invaded Greece in 1941 and immediately looted the Greek National Bank.  After the war, Germany agreed it owed Greece about $14 billion in wartime damage.  At 3% interest since Germany signed the 1953 contract to repay the wartime damage, it would now have to repay $97 billion to Greece, largely eliminating this international financial crisis overnight.

Since Germany was forgiven it's debts, it has produced an economic miracle, while the Greeks have indulged themselves shamelessly on entitlements and early retirements.  Now the tables are turned.  The Greeks owe more money to the Germans and others than they can afford to pay.  So far, the rescue operations have not been enough to save Greece.  The primary obstacle is Germany, but the question is whether Germany will return the favor of forgiving debt of Greece -- the same favor that Greece has shown to Germany in the past.

If you are Angela Merkel, how do you tell the German people they should lower the standard of living for their children to support the "lazy" Greeks, just because Greece forgave the debt that the past two generations of Germans owed?  She could say that history demands it!

But, since she faces re-election in September next year, I doubt she will even ask the question.  Still, I pray she has the courage to do the right thing and "fall on her sword" before then.

Thursday, November 22, 2012

I am thankful . . .

. . . for the gift of living in a great country, which it still is.

. . . for the military, which preserves our opportunity to be great.

. . . for the constitutional right of privacy, if there is any left.

. . .  for freedom of religion, if not freedom from religion.

. . . for the economic system of capitalism, despite its often cruel shortcomings.

. . .  for the political system of democracy, even when tortured by partisanship.

. . . for Republicans, at least those who vote for increases in tax revenue.

. . . for Democrats, at least those who vote for decreases in entitlement spending.

. . . for economists, who valiantly try to perfect their imperfect art.

. . . for stock markets, which allocate capital from the least productive to the most, theoretically.

. . . for great ideals, which must struggle in a world of flawed humans.

. . . for my clients and friends, who are also my family.

. . . for a day when we remember our blessings . . . now, what are yours?

Wednesday, November 21, 2012

Either-Or . . . or, Neither ?

Not all relationships have meaning.  For example, take a look at this chart:

Chart of the Day

It shows the Dow divided by the price of gold and suggests two possibilities:  Either the stock market is too low or the price of gold is too high.  Which is it?

At first blush, you might say the great uncertainty we're experiencing is scaring investors out of the stock market and into the "security" of gold.  But, notice the chart begins in 1978, covering the last 34 years.  The downward trend begins about year 2000.

Since that time, our national budget surplus has turned into an annual deficit -- following two unfunded tax cuts, two unfunded wars, and a huge unfunded drug program for seniors.  (Unfunded means tax cuts were not matched with spending cuts or that spending increases were not matched with tax increases.  This is similar to Congress thinking they can suspend the laws of gravity.)  This long period of increasing deficit spending suggests gold is over-priced -- compared to stocks.

Also suggesting the price of gold has risen too much, the demand for gold as jewelry increased significantly in Asia in general and India in particular during their explosive growth over the last twelve years.  

Traditionally, gold acted as a "store of value," meaning people would buy some gold coins and hide them in their safe deposit boxes.  Increasingly, gold has become an alternative to currency investing.  Investors can speculate or bet on the Euro falling by buying gold on the stock market (see GLD), which is not included in the Dow or the S&P 500.  This increased demand for gold drove up the price of gold without simultaneously driving up the Dow or S&P 500.

This chart suggests a simple binary relationship that is more coincidental than meaningful.  I believe that both soon will soon turn bullish -- regardless of what this chart suggests.

Tuesday, November 20, 2012

Risk OR Return ?

How do you know if your investment manager is doing a good job?  Large institutional investors assign their investment manager with a benchmark and then compare investment performance with the benchmark.  (The S&P 500 is the most common benchmark.)

The latest study shows that four out five managers failed this test both last year and this year.  So, how do you measure your investment manager?

Some years ago, I had lunch with two security analysts.  They were both extremely bright, highly educated, and both were assigned to "Big Pharma" or drug stocks.  Yet, they disagreed over whether Pfizer or Merck was the better stock.  Like all males, they started competing -- on who had read the most footnotes in the financial statements.

There was a time when superior financial information in the hands of superior intelligence was likely to produce superior investment returns.  That is much less common today.  One reason is that superior information is hard to find, because information is everywhere.  (Sometimes, superior information can even be illegal.)  Today, we often find that superior political information is more important than superior financial information.

According to CNBC, many advisors have concluded there is no advantage in studying large companies and are using index funds or ETFs for exposure to that asset group.  This is called "passive investing."  At the same time, they are using mutual funds for smaller companies, where information is more difficult to find and evaluate.  This is called "active" investing.  Individual stock purchases are limited to those companies where the advisor has strong convictions.  Additionally, advisors are increasing cash levels during times of increasing uncertainty, partially discarding the "buy and hold" faith of our fathers.

I think that should, in fact, be the definition of a good investment advisor.  He/she is more interested in minimizing risk than maximizing investment returns.  Being measured against some arbitrary benchmark never made any sense.

So, how do you know if your investment manager is doing a good job?  There are some "risk-adjusted" investment measures available, but they also contain some troubling assumptions and should be viewed with caution.

So, how do you know if your investment manager is doing a good job?  How do you know if your spouse is doing a good job?  How do you know if your best friend is doing a good job?  How do you know if your lawyer or your CPA is doing a good job?

You just know!

Friday, November 16, 2012

But Wait !!

The uncertainty of the election is gone.  You may not like the outcome, but removing uncertainty is always a good thing for the stock market.

But wait!  The markets are now obsessing over the Fiscal Cliff -- with endless nuanced arguments both ways.  Again, getting it behind us is more important to the stock market than the details.  Pundits seem to think there is a one-third chance that the elected partisans will work out a deal before the deadline, a one-third chance they will work it out at the year-end deadline, and a one-third chance we'll go over the Cliff and stay there.

The market is down 5% since the election and continues to leak slowly, like an old tire.  But, when we get closer to year-end, I expect the market will over-react and leak more rapidly next month.  My current thinking is that time will be a good time to start buying stocks again.

But wait!  Shortly afterwards, it will be time to raise the debt ceiling again.  While the Tea Party may be swayed enough by Main Street and by Wall Street to hide the fact they actually compromised on something (by hiding in the complexity of the Internal Revenue Code), they will have no place to hide on the debt ceiling vote, which is a "yes or no" vote.  I expect they will fall on their swords, get our credit downgraded again, and let loose the bears on Wall Street.  Getting this behind us should be a second buying opportunity.

But wait!  Then, the markets will begin obsessing over the European crisis.  This is important -- that crisis has morphed over the last few months.  Originally, it was a pure financial crisis and had the possibility of becoming a Lehman-scale disaster.  Now, the European Central Bank has taken extraordinary steps in the style of the U.S. Federal Reserve and made it clear there will be no "Lehmans" in Europe.  This kicked the can a LONG way down the road, greatly reducing the risk of a financial crisis.  However, Europe has now settled in a double-dip recession, which appears to be more saucer-shaped than tea-cup-shaped.  This is good news.  Even better, the "boss-hog" of Europe itself, Germany, is slipping into recession itself.  Up to this point, Germany has wisely crammed badly-needed austerity down the throat of the Greeks, the Italians, and the Spanish.  But, at this point, it is necessary to push growth again, instead of austerity -- to keep Germany itself out of recession.  When that happens and we get that worry behind us, there will be a third buying opportunity!

But wait!  There will be something else to worry about -- there always is!

Monday, November 12, 2012

Thank You, G.I. Joe

I have only the highest respect and appreciation for America's combat veterans!  They truly put everything on the line, asking for so little in return.

Despite technically being an all-volunteer military, many soldiers find themselves in combat involuntarily, as their units were transferred before they could get out.  Some are there because they are true patriots, trying to save Motherhood and the Flag.  Some are true "James Bond" professionals doing a job.  Some are there because they are simply adrenaline-junkies and just need the rush.  Some are there because they are wrestling with internal demons and must face death in order to test themselves.  Some are just plain misfits!  They are truly a rag-tag group.

And, I love every single one of them!

Unfortunately, Veteran's Day is now just another lavish benefit for the government employees in general and postal employees in particular, who don't get enough holidays, I guess.  I suppose it is also good for retailers.  Parades do seem to have some appeal for the World War II veterans.  Korea and Vietnam veterans are used to living in the shadows, but they do enjoy basking in the reflected after-glow of the Iraq/Afghan veterans.

Still, it is stirring to look out the window and see neighbors flying our flag.  They do so . . . because they remember . . . and they care.  Because of that, they are indeed worth fighting for!

Sunday, November 11, 2012

The Beauty of Sausage

I was lost in my thoughts while running yesterday, when I suddenly realized that I had stopped dead-in-my-tracks.  I found myself simply standing there, because I had just realized that the negotiations over the Fiscal Cliff have already proceeded farther than they did last year -- in only three days and without Obama & Boehner even meeting face-to-face.

Anybody who has ever been involved in difficult negotiations know that the conclusion must be win-win, especially in politics . . . or, for that matter, in anything involving a male ego.  Both sides must be able to say they won!

Both parties want to trim entitlement spending.  The Democrats want more revenue.  The Republicans want to be true to Supply-side economics and keep the highest marginal tax rate low.  They will both win by hiding in the complexity of the Internal Revenue Code (IRC).

In the end, the tax rate on high-income earners will be unchanged, even though they will, in fact, be paying more in taxes.  That is because their deductions will be more limited and their access to entitlements will be more restricted.  Remember:  we can increase tax revenue without raising tax rates!

Unfortunately, it will take more than seven weeks to disguise this tilting of the tax burden toward high-income earners, and the deadline of year-end will have to be pushed back.  Of course, the deal could always fall apart if either side over-plays their hand.  (I'm talking about you, Mr. President!)

It is a brilliant, if inevitable, compromise.  Obama wins.  Boehner wins.  More importantly, America wins!  And, the deficit would finally begin falling.  Thirteen years ago, investment advisors worried about America repaying its entire debt, leaving no U.S. Treasury bonds for us to buy for our clients.  Thirteen years from now, we could be thinking the same thing again . . . it may not be probable, but it is possible!

I had almost given up on the American system of governance and have been speculating about what type of government comes after democracy fails.  Prussian politician Otto von Bismark (1815-1898) once said that making laws is even more disgusting to watch than making sausage.  The past few years in the U.S. Congress have been even more vile than Otto ever imagined . . . but maybe, just maybe . . . I've under-rated our American system of making laws.

Maybe, if I had more faith in our system of governance, I could remember to keep running?

Saturday, November 10, 2012

Longevity Trivia

I keep thinking about my classes on longevity, and there are a few unrelated things that seem to resonate more than others.

For example, life expectancy rises with both education and income.  Perhaps, the reasons are obvious, but since those people are more likely to have a financial advisor, then the average life expectancy of our clients is longer than that of the general population.  That means we should assume the actuarial tables on mortality are too low.  We should assume our clients live longer than the tables indicate.

Also, the 2-3 life expectancy advantage that women enjoy at birth narrows with age.  For example, an 80-year-old female has only a few months advantage over a typical 80-year-old man.  More interesting, men are LESS likely to be disabled at death than women.  That is largely because men are more prone to acute illness such as heart attacks and major strokes, while women are more prone to chronic illness such as bone loss and TIAs or mini-strokes.

There are 41 different actuarial tables, and actuaries argue vociferously about which one is best.  They agree with each other about as much as hyper-partisan Republicans and Democrats agree with each other.

Actuaries actually have a sense of humor??  Who knew??  Do you know the difference between an actuary and a mafia don?  The actuary knows how many people will die each year, but the mafia don knows who they are.

With 78.4 years of life expectancy, the U.S. is number 50 in the world.  (China is number 51 at 74.7 years.)  The longest life expectancy is found in Monaco, where they expect to live 89.7 years.  The nation of Afghanistan is dead-last at number 220 with an average life expectancy of 45.0 years.  Makes sense to me -- Monaco is a wealthy, peaceful enclave with a wonderful climate, while Afghanistan is a heavily-armed hell-hole with a dreadful climate.

The next time you wake up at 3AM and cannot fall back asleep, go to the website for actuaries, which is   SOA stands for the Society of Actuaries . . . zzzzzzzzzzzzzzzzz

A Fitting End

The last day of my investment conference this week was unusual -- we studied the problems of longevity.

When I was certified decades ago, it was considered prudent to estimate 7% annual income from a balanced portfolio of stocks and bonds.  That's means a person with a $100 thousand portfolio can reasonably assume an income of $7,000 annually to live on.  If that was not enough, they could take some of their principal -- but not enough to run out before they reached age 80, when most everybody would be dead anyway.

My, how the world has changed!  One of the most contentious subjects among financial advisors today is how much income can safely be distributed to clients and how long should we assume the client will live.

The "prudent" annual income level to be distributed dropped to 6%, then 5%, and then 4%.  In this class taught by actuaries, they recommended only 3.6% -- a huge drop in income from 6%.  Mostly, this reflects the lousy bond market interest rate environment, as well as the unusually volatile stock market in recent years.

And, if that isn't enough income, how much principal should we distribute to clients based on their life expectancy?  The good news is that people are living longer.  The bad news is that they are out-living their money!

Assume a person retires at 65 and that I will need to distribute some principal for the person to live on, I can divide his/her portfolio by 15 to loosely estimate how much principal I can distribute to him/her each year.  If I assume the person will live to age 90, I must divide the portfolio by 25 -- a big decrease in how much I can send him/her.

The actuaries recommend that we now assume the client will live to be 100 years old -- another big decrease in their annual spending ability.

Everybody likes to think they can cut their living expenses enough to compensate for decreased income, but I have never seen that happen.  People underestimate both the difficulty and time required to accomplish that.

It is clear that people need to work longer, save more, and take greater responsibility for managing their own health -- to ensure you can work longer.  It is not enough to wish for good health.  It takes a plan.  Health becomes another risk factor, just as a stock market crash, low interest rates, death of a spouse, etc.

When I was certified decades ago, I never suspected a good financial planner would have to involve himself in how well clients manage their health.  But, it does impact the way I should manage their portfolio!

Your homework assignment is to visit and take the examination to estimate your own life expectancy.

Friday, November 9, 2012

A True Rock-Star

Financial advisors tend to be a cynical, hard-bitten group.  They strain to merely applaud and seem to be genetically incapable of wild adulation.  So, it was surprising yesterday when our luncheon speaker was introduced.  He was Jack Bogle, founder of the Vanguard funds.  Even after 83 years of accomplishment, even he was surprised at the loud applause and standing ovation from 200 "know-it-alls" like myself.  We were indeed in the presence of a rock-star!

Jack rose to fame arguing the danger of high fees.  His Vanguard funds are among the cheapest in the industry, and I use them often.  Indeed, it was his writings that lead me to exchange-traded funds, which are generally cheaper than mutual funds.

He also argued that nobody is consistently smarter than the market in picking stocks.  He believes you should just buy an index fund that mimics the S&P 500, for example.  There are almost 15 thousand stocks out there.  Which do you study?  Which do you not study?  For example, if you assume that you even want to invest in drug stocks, how do you pick among the many drug companies worldwide?  Do you think you can see something in the financial statements that others cannot also see?  Do you think nobody talks with senior management?

Like Warren Buffett, he also believes the ideal holding period for an investment is forever.  Buy it, hold it, and watch it rise over the long term.  Like myself, he believes Monte Carlo analysis is a technology freak-show that misleads investors into thinking they are on-track to meet their financial goals.

His current campaign is to create a real fiduciary standard for financial advisors.  As discussed here frequently, the majority of financial advisors are in life insurance or stock brokerage; both of which are mere salesmen and have no legal obligation to do what is right for the client, not even to fully disclose their fees.

Of course, no two people ever agree completely.  I believe an investor should increase their cash levels (read: reduce risk) during periods of great risk, because whatever return is earned is not worth the risk assumed.  I also believe an investor benefits from rotating among the various sectors of the economy, such as investing heavily in consumer staple stocks during recession and consumer discretionary during growth.

Still, I have the highest admiration for Jack Bogle and wish him many more years of both work and life!

Thursday, November 8, 2012

Boehner, Taxes, and Egos

Yesterday, the market stopped obsessing over the election and suddenly realized the wet blanket of the Fiscal Cliff and the wet blanket of the European financial crisis were both wetter and heavier than expected.  The Dow lost over 300 points.

But, there was also a hopeful development in negotiations over the Fiscal Cliff yesterday.  The Republican position has been that there is a spending problem, not a revenue problem.  Therefore, the nation doesn't need more tax revenue and just needs to cut its spending.

Speaker John Boehner announced that, in order to avoid the Fiscal Cliff, their new position was that if spending is cut enough, the Republicans will agree to more tax revenue, AS LONG AS the new taxes don't come from high-income earners like myself.  If the lower and middle income classes want to tax themselves heavier to avoid the Fiscal Cliff, that would be fine.

While there is something distasteful about this, I do understand the logic.  Almost half of the nation pays zero income tax now and should have at least a small "dog in the fight."  (In fairness, they do pay a higher percentage of their income in real estate taxes, personal property taxes, and especially sales taxes.)  Already,  high income earners pay a greatly disproportionate share of total Federal income taxes.  (Estimates vary, but assume the top 5% of the income earners in this country pay 40% of the Federal income taxes.)

The Republican position is that updating the Internal Revenue Code, which everybody agrees needs to be updated anyway, will produce all the revenue needed -- without asking the high-income earners to pay more (contrary to political spinners, few of whom are small business owners).  The Democratic position is that you should follow Romans 13:1, and that high-income earners should support the government with higher marginal tax rates.  Clearly, the devil will be found in the boring  details . . .

Boehner's announcement is a hopeful development.  Still, egos are the bane of man and the killer of all kinds of negotiations.  During the last marathon negotiations on this last year, a lot of egos got bruised.  I hope a different set of negotiators will be sitting around the table.  I fear egos as much as I fear party loyalty.  The good of the country demands neither.

Wednesday, November 7, 2012

Focused on Perspectives

One of our speakers today was the biographer of Warren Buffett, and she had some interesting anecdotes; one personal and two business.

On a personal note, she asked him what was the personal characteristic that made him so successful, and he responded with one word -- "focus."  She looked around his large corner office and noticed the heavy, wooden shutters were all closed.  The great view interfered with his focus.

Similarly, his wife told the story of one time when a bat somehow got into their house.  Despite her hysterical screaming and the emergency workers she called, Buffett never removed his eyes from the computer screen where he was playing bridge online.  He stayed focused!

From a business perspective, Buffett views cash differently.  He is famous for maintaining very high levels of cash.  Most investment advisors, however, are under pressure to minimize the level of cash in their portfolios.  (Clients sometimes object to being charged a fee when the cash is "uninvested.")  To him, cash is a call option on every asset class, and it never expires.  Buying a call option gives you the right to buy a stock for a period of time, but it is expensive.  Holding cash is very similar and a lot cheaper.

In addition, he sees risk not just as an absolute to be managed but a function of cumulative probabilities.  Space does not permit a full discussion, but suffice it to say a powerful computer would get a migraine trying to compute such a number.  In the final analysis, human judgement must estimate what computers cannot calculate.

Now, if I ignored my wife when a bat was flying around inside our home, I would be a dead investment advisor . . . 

America Loses !

A month or so ago, investment advisors were polled to see who they hoped would win the Presidential election.  As I recall, an overwhelming 85% were Romney supporters.

I'm attending an investment conference this week in Baltimore, and the mood is dour indeed.  However, world stock markets are apparently not so dour. The U.S. was up strongly yesterday, just because it was almost over.  Asia was also up strongly overnight.  The Futures market indicates a good day in both Europe and the U.S today.  Stock markets almost invariably go up-- when uncertainty goes down.

I've been arguing that there are three wet blankets on the markets: (1) the election, (2) the Fiscal Cliff, and (3) the European financial crisis.  One wet blanket has now been removed, but we find the second wet blanket or Fiscal Cliff is now even wetter than expected.

My take is that America lost the election, not because the President was retained, but because gridlock was retained.  Some analysts are predicting it may even be worse, which is actually hard to imagine.  The inability to compromise is strangling this country.  We have an obligation to thank our elected officials whenever they compromise.

There is a train coming at us, and I don't care if we get off the right side or left side of the track!

Monday, November 5, 2012

My Election Prayer

I will be happy if Mitt Romney wins the election -- IF AND ONLY IF -- the Republicans also take control of the Senate.

Likewise, I will be happy if Barack Obama wins the election -- IF AND ONLY IF -- the Democrats also take control of the House.

So, how can I be happy if the country is going in the wrong direction?  Because I remember one of the most important lessons from Infantry Officer Candidate School in the Army, which was that "indecision is intolerable" especially when your men come under attack.  It is critical that a command be given.  We even joked that it was far better to order our men to "drop your pants and climb a tree" than to do nothing and take incoming fire.  Just give a command, any command!

Gridlock during a crisis is just as intolerable as indecision under fire.  

If we maintain the status quo and gridlock survives, then the nation loses . . . no matter who is President.

If gridlock wins, we will in all probability go over the Fiscal Cliff and slip into an increasingly severe recession early next year -- increasing in severity until gridlock is finally crushed under its own weight of indecision.  

I expect to be disappointed on election day . . . no matter who is President . . . but let us pray . . .

Sunday, November 4, 2012

Maybe, The "Ultimate Absurdity" Is Not ?

Just as Supply-side economists reflexively state that a tax cut will solve any problem anywhere at any time, existentialists reflexively describe anything they don't like as simply "absurd," a word of special significance to them. Indeed, they argue that the "ultimate absurdity" is death.

This weekend, I visited a loved one who has just entered hospice.  Since then, I have been thinking of the great 1997 classic by Dr. Elisabeth Kubler-Ross entitled On Death and Dying.  The thesis of her book is that a person goes through five predictable stages before dying.  They are (1) denial & isolation, (2) anger, (3) bargaining, (4) depression, and finally (5) acceptance.  However, there is no predictable amount of time that each person needs to spend in each step, but given enough time, each person does experience each stage.

My loved one does not seem to have experienced the first three stages at all.  (Of course, it has only been a week since we all learned the bad news.)  Still, she appears to have skipped the first three stages and moved directly to stage four; quietly approaching stage five.  I would guess that is because the bad news was not really a surprise to her.

To an existentialist, all the sorrow associated with the normal biological act of dying -- especially after a long, good life -- just seems pointless.  And, it probably is!

The Bible tells us that "to be absent from the body is to present with the Lord" (2 Cor 5:8), which suggests death should not be sorrowful.  Maybe, the "ultimate absurdity" is that Christians are still frightened of death, ignoring the Bible.

But, that also reveals the ragged outer edge of existentialism.  There is more to existence than mere purpose. It is the many irrational little things that also make us human.  It is remembering a funny moment together.  It is remembering a lesson-learned together.  It is remembering an interesting expression they often said. It is remembering their smile.  Certainly, these things may have no economic importance or philosophical significance, but they do have meaning.

Probably, society does approach death in an absurd fashion, but we as individuals can remember our loved ones with whatever deep emotions we choose . . . and I will . . . and that is not absurd!

Friday, November 2, 2012

The Art & Science of Bull

All year long, the most widely anticipated economic report has been the "Jobs Report" which will be issued this morning at 8:30 AM.  Of course, as the last important economic report before the election, it also has great political significance.

Economists are expecting about 125 thousand new jobs, with the unemployment rate virtually unchanged.  (This number should not be skewed by SuperStorm Sandy, but the report next month might be.)  The economic reality is that the report would be better than a "sharp stick in the eye" but is still too anemic for a country with such an under-utilized work force.

What I enjoy about economics is that it is both a science and an art.  The number of new jobs and the unemployment rate is the science.  Knowing it is good but anemic is the art.  What I don't enjoy about economics is the political spin that follows.

If more than 125 thousand jobs were created and the unemployment rate actually drops, the Democrats will strut the recovery plan is working.  If less than 125 thousand jobs were created and the unemployment rate increases, the Republicans will offer that as proof the recovery is stalled.

Actually, since they're going to say this anyway, regardless of the numbers, does the truth even matter in politics?  You know the answer to that.  Unlike governance, politics is just another subsidiary of the all-powerful advertising business.

Watching serious economic reports being spun for political purposes is like watching one of your kids getting "slimed" with unfair rumors. It ain't no fun!

Thursday, November 1, 2012

Emotional Distance

Do you remember when the first love of your life dumped you?  Do you remember the first time you were disappointed in your child?  Do you remember the first time when you actually realized that you were beating yourself up . . . over something somebody else did?  Do you remember how disappointed you were -- the first time -- that your favorite politician lost the race?

This is my 16th Presidential election.  Every single one has been described as "the most important election of our lifetime" or this century or in all of history or something.  They can't all be right!  It is exciting to live in exciting times, but we don't need to make it TOO exciting . . . by becoming emotionally involved.  One of the most important and most difficult jobs of an investment advisor is to remain emotionally un-involved.  Like they used to say on the 1950s TV show Dragnet . . . "just the facts, ma'am!"

Nothing makes the SEC more upset than an investment advisor making guaranties.  Nonetheless, this investment advisor is making this guarantee . . . no matter who wins the election next Tuesday, the sun will come up the next day, and America will survive.

For now, it is time to start draining the emotions out of this election.  No matter who wins next week, have a glass of wine and move on.  Maybe, you should just start planning your New Year's Resolution??

Still, don't forget what Martin Luther King once said . . . "we must accept finite disappointment, but never lose infinite hope."