Aug 30, 2010

Robert Taft on the New Dealers

[The New Dealers] are willing to sacrifice individual freedom in order supposedly to improve the condition of the poor and increase their material welfare. But in this purpopse the policy has completely failed. There are more than 10,000,000 people unemployed today, and the largest relief expense this year, 10 years after the depression, than any in the history of the United States. Farm prices are lower than they have been for 6 years. Businessmen are discouraged and indignant. Deposits have piled up in the banks because rich and poor alike are afraid to put their time or money into private enterprise, because they fear that Government regulation will prevent success and Government taxation will take whatever profit there might be. The New Deal policy is the only one which has ever plunged us into a second depression before we were out of the first. If any policy leads backward and not forward, it is the policy of spending billions of borrowed money and piling up a tremendous debt for future generations to pay. A policy which leads inevitably to the bankruptcy and inflation of the currency will not only make the poor people poorer, but it is likely to force a socialism which will utterly deprive them of individual freedom.

~ Senator Robert Taft, late 1930s, from a series of radio debates with Rep. T.V. Smith

Aug 27, 2010

David Stockman on Bill Gross, Pimco, crony capitalism, and gaming the drive to homeownership

Some raids on the US Treasury by America's crony capitalists are so egregious as to provoke a rant -- even if you aren't Rick Santelli. One such rant-worthy provocation is Pimco latest scheme to loot Uncle Sam's depleted exchequer.

According to Bill Gross, who heads what appears to be the firm's squad of public policy front runners, the American economy can be saved only through "full nationalization" of the mortgage finance system and a massive "jubilee" of debt forgiveness for millions of underwater homeowners. If nothing else, these blatantly self-serving recommendations demonstrate that Matt Taibbi was slightly off the mark in his famed Rolling Stone diatribe. It turns out that the real vampire squid wrapped around the face of the American taxpayer isn't Goldman Sachs (GS) after all. Instead, it's surely the Pacific Investment Management Co.

As overlord of the fixed-income finance market, the latter generates billions annually in effort-free profits from its trove of essentially riskless US Treasury securities and federally guaranteed housing paper. Now Pimco wants to swell Uncle Sam's supply of this no-brainer paper even further -- adding upward of $2 trillion per year of what would be "government-issue" mortgages on top of the existing $1.5 trillion in general fund deficits.

This final transformation of American taxpayers into indentured servants of HIDC (the Housing Investment & Debt Complex) has been underway for a long time, and is now unstoppable because all principled political opposition to Pimco-style crony capitalism has been extinguished. Indeed, the magnitude of the burden already created is staggering. Before Richard Nixon initiated the era of Republican "me-too" Big Government in the early 1970s -- including his massive expansion of subsidized housing programs -- there was about $475 billion of real estate mortgage debt outstanding, representing a little more than 47% of GDP.

Had sound risk management and financial rectitude, as it had come to be defined under the relatively relaxed standards of post-war America, remained in tact, mortgage debt today would be about $7 trillion at the pre-Nixon GDP ratio. In fact, at $14 trillion or 100% of GDP the current figure is double that, implying that American real estate owners have been induced to shoulder an incremental mortgage burden that amounts to nearly half the nation's current economic output.

There's no mystery as to how America got hooked on this 40-year mortgage debt binge. At the heart of the matter is the statist Big Lie trumpeting the alleged public welfare benefits of the home-ownership society and subsidized real estate finance. Once the conservative party embraced this alluring but dangerously destructive idea, the cronies of capitalism have had a field day conducting a Washington bidding war between the two parties which is now in its fifth decade

During this time span all of the congregates of the HIDC lobby -- homebuilders, mortgage bankers, real estate brokers, Wall Street securitizers, property appraisers and lawyers, landscapers and land speculators, home improvement retailers and the rest -- have gotten their fill at the Federal trough. But the most senseless gift -- the extra-fat risk-free spread on Freddie and Fannie paper -- went to the great enablers of the mortgage debt boom, that is, the mega-funds like Pimco, which did little more than hang out an "open to buy" shingle as billions poured in year after year. Sadly, there isn't a shred of evidence that all of this largese serves any legitimate public purpose whatsoever, and plenty of evidence that the HIDC boom has been deeply destructive. But the intellectual cobwebs spun by the housing cronies so obfuscate these truths that the only way to grasp them is through an examination of the contra-factual -- a postulated world without Freddie/Fannie/FHA and the $100 billion annual tax subsidy on mortgage interest.

In that world, households would be tax-indifferent as to whether they acquired shelter services through renting or owning, and appropriately so. There's simply no evidence that home ownership produces any externality or "public good," such as making people better citizens, causing them to work harder or aspire higher, turning them into better neighbors, or even growing hair on their chests. Housing is a commodity like furniture and automobiles, and inducing citizens to buy more of it is no business of the state.

~ David Stockman, "How Pimco Is Holding American Homeowners Hostage,", August 27, 2010

Aug 24, 2010

FDR on politics

In politics, nothing happens by accident. If it happens, you can bet it was planned that way.

~ Franklin D. Roosevelt

Aug 19, 2010

Gary Shilling on ignoring Treasury yields (2010)

I've been a bull on 30-year Treasuries since 1981 since I said, in print, "We're entering the bond rally of a lifetime." Yields were at 15% then, they're now down, of course, to 3.7%, my goal is 3%. If that happens, you make another 14% appreciation in the coupon bond, and 24% on the 30-year zero. I've never, never, never bought Treasury bonds for yield. I couldn't care less what the yield is as long as it's going down. I buy for the same reason the professor [Jeremy Siegel] buys stocks-- appreciation.

The yield is insignificant, as far as I am concerned, as long as it's going down.

If we suddenly saw the economy take off like a scalded dog, consumers go from a savings spree back to their spendthrift ways, if we saw a rage of inflation rather than the deflation that I am forecasting, 3% deflation, you'd have to see a complete revival of the economy and an end of the deleveraging which has now taken over after three decades of leveraging up for the consumers and four decades for the financial sector [we could see bond yields go up].

~ Gary Shilling, president, A. Gary Shilling & Co., CNBC's Fast Money, August 18th, 2010

Aug 18, 2010

Ralph Waldo Emerson on blazing your own trail

It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.

~ Ralph Waldo Emerson, poet

Aug 17, 2010

Alan Greenspan predicts a rosy future for the US economy and equities markets (1973)

It's very rare that you can be as unqualifiedly bullish as you can now.

~Alan Greenspan, then future-Federal Reserve Chairman, The New York Times "Economic Survey", January 7, 1973

(1973 and 1974 turned out to be the worst years for economic growth and the stock market since the Great Depression, as noted in Jason Zweig's commentary in "The Intelligent Investor")

Aug 13, 2010

Forbes magazine of the 1930s committing the broken window fallacy

The drought was a Godsend. So was the rain that followed it. The prolonged dry spell brought distress to hundreds of thousands of families and has hurt business over a wide area, but it has restored the food markets of the nation to a new basis of stability.

~ "The Editors", commentary in Forbes magazine, September 1st, 1930

Aug 11, 2010

JP Morgan's David Kelly on double-dip immunity and the growing US economy

I think [the odds of a double-dip] are very slight. I'd put it at no more than 15%, possibly 20%, but no higher than that. And the reason is -- and it's very important for people to understand this -- recessions are all about a collapse in the cyclical sectors: autos, housing, business equipment spending, inventories. If those are already in the basement, it's very hard for them to collapse.

That's why you get this immunity after you have a recession, which makes it hard to have another recession. We've got some bad economic numbers today, we think second quarter GDP will be revised down significantly, but overall it still looks like a growing economy to us.

~David Kelly, chief market strategist, JP Morgan Funds, CNBC Street Signs, August 8th, 2010

Brent Wilsey on buying the dip in the face of bad news

I'm seeing good news from the CEOs, I'm hearing good news on trucking, from trains and so forth, all this good news. I guess every once in awhile I'm glad this happens. We get the bad news and the fears of the double-dip. Well, that's kind of good for me because it gives me a chance to step in and buy more. Every time these dips come along, I've got more money coming in, I buy more time. It's a great time to buy and that's what it should be used for, buying on the dips like we have.

~Brent Wilsey, president, Wilsey Asset Management, CNBC Street Signs, August 8th, 2010

Jim Cramer on the 8/11/10 selloff

For me it's just another garden variety selloff.

Jim Cramer, CNBC's Mad Money, August 11, 2010

(The DJIA closed down 265 to 10,379.)

Aug 2, 2010

Alan Greenspan on the stock market as economic stimulus

If the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here.

~ Alan Greenspan, the Maestro, former Fed chairman, Meet the Press interview, August 1st, 2010

Alan Greenspan on long-term interest rates

There is no doubt that the federal funds rate can be fixed at what the Fed wants it to be but which the government has no control over is long-term interest rates and long-term interest rates are what make the economy move. And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment there is no sign of that because the financial system is broke and you can not have inflation if the financial system is not working.

~ Alan Greenspan, the Maestro, former Fed chairman, Meet the Press interview, August 1st, 2010

Jim Rogers on remembering the context of earnings season comparisons

I think some of it is expectation management as you put it out, but remember what the comparisons were, we are talking about the second quarter of 2009, when the world essentially was coming to an end. Remember, at the end of 2008, beginning of 2009 we all thought the world had ended. The markets hit bottom in March 2009, well those were the comparisons we were up against. So things are actually better then people were expecting, but they should have looked back to see what the comparisons were and remember, the governments were spending huge amounts of money and that money has been flowing into the system in the last couple of quarters. Worry about next year, don`t worry about the second quarter now, that's history.

~ Jim Rogers, investor, CNBC interview, July 27th, 2010

Aug 1, 2010

Jeff Applegate on stock market risk during the Tech Bubble (2000)

Is the stock market riskier today than two years ago simply because prices are higher? The answer is no.

~ Jeffrey M. Applegate, former chief investment strategist, Lehman Brothers, BusinessWeek, April 10, 2000

Robert Froelich on the new world order of the Tech Bubble (2000)

It's a new world order. We see people discard all the right companies with all the right people with the right vision because their stock price is too high-- that's the worst mistake an investor can make.

~ Robert Froelich, chief investment strategist, Kemper Funds, Wall Street Journal, January 18, 2000

(Froelich's favorite stocks -- Cisco Systems and Motorola -- fell more than 70% by late 2002. Investors lost more than $400 billion on Cisco alone-- more than the annual economic output of Hong Kong, Israel, Kuwait and Singapore combined. --Commentary by Jason Zweig in The Intelligent Investor)

Jim Cramer on Benjamin Graham during the Tech Bubble (2000)

[Internet-related companies] are the only ones worth owning right now. [These "winners of the new world"] are the only ones that are going higher consistently in good days and bad.

You have to throw out all the matrices and formulas and texts that existed before the Web. If we used any of what Graham and Dodd teach us, we wouldn't have a dime under management.

~ Jim Cramer, as hedge fund manager, as quoted by Jason Zweig in the commentary of The Intelligent Investor, February, 2000