Lawrence Summers, in the FT, writes an intelligent, comprehensive analysis of our current economic environment:
http://www.ft.com/cms/s/0/c94dd7ac-6417-11dd-844f-0000779fd18c.html
[L]arger deficits are likely to be potent in stimulating demand...China, where household consumption has fallen below 40 per cent of GDP - a record peacetime low for any big economy - stands out in this [high rate of savings]....While there surely will come a time when things hit bottom, it is not yet clear that it is at hand.
So, we need more government spending, there's no bottom yet, and China needs to get its citizens to start spending instead of saving.
You know it's bad when conservatives start bringing up Reaganomics...whatever happened to cutting spending and trying to have a surplus or balanced budget?
"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
Thursday, August 7, 2008
Joshua Rosner Wants Capitulation
Joshua Rosner agrees with Barry Ritholtz about capitulation. Mr. Rosner says a market recovery will come only after "capitulation" by the rating agencies and corporate executives, whom he believes are still playing "accounting games" and not fully disclosing the severity of their losses. See full article:
http://finance.yahoo.com/tech-ticker/article/45271/Economic-Slowdown-Just-Getting-Started-Says-Credit-Crisis-%27Prophet%27?tickers=WMT,TGT,MER,MCO,MHP,XLY,XLF
This "capitulation" talk smacks of Wall Street wanting to get cheap prices before committing itself to the market. I understand financial stocks should capitulate even more--but it sounds like all the experts demand a marketwide capitulation before deeming a market bottom. Because Wall Street firms control major assets and have probably gotten out the market or are currently selling it short, the average "buy and hold" investor will be screwed. All because of one sector that has little to do with the hefty balance sheets of technology companies. I don't like this one bit.
http://finance.yahoo.com/tech-ticker/article/45271/Economic-Slowdown-Just-Getting-Started-Says-Credit-Crisis-%27Prophet%27?tickers=WMT,TGT,MER,MCO,MHP,XLY,XLF
This "capitulation" talk smacks of Wall Street wanting to get cheap prices before committing itself to the market. I understand financial stocks should capitulate even more--but it sounds like all the experts demand a marketwide capitulation before deeming a market bottom. Because Wall Street firms control major assets and have probably gotten out the market or are currently selling it short, the average "buy and hold" investor will be screwed. All because of one sector that has little to do with the hefty balance sheets of technology companies. I don't like this one bit.
SJ Merc on Santa Clara County's Diversity
Funny, after talking about corporate diversity , the SJ Mercury News published an article today about Santa Clara County's even racial mix (Mike Swift, front page). Apparently, no racial group is more than 40% of the total population. But here's the best line, from Michael Cornwell: "It's all just Silicon Valley: Let's make money and be happy." I couldn't have summed up Santa Clara County better.
As for diversity, we are diverse because we have been able to attract educated immigrants, who happen to be from non-white countries. Any capitalistic system requires more immigration to sustain itself. In a capitalist system, there will always be many poor people trying to get out of the vicious cycle of poverty--that's the unequal nature of the beast and also its salvation. Immigrants increase demand and give money or work to existing residents wherever they go. Capitalist countries should increase immigration so demand for services, products, and real estate also increase, allowing people already here to benefit. Once the new immigrants--who have to spend more money, buy or rent real estate and otherwise participate in the economy--save enough money, it's time for the next round of immigrants to come in and create more demand.
America's low population density allows capitalism to be successful. The EU, especially the UK, with its limited land area, will have difficulty sustaining its move towards a more capitalist system, because at some point, real estate will get so expensive new immigrants will be unable to afford it. In contrast, America can keep adding millions of people every year without difficulty. The sparsely populated Midwest, especially, ought to be trying to attract educated immigrants from all over the world. You can argue about legal or illegal immigration--but you're talking about form, not substance. Every capitalist system needs more immigrants unless it wants to create massive, perpetual inequality. Being pro-capitalist means being pro-immigration, because immigrants create instant demand for numerous services and products. As long as these immigrants are able to get jobs, save money, and buy homes, they will successfully integrate into society. Then, it's time for the next round of immigrants to enter and keep the cycle going. In the long run, because of the perpetual danger of the majority population lapsing into "the other" mentality, it's hard to be pro-immigration without being pro-capitalism. A capitalist society, where income streams are highly diversified, allows at least some immigrants to make money no matter what their government's policies.
In contrast, socialist systems need to be more careful with immigration, ensuring they do not attract more people than they can assimilate. France's riots reveal what happens when a socialist system attracts and invites too many immigrants--the lack of jobs to go around breeds resentment and anger. Ultimately, socialist systems and welfare states can work quite well--see Scandinavia, for example--but only in homogeneous situations hostile to immigration and with low birth rates (or, in the case of China, a one-child policy).
America's openness to immigration and its ability to absorb immigrants are the primary reasons we are successful and continue to be different from the European slower-growth model.
As for diversity, we are diverse because we have been able to attract educated immigrants, who happen to be from non-white countries. Any capitalistic system requires more immigration to sustain itself. In a capitalist system, there will always be many poor people trying to get out of the vicious cycle of poverty--that's the unequal nature of the beast and also its salvation. Immigrants increase demand and give money or work to existing residents wherever they go. Capitalist countries should increase immigration so demand for services, products, and real estate also increase, allowing people already here to benefit. Once the new immigrants--who have to spend more money, buy or rent real estate and otherwise participate in the economy--save enough money, it's time for the next round of immigrants to come in and create more demand.
America's low population density allows capitalism to be successful. The EU, especially the UK, with its limited land area, will have difficulty sustaining its move towards a more capitalist system, because at some point, real estate will get so expensive new immigrants will be unable to afford it. In contrast, America can keep adding millions of people every year without difficulty. The sparsely populated Midwest, especially, ought to be trying to attract educated immigrants from all over the world. You can argue about legal or illegal immigration--but you're talking about form, not substance. Every capitalist system needs more immigrants unless it wants to create massive, perpetual inequality. Being pro-capitalist means being pro-immigration, because immigrants create instant demand for numerous services and products. As long as these immigrants are able to get jobs, save money, and buy homes, they will successfully integrate into society. Then, it's time for the next round of immigrants to enter and keep the cycle going. In the long run, because of the perpetual danger of the majority population lapsing into "the other" mentality, it's hard to be pro-immigration without being pro-capitalism. A capitalist society, where income streams are highly diversified, allows at least some immigrants to make money no matter what their government's policies.
In contrast, socialist systems need to be more careful with immigration, ensuring they do not attract more people than they can assimilate. France's riots reveal what happens when a socialist system attracts and invites too many immigrants--the lack of jobs to go around breeds resentment and anger. Ultimately, socialist systems and welfare states can work quite well--see Scandinavia, for example--but only in homogeneous situations hostile to immigration and with low birth rates (or, in the case of China, a one-child policy).
America's openness to immigration and its ability to absorb immigrants are the primary reasons we are successful and continue to be different from the European slower-growth model.
Wednesday, August 6, 2008
Lloyd Grove's Interview with Naomi Klein
Naomi Klein is an unabashed liberal. She has several interesting things to say about the current economy--here is an interview with her:
http://www.portfolio.com/views/columns/the-world-according-to/2008/07/24/An-Interview-With-Naomi-Klein
Ms. Klein loses credibility when she uses George Bush II as evidence that Milton Friedman's policies don't work. George Bush II created a bigger government, not a smaller one. In addition, no policy--whether "Democrat" or "Republican"--will work without integrity. The current U.S. administration lacks integrity, and that has nothing to do with Milton Friedman.
I have to give credit, however, to Ms. Klein's ability to advocate her position: she says, "The Cato Institute [a conservative thinktank], essentially, they are Friedmanite Trotskyites." Ms. Klein is definitely an original.
I agree governments scare their citizens in order to further government objectives. The level of pessimism in the U.S. is high, but that feeling is rational. Under George Bush II, the government has lied to us; allowed the torture of people to become legitimate government policy (don't forget to thank Dershowitz and Yoo for this); locked up old men and teenagers in offshore prisons like Guantanamo without due process; and can't seem to figure out how to become friends with Iran, whose citizens generally like America and held candlelight vigils post-9-11. In a consumer-based economy with voluminous exports, the last thing the American government should be doing is ticking off the rest of the world--which happens to be 95% of worldwide population (Americans are currently only 5% of the world's population).
http://www.portfolio.com/views/columns/the-world-according-to/2008/07/24/An-Interview-With-Naomi-Klein
Ms. Klein loses credibility when she uses George Bush II as evidence that Milton Friedman's policies don't work. George Bush II created a bigger government, not a smaller one. In addition, no policy--whether "Democrat" or "Republican"--will work without integrity. The current U.S. administration lacks integrity, and that has nothing to do with Milton Friedman.
I have to give credit, however, to Ms. Klein's ability to advocate her position: she says, "The Cato Institute [a conservative thinktank], essentially, they are Friedmanite Trotskyites." Ms. Klein is definitely an original.
I agree governments scare their citizens in order to further government objectives. The level of pessimism in the U.S. is high, but that feeling is rational. Under George Bush II, the government has lied to us; allowed the torture of people to become legitimate government policy (don't forget to thank Dershowitz and Yoo for this); locked up old men and teenagers in offshore prisons like Guantanamo without due process; and can't seem to figure out how to become friends with Iran, whose citizens generally like America and held candlelight vigils post-9-11. In a consumer-based economy with voluminous exports, the last thing the American government should be doing is ticking off the rest of the world--which happens to be 95% of worldwide population (Americans are currently only 5% of the world's population).
Tucker Max on Being a Lawyer
This will be the first time in a while since I've had two consecutive legal posts. In case any readers are dying to go to law school, take a look at this link [NSFW due to coarse language] before you send off that Harvard Law application:
http://www.tuckermax.com/archives/entries/date/the_now_infamous_tucker_max_charity_auction_debacle.phtml#703
Here's the money paragraph:
It wasn't the firm that I hated; it was the very nature of the job. Being a lawyer SUCKS. When you are a lawyer, your job is to clean up the messes of others, to rubber stamp and make legal someone else's real work, to essentially be a paper custodian for the people who actually do important things. The people at Yahoo and Cisco and Network Solutions (all our clients) actually did something; what did I do? Stupid, mindless, and ultimately irrelevant bull----. I was a junior paper-monkey, and I hated every second of it.
Now, two clarifications:
1, The above doesn't apply if you open your own firm, but you still have to work for someone else first to learn the ropes. Also, if you open your own firm, you'll be successful based more so on your prowess as a businessperson than an attorney. But don't take that as a recommendation to go to business school. I hear the MBA courses impart even less real-life knowledge than law school, which is quite a feat.
2. There is a lot of interesting work in the practice of law, and Tucker Max based his ideas on an entry level associate's perspective. Eventually, as an associate learns more and is entrusted with more complex work, his or her legal tableau becomes more interesting. For example, I've learned a lot about different professions and cultures, and no other job would have provided me with the perspective and breadth of human knowledge I have today.
As for Tucker Max, here's what the NYT had to say about his sense of humor: "highly entertaining and thoroughly reprehensible." I will say no more, but ignore the post on law at your peril.
http://www.tuckermax.com/archives/entries/date/the_now_infamous_tucker_max_charity_auction_debacle.phtml#703
Here's the money paragraph:
It wasn't the firm that I hated; it was the very nature of the job. Being a lawyer SUCKS. When you are a lawyer, your job is to clean up the messes of others, to rubber stamp and make legal someone else's real work, to essentially be a paper custodian for the people who actually do important things. The people at Yahoo and Cisco and Network Solutions (all our clients) actually did something; what did I do? Stupid, mindless, and ultimately irrelevant bull----. I was a junior paper-monkey, and I hated every second of it.
Now, two clarifications:
1, The above doesn't apply if you open your own firm, but you still have to work for someone else first to learn the ropes. Also, if you open your own firm, you'll be successful based more so on your prowess as a businessperson than an attorney. But don't take that as a recommendation to go to business school. I hear the MBA courses impart even less real-life knowledge than law school, which is quite a feat.
2. There is a lot of interesting work in the practice of law, and Tucker Max based his ideas on an entry level associate's perspective. Eventually, as an associate learns more and is entrusted with more complex work, his or her legal tableau becomes more interesting. For example, I've learned a lot about different professions and cultures, and no other job would have provided me with the perspective and breadth of human knowledge I have today.
As for Tucker Max, here's what the NYT had to say about his sense of humor: "highly entertaining and thoroughly reprehensible." I will say no more, but ignore the post on law at your peril.
World's Largest Free Law Library
Check this out:
http://www.plol.org/Pages/Search.aspx
"The Public Library of Law" looks like a google for lawyers.
http://www.plol.org/Pages/Search.aspx
"The Public Library of Law" looks like a google for lawyers.
WSJ on Turkey's Islamic Capitalism
Here are some interesting lines from the article, written by Andrew Higgins and Farnaz Fassihi:
Islam itself has nothing against business. The Islamic prophet Muhammad [peace be upon him] started out as a merchant, and his first wife was a successful businesswoman. Asked to fix prices in the bazaar by followers who wanted to buy goods more cheaply, Muhammad [peace be upon him] is said to have refused: "Only Allah governs the market."
Now there's one interpretation of the "invisible hand" in action. Of course, Dubai has been successful more consistently than Turkey. Turkey's bonds were paying in excess of 20% until recently (still around 13% from my last memory--these numbers have not been cite-checked). 10 year U.S. bonds now sell for around 4.05%.
The lower the interest rate on a country's bonds, the more stable the country usually is, because the country has to increase rates to whatever point makes sense to investors after a risk-reward analysis. The higher an interest rate on government bonds, the more risky the country is perceived. Even with higher interest rates and potential inflation problems, Dubai and Turkey should be cited as economic and yes, Islamic, successes.
Malaysia, at least today, has done the best job in terms of creating both an Islamic and an economically successful state. With its increasing diversity, Malaysia must now find ways to integrate its entire population or risk losing its most successful workers to neighboring countries. It's a problem all rich countries, including America, have and it can be an opportunity to re-affirm nationalism in a peaceful way. Singapore, for example, had a great idea in making an independence day coin displaying different races. See links below:
Back to Turkey. I own Turkish bonds in my T. Rowe Price Emerging Markets Bond fund (PREMX) and am happy thus far. PREMX also has Iraqi bonds with a 5.8% interest rate. Apparently, the market thinks Iraqi bonds are only a moderately less safe bet than U.S. bonds. I wonder what the interest rates on proferred Iraqi bonds will be when American troops leave. It may not make much of a difference, as long as some troops remain to protect the oil pipelines, or if Iraqi security forces are strong enough to protect their own pipelines. Interesting note: the Iraqi bond held by PREMX matures, or ends, on December 28, 2025. Yup, the year 2025--over 17 years from now.
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