Nov 30, 2007

Jim Cramer bullish on financial stocks

You want to get in bed with the financials now... We should get huge moves in financials again.

~ Jim Cramer, Mad Money, CNBC November 30, 2007

(Cramer recommended Bank of America (BAC), Wachovia Bank (WB), Citigroup (C), Goldman Sachs (GS), and Annaly Mortgage (NLY).)

Will Rogers on knowledge

Everybody is ignorant, only on different subjects.

~ Will Rogers, humorist

Moving Picture Institute on the history proficiency of college seniors

A 2000 survey conducted by the American Council of Trustees and Alumni (ACTA) showed that 81% of elite college seniors failed to demonstrate a basic, high school-level command of U.S. history, but 99% are familiar with the MTV characters Beavis and Butthead.

~ Rob Pfaltzgraff, executive director, Moving Picture Institute, October 29, 2007

Alexis de Tocqueville on slavery

I do not think it is for me, a foreigner, to indicate to the United States the time, the measures, or the men by whom Slavery shall be abolished.

Still, as the persevering enemy of despotism everywhere, and under all its forms, I am pained and astonished by the fact that the freest people in the world is, at the present time, almost the only one among civilized and Christian nations which yet maintains personal servitude; and this while serfdom itself is about disappearing, where it has not already disappeared, from the most degraded nations of Europe.

An old and sincere friend of America, I am uneasy at seeing Slavery retard her progress, tarnish her glory, furnish arms to her detractors, compromise the future career of the Union which is the guaranty of her safety and greatness, and point out beforehand to her, to all her enemies, the spot where they are to strike. As a man, too, I am moved at the spectacle of man's degradation by man, and I hope to see the day when the law will grant equal civil liberty to all the inhabitants of the same empire, as God accords the freedom of the will, without distinction, to the dwellers upon earth.

~ Alexis de Tocqueville, Democracy in America, 1835

Nov 29, 2007

Charles Barkley on job security for NBA basketball coach Isiah Thomas

He's about as safe as me in a room full of cookies.

~ Charles Barkley, TNT, commenting in the 4th quarter of a 45-point blowout by the Celtics of the Knicks, coached by Thomas, November 29, 2007

Jim Michaels on independent thinking

We may not always be right in our stories, but if we can make our readers think, we're on the right track.

~ Jim Michaels, Forbes editor, 1961-1999

Jim Michaels on rebels, upstarts and Michael Milkin

Jim Michaels had a soft spot for rebels and upstarts. In 1961, when he became editor, FORBES was devoted to the doings of big corporations. By the time he left that job we were giving equal time to entrepreneurs and innovators. Upstarts are not universally admired. Software entrepreneurs put a million secretaries out of work. If the stores on Main Street are boarded up, Sam Walton is to blame. MCI's success sent many a phone company worker to the unemployment line.

Michaels had a particular fascination with Michael Milken, and coauthored an epic story in 1992 telling the discredited financier's view of things. Sympathy for the devil? Well, Michaels was scarcely naive about this guy; his magazine was early (in 1984) in explaining Milken's bond-trading shenanigans. But by the time of his jailhouse interview with the junk bond king, Michaels had come to see Milken in a Schumpeterian light. Whether or not Milken had broken the rules of securities trading was far less important than how he had broken the patterns of capital formation. He had staked entrepreneurs, upstarts and predators to capital that they never would have seen from the old Wall Street. By doing so, he financed creative destruction: the shrinking of old industries and the building of new ones. For that, Milken became, in the mainstream media, an enemy of the people.

~ William Baldwin, editor, Forbes, "Iconoclasts," October 29, 2007

John Templeton on preparation

For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity.

~ Sir John Templeton

Reagan on hard work

It's true hard work never killed anybody, but I figure why take the chance?

~ Ronald Reagan, The Guardian, March 31, 1987


Psychology/Behavioral Finance:

H.L. Mencken on elections

The state -- or, to make matters more concrete, the government -- consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can't get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting 'A' to satisfy 'B'. In other words, government is a broker in pillage, and every election is a sort of advanced auction on stolen goods.

~ H.L. Mencken

Barbara Tuchman on cognitive dissonance

Psychologists call the process of screening out discordant information ‘cognitive dissonance,” an academic disguise for “Don’t confuse me with the facts.” Cognitive dissonance is the tendency “to suppress, gloss over, water down or ‘waffle’ issues which would produce conflict or ‘psychological pain’ within an organization.” It causes alternatives to be “deselected since even thinking about them entails conflicts.” In the relationships of subordinate with superior within the government, its object is the development of policies that upset no one. It assists the ruler in wishful thinking, defined as “an unconscious alteration in the estimate of probabilities.”

~ Barbara W. Tuchman, The March of Folly, Page 303

Dostoevsky on the power of humble love

At some thoughts one stands perplexed, especially at the sight of men’s sin, and wonders whether one should use force or humble love. Always decide to use humble love. If you resolve on that once for all, you may subdue the whole world. Loving humility is a mighty force, the strongest of all things. There is nothing else like it.

~ Fyodor Dostoevsky

Einstein on human stupidity

Two things are infinite: The universe and human stupidity; and I’m not sure about the universe.

~ Albert Einstein

Nov 28, 2007

Thomas DiLorenzo: "Mises was right and Samuelson was wrong" about central planning

Consider how [Ludwig von] Mises conducted himself compared to "mainstream" economists. I once read through all the back editions of Paul Samuelson's economics textbook for an aticle I wrote for Policy Review in 1987 ("Invasion of the Free Market Textbooks"). Samuelson preached to generations of students that central planning was inevitable, the wave of the future, so that there was no use opposing it. Instead, he advised Americans especially to read his book so that we Americans can become better central planners than the Russians. It all sounded very practical to most people at the time. Just call it "Keyensian fine-tuning" and no one will notice that it is half-assed central planning.

Mises, of course, never budged from his position that rational economic calculation under socialism was an impossibility, and that middle-of-the-road policies would also inevitably lead to socialism. He was right and Samuelson was wrong, even though as late as the 1980s "everyone knew" the opposite was supposedly true.

~ Thomas DiLorenzo, "'Pragmatic' vs. Principled Libertarians," November 12, 2003

Jason Whitlock on the shooting death of NFL football player Sean Taylor

Let's cut through the bull(manure) and deal with reality. Black men are targets of black men. Period. Go check the coroner's office and talk with a police detective. These bullets aren't checking W-2s.

Rather than whine about white folks' insensitivity or reserve a special place of sorrow for rich athletes, we'd be better served mustering the kind of outrage and courage it took in the 1950s and 1960s to stop the white KKK from hanging black men from trees.

But we don't want to deal with ourselves. We take great joy in prescribing medicine to cure the hate in other people's hearts. Meanwhile, our self-hatred, on full display for the world to see, remains untreated, undiagnosed and unrepentant.

Our self-hatred has been set to music and reinforced by a pervasive culture that promotes a crab-in-barrel mentality.

You're damn straight I blame hip hop for playing a role in the genocide of American black men. When your leading causes of death and dysfunction are murder, ignorance and incarceration, there's no reason to give a free pass to a culture that celebrates murder, ignorance and incarceration.

~ Jason Whitlock, "Taylor's death a grim reminder for us all,", November 28, 2007

Paul Samuelson on socialism in Eastern Europe (1976)

It's a vulgar mistake to think that most people in Eastern Europe are miserable.

~ Paul Samuelson, Economics, 1976 edition

David Lloyd George on how to succeed at politics

If you want to succeed in politics, you must keep your conscience well under control.

~ David Lloyd George, Source: Lord Riddell Diary [April 23, 1919]

Erasmus on ignorance

In the land of the blind, the one-eyed man is king.

~ Desiderius Erasmus

Samuel Johnson on mental focus

Nothing focuses the mind like an impending hanging.

~ Samuel Johnson

Alexis de Tocqueville on propaganda

Generally speaking, only simple conceptions can grip the mind of a nation. An idea that is clear and precise even though false will always have greater power in the world than an idea that is true but complex.

~ Alexis de Tocqueville, Democracy in America (1835-1840)

Ludwig von Mises on war versus capitalism

What the incompatibility of war and capitalism really means is that war and high civilization are incompatible. If the efficiency of capitalism is directed by governments toward the output of instruments of destruction, the ingenuity of private business turns out weapons which are powerful enough to destroy everything. What makes war and capitalism incompatible with one another is precisely the unparalleled efficiency of the capitalist mode of production.

~ Ludwig von Mises, Human Action (1949)

Patrick Henry on the Constitution

The Constitution is not an instrument for government to restrain the people; it is an instrument for the people to restrain the government — lest it come to dominate our lives and our interests.

~ Patrick Henry

Lord Acton on federation and democracy

Of all the checks on democracy, federation has been the most efficacious and the most congenial . . . . . The federal system limits and restrains the sovereign power by dividing it and assigning to Government only certain defined rights. It is the only method of curbing not only the majority but the power of the whole people.

~ Lord Acton

Milton on freedom and the tyranny of the majority

Is it just or reasonable, that most voices against the main end of government should enslave the less number that would be free? More just it is, doubtless, if it come to force, that a less number compel a greater to retain, which can be no wrong to them, their liberty, than that a greater number, for the pleasure of their baseness, compel a less most injuriously to be their fellow slaves. They who seek nothing but their own just liberty, have always the right to win it, whenever they have the power, be the voices never so numerous that oppose it.

~ John Milton

E. H. Carr on mind control and socialism

It is significant that the nationalization of thought has proceeded everywhere pari passu with the nationalization of industry.

~ E. H. Carr

Charles W. Johnson on entitlement

No one has a right to food, water, shelter, money, or love if he must obtain it at the expense of the owner. Medical care is no more a right than these. Man rightfully obtains goods and services by producing them from nature or by voluntary exchange with others. Man may exchange goods, services, and emotional values, but he must trade to obtain them. Otherwise he is a thief acting against human existence.

~ Charles W. Johnson

Chalmers Johnson on war and imperialism

Wars and imperialism are Siamese twins joined at the hip. Each thrives off the other. They cannot be separated.

~ Chalmers Johnson, The Sorrows of Empire [2004]

William Graham Sumner on power

All history is only one long story to this effect: men have struggled for power over their fellowmen in order that they might win the joys of earth at the expense of others, and might shift the burden of life from their own shoulders upon those of others.

~ William Graham Sumner, American academic and advocate of free markets, 1840-1910

Trotsky on equality

In a country where the sole employer is the State, opposition means death by slow starvation. The old principle: who does not work shall not eat, has been replaced by a new one: who does not obey shall not eat.

~ Leon Trotsky

Lenin on security and freedom

The whole of society will have become a single office and a single factory with equality of work and equality of pay.

~ Vladimir Lenin

Lord Acton on equality

The finest opportunity ever given to the world was thrown away because the passion for equality made vain the hope for freedom.

~ Lord Acton

Hilaire Belloc on controlling the means of production

The control of production of wealth is the control of human life itself.

~ Hilaire Belloc

Adam Smith on government intervention

The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be entrusted to no council and senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

~ Adam Smith

Mussolini on the inevitability of planning

We were the first to assert that the more complicated the forms assumed by civilization, the more restricted the freedom of the individual must become.

~ Benito Mussolini

Elie Halevy on socialism

The socialists believe in two things which are absolutely different and perhaps contradictory: freedom and organization.

~ Elie Halevy

Hoelderlin on utopianism

What has always made the state a hell on earth has been precisely that man has tried to make it his heaven.

~ Friedrich Hoelderlin

Robert E. Lee on war

What a cruel thing is war: to separate and destroy families and friends, and mar the purest joys and happiness God has granted us in this world; to fill our hearts with hatred instead of love for our neighbors, and to devastate the fair face of this beautiful world.

~ Robert E. Lee, Letter to his wife, December 25, 1862

Franklin D. Roosevelt on free enterprise

A program whose basic thesis is, not that the system of free enterprise for profit has failed in this generation, but that it has not yet been tried.

~ Franklin D. Roosevelt

Lord Acton on the source of ideas

Few discoveries are more irritating than those which expose the pedigree of ideas.

~ Lord Acton

Kevin Duffy on the trouble with credit expansion

This new money [inflation] is never evenly distributed, but instead gets funneled into whatever narrow area happens to capture the public’s fascination. As prices and valuations soar, greater doses of credit are required to keep the game going. Either more marginal borrowers are drawn in at ever more precarious levels or greater leverage must be applied to existing borrowers. This is what ultimately doomed the housing bubble. In the end, nearly anyone who could fog a mirror was getting an invitation to join the party.

The trouble with pyramid schemes is that they’re not designed to go in reverse. Eventually, the number of willing dupes is exhausted. The same people who panicked late to get into the game are just as likely to panic when the music stops. The longer the music plays, the more leveraged and unstable the inverted credit pyramid becomes. As the late economist Hyman Minsky observed, "stability is unstable."

~ Kevin Duffy, Bearing Asset Management, "It's a Mad, Mad, Mad, Mad World," May 22, 2007

Nov 27, 2007

Richard Bove on Citigroup: "Best banking franchise in the world," expects stock to double

[Citigroup] stock is now yielding 7%. The company has a $24 billion free cash flow. The dividend costs the company roughly $10.5 billion. So the company has no problem in paying that dividend. In addition, the company is perceived by at least the Federal Reserve, the FDIC, to be a well capitalized bank, which means that it's paying the lowest FDIC premium possible... If you don't have to worry about the dividend, if it is a well capitalized institution, then as these writeoffs dissipate over the next few quarters, then the earnings of Citigroup will start to rise again.

And the stock is just not reflecting that. All it's reflecting is the worst of the worst... There's a generalized panic out there; there's a hysteria. Each analyst is jumping on top of the other one, trying to argue for a bigger amount of writedown... And as a result of these, if you will, cacophony of misery that's coming out of the analyst community, these stocks have fallen to levels which are just unrealistic in terms of what the fundamentals of the companies offer.

If people want to look through the cycle, if they want to look through the writeoffs, I think from a current price of $29-30 a share, over the next couple of years the stock should double in price... The company's earnings power is considerable. It's the best banking franchise in the world... The value of that franchise is simply being lost as people worry themselves to death over what the size of the next writeoff will be.

~ Richard Bove, Punk Ziegel & Co., Bloomberg Video, November 27, 2007

(Citigroup stock closed at $30.32 per share, down $0.38.)

Paul Krugman blames credit crunch on greed and lack of regulation

Around 25 years ago, American business - and the American political system - bought into the idea that greed is good. Executives are lavishly rewarded if the companies they run seem successful: Last year the chief executives of Merrill and Citigroup were paid $48 million and $25.6 million, respectively.

But if the success turns out to have been an illusion - well, they still get to keep the money. Heads they win, tails we lose.

Not only is this grossly unfair, it encourages bad risk-taking and sometimes fraud. If an executive can create the appearance of success, even for a couple of years, he will walk away immensely wealthy. Meanwhile, the subsequent revelation that appearances were deceiving is someone else's problem.

If all this sounds familiar, it should. The huge rewards executives receive if they can fake success are what led to the great corporate scandals of a few years back. There's no indication that any laws were broken this time - but the public's trust was nonetheless betrayed, once again.

The point is that the subprime crisis and the credit crunch are, in an important sense, the result of our failure to effectively reform corporate governance after the last set of scandals.

~ Paul Krugman, "Krugman: Banks Gone Wild," International Herald Tribune, November 23, 2007

Warren Buffett on fear, greed and opportunity

We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful.

~ Warren Buffett

Friedrich von Hayek on the invisible hand

The aim for which the successful entrepreneur wants to use his profits may well be to provide a hospital or an art gallery for his home town. But quite apart from the question of what he wants to do with his profits after he has earned them, he is led to benefit more people by aiming at the largest gain than he could if he concentrated on the satisfaction of the needs of the known persons. He is led by the invisible hand of the market to bring the succour of modern conveniences to the poorest homes he does not even know.

~ Friedrich von Hayek, Law, Legislation and Liberty, Volume 2

Jack Kenny on Giuliani's tax cut record

Giuliani is on more solid ground when talking about the 23 tax cuts during his eight years as mayor, but even there the road is a little slippery. To get to 23, he counts some tax cuts passed over his strenuous opposition. "The largest and most economically potent tax cut of the Giuliani era," noted Ed McMahon of the Manhattan Institute, "was the elimination of a 12.5 % income tax surcharge – pushed by then-Council Speaker Peter Vallone over strong mayoral opposition." When the City Council reversed a partial repeal of another surtax after only a year, the mayor’s protest was "uncharacteristically muted," McMahon observed in an August 6 op ed piece in the New York Daily News. The "mute" button was off, however, when Giuliani loudly and vigorously opposed the Legislature’s repeal of the city commuter tax.

~ Jack Kenny, "Saint Rudolph and the Dragon Lady,", November 27, 2007

Jack Kenny on Giuliani slaying the dreaded Hillary Clinton

A recent pamphlet from the Giuliani campaign mentions the dreaded Hillary by name seven times and includes two photos of her. Two of the six panels are devoted to her exclusively. Perhaps we should cancel the New Hampshire primary now. Mayor Giuliani has already chosen the nominees of both parties.

"Rudy Giuliani is the only Republican who can beat Hillary Clinton and the Democrats in 2008," the slick mailer proclaims. Where, in Hoboken? Uncle Rudolph was going to defeat Hillary when she invaded New York and ran for the Senate in 2000. Some skeptics still believe it was his deteriorating poll numbers more than his health problems that convinced His Honor to withdraw from that race. Surely, he was healthy enough by 2006 to oppose Clinton in her run for reelection. By that time Giuliani, his political stock resurrected by the events of 9-11, was busy running for president. Too bad. Had he slain the dragon lady in ’06, a grateful GOP might have already handed him the presidential nomination for 2008. As it is, the "Only Rudy can beat Hillary" theme remains an untested theory.

~ Jack Kenny, "Saint Rudolph and the Dragon Lady,", November 27, 2007

CIBC analyst reiterates "underweight" on Citigroup after $7.5 billion Abu Dhabi infusion

When we downgraded Citigroup shares at the beginning of the month, we stated that it needed to raise equity, sell assets, and cut its dividend in order to shore up its capital base. Now that it has raised $7.5 billion in equity, we wait for it to sell assets and cut its dividend.

~ Meredith Whitney, analyst, CIBC World Markets, "Citigroup gets $7.5 billion infusion from Abu Dhabi," MarketWatch, November 27, 2007

(Whitney, who received death threats after she recently downgraded her rating the bank, said she is now waiting for the other shoe to drop.)

Nov 26, 2007

Jim Grant on Benjamin Graham's bullishness in 1932

It might have been for penance that [Benjamin] Graham, with the editorial assistance of David L. Dodd, began to write his magnum opus, "Security Analysis"—for penance and for money. Certainly, there was no money coming in from the money-management business. Graham's fund was down by 20% in 1929, by 50% in 1930 and by 16% in 1931. In 1932, the year the Dow bottomed at 41.22, he managed to achieve a kind of moral victory by losing a mere 2%. Still, there was but 30 cents remaining of each dollar entrusted to his stewardship at the peak only three years before.

Graham was in the throes of composition in the spring of 1932, though he was writing not for his book publisher, McGraw-Hill, but for Forbes Magazine. Under his byline, starting in the issue dated June 1, appeared a three-part series headed, "Is American Business Worth More Dead Than Alive?" To judge by the valuations then prevailing on the New York Stock Exchange, the answer was "yes." More than a third of all listed industrial companies changed hands at less than the companies' own net current assets. In other words, the business values of these companies—as distinct fromo their net cash and other liquid assets—was worth less than zero.

Graham treated this astonishing fact not only with wonder—who could have dreamt it?—but also with a well-reasoned measure of indignation. In the long-vanished boom, companies had raised billions of dollars from the public. Now they were liquid, while the public was struggling to pay the rent and put food on the table. The only rational way to explain the existence of so many cheap stocks, Graham proposed, was that the market, in its wisdom, was discounting operating losses for years to come. But if that were the case, he asked, "should not the stockholder demand liquidation before his money is thus dissipated?"

Well, the market wasn't wise, he judged. It was an ass. How could it be otherwise when the people who bought and sold—especially those who sold—refused even to look at balance sheets? "Much of the past year's selling of stocks has been due to fear rather than necessity," Graham wrote in Forbes. "If these timid holders were thoroughly aware that they were selling out for only a fraction of the liquid assets behind their share, many of them might have acted differently. But since valuation has come to be associated exclusively with earning power, the stockholder no longer pays any attention to what his company owns—not even its money in the bank."

If "earning power" was the boomtime cry, "losing power" was the motto of the bust. "Is it true," Graham posed, "that one out of three American businesses is destined to continue losing money until the stockholders have no equity remaining? That is what the stock market says in no uncertain terms."

And Graham answered his own question: "In all probability [the market] is wrong, as it has always been wrong in its major judgments of the future. The logic of Wall Street is proverbially weak. It is hardly consistent, for example, to despair of the railroads because the trucks are going to take most of their business, and at the same time to be so despondent over the truck industry as to give away shares in its largest units for a small fraction of their liquid capital alone."

~ Jim Grant, "My Hero, Benjamin Grossbaum," speech given in Manhattan before the Center for Jewish History, November 15, 2007

Bernie Schaeffer: Call/put ratio suggests "it's a good time to be long the market"

My colleagues, Bob Becks and Joseph W. Sunderman, took a look at the implications of a low ISE [International Securities Exchange] call/put ratio (below 90)... Unless we're transitioning to a bear market, which I highly doubt, this study suggests that it's a good time to be long the market, no matter how gut-wrenching it may be on a day-to-day basis.

~ Bernie Schaeffer, Schaeffer's Monday Morning Outlook, November 26, 2007

Ben Bernanke: "The U.S. government has a technology, called a printing press"

[T]he U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost... [U]nder a paper-money system, a determined government can always generate higher spending and hence positive inflation.

~ Ben Bernanke, Federal Reserve governor, from a speech before the National Economists Club, Washington, D.C., November 21, 2002

Ben Bernanke on avoiding deflation at all costs

The Congress has given the Fed the responsibility of preserving price stability (among other objectives), which most definitely implies avoiding deflation as well as inflation. I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

~ Ben Bernanke, Federal Reserve governor, from a speech before the National Economists Club, Washington, D.C., November 21, 2002

Jacob Hornberger on Hitler's war on terror

One of the most searing events in German history occurred soon after Hitler took office. On February 27, 1933, in what easily could be termed the 9/11 terrorist attack of that time, German terrorists fire-bombed the German parliament building. It shouldn’t surprise anyone that Adolf Hitler, one of the strongest political leaders in history, would declare war on terrorism and ask the German parliament (the Reichstag) to give him temporary emergency powers to fight the terrorists. Passionately claiming that such powers were necessary to protect the freedom and well-being of the German people, Hitler persuaded the German legislators to give him the emergency powers he needed to confront the terrorist crisis. What became known as the Enabling Act allowed Hitler to suspend civil liberties “temporarily,” that is, until the crisis had passed. Not surprisingly, however, the threat of terrorism never subsided and Hitler’s “temporary” emergency powers, which were periodically renewed by the Reichstag, were still in effect when he took his own life some 12 years later.

Is it so surprising that ordinary German citizens were willing to support their government’s suspension of civil liberties in response to the threat of terrorism, especially after the terrorist strike on the Reichstag?

~ Jacob G. Hornberger, founder and president, The Future of Freedom Foundation, "Why Germans Supported Hitler,", July 19, 2007

On common sense (Spanish proverb)

Common sense is the least common of the senses.

~ Spanish proverb

Nov 25, 2007

Super SIV hasn't begun buying up SIV assets yet

As of late-November, the superfund [Henry] Paulson helped conceive had not yet begun buying up SIV assets, though bankers working on M-LEC [master liquidity enhancement conduit] at Bank of America's New York offices had settled on a structure for the superfund, according to a person familiar with the talks. Meanwhile, the SIVs were losing value.

There are 30 SIVs that held securities worth $400 billion when the mortgage meltdown began in July, according to Moody's Investors Service. Their net asset value fell more than 30 percent from July to mid-November. As of the first week of November, SIVs had been forced to sell at least $75 billion of assets as investors retreated from all but the safest bets.

~, "Paulson Finds Bush's Treasury No Career Enhancer Like Goldman," November 21, 2007, by Rich Miller, Matthew Benjamin and Kevin Carmichael

Henry Paulson seeking advice from Wall Street's elite

When the markets began to shudder in July, Paulson used the address book he had built up during 32 years at Goldman Sachs to seek information and advice from Wall Street's elite. Among those he called, people familiar with his handling of the crisis say, were former Treasury Secretary and Goldman alumnus Robert Rubin, now chairman of Citigroup, and Jamie Dimon, CEO of JPMorgan Chase.

He was on the phone daily through August and into September with Fed Chairman Ben S. Bernanke and was also in frequent touch with New York Fed President Timothy Geithner, the central bank's eyes and ears on Wall Street.

In mid-September, Paulson and his team summoned bankers to the Treasury building adjacent to the White House. The result was M-LEC [master liquidity enhancement conduit].

The idea -- and Treasury's involvement -- has been controversial from the get-go. Soon after the plan's announcement, former Fed Chairman Alan Greenspan and billionaire investor Warren Buffett questioned its practicality, saying investors would not be fooled by a shuffling around of unpalatable assets.

~, "Paulson Finds Bush's Treasury No Career Enhancer Like Goldman," November 21, 2007, by Rich Miller, Matthew Benjamin and Kevin Carmichael

Friedrich von Hayek on central planning

The so-called economic freedom which the planners promise us means precisely that we are to be relieved of the necessity of solving our own economic problems and that the bitter choices which this often involves are to be made for us. Since under modern conditions we are for almost everything dependent on means which our fellow-men provide, economic planning would involve direction of almost the whole of our life. There is hardly any aspect of it, from our primary needs to our relations with our family and friends, from the nature of our work to the use of our leisure, over which the planner would not exercise his "conscious control."

~ Friedrich von Hayek, The Road to Serfdom, p. 127.

Nov 24, 2007

Ken Fisher: "Credit crunch bogeyman" will disappear "by the time Halloween is over"

So many people are bearish, so many experts are wringing their hands over subprime lending, so great are the fears of a credit crunch, that you should be … bullish! It isn't just the media's dirge about mortgage defaults that will supposedly ripple everywhere. Normally sounder-thinking Main and Wall Streeters are worrying themselves to death about the economy. It took just one lightning-quick month, beginning in mid-July, for the popular consensus to go from optimism to pessimism. A rapid switch like that never happens around market tops, only corrections. The bears are wrong.

In the Sept. 17 column I detailed why we have no real credit crunch, scarcely even a hunch of a crunch. By the time Halloween is over, the credit crunch bogeyman will have disappeared along with the ghosts and skeletons.

~ Ken Fisher, "Credit Goblins," Forbes, October 15, 2007

Constitution: Power to declare war is reserved to Congress

The Congress shall have Power...

To declare War, grant Letters of Marque and Reprisal, and make rules concerning Captures on Land and Water;

~ U.S. Constitution, Article 1, Section 8

Nov 23, 2007

Martin van Buren on government bailing out business losses

Those who look to the action of this government for specific aid to the citizen to relieve embarrassments arising from losses by revulsions in commerce and credit, lose sight of the ends for which it was created, and the powers with which it is clothed. It was established to give security to us all. … It was not intended to confer special favors on individuals. The less government interferes with private pursuits, the better for the general prosperity.

~ Martin Van Buren, 8th President of the United States, 1837

Thomas Edison on progress

Restlessness and discontent are the first necessities of progress.

~ Thomas Alva Edison

Einstein on learning

The important thing is to not stop questioning.

~ Albert Einstein

FDR on sacrifice

It is not a sacrifice for any man, old or young, to be in the Army or Navy of the United States. Rather it is a privilege. It is not a sacrifice for the industrialist or the wage-earner, the farmer or the shopkeeper, the trainman or the doctor, to pay more taxes, to buy more bonds, to forego extra profits, to work longer or harder at the task for which he is best fitted. Rather it is a privilege. It is not a sacrifice to do without many things to which we are accustomed if the national defense calls for doing without.

~ Franklin Delano Roosevelt, December 9, 1941

(From FDR's radio address two days after the Japanese attacked Pearl Harbor.)

Duke of Wellington on the future prospects of railroads

Depend upon it, Sir, nothing will come of them!

~ Duke of Wellington, early 19th century, The Birth of the Modern, by Paul Johnson, p. 993

(Wellington was the victor over Napoleon at Waterloo.)

Barry Hyman: "Momentum players are out of their minds"

Value players have become growth players, growth players have become momentum players, and momentum players are out of their minds.

~ Barry Hyman, senior market analyst, Ehrenkrantz King Nussbaum, December 22, 1999

Kevin Duffy on betting against the momentum crowd

It is obvious that the hot money is betting the ranch that we truly live in a New Economy, technology trees will grow to the sky, safety is for wimps, and the Great Bull Market has the life expectancy of the Energizer Bunny. From the evidence, it appears now is an excellent time to bet against them: sell technology stocks, buy gold stocks, raise cash, and prepare for the mother of all bear markets.

~ Kevin Duffy, "The Dangers of Running with the Momentum Crowd," April 3, 2000

Kevin Duffy: Parallels between 1989 Japan bubble and 2000 New Economy bubble

Ten years ago the United States had an inferiority complex. The crowd was utterly convinced that America’s decline was just as inevitable as Japan’s climb. Today, conventional wisdom has turned 180 degrees: America’s hegemony is expected to continue, business cycles have been repealed by a New Economy, and baby boomers should power the stock market to another decade of above-average returns. If history is any guide, such a widely embraced consensus is doomed to failure.

~ Kevin Duffy, "Conventional Wisdom – A Flashback to 1989," March 3, 2000

Kevin Duffy on hubris in Japan (1989)

Much has been said about the complacency of American business, but little is mentioned today about Japan’s rising self-confidence which borders on arrogance. It is not uncommon for Japanese hosts to lecture American visitors on what is wrong with the United States. Magazine articles berate American high-tech products as garbage. Japan increasingly sees itself propping up the U.S., which has become a spendthrift society.

A new book, titled A Japan That Can Say ‘No’, has broken new ground in Japanese style America-bashing. Co-written by Sony chairman Akio Morita and Diet member Shintaro Ishihara, the book proclaims that Japanese technology already dominates the world and should be used to influence international relations.

The United States and Japan have a history of underestimating each other. Today, it is the Japanese who underrate their American competitors.

~ Kevin Duffy, "America's Decline vs. Japan's Rise," October 1989

Governor William Bradford on how common ownership of property failed at Plymouth Plantation

At last after much debate of things, the governor gave way that they should set corn everyman for his own particular... That had very good success for it made all hands very industrious, so much [more] corn was planted than otherwise would have been ... The experience that has had in this common course and condition, tried sundrie years, and that amongst Godly and sober men, may well evince the Vanities of the conceit of Plato's and other ancients, applauded by some of later times; that the taking away of propertie, and bringing into commone wealth, would make them happy and flourishing, as if they were wiser than God.

~ Governor William Bradford, Of Plimouth Plantation: 1620-1647 (1650)

Nov 22, 2007

Washington on freedom

The thing that sets the American Christian apart from all other people in the world is he will die on his feet, before he'll live on his knees.

~ George Washington

Kevin Duffy on inflation and the tech bubble

Much of the debate over New Economy vs. Old... comes down to a difference in how inflation is defined. Austrian economists tend to define inflation in terms of credit expansion and money supply growth. They recognize that inflation can show up in unpredictable areas. New Era economists tend to focus solely on consumer prices. Some, like Brian Wesbury, go even further, removing food, energy, tobacco, or whatever else causes the unintended effect.

Signs of inflation were obvious to readers of the latest issue of Barron’s:

  • Inflated stock prices – Cisco trades at 101 times estimated 1999 earnings, Oracle: 81x, Microsoft: 56x, Nortel Networks: 81x, Sun Microsystems: 83x, Lucent: 61x, and AOL: 304x. (p. MW4)
  • Inflated art prices – Recent auctions brought over $45 million each for a pair of Picassos and a record $129,000 for a 100 year old West African spoon. (p. 48)
  • Inflated earnings – In its latest quarter, Hewlett-Packard beat Street estimates by two cents (adding $17 billion in market value), by lowering its tax rate. (p. 6)
  • Inflated egos – Louis Rukeyser, apparently feeling viewers only need to hear his eternally optimistic message, ostracized his last dissenting Elf, Gail Dudack. (p. 6)

To this list we could easily add inflated real estate prices, inflated credit, inflated expectations, and inflated forecasts (e.g. “Dow 36,000”). Despite inflating its balance sheet 7.1% over the past year, the Fed assures us that last week’s rate hike should “markedly diminish the risk of inflation.”

This combination of credit expansion, asset inflation, and low or no consumer price inflation is a benign-looking, but potent mix. These conditions accurately described the bubble economies of the United States in the late 1920s and Japan in the late 1980s. This New Era will meet a similar fate. It’s a shame asset bubbles, according to our Fed Chairman, are “incontrovertibly evident only in retrospect.”

~ Kevin Duffy, "New Era or Old?," Barron's (letter to the editor), November 29, 1999

Kevin Duffy on the information age

The world is still in the early stages of a third economic wave - the transition from an industrial to an information-based economy. Innovators tend to lead, whereas imitators tend to lag such waves. As the world's best imitators, the Japanese capitalized on the ending of the industrial age. As the world's best innovators, Americans should be the main beneficiaries of the beginning of the information age.

By the end of this century, the question may not be "Will the U.S. be No. 1?" but "Will Japan still be No. 2?"

~ Kevin Duffy, "Will Japan Outpace U.S. Innovators?," The Wall Street Journal (letter to the editor), December 13, 1988

David Lloyd George on the estate tax

Death is the most convenient time to tax rich people.

~ David Lloyd George, Lord Riddell's Intimate Diary
of the Peace Conference and After

Joseph Schumpeter on the gold standard

An "automatic" gold currency is part and parcel of a laissez-faire and free-trade economy. It links every nation's money rates and price levels with the money-rates and price levels of all other nations that are "on gold." It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of [classical] liberalism. This is the reason why gold is so unpopular now [1950] and also why it was so popular in the bourgeois era. It imposes restrictions upon governments or bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom - of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense. From this standpoint a man may quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of etatisme and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds.

Joseph Schumpeter, quoted in Richard H. Timberlake's article, "Federal Reserve Follies: What Really Started the Great Depression," 1954

Nov 21, 2007

Supreme Court Justice Clarence Thomas on the commerce clause and police power

I write separately only to express my view that the very notion of a "subsantial effects" test under the Commerce Clause is inconsistent with the original understanding of Congress' powers and with this Court's early Commerce Clause cases. By continuing to apply this rootless and malleable standard, however circumscribed, the Court has encouraged the Federal Government to persist in its view that the Commerce Clause has virtually no limits. Until this Court replaces its existing Commerce Clause jurisprudence with a standard more consistent with the original understanding, we will continue to see Congress appropriating state police powers under the guise of regulating commerce.

~ Clarence Thomas, Supreme Court justice

Henry Hazlitt on paper money vs. a gold standard

When a country is not on a gold standard, when its citizens are not even permitted to own gold, when they are told that irredeemable paper money is just as good, when they are compelled to accept payment in such paper of debts or pensions that are owed to them, when what they have put aside, for retirement or old age, in savings banks or insurance policies, consists of this irredeemable paper money, then they are left without protection as the issue of this paper money is increased and the purchasing power of each unit falls; then they can be completely impoverished by the political decisions of the “monetary managers.”

~ Henry Hazlitt

FBR analyst downgrades Freddie Mac: "How do you value these companies?"

A lot of us were looking at fair value book. Now you get the fair value book dropping by $9 billion in one quarter. You have to throw up your hands and say "How do you value these companies?" We don't know.

~ Paul Miller, analyst, Friedman Billings Ramsey

(Mr. Miller cut his rating on Freddie Mac to "underperform" from "market perform" and his price target from $55/share to $20/share following the company's dismal 3rd quarter results. He expects the stock to be under pressure until credit costs and capital levels stabilize.)

Nov 20, 2007

Gary Cooper on the long-running failure of Civil War movies

I'm just glad it'll be Clark Gable who's falling on his face and not Gary Cooper.

~ Gary Cooper on his decision not to take the leading role in "Gone With The Wind"

Bill Gates on the need for computer memory (1981)

640K ought to be enough for anybody.

~ Bill Gates, 1981

IBM engineer questioning the use of the microchip (1968)

But what is it good for?"

~ Engineer at the Advanced Computing Systems Division of IBM, commenting on the microchip, 1968

Prentice Hall: "Data processing is a fad"

I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won't last out the year.

~ The editor in charge of business books for Prentice Hall, 1957

Thomas Watson on the future of computing (1943)

I think there is a world market for maybe five computers.

~ Thomas Watson, chairman of IBM, 1943

Popular Mechanics on the relentless march of science in computing (1949)

Computers in the future may weigh no more than 1.5 tons.

~ Popular Mechanics, forecasting the relentless march of science, 1949

David Sarnoff's associates on radio as a commercial application

The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?

~ David Sarnoff's associates in response to his urgings for investment in the radio in the 1920s

Dr. Lee DeForest on space exploration

Man will never reach the moon regardless of all future scientific advances.

~ Dr. Lee DeForest, "Father of Radio & Grandfather of Television"

Justice Oliver Wendell Holmes on liberty

The liberty of the citizen to do as he likes so long as he does not interfere with the liberty of others to do the same, which has been a shibboleth for some well-known writers, is interfered with by school laws, by the Post Office, by every state or municipal institution which takes his money for purposes thought desirable, whether he likes it or not.

Justice Oliver Wendell Holmes, dissenting opinion, Lochner v. New York, 198 U.S. 45, 25 S.Ct. 539 (1905)

Jim Rogers: Still short Fannie Mae and Freddie Mac

I'm still short those companies, they both have a long way to go as far as I'm concerned. Neither one has a clue what's on their balance sheets.

~ Jim Rogers, chairman, Beeland Interests, "Freddie, Fannie Shares Will Continue to Slide, Jim Rogers Says,", November 20, 2007

(Freddie Mac, the second-largest U.S. mortgage company, warned of a possible cut in the dividend and the need for additional capital. The worst housing slump in 16 years caused "significant deterioration'' in the third quarter that will continue through year-end, Freddie Mac said after reporting a net loss of $2.02 billion, or $3.29 a share, three times what some analysts estimated. )

KKR Financial: "It's a great time to invest in CLOs"

We have the liquidity, we have the financing, more importantly we've got the investment opportunities. It's a great time to invest [in CLOs], and we've got all the raw materials necessary to take advantage of it.

~ David Netjes, chief operating officer, KKR Financial, "Greed Trumps Fear as KKR Gets Banks to Arrange CLOs,", November 20, 2007

(KKR Financial shares fell 1 cent to $14.44 in New York Stock Exchange composite trading as of 10:22 a.m. The stock has lost about 45 percent this year.)

Law firms with large structured finance practices hardest hit

Two specialized [law] firms with large structured finance practices, New York's Thacher Proffitt & Wood and McKee Nelson, have been hit the hardest.

At Thacher Proffitt, about a dozen associates from the group, which accounts for about 40 percent of the firm's lawyers, have moved to other practice areas, said Chairman Paul Tvetenstrand.

When asked if the firm would lay off associates, Tvetenstrand paused for at least 10 seconds before answering, "We have to constantly monitor the situation.''

"We're working to rebuild the business, looking for more signs of activity in our client base, looking for attrition in the associate ranks to hopefully get us where we need to be,'' he said.

~, "Credit Market Collapse Claims Victims as Lawyers Exit," November 20, 2007

New York law firms resist downsizing amid Wall Street downturn

I don't think the other top-tier New York [law] firms lay off associates anymore. I think they've learned their lesson from the last few downturns.

~ Scott Barshay, mergers and acquisitions partner, Cravath, Swaine & Moore, "Credit Market Collapse Claims Victims as Lawyers Exit,", November 20, 2007

(He added that his firm has never laid off associates. Cravath is New York's second-most profitable law firm.)

David Bianco: Stock market pricing in recession

The market's priced for a U.S. recession. We don't think that's the case, and we believe the earnings are going to prove to be far more resilient than most people realize.

~ David Bianco, 32, chief investment strategist, UBS AG, "Cohen, Bianco See Year-End Rally; Dow Theory Says No,", November 19, 2007

(Bianco made this comment the previous week in a conference call. He wrote in a Nov. 9 research note that stocks are inexpensive and said the Fed will reduce its benchmark lending rate to 3.5 percent next year from 4.5 percent now.)

Karl Kraus on how war and the media

How is the world ruled and how do wars start? Diplomats tell lies to journalists and believe what they read.

~ Karl Kraus, Aphorisms and More Aphorisms (1909)

Freddie Mac's Syron: "Playing a stabilizing role in the markets"

We recognized the challenges facing the mortgage markets, however, and have taken further steps to address them. At the same time, as our charter mandates, we have continued to meet our mission by playing a stabilizing role in the markets and supporting our customers.

It will take time for this market to turn around. But as it improves, we are optimistic about Freddie Mac's longer-term prospects. The market shift towards fixed rate originations and improved pricing and credit standards should position us well as the weakness in credit markets begins to improve and we are able to leverage our traditional strengths.

~ Richard Syron, Chairman and Chief Executive, Freddie Mac, "Freddie Mac Net Loss Widens," The Wall Street Journal, November 20, 2007, by John Flowers

(Freddie Mac reported a 3rd quarter loss of $2 billion, said its estimated regulatory core capital is almost below the regulatory minimum of 30%, is "seriously considering" reducing its 4th quarter dividend by 50%, and has engaged Goldman Sachs and Lehman Brothers to help consider "very near-term capital raising alternatives.")

Nov 19, 2007

Jason Trennert: Sticking to year-end S&P target of 1600

It's a tall order to get to our year-end target, but I don't want to concede defeat. Whether we get to 1,600 or not, the Lord only knows, but I do feel very strongly that there's enough value in the market that it's not a bad way to bet.

~ Jason Trennert, chief investment strategist, Strategas Research, "Cohen, Bianco See Year-End Rally; Dow Theory Says No,", November 19, 2007

(Trennert, 39, correctly predicted takeovers would send stocks surging earlier this year.)

Nov 18, 2007

Kevin Duffy on how fear feeds the accumulation of power

Fear comes in many forms – fear of foreign attack (e.g., the Cold War and War on Terror), fear that the economy will crumble without adult supervision, fear that roads, schools and parks would not exist without government provision, fear that the exhaust from our cars will melt the polar ice caps and flood our coastal cities, and even fear that one of the two political parties poses a greater threat to our livelihoods than the other.

~ Kevin Duffy, "What Drives the Lust for Power?,", November 15, 2007

Kevin Duffy on exercise

Exercise the body. You’ll look better and feel better. You can roll through life a Krispy Kreme or cruise through life a lean, mean, fighting machine. Your choice.

Exercise the mind. Use it or lose it. Education doesn’t stop with graduation.

~ Kevin Duffy

Marcy Barack: 5 tips on making conversation

Making successful small talk with someone you've just met isn't rocket science, but it does demand more effort than tossing out a tired opening line.

To get the ball rolling, here are five practical principles for starting a conversation when you don't know what to say.
  1. Flattery will get you everywhere. Make with the compliments to begin on a positive note.
  2. Props. Women work hard choosing their accessories, and anyone who notices wins points.
  3. Redirection. People love to share their enthusiasm for their hobbies.
  4. Ask more than yes/no questions. Think like a reporter: Ask who, what, when, where and why.
  5. Listen, really listen, to the other person.

~ Marcy Barack, "Secrets of Great Conversation," MSN Dating & Personals, November 18, 2007

Kevin Duffy on brevity

Make it brief. Life is short. Enough said.

~ Kevin Duffy

Bill Cosby on staying focused

I don't know the key to success, but the key to failure is trying to please everybody.

~ Bill Cosby

Kevin Duffy on the danger of crowds

Avoid crowds. They are faceless, irrational, unruly masses reduced to the least common denominator who think they are invincible. They are dangerous to your health and wealth. Leave… now!

~ Kevin Duffy

Kevin Duffy on hard work

Work hard, and get use to it. There is no retirement age.

~ Kevin Duffy

Lou Holtz on determination

Ability is what you're capable of doing.
Motivation determines what you do.
Attitude determines how well you do it.

~ Lou Holtz

Walter Chrysler on the key to success

The real secret of success is enthusiasm.

~ Walter Chrysler

Ron Paul on the Constitution and limited government

The principle of limited government enshrined in the Constitution - limited government in both domestic and foreign affairs - has not changed over time. What has changed is our willingness to ignore that principle.

~ Congressman Ron Paul

Ron Paul on the Founders' foreign policy

Since so many apparently now believe Washington and Jefferson were wrong on the critical matter of foreign policy, they should at least have the intellectual honesty to admit it.

~ Congressman Ron Paul

Nathaniel Branden on compassion

We do not hear the term "compassionate" applied to business executives or entrepreneurs, certainly not when they are engaged in their normal work. Yet in terms of results in the measurable form of jobs created, lives enriched, communities built, living standards raised, and poverty healed, a handful of capitalists has done infinitely more for mankind than all the self-serving politicians, academics, social workers, and religionists who march under the banner of "compassion."

~ Nathaniel Branden

Frederic Bastiat on the difference between war and business

In war, the stronger overcomes the weaker. In business, the stronger imparts strength to the weaker.

~ Frederic Bastiat

Ronald Reagan on the military

There are some who've forgotten why we have a military. It's not to promote war; it's to be prepared for peace.

~ Ronald Reagan

Nov 17, 2007

Eisenhower's warning

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

President Dwight Eisenhower, farewell address to the nation, Jan. 17, 1961

Edmund Burke on the threat to liberty

The true danger is when liberty is nibbled away, for expedience, and by parts.

~ Edmund Burke

Vince Farrell on bank stocks

The deal of the century is these bank stocks with a 6 1/2% yield.

~ Vince Farrell, as appeared on CNBC, November 2007

Hillary Clinton: "Climate change is our space race"

For this generation, climate change is our space race.

The climate crisis is also one of the greatest economic opportunities in the history of our country. It will unleash a wave of innovation, create millions of new jobs, enhance our security and lead the world to a revolution in how we produce and use energy.

It's the biggest challenge we've faced in a generation, a challenge to our economy, our health and our planet. It's time for America to meet it. It is time to get back into the solutions business.

~ Senator Hillary Clinton, speaking in a cavernous factory with giant wind turbines in the background at the Iowa State University Biobased Industry Outlook Conference, November 5, 2007

(Clinton, who is pursuing the Democratic presidential nomination, is calling for creation of a $50 billion strategic energy fund, coupled with tougher fuel efficiency standards financed in part by $20 billion in "green vehicle bonds.")

Jan Hatzius: U.S. could face $2 trillion lending shock

The macroeconomic consequences could be quite dramatic, Hatzius said in the note to clients. If leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion.

Hatzius said such a shock could produce a "substantial recession" if it occurred over one year, or a long period of sluggish growth if it occurred over two-to-four years.

~Jan Hatzius, Goldman Sachs economist, U.S. could face $2 trillion lending shock, November 16, 2007

John McCain promises to win back trust in government

Americans have lost trust in their government and I promise to win it back, so help me God.

~ Senator John McCain, speaking at the Iowa State University Biobased Industry Outlook Conference, November 5, 2007

Mary Beth Kissane: What did the banks know?

The banks didn't know until four days ago they had a big problem? Either they don't know, which is a competence issue, or they do, which is a criminal issue.

~ Mary Beth Kissane, head of investor relations at corporate public relations firm Walek & Associates, and a member of PR Newswire's Disclosure Advisory Board, "Lifting the Lid: Were banks' writedowns too little, too late?," Reuters, November 16, 2007

Michael Santoli: Recession already largely discounted in the stock market

What's clear is that the notion that the economy is vulnerable has become rather commonplace, in contrast to the early moments of the 2001 recession, when 95% of economists polled said there wouldn't be one.

As the folks at Bianco Research noted Friday, the current covers of both the Economist and BusinessWeek are on the recession theme, with the former warning of "America's Vulnerable Economy" and the latter insisting, "Coming Soon: The Consumer Crunch." While Bianco analysts themselves are on high recession alert, they admirably remark: "Keep in mind when we get multiple covers on the same subject, one must consider the possibility that this story has been discounted and therefore will not happen."

The good news is that there's already so much public worry about a recession at a time when the job-and-wage story hasn't yet faltered and when nonfinancial companies are flush. This suggests that -- as in past slowdowns -- if we get only a near-recession, there's plenty of upside risk in stocks.

~ Michael Santoli, "What if It's Only a Near-Recession?," Barron's, November 19, 2007

Kevin Duffy on trust

Don’t trust politicians. Or anyone who spends other people’s money.

Don’t trust warmongers. Or anyone who spills other people’s blood.

Don’t trust power-seekers. Lord Acton was right: “Power corrupts, absolute power corrupts absolutely.”

Kevin Duffy on positive attitude

Be positive. Positive emotions are life’s fuel, negative emotions life’s baggage. Keep a full tank and travel light.

~ Kevin Duffy

Nov 16, 2007

Lew Rockwell on wealth creation

Wealth is created by people - free people. Under what system? Not force. Not taxes and regulations. It is free-market capitalism that is the very foundation of material civilization.

~ Lew Rockwell, president, Ludwig von Mises Institute, June 28, 2007

Lew Rockwell on academia embracing statism

In this world, there are some guaranteed failures - proven again and again. None is more persistent than government policy. I mean all government policy. Government's welfare programs don't work. Its wars are a calamity. Its regulations hobble prosperity. Its monetary policy is one long fiasco. Its trade policies hurt everyone but a few insiders. Its taxes throw good money after bad.

So it has always been; so it will always be.

Why does our country persist, then, in these failed policies? Well, politicians benefit from them. So do special interests. The bureaucratic class is always scheming for more money and power. And some people just enjoy getting something for nothing.

The major culprits are the universities. They teach what Mises called statism, which is an intellectual attachment to the bogus idea that the State can accomplish all wonderful things if only it has enough power and money. They teach this in sociology, in economics, in politics, in history, even in literature and the humanities. If there is a single doctrine that academia embraces, it is that the State is great.

~ Lew Rockwell, president, Ludwig von Mises Institute, June 28, 2007

Patrick Henry on freedom

Guard with jealous attention the public liberty. Suspect everyone who approaches that jewel.

~ Patrick Henry

H.L. Mencken on fear and politics

The whole aim of practical politics is to keep the populace alarmed – and thus clamorous to be led to safety – by menacing it with an endless series of hobgoblins, all of them imaginary.

~ H.L. Mencken

George Bernard Shaw on freedom and responsibility

Liberty means responsibility. That is why most men dread it.

~ George Bernard Shaw

Leonard Read's famous essay "I, Pencil"

There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work.

Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society's legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed.

~ Leonard E. Read, founder, Foundation for Economic Education, "I, Pencil: My Family Tree as Told to Leonard E. Read," The Freeman, December 1958

Henry David Thoreau on government vs. business

Government never furthered any enterprise but by the alacrity with which it got out of its way.

~ Henry David Thoreau

Leonard Read on the proper role of government

I would have government defend the life and property of all citizens equally; protect all willing exchange; suppress and penalize all fraud, all misrepresentation, all violence, all predatory practices; invoke a common justice under law; and keep the records incidental to these functions. Even this is a bigger assignment than governments, generally, have proven capable of. Let governments do these things and do them well. Leave all else to men in free and creative effort.

~ Leonard E. Read, “Notes from FEE," Oc­tober 1, 1954

Nov 15, 2007

Jeff Tucker on why the market economy should never be taken for granted

The old-style classical liberals reveled in the fact that all these "impersonal forces" [of the market economy] worked without anyone really being aware of them, or having to understand them. The checkout lady at the store just shows up, pushes buttons, gets paid, and stays or leaves based on her assessment of her own well-being. Everyone else does the same. The pursuit of self-interest generates this amazing global matrix that benefits everyone.

The old liberals reveled in the fact that no one had to understand it, but then the system itself came under attack, and needed defense. It had to be understood to be explained, and explained in order to be preserved.

This is why Ludwig von Mises set out to revise liberal doctrine. It is not enough that people participate unknowingly in the market economy. They must understand it, and see how, and precisely how, their smallest and selfish contribution leads to the general good, and, moreover, they must desire that general good.

All of which is to say that in an enlightened world, it would be a good thing for that cashier to understand economics from the point of view of those who pay her. It would be good for striking workers to understand how they are harming not only their bosses but also themselves. It would be good for voters to see how supporting government benefits for themselves harms society at large.

An economically literate public is the foundation for keeping that amazing and wild machine called the market working and functioning for the benefit of the whole of humanity.

~ Jeffrey A. Tucker, "The Other Side of the Transaction,", November 12, 2007

Angelo Mozilo on the crisis in the U.S. mortgage market

Nobody saw this coming.

~ Angelo Mozilo, CEO, Countrywide Financial, July 24, 2007

Marc Faber on Ben Bernanke

Mr. Bernanke is gold's best friend. Gold only needs a money printer like Mr. Bernanke and they got it. Mr. Bernanke was sent by God to the world, to the gold buyers.

~ Marc Faber, editor, The Gloom, Boom & Doom Report, as appeared on Bloomberg Audio, November 15, 2007

Maria Bartiromo on the economy

I am not expecting a recession.

~ Maria Bartiromo, CNBC, November 15, 2007, 3:10 pm EDT

Ron Paul on the Iraq War

Q: Wouldn't leaving Iraq be a propaganda victory for bin Laden?

Paul: Everything is much worse if we stay. Right now they're very content to bleed us in Iraq. Bleed us financially and by killing Americans. We lose lives, we spend money we don't have, it furthers our financial crisis. The longer we're there, the stronger Al Qaeda gets. Our being there is the greatest incentive ­conceivable to help Osama bin Laden. The evidence is very clear. There's more Al Qaeda now than before. Which means we're in greater danger of being hit by terrorists than before.

Besides, who are the people telling us there'll be problems if we leave? The same ones who said it would be a ­cakewalk. What kind of credibility do they have?

Q: You talk about limiting the size of government. How much of the Pentagon's budget would you ax?

Paul: We are now spending close to a trillion dollars a year, when you add up every single thing we do overseas. You could start off easily cutting $100 billion. Bring the troops home, you could save $200 billion the next year. And maybe $250 billion the year after that.

Quit paying to blow up bridges in Iraq and then paying to rebuild them. Bring that money home. Our bridges are falling down. Our levees are falling down. The only way we can get enough money is by stopping this insane foreign policy of running this empire that we can't afford. Policing the world? It's impossible.

~ Congressman Ron Paul, "Ron Paul: A Republican Takes the Lead Against the War," Rolling Stone, November 14, 2007, by Tim Dickinson

Ron Paul on Rudy Giuliani's foreign policy

If someone is unhappy with the Bush [foreign] policy, they would find Giuliani's... even more extreme. But since Giuliani is so anxious to go to war, somebody ought to ask him why he didn't go when he was called up instead of ducking it like some of those other chicken hawks — he took, what, four deferrals?

The kids today are expected to go because Giuliani likes this stuff. But whether it's Cheney or Giuliani, these guys think it's quite proper to go to war when they feel like it. But they never had to expose themselves.

~ Congressman Ron Paul, "Ron Paul: A Republican Takes the Lead Against the War," Rolling Stone, November 14, 2007, by Tim Dickinson

Bretigne Shaffer on mixing integrity and politics

People are beyond fed up with empty political promises. They are tired of meaningless "choices" at the ballot box. They are rightly cynical about the entire process. Ron Paul has spent over 30 years of his life demonstrating that his promises are not empty and that he is utterly devoted to the pursuit of liberty in this country. Even people who have just been introduced to him see that he means what he says.

And this changes things. People are accustomed to voting for the lesser of two evils. What happens when someone who is not evil shows up? Integrity is not generally an ingredient found in presidential elections and its presence here now changes the entire nature of the game. Ron Paul is not playing by the same rules as everyone else, and by playing by his own rules – by committing the political cardinal sin of meaning what he says – he changes the rules for everyone else. Candidates are now no longer measured against other politicians whose words mean nothing, but against a man of integrity, and in order to succeed they must rise to his level. But they can’t. A reputation earned in over thirty years of dealing with people is not something that can be bought. Nor can it be "spun" out of thin air. Quite simply: Ron Paul has something none of the other candidates have or can get in time for the elections. This fact alone could very possibly win him the Republican nomination and even the presidency.

~ Bretigne Shaffer, "A Non-Voter’s Thoughts on Ron Paul,", November 15, 2007

Scott Peck on the pursuit of truth

Mental health is an ongoing process of dedication to reality at all costs.

~ Scott Peck, The Road Less Traveled

Alexander Hamilton on principle

Those who stand for nothing fall for anything.

~ Alexander Hamilton

Santas warned 'ho ho ho' offensive to women

Santas in Australia's largest city have been told not to use Father Christmas's traditional "ho ho ho" greeting because it may be offensive to women, it was reported Thursday. Sydney's Santa Clauses have instead been instructed to say "ha ha ha" instead.

~Daily Telegraph, "Santas warned 'ho ho ho' offensive to women," November 15, 2007

Nov 14, 2007

Alan Skrainka: Recession "not the end of the world"

The average recession lasts 10 months. So even if we do go into recession, it's not the end of the world.

~ Alan Skrainka, as appeared on CNBC, November 14, 2007

Andrew Fletcher on conquest

Conquest is not our interest, much less to consume our people and treasure in conquering for others.

~ Andrew Fletcher, A Discourse of Government With Relation to Militias (1698)

Jim Jubak on Quintana Maritime

On Nov. 5, Quintana Maritime (QMAR) reported earnings of 13 cents a share for the third quarter of 2007. That was an improvement from a loss of 19 cents a share in the third quarter of 2006. Excluding an unrealized loss and a write-off of unamortized financing costs, the company showed earnings of 39 cents a share. That was 3 cents a share better than the average projection of Wall Street analysts, who had used adjusted earnings in their estimates. Revenue climbed to $64 million from $25 million.

And it looks like rates for dry-bulk shippers will continue to climb. Charter rates for capesize- and supramax-class ships on one-year charter climbed 5.8% and 7.8%, respectively, in the week that ended Oct. 23, according to Oppenheimer. As I wrote when I added Quintana Maritime to Jubak's Picks on Oct. 16: "When dry-bulk shipping rates are at highs, it doesn't hurt to have ships coming off charter, because that gives a company a chance to sign them to new contracts at higher prices. Quintana Maritime has five ships coming off below-current-market-rate charters in the first two quarters of 2008. That's one reason I think earnings growth will beat Wall Street estimates of 54% growth in 2008 -- even after the company is on target to turn in 81% growth in 2007."

The stock now pays a 4.7% dividend. Indications are that the company is exploring the possibility of a sale. Buyers have kicked the tires -- the hulls, I mean -- and the first round of bids is due Nov. 16. Estimates of a buyout price are all over the block, ranging from a low of $23 a share to a high of $39. Any purchase would close in 2008. As of Nov. 13, I'm raising my target price on this stock to $33 a share by March 2008 from my prior target price of $32 a share.

~ Jim Jubak, "5 Ways to Ride Out the Market's Storm," MSN Money, November 14, 2007

Alexander Hamilton on public debt

A national debt, if it is not excessive, will be to us a national blessing.

~ Alexander Hamilton

Judge Napolitano on 2008 presidential election

At this writing, sixteen politicians are competing nationally to replace President Bush; there are eight Democrats and eight Republicans. With the exception of Ron Paul (R-TX), in terms of fidelity to the Constitution, it does not matter which one of them wins. Except for Congressman Paul, they all love power for its own sake, believe that Big Government should redistribute wealth, regard the Constitution as a quaint obstacle, and would enforce or disregard laws as they saw fit; all this, without regard to our history, our values, or our natural rights.

~ Judge Andrew Napolitano, A Nation of Sheep

Judge Napolitano on government spying

Why should government agents spy on us? They work for us. How about we spy on them? On cops when they arrest and interrogate people or contemplate suspending freedom; on prosecutors when they decide who to prosecute and what evidence to use; on judges when they rationalize away our guaranteed rights; and on members of Congress whenever they meet with a lobbyist, mark up a piece of legislation, or conspire to assault our liberties or our pocketbooks.

~ Judge Andrew Napolitano, A Nation of Sheep

Nov 13, 2007

Jim Paulsen: Crisis is on Wall Street, not Main Street

The crisis is really on Wall Street, not Main Street. It's a problem if you're a CEO or hedge-fund manager whose bonus is going to be cut, but outside of New York, it's not nearly such a big deal, [because low unemployment and benign inflation have helped many everyday Americans lately.]

~ Jim Paulsen, strategist, Wells Capital Management, "Stocks Snap Losing Streak,Dow Leaps Nearly 320 Points," By Peter A. McKay, November 13, 2007

(DJIA closed at 13,307, +320.)

Ron Paul on government lies

People are tired of what they're getting from their government. They're angry. They believe they're being lied to when it comes to the economy. They believe they've been lied to going into war.

Congressman Ron Paul, "Currency Rising for GOP Long Shot," U.S. News & World Report, November 10, 2007

Lloyd Blankfein on the integrity of Goldman's balance sheet

We are confident that we know how to evaluate these assets.

~ Lloyd Blankfein, CEO, Goldman Sachs, November 13, 2007

Nov 12, 2007

Washington on foreign policy

Observe good faith and justice toward all nations. Cultivate peace and harmony with all.

~ George Washington

James Madison on war

War contains so much folly, as well as wickedness, that much is to be hoped from the progress of reason.

~ James Madison

Ron Paul on spreading ideals

Setting a good example is a far better way to spread ideals than through force of arms.

~ Congressman Ron Paul

Franklin on war and peace

There never was a good war or a bad peace.

~ Benjamin Franklin, Letter to Josiah Quincy (September 11, 1773)

Thomas Jefferson on conquest

Conquest is not in our principles. It is inconsistent with our government.

~ Thomas Jefferson

James Madison on war's burdens

Each generation should be made to bear the burden of its own wars, instead of carrying them on, at the expense of other generations.

~ James Madison

Franklin on liberty vs. security

Any society that would give up a little liberty to gain a little security will deserve neither and lose both.

~ Benjamin Franklin

Franklin on the costs of war

Wars are not paid for in wartime, the bills come later.

~ Benjamin Franklin

Jefferson on principle

In matters of style, swim with the current; in matters of principle, stand like a rock.

~ Thomas Jefferson

Ron Paul on the non-aggression axiom

Legitimate use of violence can only be that which is required in self-defense.

~ Congressman Ron Paul

Blackstone on the mortgage "black hole"

The mortgage black hole is, I think, worse than anyone saw. Deeper, darker, scarier. [The banks] are now looking at new reserves and my sense . . . is they don't have a clear picture of how this will play out and confidence is low.

~Tony James, President, Blackstone Group (BX), "Blackstone chief talks of mortgage crisis 'black hole'," MSNBC, November 12, 2007

(Shares in the US private equity group fell on news that its revenues had fallen sharply below expectations in the third quarter.)

Randolph Bourne on war

War is the health of the State.

~ Randolph Bourne, "The State," 1918

Randolph Bourne: "War is the health of the state"

War is the health of the State. It automatically sets in motion throughout society those irresistible forces for uniformity, for passionate cooperation with the Government in coercing into obedience the minority groups and individuals which lack the larger herd sense. The machinery of government sets and enforces the drastic penalties; the minorities are either intimidated into silence, or brought slowly around by a subtle process of persuasion which may seem to them really to be converting them. Of course, the ideal of perfect loyalty, perfect uniformity is never really attained. The classes upon whom the amateur work of coercion falls are unwearied in their zeal, but often their agitation instead of converting, merely serves to stiffen their resistance. Minorities are rendered sullen, and some intellectual opinion bitter and satirical. But in general, the nation in wartime attains a uniformity of feeling, a hierarchy of values culminating at the undisputed apex of the State ideal, which could not possibly be produced through any other agency than war. Loyalty - or mystic devotion to the State - becomes the major imagined human value. Other values, such as artistic creation, knowledge, reason, beauty, the enhancement of life, are instantly and almost unanimously sacrificed, and the significant classes who have constituted themselves the amateur agents of the State are engaged not only in sacrificing these values for themselves but in coercing all other persons into sacrificing them.

~ Randolph Bourne, "The State," 1918

(Bourne's essay entitled "The State" was left unfinished at his untimely death in 1918.)

Benjamin Disraeli on public schooling

Wherever is found what is called a paternal government, there is found state education. It has been discovered that the best way to insure implicit obedience is to commence tyranny in the nursery.

~ Benjamin Disraeli, Speech in the House of Commons, June 15, 1874

Alan Brown on sound money

You can't have an honest population with a dishonest currency.

~ Alan Brown

Bernie Schaeffer: "Market could be ripe for a turnaround"

To sum up, things may have to get worse before they get better, but the bulls should keep faith for the intermediate and long-term. Short interest is still at record levels; the press is still sated with pessimistic headlines; and given the well known problems of the credit crunch, spiking crude, the housing bubble that won't keep hissing out air, and the subprime implosion, the markets have held up fairly well. Sideline money is abundant, and when the proper level of fear presents itself, the market could be ripe and ready for a turnaround.

~ Bernie Schaeffer, Schaeffer's Monday Morning Outlook, November 12, 2007

Nov 11, 2007

Harvey Pitt on the Enron verdict

The fact that significant and highly credible companies engaged in misconduct of the rankest sort, pulling the wool over the eyes not just of investors but of analysts, journalists and regulators, is a very sorry chapter in our history, and one that deserves the right type of burial.

~ Harvey L. Pitt, former chairman of the Securities and Exchange Commission, "White Collar Crime's New Milestone," Washington Post, May 26, 2006

Henry T.C. Hu: Enron convictions help in terms of deterrence

The ordinary investor uses the word Enron to scare their kids. These convictions are the end of a particularly important morality play. Everyone always thought that the Enron-Skilling-Lay trial would be harder for prosecutors . . . and yet the prosecutors won. That really helps in terms of deterrence.

~ Henry T.C. Hu, University of Texas law professor, "White Collar Crime's New Milestone," Washington Post, May 26, 2006

Anthony Sabino: We need Sarbanes-Oxley "to prevent the Enrons of the future"

Now we have a greater appreciation of the role of watchdogs. Sarbanes-Oxley was a good idea, is a good idea. Leave it alone. We need it to prevent the Enrons of the future.

~ Anthony M. Sabino, law professor, St. John's University, "White Collar Crime's New Milestone," Washington Post, May 26, 2006

Robert Higgs on "The Real Lincoln"

To the legions of Americans who regard Abraham Lincoln as a racial saint and a national demigod, Thomas DiLorenzo's The Real Lincoln will come as a rude awakening. Unlike his mythic representations as Honest Abe and the Great Emancipator, the real Lincoln dedicated his political career to the establishment of a corrupt system of high tariffs and corporate subsidies, and he was willing to plunge the nation into a bloody cataclysm in order to achieve his lifelong political aspirations.

Roberts Higgs, The Independent Review, endorsement appeared in The Real Lincoln

Kevin Duffy on the tech bubble

It seems that each generation must endure a period when common sense is abandoned and caution is thrown to the wind. The sheer size of the Baby Boomers, the faded memories of their grandparents' binge of the late 1920s, and a near reverence for government's ability to prevent downturns has combined to create perhaps the greatest speculative episode in history.

The prudent investor does well to recognize and avoid the madness of crowds. Experience is often the best teacher; an appreciation for history (the mistakes of others) can be less costly.

~ Kevin Duffy, September 23, 2001


"Government is essentially the negation of liberty." ~Ludwig von Mises




Michael Metz on gold and floating exchange rates

There is no relationship between the price of gold and inflation for the last 25 years... Since we've had floating exchange rates, you've had the greatest prosperity the world has ever known.

~ Michael Metz, as appeared on CNBC's Kudlow & Co., November 8, 2007


Political capitalists: