Friday, October 29, 2010

Telling It the Way It Is

You have to admire Bill Gross, the eponymous bond king who runs PIMCO's portfolio. His latest monthly Investment Outlook in part takes on the silly season of the midterm elections and its outrageous campaign tactics. The election nearly neatly coincides with Halloween and the ghoulish nightmare of the endless direct mailings and automated phone calls insult the intelligence of the American voter. The negativity is overwhelming. Being on the National Do Not Call list is irrelevant as apparently the people who make the laws can easily bend them for their own benefit so night after night negative recorded messages besiege our land line. If you do not answer, the recording ends up on your answering machine -- some of them can last minutes. When we're home, call recognition winnows most so we can easily answer and hang up almost simultaneously.

The mailbox is stuffed with dire warnings, black and white photos of the opponent which makes he/she look like a ghost and then a nice colorful photo of whomever the mailing supports. Fill in any politician's name you want "[Blank] Is Sucking the Life Out of the Economy." Or another one we received today: "[Blank] Has a Secret She Doesn't Want You to Know." Some are sent by a major party while others are sponsored by "organizations" that sound mighty impressive but are totally unknown such as "Citizens for Lower Taxes and a Stronger Economy, Inc." Hey, I want a stronger economy and lower taxes -- I should be for what they're for!

But I say elect Spiderman!

Just imagine a political system with campaigning that relies totally on televised public debates and published position papers (on the Web, in newspapers) but NO PAID ADVERTISEMENTS or CALLS. Imagine saving all those wasted resources and putting them to better use, especially in these dire economic times.

I'm sick of it and so is Bill Gross. As I said, you have to admire his stance, a risk he takes as he is not a politician, but represents a major financial institution. He's also a damn good writer. Good riddance to the midterm elections. When will we ever learn? The link to Gross' article is above, but I conclude by quoting part of his statement on the subject. It's just too good to be buried in the link.

Each party’s campaign tactics remind me of airport terminals pre-9/11 when solicitors only yards apart would compete for the attention and dollars of travelers. “Save the Whales,” one would demand, while the other would pose as its evil twin – “Eat Whale Blubber,” the makeshift sign would read. It didn’t matter which slogan grabbed you, the end of the day’s results always produced a pot of money for them and the whales were neither saved nor eaten. American politics resemble an airline terminal with a huckster’s bowl waiting to be filled every two years.

And the paramount problem is not that we contribute so willingly or even so cluelessly, but that there are only two bowls to choose from. Thomas Friedman, the respected author of The World Is Flat, and a weekly New York Times Op-Ed author, recently suggested “ripping open this two-party duopoly and having it challenged by a serious third party” unencumbered by special interest megabucks. “We basically have two bankrupt parties, bankrupting the country,” was the explicit sentiment of his article, and I couldn’t agree more – whales or no whales. Was it relevant in 2004 that John Kerry was or was not an admirable “swift boat” commander? Will the absence of a mosque within several hundred yards of Ground Zero solve our deficit crisis? Is Christine O’Donnell really a witch? Did Meg Whitman employ an illegal maid? Who cares! We are being conned, folks; Democrats and Republicans alike. What have you really heard from either party that addresses America’s future instead of its prurient overnight fascination with scandal? Shame on them and of course, shame on us. We’re getting what we deserve. Vote NO in November – no to both parties. Vote NO to a two-party system that trades promises for dollars and hope for power, and leaves the American people high and dry.

Monday, October 18, 2010

Tale of Two Economists

In an ironic twist, an economist turned entrepreneur writes a rigidly academic critique, The Recklessness of Quantitative Easing, and an academic pens an anecdotal piece of writing on a different but related subject, I Can Afford Higher Taxes. But They’ll Make Me Work Less.

Recklessness by John Hussman, whom I’ve quoted before in this blog as I consider him to be one of the clearer thinkers about the uncharted territory we call today’s economy, argues that the Federal Reserve’s announced intention to pursue a second round of QE is to drive “interest rates to negative levels in hopes of stimulating loan demand and discouraging saving” and to “increase the supply of lendable reserves in the banking system.” But will this increase output and employment?

Hussman thinks not as “interest rates are already low enough that variations in their level are not the primary drivers of loan demand.” There is simply a lack of confidence – both for the consumer and businesses -- that they will have the income in the future to pay off loans. So low or even negative interest rates is not a barrier and “removing a barrier allows you to move forward only if that particular barrier is the one that is holding you back (the economic term being "constrained optimization" as he explains.)

“Instead, businesses and consumers now see their debt burdens as too high in relation to their prospective income. The result is a continuing effort to deleverage, in order to improve their long-term financial stability. This is rational behavior. Does the Fed actually believe that the act of reducing interest rates from already low levels, or driving real interest rates to negative levels, will provoke consumers and businesses from acting in their best interests to improve their balance sheets?”

The effect of all the talk about QE2 has been to propel gold to new highs and to further erode the value of the US dollar as the Fed dramatically expands its balance sheet. “But once the Fed has quadrupled or quintupled the U.S. monetary base from its level of three years ago, how will it reverse its position?” Hussman’s answer is that many years down the road it will be forced to sell off the instruments it is buying, driving interest rates much higher as foreign buyers might be absent from such auctions, and undermining whatever recovery might have begun of its own accord, just further accentuating the boom bust cycle.

He has constructive suggestions, fiscal responses that might include “extending unemployment benefits, ensuring multi-year predictability of tax policy, expanding productive forms of spending such as public infrastructure, supporting public research activity through mechanisms such as the National Institute of Health, increasing administrative efforts to restructure debt through writedowns and debt-equity swaps, abandoning policies that protect reckless lenders from taking losses, and expanding incentives and tax credits for private capital investment, research and development.” Of course many of these require the cooperation of Congress and watching the mud slinging of the mid term elections, one has to wonder.

But Hussman’s article is must reading it its entirety, especially if you are an individual investor and wondering how to position a portfolio in this strange new economic world. The net effect of the Fed’s actions, besides the obvious nearly zero return on any CD you might buy, is to “force” the investor to move into riskier assets commodities in particular and equities as well. One could also “play” the decline of the dollar by investing overseas or in US multinational companies, which derive a majority of their income abroad. But to what extent QE2 is already baked into the prices of these riskier assets is anyone’s guess. There is also the possibility of a more protracted deflationary period than anyone can imagine right now, with the ongoing real estate crisis and high unemployment having a continuing impact. There seems to be a heavy reliance on the Fed’s future actions leading to an idyllic outcome. I think Hussman would disagree.

One of his suggestions as noted is “ensuring multi-year predictability of tax policy” which leads me to the other economist, Professor Mankiw who is professor of economics at Harvard and was an adviser to President George W. Bush, whose administration has to share some if not a majority of the responsibility of our present economic morass.

Professor Mankiw op-ed piece in the October 9th New York Times, through a convoluted and highly subjective mathematical exercise, argues the proposed tax increase on the 2% wealthiest Americans – some attempt at least to close the budget abyss -- will lead to such people not working much, including, alas, movie and rock stars and even novelists! Outraged, and disappointed that I might not see another Harrison Ford movie, or see my first Lady Gaga “concert” or that Jonathan Franzen will put down his pen, denying us his next novel in protest, I immediately shot off a letter to the editor of the NY Times business section, in which Mankiw’s article appeared. Some very good letters were published in response, but not mine. The nice thing about a blog is I can publish my own rejections! So here is what I wrote:

While it is hard to argue with Professor Mankiw’s math (“I Can Afford Higher Taxes. But They’ll Make Me Work Less”) of what his incremental income might become thirty years in the future in a halcyon tax-free world, his conclusion that movie stars, novelists, rock stars, and surgeons might work less if taxes are increased is based more on his own anecdotal view of working. By his own admission: “I don’t aspire for much more than a typical upper-middle-class lifestyle,” and that’s fine, but don’t blame the tax code for declining his next free lance opportunity. If he should climb down from his Ivy tower and look at the real world with real unemployment around 15%, people trying to work to simply support their families and hold onto their homes rather than handing down wealth to succeeding generations, he might have a little more empathy for a progressive tax code that did not seem to destroy incentives during the Clinton years, the last years in which our country actually had a surplus. And even Warren Buffett and Bill Gates see the fairness in having some sort of an inheritance tax.

Maybe the Times found it too preachy or politically oriented. Perhaps I should have concentrated on the nature of work itself. Remember Hussman’s comment about constrained optimization, that removing a particular barrier only has a beneficial impact if indeed it was that particular barrier holding you back? If Mankiw is entitled to personalize his argument, so can I. I worked as hard when in a higher incremental tax bracket as I did when they were lowered. Why? I loved work, simple as that. And, that is what is missing not only from Mankiw’s formula but how our society looks at work and values workers.

I remember my first visit on business to Japan in the 1970’s, the taxi cab drivers waiting at the hotel for a fare, their cabs gleaming as between fares they would polish and clean their cars. The refuse collector doing his job well was as highly valued by society as a company executive. Japan today, of course, suffers some of the same maladies as ours, with a twenty-year head start on the phenomenon of deflation, so perhaps that has taken its toll on their workers. Somehow, as a society, we need to value all workers and restore work as something to be embraced.

Of course we don’t always have an idyllic choice of the work we do in our lifetimes, but we do have a choice of doing it well or not and by choosing the former, we open a path to finding it meaningful. I’m sorry Prof. Mankiw chooses whether he will write an article or accept an invitation for a speech merely based on what his incremental income bracket might be, although I think most people would envy that he actually has a choice.

I like what the great short story writer, Raymond Carver, wrote thinking about a friend who admitted he wrote something just to make a deadline and make a buck, knowing he could have written something better if he took the time. “If writing can’t be made as good as it is within us to make it, then why do it? In the end, the satisfaction of having done our best, and the proof of that labor, is the one thing we can take into the grave. I wanted to say to my friend, for heaven’s sake go do something else. There have to be easier and maybe more honest ways to try and earn a living. Or else just do it to the best of your abilities, your talents, and then don’t justify or make excuses. Don’t complain, don’t explain."


Monday, October 11, 2010

Cruise to Canada and New England

Although we lived in the northeast all of our adult lives before moving to Florida, and still spend the summers there on our boat, we had never taken our own boat north of Nantucket, so this summer we planned a trip to the Canadian Maritimes, but on a cruise ship, leaving the driving to someone else. And although we had navigated New York harbor on our own boat, there is nothing like leaving New York on a 93,000 ton vessel, where you pass Lady Liberty at eye level and
the entire panorama of New York slowly unwinds as you leave the pier at 55th Street and 12th Avenue and make your way towards and under the Verrazano Bridge, barely clearing the bridge in such a vessel. Passing Ellis Island stirred stories in my memory of my ancestors who were processed there, arriving from Cologne, Germany before the Civil War and afterwards building a photography business on the Bowery in lower Manhattan.

Having departed NY in the late afternoon, we emerged into the open waters of the Atlantic on way to the first port of our itinerary, Halifax NS. Our departure coincided with the arrival of Hurricane Igor in the Atlantic and although we were no closer at any time than about 1,000 miles, the storm stirred up the seas, resulting in considerable swelling. But for old salts such as ourselves, the 8 to 10 foot seas were very tolerable, particularly in such a large stabilized vessel. I felt sorry for the passengers who were wearing their wristbands and their patches behind their ears to ward off mal de mare, real or imagined. One could easily recognize such people from a slight glaze of fear in their eyes.

This first leg to Halifax took a full day and night from NY and we entered the harbor early in the morning, a special moment for me as several years ago I edited a book, New York to Boston; Travels in the 1840’s, which included selections from Charles Dickens’ American Notes (1842). Halifax was Dickens’ first stop after transiting the Atlantic Ocean on one of the early steamers -- and in January no less. One can understand his relief at arriving in Halifax, writing the following about his Atlantic journey: “Imagine the wind howling, the sea roaring, the rain beating: all in furious array against her. Picture the sky both dark and wild, and the clouds, in fearful sympathy with the waves, making another ocean in the air. Add to all this, the clattering on deck and down below; the tread of hurried feet; the loud hoarse shouts of seamen; the gurgling in and out of water through the scuppers; with, every now and then, the striking of a heavy sea upon the planks above, with the deep, dead, heavy sound of thunder heard within a vault.”

His ship went aground entering the Halifax Harbor and after being reassured that there was no danger of the ship sinking, or rolling over as the tide was on the rise, Dickens went to bed at 3:00 AM. Upon awakening the next morning, he wrote: “When I had left it over-night, it was dark, foggy, and damp, and there were bleak hills all round us. Now, we were gliding down a smooth, broad stream …the sun shining as on a brilliant April day in England; the land stretched out on either side, streaked with light patches of snow; white wooden houses; people at their doors; telegraphs working; flags hoisted; wharfs appearing; ships; quays crowded with people; distant noises; shouts; men and boys running down steep places towards the pier: all more bright and gay and fresh to our unused eyes than words can paint them.” They finally got off the ship for the first time in fifteen days, Dickens describing Halifax as follows: “I carried away with me a most pleasant impression of the town and its inhabitants, and have preserved it to this hour… The town is built on the side of a hill, the highest point being commanded by a strong fortress, not yet quite finished. Several streets of good breadth and appearance extend from its summit to the water-side, and are intersected by cross streets running parallel with the river…. The day was uncommonly fine; the air bracing and healthful; the whole aspect of the town cheerful, thriving, and industrious.”

I include Dickens description as remarkably it mirrors our own impression of Halifax, and I could not help thinking of his visit while there. Of course, things are more modern now, and the fort he referred to as being unfinished, The Citadel, was completed in 1856, fourteen years after Dickens’ visit.

It was a clear chilly day with nary a cloud in the sky when we were there, the wind having whipped around from the north after the passage of Hurricane Igor far to the east. We walked the extensive hills of Halifax. In some ways, it reminded us of a small Vancouver, with many ethnic groups, Halifax’s Pier 21 having served as the “gateway to Canada” as did Ellis Island in NY.

Our departure followed Dickens into the Bay of Fundy, but his ship went directly to Boston whereas we were on our way to Saint John, New Brunswick, on the north shore of the Bay of Fundy and at the mouth of the St. John River. The Bay of Fundy has always fascinated me because of its extreme tidal changes, an unthinkable fifty-five feet along with the strong currents that accompany such change. As a boater, I wondered how one would navigate and tie off to fixed docks for such a change (answer: time activity to avoid low tide or just sit on the bottom waiting for the tide to rise). Intent on seeing as much as we could of this phenomenon and the caves gored by tidal action, we wanted to travel parts of the Bay of Fundy trail and therefore we booked a private guide to be driven to all the highlights.

This turned out to be a fascinating part of the trip, not because of the scenery per se, which was not as memorable as we had hoped (we were there at the wrong tide, closer to high than low) but because of our driver, a woman in her early forties, and her unusual and remarkable life story.

She was born to a French-Canadian father and a mother who is part native Indian and actually was raised on a Reservation. In fact, her Uncle is currently a chief of one of the Micmac tribal villages. Our guide has twelve half brothers and sisters, all fathered by different men! Her mother had problems, too personal to go into detail here. But remarkably, our driver raised many of her half siblings from her early pre-teen years, and her own two sons and a daughter as well, completely on her own. Through much personal sacrifice and hard work, they have become upstanding citizens and she is currently a very proud homeowner and successful in her business, and is reconciled with her parents who rent a room in her house!

So while we toured and she explained the various sites, we were equally fascinated by this larger than life person, and her perspective on living in St. John, a beautiful part of the world.

From St. John the ship moved on to Bar Harbor, Maine, my friend Emily’s favorite place. Although our son went to Bates College in Lewiston, and we used to visit him there, regretfully we never found our way to Bar Harbor, a town that reminded us a little of Nantucket. Emily’s “go to destination” in town is Sherman’s Bookstore where she advised Ann to buy, Contentment Cove, a novel written by Miriam Colwell, which although she actually wrote in the 1950’s was published only four years ago. Ann loved the book, finishing it during the rest of the cruise (I was reading Jonathan Franzen’s Freedom)

Acadia National Park, with its striking views of the Porcupine Islands and much of Maine’s extensive coastline was a special treat. Before the fire of 1947, Bar Harbor had large, Newport-like “cottages” but most of these were consumed in the fireball that was fed from the Acadia woods by a dry strong wind. Today Bar Harbor’s 4,000 resident population grows ten times that in the summer. One can see why.

From Bar Harbor we cruised overnight to Boston, where we eagerly anticipated seeing our son, Chris. We decided to meet at The Institute of Contemporary Art where we were treated to highly interesting and imaginative work of Charles LeDray, an exhibition entitled workworkworkworkwork, “consisting of handmade sculptures in stitched fabric, carved bone, and wheel-thrown clay.” These are all “smaller-than-life formal suits, embroidered patches, ties, and hats, as well as scaled-down chests of drawers, doors, thousands of unique, thimble-sized vessels, and even complex models of the solar system.” The gestalt was to make the viewer’s life feel tiny in the continuum of time and space. This exhibit will tour, so be on the lookout! Afterwards, we had a wonderful lunch overlooking the Boston Harbor. The sun set over Boston as we departed.

The last port was one we had once visited on our own boat, many years before, Newport, RI. Here is one of the most beautiful, venerable NE seafaring towns, with its “cottages” for the rich and famous. Newport always has a breeze blowing and I remember having to back our boat down a corridor at the old Treadway Inn, currently another hotel, its docks now rearranged for mega vessels, with a crosswind that made the boat almost unmanageable. I think I made a mental note to avoid Newport thereafter, at least on our own boat. Nonetheless, I love the architecture in Newport.

Returning to New York early the next morning was dramatic as we caught the dawn and then the sunrise. The Williamsburg Bank tower in Brooklyn as well as the Brooklyn and Manhattan bridges marked my return to an area I had spent a good part of my early adult life.

It was strange to see these landmarks from the perspective of the ship, four decades later, almost as if I am now a stowaway from another land.


Wednesday, October 6, 2010


I will not attempt to formally “review” Jonathan Franzen’s Freedom as it justifiably has been thoroughly reviewed and highly praised since publication. But having recently read it, here is my opinion. It is a tour de force of our times covering the entire canvas of American culture, politics, and the forces that now shape our personal relationships and our society. It is stunningly and ingeniously written, with a fresh originality, a postmodern view of who we are and how we got here. In so doing, Franzen excoriates the worst aspects of American culture.

It is a story about the enmeshment of relationships, the extent to which we create our own hell (or heaven) having been dealt the hand of the families we are born into. Do we assume the roles of our parents or rebel against them? To what extent do we really have free will or become victims of abuse and misbehavior inflicted by prior generations? It is about competition and power, survival of the fittest, fathers vs. sons, almost echoing the Darwinian themes of Dreiser. It
is about the conflict of personal freedoms and the need to protect the environment and control population growth. Will “the American bourgeoisie…voluntarily accept increasing restrictions on its personal freedoms”?

It is also a novel about a unique development in American life, new generations not having it better than previous ones, perhaps the consequence of having too many choices. As Franzen writes about the main character, Patty, “she was struck…by how much better off and more successful her parents were than any of their children, herself included.” Her mother cursed her husband’s genes “for her kids’ weirdness and ineffectuality.” At times the characters are “bludgeoned by depression,” another leitmotif of the novel and certainly characteristic of our
Prozac plagued times.

I couldn’t help but think of Updike’s Rabbit novels, written about every ten years, capturing the Zeitgeist of each decade, and Franzen, now, encapsulating the state of the first decade of the millennium. There is also the eerie coincidence of Patty being a basketball star in her youth, like Rabbit Angstrom. In many respects, there is a decidedly Updikian feel to the novel.

The novel is a shot across the bow of a society that values the culture of American Idol and the
worst aspects of capitalism more than the environment and intelligent political choices. At one point Patty’s son, Joey, wishes “there were some different world he could belong to, some simpler world in which a good life could be had at nobody else’s expense,” summing up the modern conundrum.

While it is a novel of social commentary, it is also a page-turner with memorable characters, ranking with the best in American literature. The writer who shared similar concerns in the early 20th century, Sinclair Lewis, said America is “the most contradictory, the most depressing, the most stirring, of any land in the world today.” I think Franzen would agree