Sunday, March 30, 2014

Time Out . . . And A Time To Grieve

My mother died tonight.  I guess a person can only say that once in a lifetime.  Right now, we are scrambling to pack and leave shortly.

She spent a long seventeen months in hospice and died a miserable death, begging the question of why a good God would make good people suffer so much . . . for so long?  She deserved better!

Somehow, it seemed appropriate that we were watching a special on Amelia Earhart when the call came.  My mother was always a strong advocate of women's rights, even voting for Margaret Chase Smith for President back in the 1964 election.  All three women were strong, opinionated, and feisty!

Proving that actions speak louder than words, I never heard her say to me that she loved me, but I always knew it anyway.  She taught me so much!  I miss her already!

It is now time for me to help my father deal with his loss and to prepare her eulogy.  I expect to be offline for awhile.

Bad Good-News ?

During the 1990s, corporate profits averaged 5.4% of GDP.  Today, it has doubled to 11.1%  How can you not be happy that corporations are doing so well?  CNBC great Larry Kudlow likes to say that "profits are the mother's milk of stock prices."  It is good for stock prices!

From a historic standpoint, during the global financial crisis of 2008/9, banks shut off the flow of money, which badly frightened corporations, especially those who immediately faced a liquidity crisis.  Survival depended on slashing costs and increasing short-term profits.  From many C-suites, there were loud cries of "never again!"  The behavior of corporations has been totally reasonable.  Unfortunately, no level of liquidity is now unreasonably high.  This is not good.

From the standpoint of the corporations, they are still under increasing pressure to keep increasing profit margins and liquidity even more.  At some point, there is too much pressure.  There is more to valuing a stock than the latest quarterly earnings report.  It encourages short term thinking -- to defer capital improvements and to postpone training new workers.  This is not good.

From the standpoint of society, this pressure to keep expenses low -- by keeping unemployment high and by allowing inflation to continue eating away at the pay of employees -- continues to squeeze the already shrinking middle class.  This is not good.

From a political standpoint, these "excess profits" could create a backlash, citing the increasing share of GDP going to companies and decreasing share going to people.  Likely, this would mean delaying badly needed cuts in the corporate income tax rates and encouraging additional regulation.  This is not good.

Aristotle is usually given credit for saying "moderation in all things."  That should include corporate profits and liquidity as well.  I just pray that, when profit margins do start decreasing, that the resulting bear market will be both short and moderate.

Saturday, March 29, 2014

My Refrain ?

I know I've said it too many times already, but doesn't every good song have a refrain that is repeated over-and-over.  Here is mine:  we are over-regulated and under-punished!  There, I feel better now . . .

Bernie Madoff was exposed in 2009 after his Ponzi scheme collapsed.  He could have been arrested years earlier by the SEC, which ignored both anonymous and non-anonymous tips.  Recently, his employees were found guilty on 59 counts and will be sentenced in June.  Sentences are expected to be "light" since they cooperated with the prosecutors.

Today, Madoff sits in a North Carolina prison, which specializes in better health care for federal prisoners.  Sure, it would be emotional hell for a normal person to think of your wife divorcing you and your son committing suicide, both out of shame about you.  Raise your hand if you believe Bernie is in emotional hell.  He lives as a respected master criminal and receiving better health care than millions and millions of working Americans.

So, should we pass more laws saying "don't do like Bernie did?"  Or, should he be executed?  Oh, by the way, there are about fifty Ponzi schemes discovered every year . . . I guess there is no need to send them a warning message?

I know, I know . . . civilized societies don't need to kill their citizens . . . in a perfect world!  But, don't we need perfect people to have a perfect world?

A Chance Meeting In The Backcountry

In the remote southwest corner of Texas, separated from Mexico by the muddy Rio Grande river, lies the vast Big Bend National Park.  It is larger than the whole state of Rhode Island;  a desert flatland of wide vistas colored in brown and tan, with a few smudges of green, smothered by a brilliant blue sky and punctured by the majestic Chisos Mountains.  It is a hostile environment where visitors are warned that everything they see "either pricks or stings."

Many years ago, I was backpacking the mountains with two buddies.  We had plans to camp that night in a place called the "Meadow," because it was a relatively flat area between two mountains that sometimes had wild grass growing.  When we arrived, we were surprised to find three other backpackers already there.

The tallest one was immediately recognizable, but we said nothing.  In the backcountry, there are only two questions.  The spoken one is "are you OK?"  The unspoken one is "do you know what the hell you're doing?"  They were OK, and the two companions clearly knew what they were doing.

Since there is no wood in the desert for fire, backpackers must carry tiny propane stoves to cook dinner.  The six of us pooled our resources and sat around the stoves that evening.  Knowing he was also trained as an economist, I tried to make light conversation, but he was uninterested.  He was not rude.  He was just absorbed by the hostile beauty around us.  In particular, he was studying how much brighter the stars became as he walked away from the tiny stoves.  It seemed to me that he was sad, because he had discovered so late in life, that there is more beauty outdoors than indoors.

James Schlesinger died Thursday.  A brilliant, blunt intellectual, he could never be mistaken for a Jim.  He  held three different cabinet positions (Defense, Energy, & CIA) for both Republican and Democratic presidents.  He is probably the only person who can say he was fired by three different presidents.  Watching him that night, I realized that it is not sufficient to be smart, that it is not sufficient to be right -- if you cannot "sell" it.  That chance meeting seared the lesson into my mind!  I thank him for that lesson and hope he died with intellectual peace -- that he was able to rationalize an irrational world.

Thursday, March 27, 2014

A Peek Ahead from NABE

I've been a member of the National Association of Business Economists for many years now.  They are mostly working economists, not academic economists.  And, I always look forward to their economic survey of members.  According to the latest:

1.  Due to weather primarily, GDP growth in the first quarter was only 1.9%, but it is expected to accelerate to 3% for the next three quarters.  For the full year, it should be 2.8% in 2014 and 3.1% in 2015.

2.  The probability of recession is only 15%.

3.  Unemployment averaged 7.4% last year and is expected to average 6.4% this year and 6.1% next year.

4.  Interest rates will rise 50-75 basis points by the end of next year.

5.  Housing prices will gain 5% this year nationwide and another 4% next year.

6.  The dollar will hold relatively steady but increase modestly against the euro.

7.  "The federal deficit is expected to total $557 billion in Fiscal Year (FY) 2014 and $536 billion in FY2015, well below the $680 billion deficit recorded in FY2013."

8.  The S&P 500 should end this year at 1,950 and end next year at 2,047.  This is an increase from their December prediction of ending this year at 1,850.  Corporate profits are expected to grow 7% both this year and next year.

All in all, it is a pretty sanguine forecast . . . almost boring . . . which is good, very good!  We've had enough drama in the stock market and the economy over the last six years.

Wednesday, March 26, 2014

Economics, HIV, and Cupcakes

It is for good reason that economics is not-so-lovingly referred to as "the dismal science," because it is so focused on budgeting limited resources.  As a result, economists tend to see the world dismally or at least differently.  I appreciate those who can make the subject interesting, entertaining, and relevant.  Therefore, I highly recommend an economist's review on that dismal but Oscar-winning movie Dallas Buyers Club. 

After watching this short 8-minute movie review, see if you can define the term:  Regulatory Capture.

Tuesday, March 25, 2014

The Cost of Economic Ignorance ?

I'm trying to feel sorry, without much success, for Vladimir Putin.  After all, he grew up in the old Soviet Union, with no understanding of capitalism.  When communism fell, it was replaced with "cronyism" which created the oligarchs . . . but certainly not replaced with capitalism.

Following his invasion of Crimea and imminent invasion of eastern Ukraine, the Russian people are going to pay a price for Putin's ignorance of economics.  Their economy was already weak, with less than 0.3% over the last twelve months.  Inflation is running at 6.9%.  The stock market is already down 13% this quarter.  The ruble is the second (after Argentine) worst performing currency in the world.  And, even their own Economy Ministry estimates $70 billion of capital outflows during the first quarter alone, which means it will be much more.

This is grim!

You'll recall Reagan was able to crush the Soviet economy by forcing them into an arms race they could not afford.  Putin could well be making the same mistake of trying to out-duel the U.S. economy.

Nothing brings the mobs into the street faster than inflation and unemployment.  With inflation already running almost 7%, just wait until their imports soar in price due to the falling ruble.  Russian doesn't report unemployment like the U.S., but just wait until the sanctions start to bite.  Unemployment is certain to rise!

Of course, maybe the Russian people deserve the hardships ahead of them, since they now give Putin a 71% approval rate.  But, they've already suffered greatly after the fall of communism, leaving them with a poor first impression of what they thought was capitalism.

If history repeats itself, -- is it because history MUST repeat itself?

Sunday, March 23, 2014

Thoughtful Views From Wall Street

Morgan Stanley is another highly respected investment firm on Wall Street and is NOT a huge vampire squid sucking on the face of mankind, as others are known.  Their monthly updates are less concise than that of Goldman Sachs but more thoughtful.  Here are some thoughts from their latest:

At the end of 2013, analysts (including their own) were overly-confident that the market would continue rising forever.  They remind us that "corrections are born of complacency."  There was too much back-slapping and not enough hand-wringing, which is always worrisome.

They looked at the relationship between forward price-earnings ratios and rising interest rates.  Right now, that ratio is 15.7X, compared to a historical average of 13.8X since 1976.  They plotted that ratio against real long-term Treasury yields and found that the ratio can continue rising until it passes 4%.  My reaction is that it is interesting -- but too little history to produce too firm a rule.  Also, one reason interest rates rise is because the economy is improving, which increases the demand for money and therefore the price of money or interest rates, and the rise in stock prices will continue until such time as the pain of increased interest rates begin.  In other words, there is a time lag that should be included in their discussion.

A good sign is that companies are starting to re-invest their cash into their businesses rather than return it to shareholders.  In other words, CEOs are starting to see real opportunities.  Right now, 84% of the companies in the S&P 500 pay dividends, which is a 17-year high.  However, the ratio of capital expenditures is only 6.8%,compared to a historical average of almost 8%.  If correct, the industries that should benefit most are commercial construction, especially industrial/warehouse building, real estate investment trusts, railroads, and select tech companies.

Finally, there is an interesting comparison between the U.S. and China.  Both nations have been "suffering" from financial repression, i.e., denied a free and open capital market.  In the U.S., the capital markets have been largely controlled by the Fed since the global financial crisis in 2008, causing its balance sheet to balloon.  With tapering, the Fed has clearly indicated it is lessening its control and will allow interest rates to rise.  The U.S. is losing it's training wheels.  Will the economy continue to grow?

In China, there has never been a free and open capital market.  However, as part of their ongoing effort to become more consumer-dependent and less export-dependent, they are increasing transparency or honesty in their financial sector.  Recently, they even allowed a company to default on its bonds for the first time in China's recent history.  But, a whopping 45% of all debt in China needs to be renewed or repaid in the next twelve months.  How much default will the government tolerate?  China is also losing it's training wheels.  Will their economy continue to grow?

Friday, March 21, 2014

From the Depths of Squiddom

Here are some of the latest forecasts from one of the most feared, I mean, most respected investment houses on Wall Street:

1.  The lousy winter weather has probably taken a half percentage point off GDP growth in the first quarter, with the inventory correction taking off another half point.  Still, they expect a healthy 3% growth rate beginning in the second quarter.  Next year, they expect a full-year GDP growth rate of 3.2%
2.  They expect interest rates to remain basically unchanged through 2015.  (No mention is made of Janet Yellen's comments yesterday.)
3.  They don't expect the price-earnings ratio to increase but do expect earnings-per-share to increase from $108 last year to $116 this year and $125 next year.  This should drive the S&P 500 from 1,872 now to 1,900 at year-end and 2,100 at year-end 2015.
4.  Gold will drop from $1,342 per ounce today to $1,050 by year-end but rise to $1,200 by year-end 2015.
5.  The recent first-ever bond default in China is no big deal.
6.  The dollar will rise somewhat this year against the Euro and weaken somewhat next year.
7.  The dollar will continue to rise against the Yen, getting 115 Yen/$ by year-end next year.

They also repeated their earlier observation that there is a 57% probability of 10% correction in the stock market in any given year, but that probability increases to 63% in years when the market is already up, like right now.

Think about it - there is a 63% probability of a 10% drop this year - get happy with it - it is good for us!

Thursday, March 20, 2014

A Cost of Honesty . . . or a Rookie Error ?

Poor Janet Yellen!  Americans lost billions of dollars yesterday, when she held her first press conference as Chair of the Federal Reserve System.  But, she really did great!  She explained that the unemployment rate alone will no longer be binding on the Fed's decisions, which is smart.  She explained the reasoning for the next $10 billion cut in quantitative easing (QE), which was expected.  She explained why the Fed would not start raising interest rates until a "considerable period" after the end of quantitative easing.  She was doing great!

Then, a reporter asked her how long is a "considerable period?"  The correct answer would have been vague like . . . it depends and could vary anywhere from three minutes to three years, depending on the economic circumstances at the time.  Instead, she said "six months," and the stock market promptly dropped over a hundred points.  Traders quickly did the math, i.e., dropping $10 billion every six weeks from QE means it will be over by year-end and interest rates will therefore start increasing next June.  Interest sensitive stocks, like utilities and REITs, immediately sank - taking the market down with it.  (Short-term interest rates increased about 10 basis points immediately, which is a big move.)

Paraphrasing English philosopher Samuel Johnson, "nothing focuses the mind like your hanging in the morning."  We all know we are going to die but, fortunately, we don't know when.  Traders thought they heard that their death sentence would be carried out next June.

Of course, this is ridiculous!  The stock market is rational in the long run but not in the short run.  Yesterday, it was irrational.  Chair Yellen did great.  The stock market embarrassed itself.


A relatively new technique being used on Wall Street is called "word algorithms."  In other words, if the word "considerable" is used in the same sentence with a number, then interest sensitive stocks would automatically and instantly be sold by the computer.  It is not known how prevalent word algorithms are, but I cannot believe this is any more healthy for the stock market in the long run than high frequency trading is.  They both trouble me greatly.


Finally, one note on a personal level:  I suspect Janet Yellen is one of those rare individuals who thinks, speaks, and writes the same, i.e., in complete sentences, with careful clauses, and no exclamation points.  She even separates thoughts into separate paragraphs.  She is very gifted!

Saturday, March 15, 2014

Worry #2

I am often asked what I primarily worry about, or what keeps me awake at night.  Certainly, I worry about the possibility of cascading defaults by counter-parties in the lightly-regulated, heavily-cloaked derivatives industry.

After that, however, I have been worried about the economic consequences of a successful terrorist attack on our national electrical grid.  A new report by the Federal Energy Regulatory Commission (FERC) states that successful attacks on just nine of the nation's 55,000 electrical transmission substations could plunge the nation into darkness for weeks and maybe up to 18 months.  The economic effects of the 9-11 attacks would seem insignificant in comparison.

Late one night last April, a car pulled off a freeway near San Jose, California.  Somebody or some people hiked over one hill to the Metcalf substation and spent nineteen minutes firing assault rifles into the substation, destroying seventeen transformers.  This was the substation that serves the critically-important Silicon Valley.  If this had happened during daylight hours in August, when air-conditioning puts greater demands on the system, it is widely believed that Silicon Valley could have gone dark for weeks.  And, that was using regular 7.62 mm ammunition.  Imagine the damage if they had used a .50 caliber with armor-piercing ammo, which is available to almost everybody in the U.S.

These substations tend to be remotely located and unprotected, except for barbed-wire fencing and cameras.  The FERC has required utilities to respond by June on how to "harden" their substations.  Dominion Resources (D) here in Virginia plans to spend $300-500 million over the next seven years to improve protection of their substations.  The "Happy Face" spin is that it looks like something is finally happening.  Another spin is that why have we waited over twelve years since 9-11?

Maybe, Worry #3 can move up to the second position soon . . . I hope so!

Friday, March 14, 2014

Another Veil . . . Already ??

With so much conflicting information to study each month, it is already tough enough trying to rationalize and reconcile the behavior of both the economy and the stock market.  Then, some geopolitical veil descends, making it even more difficult to foresee anything.  Remember the European financial crisis?

With the renewal of the Cold War by Russia, bad possibilities are now considered possible, such a nuclear war.  (If that happens, your portfolio may be one of the least important things to you.)  A ground war with Russia is equally unlikely.  But, if Russia invades eastern Ukraine next week, as I expect it will, another Cold War is certain.  The last one lasted over 30 years.

This uncertainty is already weighing on the stock markets worldwide, as uncertainty always does.  Analysts refer to this as "headline risk."  The stock market ignores traditional indicators, such as corporate earnings and GDP growth, and reacts to the headlines instead.  Headlines containing the word "Russia" are seldom good for stocks!

However, the difference between Cold War I and Cold War II is that there is a capital market to punish the Russians this time.  Their stock market and their currency have both plummeted terribly.  How much financial loss will rich Russians sustain before pressuring Putin?  Soon afterwards, the Russian people will begin complaining about inflation from rising import prices.  Some analysts suspect Putin is among the top ten richest men in the world.  If so, he has already sustained huge personal financial losses.  Cold War II will NOT last 30 years.  Finding a face-saving way for Putin-the-egomaniac to exit will determine the length of Cold War II.

I've been hoping for a 10% correction, as that is good for the stock market in the long run, but I never expected to thank Russia for it.

Thursday, March 13, 2014

Good Deed, Crazy Consequence

Sometimes, it takes awhile to find and identify the devil hiding in the details.  Back in December, demonstrators were in the streets of Kiev, pushing out the pro-Russian government.  To make themselves less unattractive, Russia then agreed to make a $3 billion loan to the Ukraine.  While it was odd that the loan was in dollars and agreed to be governed by the courts in England, the Ukraine needed the money and took the loan anyway.

Now, the Ukraine needs another billion dollars, and we have agreed to make the loan.  But, the devil is that any additional borrowing puts the Russian loan into default, because their total debt will then exceed their pre-agreed limit.  Default makes the Russian due and payable immediately, which they cannot repay.

Normally, such a default would just be ignored by the borrower, because the court in another country like Russia would be ignored in the Ukraine.  In this case, Russia knew this and sited the loan in England, where it could be enforced -- very smart, indeed!  It cannot be ignored.

So, if we make the billion dollar loan . . . it could technically go straight into the Russian treasury.  I doubt it will, but it will certainly give more leverage to the Russians in setting prices for the natural gas the Ukraine needs so desperately.

I think Newport News Shipbuilding needs to start building LNG tankers . . . lots of them!

Sunday, March 9, 2014

Happy Birthday To Us, Happy Birthday . . .

It is hard to believe but it has been five years since the ugly days of March 9, 2009 when the stock market finally bottomed out, following a horrendous 57% drop.  Since then, the market is up almost 180% -- an object lesson to never panic nor to get 100% out of the market.

However, because Wall Street climbs a "wall of worry" everyday, there is now much clucking that we are due for another bear market, which is defined as a 20% drop.  I don't think that is likely, unless we fail to get a routine correction, which is defined as a 10% and is actually quite healthy for the stock market.  We NEED a correction.

On average, the average bull market is slightly under four years, suggesting we are overdue, but some bull markets have lasted almost ten years, like the 1990s.  Sam Stovall of Standard & Poor's said it best:  "age alone doesn't kill a bull."

Bull markets die because of recessions, bad monetary policy, over-pricing, or external shocks.  Recessions bother me the least, because they are fairly easy to foresee.  Bad monetary policy doesn't bother me either, as the Fed is committed to merely taper the growth of its quantitative easing program without actually reducing their holdings.  Plus, any rate increase will be minimal and probably not before the end of this year.  Over-pricing of stocks is a constant concern but doesn't appear worrisome yet.  The price-earnings ratio of the S&P got as high as 28.2 before the 1999 correction.  At the peak in 2007, it got up to 17, which is about where it is now.  So, stocks are high but not seriously high.  However, I do worry about some external event, often called a "black swan" event.  Commonly cited examples would be the fall of Lehman Brothers in 2008.  Some fret about a sudden collapse of the credit bubble in China.  I worry about a derivatives blow-up, where literally trillions of dollars become due overnight.  Of course, a black swan event cannot, by definition, be forecast.  We can only watch for it and sell quickly if we suspect such an event.

So, for now, sing Happy Birthday off-key, wear a silly hat, eat some cholesterol cake and count your blessings!

Saturday, March 8, 2014

The Full Circle of Paranoia

Back in the early 1970s, there was a series of four full-length motion pictures loosely centered on the character of Billy Jack, who was a half-Indian, ex-Green Beret, who was a closet or "teepee" existentialist.  Because death was his ever-present occupational companion, there was that easy familiarity, helping him to learn emotional detachment from everyday life -- while enjoying the very tiniest pieces of it.

But, the movies were of the good-versus-evil genre, where sweet, simple students were deemed a threat by the powers-that-be.  The over-powering force of government eventually overwhelmed the people but not before there was much tearful bluster.

Sparing you the details, I saw some reminders of those old, left-wing movies and was reminded of the modern right-wing Tea Party, i.e.,the over-powering force of government overwhelming simple, hard-working people but not without much tearful bluster.

Being born in a revolution from England, I guess it is normal for us to always fear the government somewhat.  At times, the left is paranoid, and at other times, the right is paranoid.  But, what is the value of this paranoia?  Government is just a collective tool, like a screw-driver is a tool.  I might be paranoid about many things but never a screw-driver!

So, when will the right-wing surrender this paranoia back to the left-wing . . . in fact, the left-wing is calling, and they want their paranoia back . . . "and the beat goes on." 

Friday, March 7, 2014

The Job of Understanding the Jobs Report

Anytime you see the futures market indicate the Dow will open up about 25 points and then, within a matter of seconds, the futures indicate the Dow will instead open up 80 points -- you know there is breaking news.  If it happens on the first Friday of each month, you can bet the monthly "jobs report" was good.

And, it was good today.  Compared to expectations of about 140 thousand, there were actually 175 thousand jobs created last month.  In addition, it was learned that the job growth over December and January had been under-reported by another 25 thousand jobs.  The awful winter weather hurt us but not as badly as feared.

The unemployment rate ticked up from 6.6% last month to 6.7% this month, but that is rapidly becoming a meaningless statistic.

The Labor Force Participation Rate was unchanged at 63%, annoying Republicans.  The slight increase in government jobs was entirely at the state and local level, with no relief at the Federal level, annoying Democrats.

The most interesting thing to me was that the average hourly earnings doubled from 0.2% in January to 0.4% last month.  That's a big change!  While I don't think inflation is around the corner, average hourly earnings will make sudden jumps like this before inflation is apparent.

Bottom Line:  this long, lazy recovery continues on and on . . . 

Regulating The Next War

There are worse things than losing a war.  One is to keep fighting a war that is already lost.  The war to re-regulate the financial system has been lost, and we need to quit fighting it.

Following the global financial crisis of 2008/9, it was not surprising that Congress laboriously constructed a new set of laws to improve regulation of financial institutions.  That noble gesture was called the Dodd-Frank bill.  Five years later, implementation of that law is as gridlocked as everything else in Congress.  The war is lost!

While I supported the bill, it was with reservation.  It made some progress in pulling derivatives regulation out of the shadows, which is critical.  But, like most laws, it was over-regulation and under-punishment.  And, it actually made "too-big-to-fail" institutions ever bigger.  It will require a million more pages, literally, of forms to be completed annually, which would probably never reviewed by regulators.  As usual, it would focus on disclosure and not punishment.  The only way anybody goes to jail is when their copy machine breaks down.

But, Dodd-Frank would be a step in the right direction.  Unfortunately, the banking lobbyists have successfully stymied anything and everything associated with Dodd-Frank.  That war is lost, and it is silly to keep fighting it.

As an alternative at the economics conference last week, Alan Greenspan proposed 'co-co" bonds, which stands for contingent-convertible bonds.  These bonds would be sold by banks.  If the bank has so many losses that it must write-off equity, these co-co bonds would cease to be bonds and would become stock in the bank, thereby increasing additional equity, which might even be used to absorb additional losses.  (Of course, these bonds have have to pay a higher rate of interest, reflecting the higher risk.)

This could easily replace much of the doomed Dodd-Frank bill, and I hope we see co-co bonds soon.  It would require less precision paperwork and fewer under-educated regulators.

Even stronger, I still hope we see more "paper-perfect" bankers doing the "perp-walk". . . in the middle of a mine field.  

Thursday, March 6, 2014

Thinking About Keystone

Democrats argue we must mitigate the effects of climate change.  Republicans agree -- but add we shouldn't spend any money until at least 100% of climate scientists agree on the causes and solutions.

As someone who lives on a beach and doesn't know a single climate scientist or climatologist, all I do know is that I have put my nose next to the exhaust pipe of my car and cannot imagine any good coming from it.  It is nasty stuff, indeed!  That is the extent of my environmental analysis.

You would think President Obama would have already killed the Keystone Pipeline.  However, the environmental impact study showed only negligible environment impact from the construction of the 1,700 mile pipeline and subsequent transportation of 700,000 barrels of tar-sands every day.  Besides, a $5.4 billion dollar infrastructure project would be good for the economy.  Did I mention a boatload of jobs would also be created?  All this makes the president reluctant to kill the project.  But, is that the real reason?

BusinessWeek has an interesting perspective on it.  To understand our decision-making process, one needs to study the decision-making process of OPEC nations.  After all, we are one of the world's largest producer and soon may be a significant exporter, not an importer, of oil.  We are not vulnerable like Europe and Asia.

In the OPEC nations, government is largely an extension of the energy or natural resource companies.  In the U.S. alone, oil companies spend $140 million each year on lobbying alone.  Why would they spend so much if they are not getting anything for it?  They have invested $365 million directly into Federal elections over the last 25 years.

The conclusion is that Obama would love to kill the project but cannot stand up to the oil company lobbyists.

Now, I wonder what would happen if Putin and Assad fired their army and hired a bunch of  lobbyists . . .


Monday, March 3, 2014

Wobbling Weebles

Everybody remembers the old Hasbro TV commercial that "weebles wobble, but they don't fall down."  That's how I felt when I watched stock markets around the world this morning.  Virtually every market in every nation is down and down sharply.  Of course, this is a reaction to the Russian invasion of Crimea over the weekend.

Asia was down 1.0-1.5 percent overnight.  Europe is down 1.5-2.0 percent.  Futures indicate the U.S. markets will drop about a percentage point today.

However, the Russian stock market is already down 13% in one day.  Capital is racing to escape Russia, and their currency is plunging.  Putin is already paying a price.  Who needs diplomacy anyway?  I suspect Putin has his arms around a tar-baby, that will be difficult to dis-engage.

The world is not ending, and it is a good time to pick up some stocks cheap . . . before they stop wobbling!

Saturday, March 1, 2014

Don Quixote Was Not a CFP

There is a serious effort underway to get more financial advisors to run for public office.  It is a fairly safe assumption that the vast majority of financial advisors are at least vaguely familiar with sound financial practices, as well as investment vehicles.  In fact, the fee-only financial advisors are even intimately familiar with the notion that they must do whatever is right for their clients/voters, which is called fiduciary responsibility.  So, why aren't there any financial advisors serving in Congress?

Maybe, the reason that SEC auditors cannot identify the dozen or so Ponzi schemes each year is because they are blindly following laws written by non-financial advisors?  If so, Congress NEEDS real financial advisors.

While I have been a city councilman and appointed to two different state authorities by two different governors in two different states, there is no way I would ever run for office again!

The securities industry is tightly regulated.  Running for office makes a financial advisor subject to excessive regulatory audits, as well as his employer.  (One of the largest brokerage firms recently fired two stockbrokers who filed to run for a political office.)  If I vote a certain way, did I do it because I thought it was the right thing to do?  Or, did I vote to benefit my clients, who might own certain securities?  I am guilty until proven innocent.  Every vote that helps my clients would be suspect, while every vote that doesn't help my clients puts me in violation of my fiduciary responsibility to do whatever is in the their best interest.

Plus, my clients should not penalize me for my political beliefs, but they are human, after all, and political vitriol is fashionable these days.  And, no client wants to read some political attack on their financial advisors, like he filed his income tax return late one year while serving in the Army.

Personally, I'd rather find some windmill and attack it!

But, is America better off without financial advisors in Congress?