Having close connections to Wall St, I may share my own personal experiences of 911 on the blog someday, but for now TLRB will suspend activity today in rememberence of tenth 911 anniversary.
I had a few clients yesterday asking me how I was holding up during the sell-off. Very kind, I thought. Interestingly, they were not overly concerned about their portfolios. I assume that was because we communicate about these things regularly and I go to great lengths to explain why our portfolios are positioned as they are. While the past week’s sell-off was unpredictable, it was not unexpected. Read that last sentence again- it was unpredictable, but not unexpected. Our portfolios were not overly optimistic, bullish and naively exposed to these dangers.
Not that these past few weeks have been encouraging- they aren’t- and in fact are quite depressing. But we have had a plan in place for a while and clients understand our plan of attack. As for me, I’ve been in these environments before. From a big-money cockpit, I’ve watched in real time the Asian meltdown/Long-Term Capital Management debacle of 1998, the dot-com bust, 9/11 and of course the recent financial crisis and it’s huge volatility. The important thing is not to panic. Turn off CNBC, stop checking your accounts frequently and don’t read too many headlines. That is, if you were prepared both mentally and in your portfolio.
I realize a lot of people don’t have a plan of attack; the past week did take them by surprise and they may not know what to do now. To that end, please contact me. I have never been self-promotional on this site and don’t intend to, yet it struck me that there may be readers who could use my help or know someone who does. Knowledge is power- understanding the big picture, having an appropriate plan of attack and executing that plan makes a big difference. There is light at the end of the tunnel if you know to avoid being hit by the train.
Hey, we got an email worth sharing:
Subject: Miss Your Posts
It’s been about 50 years since I studied macroeconomics, so perhaps a lot of theory has been changed. I have not heard any national politician say anything that would indicate that they have any knowledge of the subject. Does knowing anything or admitting to knowing anything disqualify one from national office? The general public certainly knows precious little. Can any of you tell me which members of Congress appear to have any qualifications in economics. Heck, do any of them know the difference between the ideas of Keynes, Hayak and Pigou? Besides a magic wand, do you have any good ideas about what we should be doing.
Thanks for the email, FC. I suppose it is time to share a little bit about why I haven’t blogged much lately.
First, economic theory hasn’t changed all that much in 50 years. Yes, theories have been refined and economists understand a whole lot more now. Trying to fine tune the economy as Kennedy, et al did in the ’60s would not be tried today (except in China, of course, which somehow seems acceptable and miraculous by the credulous). But economists remain woefully oblivious when it comes to refining other theories for current understanding. Take the fact that people are not homo economicus- that is, people are not wholly rational even when it comes to their own best interest. This fact is still widely ignored because it is both inconvenient to many theories and inconvenient for simpletons to understand. Economists seem to have fallen to the level of politicians, relying on quips, phrases and half-truths to debate instead of rigorous logic. Even 70 years later we still have a raging debate between Keynesians and Hayekians, neither side seemingly able to admit anything useful from the other side, despite there being much. So yeah, economics is better, but not great. It seems as if some sort of unified theory is just not within the mental capacity of thinkers today, despite such being an obvious truth to me.
I can’t tell you which members of Congress appear to have any qualifications in economics. To me, none appear to have a rational grasp of the field. From time to time, I get to meet many members in small rooms, sometimes as few as a dozen people and the Representative. They put on a good show and speak convincingly, just like any good salesperson, but to a careful listener they are still just campaigning. Do they really understand anything other than politics? I doubt it, and it saddens me.
I was born an optimist and find myself playing the role of curmudgeon. Frankly, curmudgeon is easier to play, but not nearly as fun. It is down right depressing to be a mid-30′s “Debbie Downer“. I wanted to blog about finance and economics- something I am passionate about and enjoy greatly- and found that most often I was tearing down an idea instead of building something. While I can easily and swiftly point to flaws and holes in ideas, it isn’t something fun and uplifting to write about. Sort of like walking around without a smile- it’s just not a great way to go through life.
When I look around, I see problems which are intractable not because the solutions escape us, but because greed and idiotic adherence to flawed ideology destroys any rational problem solving. I have plenty of rational, realistic solutions- but no one listens to such ideas (from anyone) because they are too busy being mad that our President is a Muslim, that the world doesn’t need banks, that global warming is a farce, that taxes are too high, debt/deficits don’t matter, that cold water boils faster than hot and … You get the idea. It feels as if there is currently a level of national insanity- or at least enough anger to override logical thinking. What I’d like to know is, how is this different from other times in history? Was the nation seeming insane in 1977? 1969? 1933? 1862? Will this pass (my optimistic side says definitely yes) or will the empire destroy itself unnecessarily (it might, it has to someday, but we have survived conditions worse than now, it doesn’t seem right to go down unnecessarily premature and voluntarily)?
I have also been reluctant to comment on current market conditions simply because much of it seems to be irrational. I see bubbles, mini-bubbles and speculation everywhere. The Depression wiped out speculation (particularly leveraged speculation) in financial markets for decades. Our two recent experiences, the tech and the housing bubbles and their aftermaths, seem to have encouraged even more speculation rather than extinguishing it. The 70′s bear markets also punished speculation. Have we entered a new paradigm or is there worse to come?
To appease the desire to be constructive, here are a few practical solutions, facts and thoughts destined for the dustbin:
- Taxes are low by historical standards. Very low. Currently, the Treasury is collecting just 14% of GDP in revenue. The average has been 18-20%. How can anyone realistically complain taxes are too high? Roughly half the current deficit is due to lower revenue, half due to increased spending of which most was supposed to be temporary. And the lower revenue part is in large part due to tax reductions meant to stimulative, which we might consider as ‘alternative spending’, I guess. Those are the facts.
- Longer-term, Social Security and Medicare are the budgetary problems. Social Security has some easy fixes, namely lifting in whole or in part the wage cap. No one pays the SS tax on income over $106,000, which you may be surprised to learn wasn’t always the case. Medicare is the real basket case. Unfortunately, the problem there is multidimensional:
- Too few workers supporting too many retirees. These demographics were known decades ago, but as is typical, the Boomer generation has voted in policy which directs benefits to them at everyone else’s expense.
- Obamacare solves little. It does not address the real cause of expensive health care, instead it treats some of the symptoms. Symptoms such as the fact that some 40million people can’t afford insurance; that many things we would like covered are often not; that people are often denied coverage at any price; and that we all want the best unlimited treatment and feel entitled to it. These symptoms are all a natural result of the disease which has something to do with non-transparent pricing (any idea what an xray costs before you get it?), poor incentives (do you care what the xray costs when the co-pay is just $25?; does an insurance company care if your xray is denied when by the time the complications arise, you probably work for someone else and have a different insurer? etc); and if I get sick, whether that is cancer, heart disease or a bunion, I want the best, don’t care what it costs and want someone else to pay for it! Obamacare does not address any of these root problems and it appears few want to. Until then, the Medicare situation is going to get worse.
- As Medicare gets worse, the policy prescription will almost certainly be to cut benefits and/or raise taxes, which will make us sicker and poorer as a nation still. The first change I would make is to raise the eligibility age for Medicare from65 to 67 to match the SS full retirement age. I would add a system where anyone over a certain age, say 62, could purchase coverage at a fair and actuarially true price. Eliminate Part D. Let the insurance and pharma companies figure out how to offer care economically. Let them compete with a non-profit. Remove the “economic rent” seeking that pharma and big insurers have legislated in place for them (which requires massive overhaul, but could be started incrementally).
- Inequity & Shared Sacrifice. There is something horribly wrong with today’s policy prescriptions. We are unfairly indebting future generations to benefit the Boomer retirees. Yet, the Boomers did faithfully pay into the system their whole lives. Where is the fairness to either side? It seems the country needs a sense of shared sacrifice to unify and make the big decisions. WWII gave us that for decades, but no one should have to go through that again. No wonder older folks decry aloud “what happened to my country?”
- Some sort of economic Marshall plan seems possible. Higher income taxes, but also a more neutral corporate tax policy (stop the subsidy, but encourage capital formation), public works such as infrastructure, true healthcare reform, a renewable energy “space race” complete with a new electric grid- all with definite quantifiable goals and an end in sight. If any normal family were faced with tough times, family members would pitch in. They’d do the yard work together, fix the drafty windows, give up a few luxuries, and the teens would help with the groceries until mom/dad could get a better job and sis got out the hospital. Is America a decent family or a dysfunctional one?
- I recommend paying for this economic Marshall plan with fully amortizing 20-30yr bonds – thus, they repay principal as well as interest, just like a mortgage. In conjunction with real entitlement reform, this would affirm both our commitment to practicality and confidence in our debt.
Thanks for a good opportunity to explain how I currently see things, FC. I will probably blog more again in the future, but I see no point in getting bogged down in depressing dead end discussions. I encourage the discussion in any way I can help, especially if it can be positive in nature. Any suggestions, questions and contributions are welcome (really!).
We are interested in moving from WordPress to Blogspot. Unfortunately, we don’t know of a good way to port TLRB over. To be more accurate, I don’t technically know how to do it; nor do I have the time to figure it out. So, if you have a few hours and some technical skills and would like to give us a hand, please email us and let us know. We’d be very grateful for the help. Thanks!
It is “Cyber Monday” and you are probably shopping online at work. If you aren’t shopping, your co-workers probably are. Since the office is generally unproductive, why not indulge in some personal reading time? May I suggest checking out our newest feature, a page called “Favorites & Most Popular“? Here you’ll find lists of each author’s favorite posts along with a list of the most popular posts as measured by views. You can find it near the top right corner of the TLRB page. Enjoy!
Want to know the truth behind Roswell and UFOs? You know how I write, but are you curious how I sound? Then listen to Karl’s fantastic The Conspiracy Skeptic Unplugged podcast with this episode’s guest- me. You can find it on iTunes, the links to the right, or here.
One thing that became obvious to me, is that Karl really knows a lot about conspiracies. Several times right before the recording, I emailed him with a change in the conspiracy I wanted to talk about. Karl’s response was always “great, that’ll be fun” where I had expected him to need time or preparation to change topics. Nope. Karl knew almost everything he needed off the top of his head. That, my friends, indicates a genuine conspiracy groupie! If you want to wade through conspiracies to find the truth in a fair, logical and fun fashion, you are in good hands with Karl.
If you haven’t yet tuned in, I highly recommend it. In fact, I had asked Karl to participate here at TLRB after listening to his double show about the Fed. He gets it!
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FOR ONE DAY ONLY (not really)
THE LONG RUN BLOG
WILL BE FEATURING A DEBATE
Sometime Wednesday night, we will be posting opposing opinions on the MINIMUM WAGE issue. In one corner, we have the spirited and astute Julio from Silicon Valley. In the other corner we have the clever and sharp Karl from Canada. Julio will presenting in favor of the minimum wage and Karl will be against it. I used a state-of-the-art random number generator ($0.25 coin) to assign each a position. Understand that they will do their best to defend their position whether or not they believe it – like O.J. Simpson’s lawyers. We’ll post both positions, pause for comments and let the rebuttals begin (if necessary). I will moderate. Let the insults debate begin!
As you know, we have been trying to expand our presence. In that vein, I am happy to announce that a new blogger, Julio Guardado, will be joining us. Julio is a former tech CEO and semi-retired investment banker. Based in Silicon Valley, Julio will no doubt bring another perspective to our offering. He will be introducing himself shortly.
As always, please continue to challenge us with questions and comments, particularly if you think we missed something or are simply wrong.
And suggestions! Please email us with suggestions and/or questions. We can write about what tickles our fancy anytime, but addressing topics of interest to readers is even better.
As people gather for holiday and end of year events, talk of the economy, bailouts and the stock market will likely replace political talk. Want to bet how many times you hear “It’s the government/regulator’s fault” or “It’s too much regulation” or “bailout/don’t bailout GM” or “they should let all the banks fail” accompanied by all sorts of wrong reasoning? This is not only a perfect time to dispel myths, but also a great opportunity to spread TLRB’s word. If you like what you read here, please recommend us to your friends and family. Our goal is to demystify economics and finance and turn a skeptical eye to all things monetary. A corollary to that goal is to continue growth in readership and impact as many people as possible.
So please spread the word. Even invite them to submit a question.
(If anyone is interested in a free bumper sticker, shoot us an email. I’ve been working on them.)
Enjoy the holiday. Thanks for reading.
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