Here is a quiz. Who said what follows, and when?
"The income gap between the rich and the rest of the U.S. population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself."
The surprising answer: Alan Greenspan in 2005. So much for Ayn Rand! I learned this from a fun book I just read, Riches Among the Ruins by Robert P. Smith with Peter Zheutlin, (New York Amacom 2009). Mr. Smith is the near-legendary trader in beaten-down emerging markets debt who made amd lost several fortunes by risking his life in countries wracked by war, revolution, corruption, and confusion. Read it! Read more »
Earmarks and Fed Funds
Demand from a subscriber in Missouri is one reason we are now emailing the newsletter rather than posting it on the website. This doctor was working flat-out preparing a grant application for earmarked funds to do research into melanoma; I think he got it.
Fast forward 18 months (a guess) when the stimulus package has generated enough stimulus and has to be ended to prevent inflation. What do you think Congress will do about melanoma research funding? My guess is that it will be untouchable, unlike the bridges to nowhere, the tattoo removal subsidies, the museum of gambling, and other congressional earmarks causing so much tsktsking today. What you want in a stimulus package is indefensible subsidies, not valid ones for medical research, education, unemployment benefits, alternative energy, and other good causes. Read more »
Working Hard to Make It Easier for You
Working hard for Global Investing our webmaster has created the ability to send by e-mail the paid newsletter to paid subscribers and contributors and other members of the press. There is a risk we are taking: that you will pass this newsletter on to others without paying. When you visited the memberlodge, your arrivals were tracked to make sure that there weren't any mob arrivals; with an e-mail we cannot track who sees this newsletter. Everyone has family and friends. Please do not broadcast this newsletter. If you a member of the press, you can quote us with attribution
For the record the former publisher also apparently engaged in plagiarism along with SEC violations and other evil acts. Read more »
Red herrings are abundant in Washington these days.
The first is earmarks. Republicans are listing outrageous earmarks in the congressional stimulus bill. Stuff like tattoo removal funding or a museum of gambling or an unnecessary subsidy to develop solar reflecting glass.
But unless Congress restores the line-item veto (it won’t), there is nothing the White House can do except sign off on the package. Any earmarks may provide useful stimulus. After all, the tattoo-remover may not have gotten the work without a government grant, and once he has covered his costs he will spend the money on expanding his business, buying more tattoo removal equipment or a new decal for his motorcycle. It will stimulate the economy.
In total, the earmarks account for about 4% of the stimulus package. It would be nice if Congress would behave, but it never has even under Republican control. Read more »
Bi-Metallism and Green Beer
Contrary to rumors, I have not been guzzling green beer all morning. Instead, I was doing some marketing.
The solution to the AIG quandary is simple. The recipients of the bonuses should be paid, not in U.S. currency, but in credit default swaps at their face value. Surely that meets the government-controlled company’s contractual obligations.
Unlike a NY reader, I do not think that the Merton-Black-Scholes system to value options deserves the Ignobel Prize for economics. It is like saying you do not want to give credit to the cavemen who discovered the wheel because automobiles crash. The problem is not the technology; it is the way it was used, among others by Black and Scholes who invested their prestige and their Nobel Prize money in Long-Term Capital Management which went bust. Read more »
Happy St. Patrick's Day
Begorrah. You didn't know that my grandfather-in-law graduated in medicine, specializing in ob-gyn, from Trinity College Dublin. This gives me the right to wear the green.
It certainly beats worrying about the idiocy of U.S. protectionism making Mexican trucks move their cargo when crossing the U.S. border. This abomination was snuck into the Congressional pinada in violation of Nafta.
Tis true that by going to a Protestant medical school, my husband's granddad managed to avoid promising to always save and baptise the baby rather than the mother in a perilous childbirth, which I approve of, whatever various popes may say. Read more »
Living Up to Our Name
Oh shock! Oh horror! Money paid to AIG to cover the margin calls on credit default swaps wound up in the coffers of foreign banks (to say nothing of Goldman Sachs). Unlike the unseemly 2008 bonus payments to its CDS whiz kids or the Goldman connection with the former U.S. Treasury Secy., which are shocking, that U.S. money for AIG's ill-conceived 'insurance' products wound up abroad is not scandalous. It is normal business in the 21st century.
We don't live in a yellow submarine. We live in an integrated global economy with what used to ba functioning trans-national banking system. That is why the jingo tone of bank bailouts in the U.S. and other countries is so worrying. The money slops around; that's what money does. National borders are irrelevent. Read more »
The Ignobel Prize for Economics
The competition is heating up for the Ignobel Prize for Economics which is awarded every year by the Cuban Government. While the favorite for the 2009 award has long been 85-year-old Robert Mugabe of Zimbabwe, a younger sprinter is now in the running and coming up fast, thanks to nationalizing his country's transport system. Who will win the covered award for 2009, bookmakers are asking? Unlike regular Nobel Prizes, the economics award, which was only created a decade ago, take money away from the country of the winner. My bet is on Mugabe, who after all may not even be around as long as the Cuban government.
The other hot competition of the moment is the shape of the graph of the economy. Will our global recovery be U shaped, V shaped, or L shaped is the question of the moment? The bears, led by Nouriel Roubini, think the L has at least a 33.333 recurrent percentage chance of prevailing. That means a long slow slog at the bottom of the cycle. Roubini is a professor of economics at NYU here is New York and was one of the prescient forecasters of the current mess. Read more »
Nationalist Communist China
A series of Chinese actions over the last few days mark a resurgence of nationalism in Beijing. First there was the murky saga of the Yves Saint-Laurent auction at Christie's in Paris, over Manchu animal heads made in Europe for the Summer Palace, which are hardly Chinese treasures, and which the country could have bought before the auction for a lower price.
Then there was the standoff in international waters with a U.S. surveillance ship keeping an eye on Hainan Island. The U.S., which I trust in these matters, says China was violating international law.
And on Monday, there was a huge selloff in the final moments of trading in HSBC Bank, which is British, but also a part of the Hong Kong establishment: issuer of banknotes; key to the index; operator of the index (throgh its Hang Seng subsidiary); and investment touted by the city's Mir. Big, Li Ka-Sheng. Read more »
The Nifty Fifty Are Back
We're back to the early days when I first started investing and bought GE and ATT. Yesterday's upbeat market responded not just to Vikram Pandit's optimism on CI, but also to probable legislative changes to restore the uptick rule against short selling after a prior short sale. And a change in the rules of marking to market.
I am rather fed up with the Oracle of Omaha for talking down the U.S. economy, because I feel he wants to continue to do what he does so well, bottom-feed. Warren Buffett wants a buffet of high-yielding desperate companies he can gobble up cheap. But read on. Read more »