Today, I bought 600 shares of PFE at 18.92; 150 shares of EWM at 11.07; and 50 shares of EQ at 47.32; and 150 of WYE at 43.83. PFE has gone down too far, which makes no sense. A WSJ article actually said that the stock might go down to 10 to 12 dollars without the high dividend (the entire article was pablum, as far as I'm concerned). Sometime soon, there will be a day when most pharma goes up 3% on an analyst's upgrade of the sector. Personally, I just want to sell before November 2008, so I have plenty of time. I bought EWM for more international diversification. Also, being close to Singapore should help Malaysia's economy stay vibrant, even if only due to a spillover effect from foreign investments and deposits. Malaysia's "Second Home" program--basically allowing foreigners to buy a long term visitor visas in exchange for making a large deposit of funds in the country--is a very astute idea as well. And finally, I bought EQ solely for its dividend.
I might be able to sell all the pharma stocks by this Friday at a profit. MRK is already ex-dividend, and PFE just paid out its dividend.
Here is my record with respect to the stocks I bought after I started the first "Stocks Update" entry on May 23, 2008:
Open Positions
761 of PFE; losing 2.4% (bought at various times, but major purchase of 600 shares bought on June 4, 2007)
150 of EWM; losing 0.4% (bought on June 4, 2007)
100 of IF; losing 3% (bought on May 23, 2008; indicated long-term hold at time of purchase)
100 of MRK; losing 0.6% (bought on May 30, 2008)
250 of WYE; losing 0.7% (bought on May 30, 2008 and June 4, 2008)
50 of EQ; even (bought on June 4, 2008)
Record in open positions: negative/losing 1.42%
Closed Positions:
MMM and SCUR (held less than seven days; record in this category is a 7.75% average gain)
The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Wednesday, June 4, 2008
Tuesday, June 3, 2008
100th Post: "Magical Realism"
For my 100th post, I thought I'd do something different. I will share with you one of my favorite poems by a little-known Kashmiri poet, Agha Shahid Ali. The poem--which contains incredible imagery--is introduced by the simple, unassuming title, "Snowmen." Enjoy after clicking either one of the following two links:
http://www.salemstate.edu/sextant/v4n2/keyes_poems.htm
http://www.poetryfoundation.org/archive/poem.html?id=181394
Here is the last stanza:
No, they won't let me out of winter,
and I've promised myself,
even if I'm the last snowman,
that I'll ride into spring
on their melting shoulders.
After reading the full poem, take a moment to enjoy the images--a woman frozen by a man's embrace, a "snowman" riding into the future Spring--and then check out this link, which explains the poem a bit more:
From the above link:
I approached the poem “Snowmen”, from which these lines are taken as an immediate sensuous apprehension. It was later that I thought of its feminist implications. There are two things hidden in that poem. One is a poem by Wallace Stevens called “The Snowmen”. If you read it you won’t see the connection but it is there for me. The other is a scene that has haunted me for a long time from Wuthering Heights. The narrator is staying at Heathcliff’s house because there has been a terrible storm and the ghost of Katherine knocks on the window. She says, “I’m cold. Let me in”. He opens the window and the glass breaks somehow. He takes the hand of the ghost and rubs it against the glass and there is blood. It’s an amazing scene. Talk about magical realism. People think about that novel and they want neat answers. [Bronte’s] whole enterprise is that there are no neat answers. But to provide you with a neat answer: I’m thinking about my ancestry and the lost women in this ancestry who we never hear about. I know everything about my father, his father, his father’s father and so on for nine generations. But I know nothing before my grandmother. So I’m trying to find these lost women. These are difficult questions, there are no neat answers. You can have a feminist construct when you read that poem.
I love how Agha Shahid describes "Snowmen," but his explanation strikes me as too opaque. I would have never independently arrived at his "feminist" interpretation. After all, much of the poem focuses on male imagery, such as "his skeleton," "his breath," "a man of Himalayan snow," and of course, the title itself, "Snowmen." Shahid seems to be playing all sides by saying there are no neat answers, providing one, and then reminding us that there are no neat answers. For me, "Snowmen" means something different. It represents the immigrant experience and persevering through difficulty to ensure that previous generations--both male and female--did not toil in vain. That's how I interpret the poem, especially the last stanza, which is my favorite.
http://www.poetryfoundation.org/archive/poem.html?id=181394
Here is the last stanza:
No, they won't let me out of winter,
and I've promised myself,
even if I'm the last snowman,
that I'll ride into spring
on their melting shoulders.
After reading the full poem, take a moment to enjoy the images--a woman frozen by a man's embrace, a "snowman" riding into the future Spring--and then check out this link, which explains the poem a bit more:
[FYI: link no longer works] http://www.himalmag.com/2002/february/passing_1.htm
From the above link:
I approached the poem “Snowmen”, from which these lines are taken as an immediate sensuous apprehension. It was later that I thought of its feminist implications. There are two things hidden in that poem. One is a poem by Wallace Stevens called “The Snowmen”. If you read it you won’t see the connection but it is there for me. The other is a scene that has haunted me for a long time from Wuthering Heights. The narrator is staying at Heathcliff’s house because there has been a terrible storm and the ghost of Katherine knocks on the window. She says, “I’m cold. Let me in”. He opens the window and the glass breaks somehow. He takes the hand of the ghost and rubs it against the glass and there is blood. It’s an amazing scene. Talk about magical realism. People think about that novel and they want neat answers. [Bronte’s] whole enterprise is that there are no neat answers. But to provide you with a neat answer: I’m thinking about my ancestry and the lost women in this ancestry who we never hear about. I know everything about my father, his father, his father’s father and so on for nine generations. But I know nothing before my grandmother. So I’m trying to find these lost women. These are difficult questions, there are no neat answers. You can have a feminist construct when you read that poem.
I love how Agha Shahid describes "Snowmen," but his explanation strikes me as too opaque. I would have never independently arrived at his "feminist" interpretation. After all, much of the poem focuses on male imagery, such as "his skeleton," "his breath," "a man of Himalayan snow," and of course, the title itself, "Snowmen." Shahid seems to be playing all sides by saying there are no neat answers, providing one, and then reminding us that there are no neat answers. For me, "Snowmen" means something different. It represents the immigrant experience and persevering through difficulty to ensure that previous generations--both male and female--did not toil in vain. That's how I interpret the poem, especially the last stanza, which is my favorite.
Richard Fisher Understands the Real Enemy...Inflation
We know from centuries of evidence in countless economies, from ancient Rome to today's Zimbabwe, that running the printing press to pay off today's bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid...
Inflation is a sinister beast that, if uncaged, devours savings, erodes consumers' purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currency.
--Richard Fisher, Dallas Fed Reserve President and CEO
http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm
The above link contains the full text of the speech at the Commonwealth Club I attended last week. It doesn't include the Q&A session, but is still worth a look-see.
Inflation is a sinister beast that, if uncaged, devours savings, erodes consumers' purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currency.
--Richard Fisher, Dallas Fed Reserve President and CEO
http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm
The above link contains the full text of the speech at the Commonwealth Club I attended last week. It doesn't include the Q&A session, but is still worth a look-see.
Monday, June 2, 2008
Fun Shareholder Meetings
A friend once asked me about the most fun shareholder meetings to attend. Here is my list:
1. Apple, Inc. (AAPL) To believe how charismatic Steve Jobs is, you have to see him in person. Long-time shareholders always attend, and the techies ask intelligent questions and swap user tips with other shareholders. Plus, the Board is filled with top-level people, including recently, Al Gore.
2. Berkshire Hathaway (BRK-A, BRK-B). You can buy the "B" shares to get into this meeting, which were selling at around $4,390 (much less than the "A" shares, which cost $132,350 for one share as of June 2, 2008). Berkshire Hathaway is fun because of the Q&A session with Warren Buffett and Charlie Munger; the live entertainment (Jimmy Buffett and Susan Lucci have appeared recently); and the annual video, which once showed Warren beating LeBron James in a one-on-one game (I still want to buy Warren's "1/8" number jersey, but they don't offer it anywhere!). Mr. Munger and Mr. Buffett work together so well, it's almost like seeing an elite, educational Laurel and Hardy show. In addition, there's lots of shopping to be done. I bought some great Fruit of the Loom underwear and some See's Candies at a discount.
Some caveats: the meeting's value depends a bit on the questions asked--if the questions asked are terrible, the meeting won't be as great. Also, this event has gotten so huge that it feels overcrowded--about 31,000 people attended this year. For example, I had to wait in line for about 45 minutes to partake in a food buffet. In addition, some of the events are spread out around Omaha, like Furniture Mart and Gorat's Steakhouse, so you need a car and GPS to be able to experience all the events.
3. Starbucks (SBUX). Starbucks' meeting is similar to Berkshire Hathaway's in the sense that a surprise guest comes every year to perform. In 2008, k.d. lang sang three beautiful songs, an experience worth attending just for her. Obviously, coffee is offered, but the meeting itself is the reason to attend. Starbucks usually unveils new goals and new items to the shareholders first, and I knew more about future plans than non-Seattle employees did for about a month after the meeting. A goody-bag is offered to shareholders on the way out. One downside--a huge line awaits all shareholders wanting to attend, so get there early and hope it doesn't rain!
4. Peet's (PEET). Peet's meeting is fun for several reasons. First, it is still a relatively small company, so the meetings feel like a family event. Second, the food and coffee are delicious. Third, sometimes the meeting is held at a roasting facility, which allows shareholders to get a sense of how the business is run.
5. Electronic Arts (ERTS). This one is a kick. If you want to see the environment in which video game designers work, check out this shareholder meeting. ERTS has an arcade, air hockey, foosball, and several other games, all for free. I spent an hour (okay, three) reliving my high school days in the arcade playing some John Madden football. Some other online games are apparently offered on the computers near the arcade, but I used that to check up on a work matter (I had to review a tentative court ruling the day of the meeting). ERTS has a Starbucks inside its company. You never have to leave the company, basically. It's a bit like Yahoo's set-up, where it's a little city within a company. The presentation also includes a preview of upcoming games on a big screen. And the best part of of it all? ERTS gives out a free video game to its attendees every year. Booyah!
6. Google (GOOG) is a new company, but it knows how to take care of shareholders. Food is offered (a friend told me they served filet mignon in 2008), and the founders sit on stools in casual-wear and answer questions in an informal setting.
7. Intuit (INTU). This one I mention only because they have given out valuable free software in the past. If you buy your Quicken software and live locally in Mountain View, CA, you might be better off just buying one share of the company and attending the meeting. The former CEO, Stephen Bennet, was very friendly at the meeting I attended a few years ago--he even replied to an email I sent. (I try to praise and point out responsive CEOs.)
Please add your own favorites in the "comments" section. I am always looking for fun shareholder meetings. I heard McDonald's and Coca-Cola's meetings are great, but I am not traveling across the country on my own dime for a shareholder meeting until I get more information. The big one I've neglected to mention is Walmart's annual meeting--it's supposed to be a big bash, but it's hard to take a few days off to travel to Arkansas and keep up on work.
Curt Hazlett, in a March 28, 2005 article, “Annual Meetings Can Be Valuable Tools for Journalists,” describes one reason I go to shareholder meetings–they offer valuable insight into a company:
http://www.businessjournalism.org/pages/biz/2005/03/
annual_meetings_can_be_valuabl/
1. Apple, Inc. (AAPL) To believe how charismatic Steve Jobs is, you have to see him in person. Long-time shareholders always attend, and the techies ask intelligent questions and swap user tips with other shareholders. Plus, the Board is filled with top-level people, including recently, Al Gore.
2. Berkshire Hathaway (BRK-A, BRK-B). You can buy the "B" shares to get into this meeting, which were selling at around $4,390 (much less than the "A" shares, which cost $132,350 for one share as of June 2, 2008). Berkshire Hathaway is fun because of the Q&A session with Warren Buffett and Charlie Munger; the live entertainment (Jimmy Buffett and Susan Lucci have appeared recently); and the annual video, which once showed Warren beating LeBron James in a one-on-one game (I still want to buy Warren's "1/8" number jersey, but they don't offer it anywhere!). Mr. Munger and Mr. Buffett work together so well, it's almost like seeing an elite, educational Laurel and Hardy show. In addition, there's lots of shopping to be done. I bought some great Fruit of the Loom underwear and some See's Candies at a discount.
Some caveats: the meeting's value depends a bit on the questions asked--if the questions asked are terrible, the meeting won't be as great. Also, this event has gotten so huge that it feels overcrowded--about 31,000 people attended this year. For example, I had to wait in line for about 45 minutes to partake in a food buffet. In addition, some of the events are spread out around Omaha, like Furniture Mart and Gorat's Steakhouse, so you need a car and GPS to be able to experience all the events.
3. Starbucks (SBUX). Starbucks' meeting is similar to Berkshire Hathaway's in the sense that a surprise guest comes every year to perform. In 2008, k.d. lang sang three beautiful songs, an experience worth attending just for her. Obviously, coffee is offered, but the meeting itself is the reason to attend. Starbucks usually unveils new goals and new items to the shareholders first, and I knew more about future plans than non-Seattle employees did for about a month after the meeting. A goody-bag is offered to shareholders on the way out. One downside--a huge line awaits all shareholders wanting to attend, so get there early and hope it doesn't rain!
4. Peet's (PEET). Peet's meeting is fun for several reasons. First, it is still a relatively small company, so the meetings feel like a family event. Second, the food and coffee are delicious. Third, sometimes the meeting is held at a roasting facility, which allows shareholders to get a sense of how the business is run.
5. Electronic Arts (ERTS). This one is a kick. If you want to see the environment in which video game designers work, check out this shareholder meeting. ERTS has an arcade, air hockey, foosball, and several other games, all for free. I spent an hour (okay, three) reliving my high school days in the arcade playing some John Madden football. Some other online games are apparently offered on the computers near the arcade, but I used that to check up on a work matter (I had to review a tentative court ruling the day of the meeting). ERTS has a Starbucks inside its company. You never have to leave the company, basically. It's a bit like Yahoo's set-up, where it's a little city within a company. The presentation also includes a preview of upcoming games on a big screen. And the best part of of it all? ERTS gives out a free video game to its attendees every year. Booyah!
6. Google (GOOG) is a new company, but it knows how to take care of shareholders. Food is offered (a friend told me they served filet mignon in 2008), and the founders sit on stools in casual-wear and answer questions in an informal setting.
7. Intuit (INTU). This one I mention only because they have given out valuable free software in the past. If you buy your Quicken software and live locally in Mountain View, CA, you might be better off just buying one share of the company and attending the meeting. The former CEO, Stephen Bennet, was very friendly at the meeting I attended a few years ago--he even replied to an email I sent. (I try to praise and point out responsive CEOs.)
Please add your own favorites in the "comments" section. I am always looking for fun shareholder meetings. I heard McDonald's and Coca-Cola's meetings are great, but I am not traveling across the country on my own dime for a shareholder meeting until I get more information. The big one I've neglected to mention is Walmart's annual meeting--it's supposed to be a big bash, but it's hard to take a few days off to travel to Arkansas and keep up on work.
Curt Hazlett, in a March 28, 2005 article, “Annual Meetings Can Be Valuable Tools for Journalists,” describes one reason I go to shareholder meetings–they offer valuable insight into a company:
http://www.businessjournalism.org/pages/biz/2005/03/
annual_meetings_can_be_valuabl/
Saturday, May 31, 2008
Mark Cuban on CEO Pay
Here is one more reason Mark Cuban should get more credit--besides the day spent working at Dairy Queen, besides his rabblerousing to make the NBA a better league, and besides transforming the Mavericks franchise into a contender--he has a delightful blog:
http://www.blogmaverick.com/2008/04/15/my-2-cents-on-ceo-pay/
The above entry is his take on CEO pay, and Mr. Cuban's idea is absolutely ingenious. It wasn't too long ago that companies were refusing to include the true cost of any stock option grants in their accounting reports. Mr. Cuban's idea makes the ability to fudge the numbers even more difficult, because it's hard to miss money coming out of the cash flow till. His idea would probably also accomplish what many shareholder compensation resolutions are trying to do--lower the ratio between the CEO's pay and the average worker. Here is Mr. Cuban's idea, in his words:
Make companies generate 100pct of their compensation in cash that is 100pct expensable in the quarter paid. Thats not to say they cant own stock. Hell yes they can own stock. But make them buy it either on the open market, or as part of the programs that make stock available to every company employee, on the same terms. They are getting paid enough in cash and if they believe in their ability to run the company, they can put their money where their mouth is. Eliminate all the free lottery tickets. Make them buy stock, options, warrants, whatever, on the same terms as everyone else can.
Shareholders tend to ignore how much stock is given to management, they don't ignore cash. Companies will always be a lot more stringent with their cash, whether its paid to the CEO or anyone else. CEO cash compensation will go way up, but total compensation will come way down. More importantly , CEOs getting paid huge sums in cash will stand out like a sore thumb when things arent going so well. They will be treated like everyone else in the cash zone and held far more accountable for their work.
I naively believed that this kind of out-of-control compensation would not happen after 2002, when E-Trade's CEO, Christos Cotsakos, received 77 million dollars at a time when his company lost 242 million dollars. The resulting outrage caused him to pay back some of the money, but obviously, no lasting changes occurred. Here is a link about that incident:
http://www.businessweek.com/bwdaily/dnflash/may2002/nf20020517_7164.htm
http://www.blogmaverick.com/2008/04/15/my-2-cents-on-ceo-pay/
The above entry is his take on CEO pay, and Mr. Cuban's idea is absolutely ingenious. It wasn't too long ago that companies were refusing to include the true cost of any stock option grants in their accounting reports. Mr. Cuban's idea makes the ability to fudge the numbers even more difficult, because it's hard to miss money coming out of the cash flow till. His idea would probably also accomplish what many shareholder compensation resolutions are trying to do--lower the ratio between the CEO's pay and the average worker. Here is Mr. Cuban's idea, in his words:
Make companies generate 100pct of their compensation in cash that is 100pct expensable in the quarter paid. Thats not to say they cant own stock. Hell yes they can own stock. But make them buy it either on the open market, or as part of the programs that make stock available to every company employee, on the same terms. They are getting paid enough in cash and if they believe in their ability to run the company, they can put their money where their mouth is. Eliminate all the free lottery tickets. Make them buy stock, options, warrants, whatever, on the same terms as everyone else can.
Shareholders tend to ignore how much stock is given to management, they don't ignore cash. Companies will always be a lot more stringent with their cash, whether its paid to the CEO or anyone else. CEO cash compensation will go way up, but total compensation will come way down. More importantly , CEOs getting paid huge sums in cash will stand out like a sore thumb when things arent going so well. They will be treated like everyone else in the cash zone and held far more accountable for their work.
I naively believed that this kind of out-of-control compensation would not happen after 2002, when E-Trade's CEO, Christos Cotsakos, received 77 million dollars at a time when his company lost 242 million dollars. The resulting outrage caused him to pay back some of the money, but obviously, no lasting changes occurred. Here is a link about that incident:
http://www.businessweek.com/bwdaily/dnflash/may2002/nf20020517_7164.htm
Friday, May 30, 2008
Stocks Update
Big pharma looks like one of the cheaper sectors in the market. Today, I bought
60 shares of PFE (Pfizer) at 19.33
50 shares of MRK (Merck) at 38.61
65 shares of WYE (Wyeth) at 44.41
In my tiny, self-made pharma fund, I like WYE the most. MRK will issue a dividend soon, which is one reason I wanted to own it. I bought 100 shares of PFE before (at around 20.70) and am averaging down. It will probably take years for the pharmas to get out of the doldrums. In the meantime, I am sure it will be a bumpy ride. If a Democratic president is elected, chances are that any universal health care plan will squeeze big pharma. In addition, Congress may decide to cut consumer prescription costs by supporting generics and reducing patent rights. But with money market yields at around 2%, I could do worse than put my money in these dividend-generating stocks. I am not necessarily a long-term investor--once MRK pays its dividend, for example, I will look to get out.
Update on June 2, 2008: Bought 50 MRK @ 38.12 (have 100 shares total now)
The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.
60 shares of PFE (Pfizer) at 19.33
50 shares of MRK (Merck) at 38.61
65 shares of WYE (Wyeth) at 44.41
In my tiny, self-made pharma fund, I like WYE the most. MRK will issue a dividend soon, which is one reason I wanted to own it. I bought 100 shares of PFE before (at around 20.70) and am averaging down. It will probably take years for the pharmas to get out of the doldrums. In the meantime, I am sure it will be a bumpy ride. If a Democratic president is elected, chances are that any universal health care plan will squeeze big pharma. In addition, Congress may decide to cut consumer prescription costs by supporting generics and reducing patent rights. But with money market yields at around 2%, I could do worse than put my money in these dividend-generating stocks. I am not necessarily a long-term investor--once MRK pays its dividend, for example, I will look to get out.
Update on June 2, 2008: Bought 50 MRK @ 38.12 (have 100 shares total now)
The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.
Thursday, May 29, 2008
Federal Reserve President Richard Fisher at the Commonwealth Club
Richard Fisher, the CEO and President of the Federal Reserve Bank of Dallas, spoke at San Francisco's Commonwealth Club (595 Market St.) on May 29, 2008. Some highlights:
1. Mr. Fisher is a big fan of Bill [McChesney] Martin, known for his statement that the job of a central banker is to "take away the punch bowl just as the party gets going."
2. Mr. Fisher said that the Dallas Federal Reserve's inflation numbers incorporate food and energy/gas prices. See http://dallasfed.org/research/ for more information. I believe that what Mr. Fisher was referring to is the the "trimmed mean PCE" numbers, but I could be incorrect. What seems clear, however, is that the PCE numbers are probably more accurate than the CPI numbers, which are usually "excluding food and energy." As you can see in the next link, the PCE numbers are usually at least one percentage point higher than the CPI numbers. See http://www.dallasfed.org/data/pce/index.html
Mr. Fisher indicated that only his bank and the Cleveland Federal Reserve Bank published these more comprehensive numbers.
3. Mr. Fisher's speech sounded like a more number-heavy speech that the former Comptroller David Walker would give. He warned us to do something about government spending, saying that we are "falling victim to complacency and recklessness." He mentioned the "frightful storm of untethered government debt." [He probably meant to say, "unfettered," not "untethered."]
8 years ago, we had a surplus of 236 billion dollars, with a Republican Congress and Democratic president (Mr. Fisher emphasized that these issues were non-partisan.)
Today, the expected deficit in 2008 is at least 410 billion dollars.
Our underfunded liabilities, using an infinite horizon discounted value, is 13.6 trillion dollars for social services.
[Now, I don't pretend to know what an infinite horizon discounted value is. For more information on infinite horizon projections, see
http://www.factcheck.org/article302.html
That article says that an infinite horizon model is misleading, but Mr. Fisher mentioned an infinite horizon "discounted value," which may be different.]
Mr. Fisher said that Medicare was the biggest problem. Medicare has three parts, A (hospitals), B (doctor visits), and D (drug benefits/prescriptions). He estimated a projected deficit of 85.6 trillion dollars for Medicare. Including the projected deficit of Social Security benefits, Mr. Fisher expects a 99.2 trillion dollar deficit in unfunded portions of entitlement programs. He said that this debt works out to be more than 300,000 dollars per person, assuming a population of 304 million, which includes nonworking adults and children. Income taxes have to increase 68%(?) to cover deficits, which is basically reaches confiscatory levels.
What to do about all this? Well, he didn't have much to say, other than it was our responsibility, because we elect the people who run the government.
4. Mr. Fisher dissented in the last three interest rate cuts. He is an inflation hawk and said that "inflation is the most insidious enemy of capitalism and prosperity." He also said that "running the printing press" [of money] is the worst option, because that causes inflation, and stable prices are necessary for growth.
5. Mr. Fisher mentioned a humorous story where someone asked a researcher, "Is there a difference between the Republicans or Democrats [Congresses] in terms of who spends more money?" The answer was, "There's only one difference--Democrats enjoy it more."
6. Mr. Fisher was more relaxed during the Q&A session.
When asked what his bank does, he said that among other things, the Federal Reserve lends money at the discount window; clears checks (which is a declining function--he said his children had never used a paper check--people are moving to online banking); assists the U.S. Treasury; and processes cash (his bank recently processed 12 billion dollars--cash is used more in TX).
Mr. Fisher ran for a U.S. Senate seat and lost. In his funniest remark, he said he calls the legislative branch "the lower intestine." This was after he said the best part of his job was that he was allowed to speak the truth, and most government officials could not do that because they had to get elected, or balance competing interests. The difference between his position and the other branches was that he "could tell the truth."
He said that the FOMC meetings were a civil deliberation and a process that emphasized civility.
Comparing Greenspan and Bernanke, he said both of them had a great sense of humor. Bernanke was "perditiously smart," understanding the Depression more than any other living human being. He said Bernanke's best experience was serving on the local school board in Pennsylvania. On Greenspan: he "listened very well," perhaps because he played the saxophone.
Mr. Fisher said we are in for a period of "anemic economic activity," but said he would not call it a recession. He said the "debauching of our credit system" hurts small businesses, which create jobs in America.
He also said that we are experiencing inflation and our current economic climate because "we won." In his most passionate remarks, Mr. Fisher commented that "Chairman Mao is dead--I won't say God bless his soul. Hồ Chí Minh is dead. In November 1989, the Soviet Union filed for bankruptcy. We won." Everyone wants to imitate our lifestyle, which raises prices and leads to a period of more competition as other countries adopt our successful capitalist model.
A question was asked about implementation of the Basel II Accord, but Mr. Fisher said the writer of that question should come up to him afterwards and speak to him about it directly, because it was a technical question.
Mr. Fisher said he was instrumental in getting NAFTA passed and was "proud of NAFTA." He referred to Joseph Schumpeter and "creative destruction," saying that it drove each of us to our "competitive advantage." but said that the media was skewed in its reporting. If a company shut down, the media was there, but it wasn't there to record an instance when a completely new job opened for that person who was laid off or in general. He said that only 1% of our economy was based on agriculture; 5% on mining; 11% on manufacturing; and the rest (84%) was services. To give us an idea of how the economy has changed, Mr. Fisher said that lawyers "produced" more GDP than auto manufacturers [a sure sign of over-legislation].
A question was asked about whether he believed that the numbers from the BLS were accurate. He said that he was more concerned about sufficiency of the data than its accuracy. There are apparently large swathes of the economy that aren't reflected in the numbers he receives.
Overall, it was a fun experience. I asked him a question privately, about which currency he believed would be the most stable over the next five years. Mr. Fisher said that he couldn't predict that far out, and a basket of currencies would be the most stable way of managing risk. He did say that the European Central Bank had only one mandate, which was to control inflation, while the Fed had a dual mandate [maximum sustainable employment and price stability]. His comments seemed to imply that the Euro might be the most stable currency, but for the long term, he said he favored the U.S. dollar. His refusal to give me a clear answer was astute. To give you an idea of just how quickly things can change, remember than as recently as November 2003, Mr. Bernanke is on record as saying that "the current risk of increased inflation is, for the time being at least, quite small." See
http://www.federalreserve.gov/BoardDocs/Speeches/2003/
200311062/default.htm
The job of American central bankers--especially given their recent inability to predict bubbles and busts--is to respect savers while minimizing unemployment. Hopefully, Mr. Bernanke will get back to the "respecting savers" part of the mandate by raising interest rates at the next FOMC meeting.
FYI: The San Francisco Federal Reserve is right up the street from the Commonwealth. Call ahead of time, but for now, they have tours open to the public on Fridays at noon. Otherwise, they are closed to the public.
1. Mr. Fisher is a big fan of Bill [McChesney] Martin, known for his statement that the job of a central banker is to "take away the punch bowl just as the party gets going."
2. Mr. Fisher said that the Dallas Federal Reserve's inflation numbers incorporate food and energy/gas prices. See http://dallasfed.org/research/ for more information. I believe that what Mr. Fisher was referring to is the the "trimmed mean PCE" numbers, but I could be incorrect. What seems clear, however, is that the PCE numbers are probably more accurate than the CPI numbers, which are usually "excluding food and energy." As you can see in the next link, the PCE numbers are usually at least one percentage point higher than the CPI numbers. See http://www.dallasfed.org/data/pce/index.html
Mr. Fisher indicated that only his bank and the Cleveland Federal Reserve Bank published these more comprehensive numbers.
3. Mr. Fisher's speech sounded like a more number-heavy speech that the former Comptroller David Walker would give. He warned us to do something about government spending, saying that we are "falling victim to complacency and recklessness." He mentioned the "frightful storm of untethered government debt." [He probably meant to say, "unfettered," not "untethered."]
8 years ago, we had a surplus of 236 billion dollars, with a Republican Congress and Democratic president (Mr. Fisher emphasized that these issues were non-partisan.)
Today, the expected deficit in 2008 is at least 410 billion dollars.
Our underfunded liabilities, using an infinite horizon discounted value, is 13.6 trillion dollars for social services.
[Now, I don't pretend to know what an infinite horizon discounted value is. For more information on infinite horizon projections, see
http://www.factcheck.org/article302.html
That article says that an infinite horizon model is misleading, but Mr. Fisher mentioned an infinite horizon "discounted value," which may be different.]
Mr. Fisher said that Medicare was the biggest problem. Medicare has three parts, A (hospitals), B (doctor visits), and D (drug benefits/prescriptions). He estimated a projected deficit of 85.6 trillion dollars for Medicare. Including the projected deficit of Social Security benefits, Mr. Fisher expects a 99.2 trillion dollar deficit in unfunded portions of entitlement programs. He said that this debt works out to be more than 300,000 dollars per person, assuming a population of 304 million, which includes nonworking adults and children. Income taxes have to increase 68%(?) to cover deficits, which is basically reaches confiscatory levels.
What to do about all this? Well, he didn't have much to say, other than it was our responsibility, because we elect the people who run the government.
4. Mr. Fisher dissented in the last three interest rate cuts. He is an inflation hawk and said that "inflation is the most insidious enemy of capitalism and prosperity." He also said that "running the printing press" [of money] is the worst option, because that causes inflation, and stable prices are necessary for growth.
5. Mr. Fisher mentioned a humorous story where someone asked a researcher, "Is there a difference between the Republicans or Democrats [Congresses] in terms of who spends more money?" The answer was, "There's only one difference--Democrats enjoy it more."
6. Mr. Fisher was more relaxed during the Q&A session.
When asked what his bank does, he said that among other things, the Federal Reserve lends money at the discount window; clears checks (which is a declining function--he said his children had never used a paper check--people are moving to online banking); assists the U.S. Treasury; and processes cash (his bank recently processed 12 billion dollars--cash is used more in TX).
Mr. Fisher ran for a U.S. Senate seat and lost. In his funniest remark, he said he calls the legislative branch "the lower intestine." This was after he said the best part of his job was that he was allowed to speak the truth, and most government officials could not do that because they had to get elected, or balance competing interests. The difference between his position and the other branches was that he "could tell the truth."
He said that the FOMC meetings were a civil deliberation and a process that emphasized civility.
Comparing Greenspan and Bernanke, he said both of them had a great sense of humor. Bernanke was "perditiously smart," understanding the Depression more than any other living human being. He said Bernanke's best experience was serving on the local school board in Pennsylvania. On Greenspan: he "listened very well," perhaps because he played the saxophone.
Mr. Fisher said we are in for a period of "anemic economic activity," but said he would not call it a recession. He said the "debauching of our credit system" hurts small businesses, which create jobs in America.
He also said that we are experiencing inflation and our current economic climate because "we won." In his most passionate remarks, Mr. Fisher commented that "Chairman Mao is dead--I won't say God bless his soul. Hồ Chí Minh is dead. In November 1989, the Soviet Union filed for bankruptcy. We won." Everyone wants to imitate our lifestyle, which raises prices and leads to a period of more competition as other countries adopt our successful capitalist model.
A question was asked about implementation of the Basel II Accord, but Mr. Fisher said the writer of that question should come up to him afterwards and speak to him about it directly, because it was a technical question.
Mr. Fisher said he was instrumental in getting NAFTA passed and was "proud of NAFTA." He referred to Joseph Schumpeter and "creative destruction," saying that it drove each of us to our "competitive advantage." but said that the media was skewed in its reporting. If a company shut down, the media was there, but it wasn't there to record an instance when a completely new job opened for that person who was laid off or in general. He said that only 1% of our economy was based on agriculture; 5% on mining; 11% on manufacturing; and the rest (84%) was services. To give us an idea of how the economy has changed, Mr. Fisher said that lawyers "produced" more GDP than auto manufacturers [a sure sign of over-legislation].
A question was asked about whether he believed that the numbers from the BLS were accurate. He said that he was more concerned about sufficiency of the data than its accuracy. There are apparently large swathes of the economy that aren't reflected in the numbers he receives.
Overall, it was a fun experience. I asked him a question privately, about which currency he believed would be the most stable over the next five years. Mr. Fisher said that he couldn't predict that far out, and a basket of currencies would be the most stable way of managing risk. He did say that the European Central Bank had only one mandate, which was to control inflation, while the Fed had a dual mandate [maximum sustainable employment and price stability]. His comments seemed to imply that the Euro might be the most stable currency, but for the long term, he said he favored the U.S. dollar. His refusal to give me a clear answer was astute. To give you an idea of just how quickly things can change, remember than as recently as November 2003, Mr. Bernanke is on record as saying that "the current risk of increased inflation is, for the time being at least, quite small." See
http://www.federalreserve.gov/BoardDocs/Speeches/2003/
200311062/default.htm
The job of American central bankers--especially given their recent inability to predict bubbles and busts--is to respect savers while minimizing unemployment. Hopefully, Mr. Bernanke will get back to the "respecting savers" part of the mandate by raising interest rates at the next FOMC meeting.
FYI: The San Francisco Federal Reserve is right up the street from the Commonwealth. Call ahead of time, but for now, they have tours open to the public on Fridays at noon. Otherwise, they are closed to the public.
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