Inaugural Day Thoughts

Our friends, John and Lois, hosted a second Inaugural party, some thirty guests to witness the ceremonial swearing in of the President and his speech.  What a difference four years make.  Last time it was a euphoric party, imagine, a young black president, imbued with liberal ideals, but with an economy that had already shown signs of complete collapse the joy was somewhat restrained by worry.

Four years later, the intransigence of government compromise has given way to more temperate expectations.  However, none of this detracted from the day, a remarkable, very moving, and humbling exercise of the democratic process with the pageantry instilling a quiet pride and hopefulness in us and the sea of faces that swept across the National Mall.

Everything about it was just about perfect, even the weather cooperating.  President Obama's speech was aspirational and progressive, touching upon many of the themes of his presidency and introducing the sorely needed goal of combating climate change.  Perhaps he will make that the hallmark of his second term as universal healthcare was in his first.  In spite of the overwhelming need to face this issue realistically, action has been lacking.  Here is an interesting pro/con alignment of opinions on this subject (hat tip Barry Ritholtz's The Big Picture).

This will become yet another clash in Congress.  To fully understand the severity of political polarization, one only has to read comments about Obama's reelection such as Texas Representative John Culberson's: I grieve for the country....We’re going to throw the emergency brake on as best we can and fight him every step of the way.  Welcome to your second term, Mr. President!

A key phrase from the Inaugural speech, we, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it, was also Obama's central point when he was campaigning and will probably be the fulcrum of budgeting and tax reform.  But this is going to be a more complex problem as there are systemic reasons behind this widening gap that go far beyond the reach of mere tax reform legislation.  The New York Times magazine section this Sunday carried a relatively brief but pointed article on "skill-biased technical change:" The rise of networked laptops and smartphones and their countless iterations and spawn have helped highly educated professionals create more and more value just as they have created barriers to entry and rendered irrelevant millions of less-educated workers, in places like factory production lines and typing pools.

Thus, workers having technology skills, mostly those in information industry professions, law, finance, engineering, and medicine, have disproportionately benefited from those skills at the expense of blue collar workers who have been forced into the service economy at lower wages.  Having technology skills is tantamount to buying on margin, being able to leverage those skills for much greater compensation.

So when President Obama tries to put through legislation to reverse this course, it has to take into account not only tax reform, but massive educational reform and the effects of that will not be immediate, but rather long term, maybe measured in generations, like the progress made in civil rights.  Do we have the fortitude and patience?

And, then there is the deficit and reducing the National Debt.  We could embrace the best parts of the Simpson-Bowles plan (so eagerly commissioned by both parties as the National Commission on Fiscal Responsibility and Reform, and then the results so immediately distanced by both)  No one wants to face up to their recommendations.  Our massive National Debt in part was incurred to save our financial system from ruin, but it did not occur overnight.  Quick and easy fixes are impossible. But, if we get the direction right, and gradually phase in some of the Commission's recommendations, perhaps we can then move forward on that front.

But do our politicians have the right stuff?  This is where presidential leadership is so sorely needed. President Obama threw down the gauntlet in his speech about the need for action -- even "imperfect" action -- a veiled suggestion of compromise.  There were two beautifully crafted paragraphs about the dangers of taking intransigent positions based on ideology in his speech:

That is our generation’s task -- to make these words, these rights, these values of life and liberty and the pursuit of happiness real for every American.  Being true to our founding documents does not require us to agree on every contour of life. It does not mean we all define liberty in exactly the same way or follow the same precise path to happiness.  Progress does not compel us to settle centuries-long debates about the role of government for all time, but it does require us to act in our time.  

For now decisions are upon us and we cannot afford delay.  We cannot mistake absolutism for principle, or substitute spectacle for politics, or treat name-calling as reasoned debate.   We must act, knowing that our work will be imperfect.  We must act, knowing that today’s victories will be only partial and that it will be up to those who stand here in four years and 40 years and 400 years hence to advance the timeless spirit once conferred to us in a spare Philadelphia hall.

Finally, a bit of serendipity.  Does life imitate art? I had noted that Aaron Sorkin's 1995 classic The American President, directed by Rob Reiner, was on TV the same night as the inaugural.  We've seen it before but Ann and I, in a "presidential inauguration mood," said, what the heck, we'll watch it again (thanks Encore, no commercial interruptions).  Talk about a feel good movie and how incredibly relevant although made almost twenty years ago.   The focus of fictional President Andrew Shepherd's administration is to pass a crime bill (with assault weapon gun control) and an environmental bill that mandates the reduction of hydrocarbon emissions. Meanwhile, a right wing political demagogue, Senator Bob Rumson, is running against Shepherd's reelection, appealing to "family values" of Americans, by attacking Shepherd's relationship with Sydney Ellen Wade (Shepherd is a widower in the film).  Have things changed so little in the almost twenty years since the film's making?  Unresolved issues of gun control, environmental protection, and campaign character assault go on and on.

The film's President Andrew Shepherd initially takes the high road, concentrating on the issues rather than the personal attacks until he appears at an unscheduled and impromptu news conference and gives an impassioned, unrehearsed speech.  Perhaps all our politicians should see this movie once every four years (I realize that Sorkin writes with his own political agenda -- even I think that eliminating handguns cannot be on the lumped in with assault weapons --  but taking that into account, still there is much to be gleaned from this wonderful and eerily relevant script).  Here is what "President Shepherd" says:

For the last couple of months, Senator Rumson has suggested that being president of this country was, to a certain extent, about character, and although I have not been willing to engage in his attacks on me, I've been here three years and three days, and I can tell you without hesitation: Being President of this country is entirely about character. For the record: yes, I am a card-carrying member of the ACLU. But the more important question is why aren't you, Bob? Now, this is an organization whose sole purpose is to defend the Bill of Rights, so it naturally begs the question: Why would a senator, his party's most powerful spokesman and a candidate for President, choose to reject upholding the Constitution? If you can answer that question, folks, then you're smarter than I am, because I didn't understand it until a few hours ago. America isn't easy. America is advanced citizenship. You gotta want it bad, 'cause it's gonna put up a fight. It's gonna say "You want free speech? Let's see you acknowledge a man whose words make your blood boil, who's standing center stage and advocating at the top of his lungs that which you would spend a lifetime opposing at the top of yours. You want to claim this land as the land of the free? Then the symbol of your country can't just be a flag; the symbol also has to be one of its citizens exercising his right to burn that flag in protest. Show me that, defend that, celebrate that in your classrooms. Then, you can stand up and sing about the "land of the free". I've known Bob Rumson for years, and I've been operating under the assumption that the reason Bob devotes so much time and energy to shouting at the rain was that he simply didn't get it. Well, I was wrong. Bob's problem isn't that he doesn't get it. Bob's problem is that he can't sell it! We have serious problems to solve, and we need serious people to solve them. And whatever your particular problem is, I promise you, Bob Rumson is not the least bit interested in solving it. He is interested in two things and two things only: making you afraid of it and telling you who's to blame for it. That, ladies and gentlemen, is how you win elections. You gather a group of middle-aged, middle-class, middle-income voters who remember with longing an easier time, and you talk to them about family and American values and character. And wave an old photo of the President's girlfriend and you scream about patriotism and you tell them, she's to blame for their lot in life, and you go on television and you call her a whore. Sydney Ellen Wade has done nothing to you, Bob. She has done nothing but put herself through school, represent the interests of public school teachers, and lobby for the safety of our natural resources. You want a character debate, Bob? You better stick with me, 'cause Sydney Ellen Wade is way out of your league.

I've loved two women in my life. I lost one to cancer, and I lost the other 'cause I was so busy keeping my job I forgot to do my job. Well, that ends right now. Tomorrow morning, the White House is sending a bill to Congress for its consideration. It's White House Resolution 455, an energy bill requiring a 20 percent reduction of the emission of fossil fuels over the next ten years. It is by far the most aggressive stride ever taken in the fight to reverse the effects of global warming. The other piece of legislation is the crime bill. As of today, it no longer exists. I'm throwing it out. I'm throwing it out writing a law that makes sense. You cannot address crime prevention without getting rid of assault weapons and handguns. I consider them a threat to national security, and I will go door to door if I have to, but I'm gonna convince Americans that I'm right, and I'm gonna get the guns. We've got serious problems, and we need serious people, and if you want to talk about character, Bob, you'd better come at me with more than a burning flag and a membership card. If you want to talk about character and American values, fine. Just tell me where and when, and I'll show up. This is a time for serious people, Bob, and your fifteen minutes are up. My name is Andrew Shepherd, and I am the President.

What a way to cap off Inauguration Day.

Getting Back to Reality

The extraordinary increase (as a percentage move) in the 10 Year T Note yield shows the artificiality and the fragility of market values, everything being propped up by the Federal Reserve in the absence of any sound fiscal policy.  The recent Fed minutes merely hinted at the possibility of reducing asset purchases before the end of this year, and bond investors were left without their bungee cord:

Bill Gross, the "bond king," persuasively writes about the problem in his January letter, a long discourse on why "helicopter money" rained down by the Fed to save the financial system has to end badly in some way.

The artificiality of it all hasn't escaped the notice of corporations, many of which have loaded up their balance sheets with cheap debt, while holding mounds of cash, even to the point of paying massive dividends to their shareholders with borrowed funds.  The poster child for this is Costco which paid its shareholders $3 billion and borrowing the funds to do it.  Of course that was before the laughable fiscal cliff deal, which raised taxes on dividends to 20% from its present 15% but only for high income taxpayers.  They were talking about taxing dividends as regular income which must have freaked out the five largest shareholders who are corporate officers or directors, their take on the special dividend with borrowed funds being almost $12 million.  What a country! Borrow the money to pay your top people a huge bonus that is taxed at only 15%.  It truly is the microcosm for the contrived and completely unpredictable financial landscape of today.

A few days ago Barry Ritholz suggested a positive way of using today's manipulated market -- that is to upgrade and repair our aging infrastructure. Many of our roads are atrociously maintained and bridges are crumbling, not to mention aging water systems, power plants, and a railroad transportation system which is truly 3rd world quality.  As Ritholz says: At some point in the future, your kids are going to ask — “Wait, you could have upgraded _______ and it only would have cost you 2.5% in borrowing costs?!?”

 
Isn't that where we should be putting borrowed money to work, creating jobs?

Milestone and Miscellany

After my last post, Google informed me that was Lacunae Musing’s 300^th entry, a milestone of sorts.  When I began this blog almost five years ago, I had no idea where it might lead or, even, whether it would merely be a passing dalliance.   I had discounted writing about investments, something I know enough about to be dangerous, or about publishing, which, when I retired, I knew a lot about, but by the time I began to write in this space, the publishing world had changed dramatically.  Nor did I want to espouse only political views, although I’ve posted my share on the topic.  No, I wanted to write something that simply expresses my interests (as well as my views) and experiences (including some family history) and, perhaps, along the way make a small contribution on the WWW. The one thing I wanted to avoid is turning it into a job; I have no hidden agenda, no source of income from this effort.  There is only the satisfaction from writing, and having a “written trail” – a form of accountability, an intellectual balance sheet that is auditable.

As far as blogs go, mine is but a minor star in a minor universe.  Comparing this blog’s statistics to those of my blogging “hero” – to me the “father” of the investment blog—Barry Ritholtz’s The Big Picture -- shows the stark differences between a blog written by an erudite professional such as Ritholtz, and an unfocused personal blog.  It is like comparing the New York Times to a mimeographed newsletter (does the mimeograph still exist?).  Google tells me that I’ve had 25,000 page views now. Ritholtz’s blog has had 5,000 times more (and well deserved)!

Of course, I don’t view this as a competition, but it puts my humble contribution in perspective. Going back to Google’s statistics, the most viewed pages of my blog were mostly about trips we’ve taken, people presumably landing on those pages as they are contemplating (or have taken) similar ones. (In October when we will return from visiting Norway, Ireland, Scotland, Iceland, and Greenland and I’ll look forward to posting a write up with plentiful photographs.).  Just for the record, here are the five most read pages:

Marina MaidenVoyage

Feb 10, 2011; 1101 Page Views

Watson/HAL, ComeHere

Feb 17, 2011; 796 Page Views

Aegean Adventure

Oct 10, 2009; 710 Page Views

Summer Endeavors

Aug 8, 2011; 512 Page Views

Widow MakerRedux

Apr 21, 2011;  418 Page Views

Late in the game I began to add labels to the entries as the eclectic nature of the blog needed some sort of thread to tie everything together.  Unfortunately, as much of this work was done retrospectively, it isn’t a true index because of inconsistencies.  But it does give a handle on the contents with more than 350 labels.

I haven’t incorporated the popular “comments” feature in the blog as I just did not want to deal with reader’s comments publicly.  That felt like work to me.  My email address for the blog is in my profile (lacunaemusing@gmail.com), and I’ve received and responded to comments that way.  It certainly cuts down on casual comments when someone has to not only write an email, but identify him/herself as well.

The political season is heating up and I’m so disgusted with Super Pac advertising, and the unbearable rhetoric from both sides of the aisle that I doubt whether I will be as engaged in these blog pages as I was during the last presidential (and historical) election cycle.  To make my personal views clear, I think President Obama, given he is a mere mortal, has done about the best he could given the economic mess he was handed and the political roadblocks thrown at him.  But his campaign rhetoric has also worked against him, promising too much.  Also, I’ve criticized some of his priorities in these pages, so it is not as if I am a raving liberal.  I like to think of myself as a fiscal conservative and a social liberal and one might say that the two are not compatible; I think intelligent compromise can transcend many of the disagreements that are aired like dirty laundry in the media.  Of course, there are also the lunatic fringes and there is no compromise possible with them.

In fact, I recently learned, there is actually a word to describe this endless obfuscation of the truth -- Agnotology: Culturally constructed ignorance, purposefully created by special interest groups working hard to create confusion and suppress the truth.

And to whom do I give a hat tip for this morsel of incredible insight? -- Barry Ritholtz! (Who, in turn gives full attribution to the word’s creator, Stanford historian of science Robert Proctor.)  Ritholtz uses the term as but one element in his recent entry Defective Government By Design   asking the rhetorical question, “Is it democracy or plutocracy when less than 200 people drive election spending in a nation of 300 million?”

This entry is about the rise of corporate power and the Super Pac -- implications that are onerous for democracy.  I’ve written about it before, but if you land on this entry and want to know more, go to the foregoing Big Picture link.

Agnotology.  You hear and see its practice every day......say the lie often enough, and in as many forms as possible and voila, it suddenly becomes “the truth”.  In fact, innuendo works as well or even better than saying the lie straight out.

Here’s an example, the Daily News’ agnotological headline, “How many more must die, Mr. President?” – as if the horrific tragedy in Colorado is somehow the President’s fault.  If Obama had a magic wand, he would probably outlaw assault weapons, but he has a Congress to deal with, the NRA, and, of course, State’s rights.  It was theSupreme Court of Colorado which upheld a state law that allows residents to carry concealed weapons, even in schools!  But a glance at the NY Daily News headline plants an agnotological subliminal message.

That is the brave new political campaign world for 2012, different than it was in 2008, although that one too was quite ugly.  I will be relying on Fact Check.org to winnow truth from agnotological fiction.

What To Do?

If I were a Tweeter I'd be retweeting these two links. I've mentioned Barry Ritholtz's The Big Picture blog before. He has a measured view of the markets, and politics, not a raving bull or bear. And I've also mentioned John Hussman's Monday morning entries published in The Hussman Funds site. He has been criticized as a "Permabear" which is unfair as he looks at long economic cycles and he has been spot on long-term. His analysis can be technical and hard to follow for us lacking a PhD in economics, but well worth reading.

The recent gyrations of the market, Dow up 400, down 500, up 200, down whatever seems to signal that we are in uncharted economic and investing waters. The Fed's zero interest rates feed the fire of uncertainty. No longer is there the opportunity of having a "balanced" investment portfolio of stocks and bonds as the latter yields nothing. In fact the zero yield is adding fuel to the gold market as there is no longer an alternative cost (loss of interest) holding the yellow metal.

Hussman's recent write up makes two interesting points and then his very long piece elaborates: The reason we are facing a renewed economic downturn is that our policy makers never addressed the essential economic problem, which was, and remains, the need for debt restructuring. There are two one-way lanes on the road to ruin, and these - in endless variation - are unfortunately the only ones on the present policy map:

1) Policies aimed at distorting the financial markets by suffocating the yield on lower-risk investments, in an attempt to drive investors to accept risks that they would otherwise shun;

2) Policies aimed at defending bondholders and lenders who made bad loans, which they now seek to have bailed out at public expense.

Ritzholz writes a "slightly" lighter piece, with a list, A Decade of Punditocracy, Pathetic Edition. It shows how some policy makers and prognosticators drive with a rosy rear view mirror. I love the first on the list, George W. Bush, June 17, 2002: “Now, we’ve got a problem here in America that we have to address. Too many American families, too many minorities do not own a home. [...] Freddie Mac will launch 25 initiatives to eliminate homeownership barriers.”

So what is one to do? I still believe that well chosen dividend stocks held through thick and thin is part of the answer. This week's Barron's gives some valuable information on this topic, citing S&P's Howard Silverblatt's screen: Silverblatt has provided a substantial list of companies as a starting point for dividend investing. It's not a buy list but a screened set of stocks meeting certain criteria. It's available at www.marketattributes.standardandpoors.com. At the site, click S&P 500 Monthly Performance Data and then Dividend Starting File, at the bottom of the menu. Again, it's merely an interesting place to start.

Chances are that AAA firms such as Johnson & Johnson, Exxon, and Microsoft will survive, no matter what the economy might do, and one is paid to wait. Balance that with some Treasury Inflation Protected securities, and perhaps gold, and even cash, and wait out the market turmoil (it may be a very long wait). The key is to buy any of these on weakness and make the mix appropriate for one's own investment needs and risk tolerance.

Why Do This?

When I published my 100th blog entry, less than two years ago, I wrote a piece about why I write this blog and now that I recently posted my 200th entry, I thought it might be interesting to revisit the topic.


Nothing has really changed in terms of why I spend some of my time this way. Clearly, it is for my own benefit and the fact that along the way I've had thousands of visits to my blog, is gratifying but incidental to "the mission." How do they arrive here? Some friends tell me they visit (while others pointedly say they never have as they don't "do" that sort of thing, which is ok with me too). But mainly, people land here from Google searches, some from Google Images as I frequently include photographs with my entries even though they may not be called for by the piece.

Long ago I decided not to activate a comments feature on the blog as it was not my objective to get involved in public discourse. However, there is an email address in my profile and from time to time I receive email about my pieces, particularly the more political and economic ones where I have a viewpoint and recognize that others have their own and I have always responded. My favorite email though was from the adult daughter of a friend of mine I mentioned in a blog, she saying "It's always so eye-opening to see your parents in a different light....I was extremely touched by your piece....[and] thank you for sharing that. It meant a lot to me." Even though I mostly write for myself, it is nice to know that some of what I do in these virtual pages might benefit or interest others.

Barry Ritholtz who has been blogging for more than ten years under the rubric The Big Picture, recently wrote an interesting piece on why people might blog, and I was fascinated by his observation that his own blog would be the same whether 100 people visited it or 100,000 daily. Clearly his visits would be closer to the latter and mine to the former as his blog is financially oriented and he is well-known in his field.

But, we have many of the same reasons (not all) to blog, and here are his:

1. You have something to say
2. You enjoy the craft of writing
3. You want to figure out what you think, and do so in public
4. You want to be part of a larger community of like minded individuals
5. You have a hobby or interest that you are really, really into
6. You want to maintain a presence on the Intertubes
7. You have an expertise and you want to share it
8. You have an eye for content (text, graphics and video) and you enjoy leading other people to them
9. You want to create a permanent online record of what you are reading, looking at or thinking about
10. You like engaging in debate with total strangers

The first three would be among my major reasons for doing this, although the others, except for the last, enter the equation as well. I guess I would have to add family history to the mix too.

In regard to "making an online record," I finally figured out how to get a PDF onto Google Sites so this is a link to a 1984 Publisher's Weekly article during my salad days. It is amusing (to me) to read about my vision of specialized publishing at the time and what the future might hold. It is pre-World Wide Web, so it has to be taken in that context. It was also amusing to share that particular issue with "Mr. T."

So, on to the next hundred, but for a while I am taking a break.
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Our Financial Crucible

I was watching some of the House Financial Services Committee’s hearings yesterday with the chief executives of Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley, State Street Bank, Wells Fargo Bank, and Bank of New York sitting there like a bunch of guilty school boys, being berated by their elders. These firms were the lucky recipients of the $700 billion banking bailout.

A number questions were posed to score points for our lawmakers, questions that were expected to be answered by a show of the hands so we all can see the scarlet letter of guilt. Questions along the lines of “how many of you have received government money but have changed your credit card terms?” The perplexed guilty parties sort of looked at each other (obviously wondering what is meant by the question), and as one would timidly raise his hand, the others would slowly follow. These questions went on and on, an embarrassment to those who posed them, those who were forced to answer, and those of us who are relying on this “system” to fix the problem. (Although they did manage to get John Mack of Morgan Stanley to say, “We are sorry.”)

Most of these lawmakers are the very ones who once pressured financial institutions to make loans available to everyone no matter what their creditworthiness so they could boast their beneficence to their constituency. And the bankers are the same financial wizards who created leveraged products that passed off tremendous risk to investors, and, now, to us. We also had a Federal Reserve that fed the fire with practically free money, leaving Alan Greenspan recently wondering, “I still don't fully understand how it happened or why it happened.”

One can empathize with the feelings of outrage, especially now that we learn that some seven hundred Merrill Lynch employees “earned” bonuses of more than one million dollars in 2008 as the firm lost $27 billion. Yesterday the apologists on CNBC generally defended Wall Street bonuses because even when a financial firm overall loses money there are individual “producers” who make pockets of money. The CNBC cheerleaders went on to say that these “producers” need to be “incentified” – otherwise they will be left only with their base salaries. Most people might be content with the latter and isn’t this the kind of “incentive” which motivated “producers” to take excessive risk in the first place?

The questions posed at the witch-hunt hearings centered on why banks are not lending out all the money they received. What planet do our representatives live on? You can’t force banks to lend money if people do not have jobs or are worried about losing jobs, and that is the central element in the crucible of today’s financial times. Just a cursory look at the chart Job losses in Recent Recessions prepared by Barry Ritholtz dramatically goes to the heart of the matter:

http://www.ritholtz.com/blog/2009/02/job-losses-comparing-recessions/
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