Blogging Hiatus Notice

I'm taking a leave of absence from the blog until Monday, March 30th. I'll return on that date with some awesome posts, so let the anticipation begin to build

In case you missed it...

It is becoming increasingly advised to listen to Nouriel Roubini on all matters macro. I don't necessarily agree with his enforced mortgage haircut, but it would be wise to listen to what he has to say:

 

If you are at work and lack audio, CNBC sums up his points.

BRACE YOURSELF!! I agree with Adrianna Huffington

IMO Adrianna Huffington is a bit of a nutcase. Former Republican activist, turned Progressive psycho activist, turned Progressive psycho activist blogger. I don't agree with her on too many topics, especially economics or finance based. However, I agree with maybe 75% of her recent article. Here are some details:

While we're rewarding the risk-taking shareholders of various zombie banks -- not to mention the mysterious, unconfirmed counterparties to AIG's serial recklessness -- how about rewarding the taxpayers, if not with an actual return on our bailout investment then at least with information about what exactly is being done with our money? It's time to call in all the unknowns.

Why wiping out the common stock hasn't happened yet is a mystery to me. The share price of the Zombie banks are essentially zero. Citigroup (C) is sitting at 1.05 as of today. The only people holding this are a) people who don't understand sunk costs; b) money hoping that the U.S. of Obama will do something so drastic as to never let this company's stock be wiped out (plus, this money is sufficiently hedged on the downside so as to mitigate that dollar loss); c) people with vested interest to see this stock alive (management/B.O.D.); or d) people way smarter than I (quite possible, in fact, likely). I have a friend acquaintance that works for Citi and he is begging me to give him a shout-out on this blog. So I will. (whoop!)

As for AIG's counterparties, it sucks that AIG is taking government money and the counterparties' vulnerability may be exposed. But I see it this way: if AIG received no federal money and became insolvent and you lost 100% of your exposure (minus collateral/coverage); then, you would have needed to announce a significant write-down to your assets  (the ones exposed to AIG). That sucks, but it's the price you pay for insignificant due-diligence. The bitch of capitalism, but everyone plays by those rules. As the case stands, AIG has received federal money, perhaps limiting your losses. You need to pay for your losses being reduced, and the price you pay is that the taxpayer (AIG's lender!) gets to know who is the counterparty risk. Either way, you suffer a hit to your assets and it become publicized. May as well take the taxpayer kind pittance.

As for the bigger picture, "what exactly is being done with our money?" This is a great question. Let's pretend I am a bank. Let's pretend my friend Nitro wants to borrow money from me. Let's say $2,000 to buy a new blowup doll. Am I going to just give him the money? No. I'm going to make sure he can reasonably repay the money within a few months time and with a little interest. To assure myself of this investment, I may ask to look at Nitro's bank statements. If Nitro doesn't feel this is fair, I probably won't lend him the money. After all, it's my money; I get to set the terms. 

So, to translate that scenario to our current situation: If your company wants our money then you will be paying a hefty rate and we will have access to your books. If that is too much to ask, you don't get our money. I don't care who you are. Even if you are the queen of England (heck, ESPECIALLY if you are the queen of England), if the U.S. is giving you money, you are getting it on extremely onerous terms. IMO, it should be WAY more onerous than has been allowed so far. It really makes me angry that 1st Paulson, then Geithner have treated the bailout money as if it is their money. It is not their money; it is my money, and it is your money.

Not only do I want to know the books of the borrowing company before I hand over money, but I want to know where exactly that money is going. Huffington continues and wants to know

the final destination of the taxpayer money the government keeps funneling to AIG. The Wall Street Journal reports that around $50 billion of the $173 billion in bailout funds given to the insurance behemoth has gone to pay off financial institutions that had insured their wildly irresponsible credit default swaps with AIG.

I think this is a fair question. If you are benefiting from taxpayer largesse, then be prepared to document everything. Not fair? then don't take the money.

In the past I have found some of Huffington's claims to be suspect to reality, but if this paragraph is true, I would like to know the rationale behind it.

It's worth noting that, thanks to the industry-written 2005 Bankruptcy Bill, derivatives claims are not stayed in bankruptcy -- so the financial institutions that gambled and lost would nevertheless be the first ones paid off.

I've been looking into this claim and it seems to be true (but I haven't yet read the actual Bill). I understand that if AIG writes a credit default swap to JP Morgan to protect against the default of a Mortgage Backed Security, that JPM wants to be protected against potential AIG collapse, BUT don't all insurance policies holders want full compensation if their insurer goes kaput? Why should only holders of derivatives have access to full recompense?

Lastly, Huffington is still a little nutty even if her moments of perceived sanity. She bashes CNBC (via John Steward), but nobody should use CNBC as a proxy for investment advice. They have so many different people making so many different forecasts about so many different topics that it's easy to put together a montage celebrating CNBC's ineptitude. CNBC is good for news, good for opinions and good for interviews, it is good for an overall picture of Street sentiment. It is bad as an investment advisor. Also, Huffington would be wrong to want to completely clear house of all financial types from helping right the economic ship. It is easy to paint with a broad brush and typecast all financiers as evil men and women, looking to make an illegal buck. But to fix this problem, we need people who can read a balance sheet, and we need people with actual experience. We don't need people who have "served the public" their entire careers (i.e. politicians) to try and fix this mess. This would be the equivalent of having a renegade tractor operator drive his tractor off into a ditch, and then have an unlicensed 12 year old girl try and get the tractor back onto the road while 200 Grade-A tractor operators stand by and watch in horror.

Bottomline, when Arianna friggin' Huffington and I agree this heavily on a prescription, then something is clearly awry with the up-til-now course of action. 

Favorite Article of the Weekend

I could debate the last two paragraphs. But up until that point, this is a tremendous article:

http://www.nydailynews.com/opinions/2009/03/08/2009-03-08_obamas_search_for_an_enemy_the_president.html

The Last Great Generation?

Kobe, Lebron, Wade. CP3, Rose, Roy. Deron, Durant, Dwight. 

The post Jordan years in the NBA were a little worrisome. After growing up with the end of Bird, Magic, and Isiah, Jordan carried the NBA for the next 8 or 9 years. NBA was the best. MLB? The strike killed it for me. The NFL? Exciting, but as a kid I never saw myself wearing huge pads and it lacked the fluidity of other sports. The NBA? Perfect. I'd play basketball all recess. I'd get home, eat a bowl of cereal, then shoot hoops until the sun went down (sometimes latter). So I am loving this generation of talent. The next 15 years look very promising and I couldn't be more excited about them.

But what about when Lebron retires after hoisting up his 5th title? I don't want to get too far ahead of myself, but think about it... Is this the last great generation of basketballers? Or sports in general? I argue it could be.

As leisure time grew for kids through the 50s, 60s, 70s, 80s, and 90s, kids would spent more and more time outside. Shooting hoops, experiencing nature, reading books or doing whatever they pleased. Today's kids are playing more and more video games and twittering and texting and TVing. This could no doubt help them experience nature in ways previously unimagined. The technology revolution is going to do wonders for the general education of the world's youth.

But what about sports? As more kids spend recess sending messages, fewer spend recess shooting hoops. As more kids pass their time twittering, fewer pass the rock around. I'm not lamenting this evolution necessarily, but I am wondering if this will lead to a weaker caliber player. Maybe that's not a bad thing though, because if a future NBAers get better than Jordan, Kobe and Lebron, my head may explode.

Enjoy this video and cheesy music (and pay attention to how much hand-checking was allowed back then):

The Flower in the Shit

Market-wise, things look bad, but maybe this is just some giant ploy by 奥巴马. The majority of the wealth destroyed so far has belonged to upper-class rich folk. Their portfolios have been more or less decimated. So, if I'm looking for the silver lining, here is it:

Obama wants to crush the stock market; have it reach all time lows; issue a tax-rebate/stimulus checks to the lowest 25%; have them invest those rebates/checks in the newly depressed stock market; reap the benefits of stock price appreciation as 奥巴马 reverses course and sets up on the path to prosperity that he promised.

It would help "spread it [wealth] around" (as he said to Joe the Plumber) and it would be educational to all the people buying stocks for the first time.

I am really trying to see the bright side in all of this mess.

Hayekian Insight of the Day

It belongs to Joel West at Seeking Alpha:

One of the key lessons from Steverman’s interviews was that uncertainty increases risk, which discourages buying. However, what Steverman doesn’t say is that highly interventionist government policies by their nature increase uncertainty, due to the inevitable arbitrariness and risk of political capture.

One elected politician (with a four-year term) or nine unelected judges with life tenure do not have the same self-correcting feedback loop of hundreds of companies competing in the marketplace every day, or millions of private investors in the stock market. That’s why centrally planned economies (even democratic socialists) will never be as effective as free markets in producing and allocating wealth.

Now that's music to my ears....

Breaking Down the Orchestra

When I started this blog, I wanted the main focus to be economic policy as seen through the eyes of my Hayekian/libertarian biases. And, I wanted to surround this commentary with other topics I am passionate about: Classical music, finance, some sports, maybe some food, etc. Last week I posted about a nice Mozart piece, and thought that I would similarly post other enjoyable works of music. I'm making a slight amendment to that strategy though. I want this blog to have an educational taste to it, so I've decided to supplement occasional classical pieces with an introduction to the tools that create that music. So, each week, look forward to one piece of music that I find, if not inspiring, at least thought-provoking; and!, one post introducing a new element of the orchestra. Today's post will be used mostly as a reference for future posts, so if you have questions about orchestral layout, you can be directed here. So, without further ado, let me give a brief introduction to an orchestra. Enjoy!

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My favorite era of classical music is the Late Classical through Early-Romantic time period (approximately composers born between 1750-1800). Mozart and Beethoven were both born during this time. You'll also find Niccolo Paganini, Franz Schubert and other here. Orchestras have evolved in size and composition over time. But I'll focus on one of the more simple orchestral structures, the Classical Orchestra.

Step One: Write some music; Directing traffic

You need a composer and a conductor (sometimes the same person). The composer writes the music. The conductor sets tempo, helps shape the music, gives cues and makes sure everyone is on the same page. The conductor is usually positioned front and center, back to the audience, waving his hands about. (However, a conductor is not necessary. Earlier Baroque music and smaller orchestras will sometime have the principle violinist act as the conductor).

Step Two: Get Some Strings

The strings are typically the largest part of the orchestra. This section is made up of: Violins (1st and 2nd); Violas; Cellos (Violoncellos); and Double Basses. Size varies. Some pieces call for a handful of strings, other call for 14 violins (each), 12 violas and cellos (each), and 10 basses. Their organization typically fans from violins on the left to basses on the right of the conductor (see image below).

Step Three: Get Some Woodwinds

Components: Flutes, Oboes, Clarinets and Bassoons. Usually two of each; some pieces call for more. The clarinet is usually divided into a B-flat and an A Clarinet.

Step Four: Get Some Horns

Components: Horns, Trumpets and Trombones.  Usually two trumpets and trombones, four horns. Sometimes you will see a tuba.

Step Five: Get some Percussion

Components: Timpani, for sure. The Percussion section has really grown over time, now sometimes including all sorts of drum, triangle, cymbals, glockenspiel, xylophone, chimes, and so on.

Step Six: Organize everyone

The composer is front and center. The strings are up front, shadowed by the woodwinds in the middle and horns on the outskirts. The booming percussion is found in the back.

Variations:

Orchestras differ in size, depending on the piece, its era and whether or not it is accompanied by a chorus and soloist or accompanying a performance. The orchestra at times will be found submerged below the stage during an opera. There is no golden rule when it comes to orchestras and their arrangement and location. Hopefully this short introduction is useful. I'm planning on diving into specific instruments, their sounds and helping you (and myself) improve our abilities to hear music.

On the Record

I am feeling less and less optimistic the more I read about Obama's upcoming plans. I hope he and his team are astute in their assessments of the current situation; I fear they are not. So, for my own sake, I just want to go on the record for how I feel. In this article ("Obama bets the farm on $14 trillion poker game"), Tim Reid writes: 

In his first month in office he has pushed through an unprecedented $787 billion economic stimulus package, announced plans to save the car industry, stabilise the stricken banking sector and stem the flood of home repossessions.

I don't think Obama will be successful in any of these ventures. I think the stimulus as designed will fall flat, I think the car industry is not worth saving as it is today, I don't believe stabilizing zombie banks will resurrect the banking system, and I don't believe the housing plan as is will work (ESPECIALLY!!! allowing judges to rewrite loan agreements).

I don't think Senator McCain would be doing much better. There's not a way to run these macro experiments in an alternative universe, but the universe we're heading towards is troublesome. I hope I am wrong about the prognosis by Team 奥巴马 , but I am worried we have the equivalent of 16th century theatre students doing groundbreaking brain surgery. Unfortunately, we are the patient.

CNBC vs. MSNBC

If something bothers me and I can't control it, I try my best to ignore it. No sense in worrying about something out of your control. Politics is something that bothers me. Politics is childish. It consists of a bunch of attention-obsessed mongers, pointing fingers and calling names. Tattling and crying. Bitching and moaning. I finished Taleb's "The Black Swan" not too long ago, and towards the end of the book, Taleb gets philosophical. He talks about not getting caught up in the rat race of life. "Live outside the rat race." Well, politics takes place within the center of that rat race.

Lies and deceits fuel politics. The worst part about politics is that if a politician is wrong about something, somebody ELSE pays the price. Sure, the politician may not win re-election, but the consequence for his ineptitude is paid by taxpayers (or worse yet, is paid with bodies).

The market however is driven by truth and virtue. Oh sure, laugh. I know that sounds outrageous to some of you, but I believe it. Lying and deceiving in the market will lead to financial ruin. Your bet will be called; you will have to pay up. Unless of course, your lying and manipulating is aided by political clout and power. When you are wrong in the market, the taxpayers don't pay; you pay. (Again, unless the politically connected manipulate).

With markets, participants can put their money where their mouth is. With politics, politicians put other people's money where their mouth is. I'd rather put the bottom of my shoe where the politicians mouth is.

Let's let people make their own choices and put their own money where their mouth is.

(Note: I just finished reading articles from both the left and the right and their childishness bothered me. I just felt the need to write about it)

Best Sentence I've Read Today

One of my favorite magazines that I don't read enough is "City Journal". Today, James Manzi writes on the pressures facing entrepreneurs under Obama's new spending spree and he hits the nail on the head with this:

A government-dominated economic era may not be an auspicious one in which to start companies that threaten big, incumbent corporations with lots of political clout.

Whether or not you agree with Obama expanding the scope of government in the short-term, one of the accompanying realities is that BIG government doesn't just 'go away'. So the bigger the government becomes, the more advantages accrue to incumbent corporations who (justifiably) want to stifle market entry and competition.

It's paradoxical in a way. Most Americans voted Obama into office because he was a friend of 'the little guy'. But that same 'little guy' will get crushed by connected corporations and crony-capitalism in tomorrow's BIGGER government.

Now that's a great prank...

My freshman year roommate and I played a pretty solid April Fools joke on some unsuspecting ladies, but THIS is one of the best pranks I've seen. Wow.

Donny Douche

I really like Donny Deutsch's show "The Big Idea". He interviews prominent people and asks very good questions to those guests. However, he is really starting to bother me when he's on CNBC's "Power Lunch". I was going to post about him last week, but I decided not to because I didn't want to whine too much. He was defending the new Obama tax plan and its attack on the rich.

Anyways, I decided not to whine then, but I just saw him yapping away again on "Power Lunch". This time he was defending the Obama housing plan, more or less saying, "I don't care if it's a good plan, let's just get the ball rolling." Well, I do care if it's a good plan, b/c it is my money that will be funding this plan in the years to come.

Donny continues (I'm paraphrasing), "Ok, at least we have a plan now. Let's take the football and throw it 20 yards down the field. Let's see what happens." Well, Danny... this could happen:

(Sorry Pat)

Anyways, let's not just chuck the ball down the field, especially when it's to the tune of $75 billion. Lastly, Michelle Caruso-Cabrera is a good libertarian and kind of hot.

Potentially Amazing

This is perfect.

I love golf. I enjoy Sir Charles. What more could I ask for?

Oh Bother

Is this the look of a man who has ANY idea what's going on right now? Does this look fill you with confidence about our leadership? Is it too early to brand him with a "Technocrat" tattoo? Oh, alas, poor Timmy:

Links for your pleasure

Sorry, I've been busy job-hunting and working on a new business venture the last few days and haven't had time for blogging. I'm still slacking off here though, as I'll just be outsourcing my words to interesting links:

Knocking Obama

Markets Knocking Obama

Obama Supporters Knocking Obama

More Knocking Obama

Pro-Obama

Rick Santeli

Progressive Link for the Day (Note: I love these guys. They always make me laugh, but at the same time, it's sad. I may post more on this generalization later: Libertarians are skeptical of government, yet optimistic about the people; Progressives are skeptical of the people, yet optimistic about the government)

(and yes, if you follow realclearpolitics.com; I borrow most of these links from them)