It will be interesting to see how the media spins the president’s first 100 days in office, but will come as no surprise if Democrats are deemed to be more satisfied than Republicans with the “results” so far. Don’t be surprised if some Democrats are also deemed to be more disappointed than Republicans.
President Obama is presiding over the most emphatically liberal Democratic agenda in our nation’s modern history. He has taken steps to dramatically grow government and is proposing to spend money like it’s going out of style. He justifies his radical moves by claiming it’s the only way to undo the economic peril left by the previous administration. He has used that assessment to effectively exclude Republicans from important budgetary and other legislative matters so far. Democrats should be delighted, but are they getting what they bargained for from team Obama?
Most Democrats believed Obama was going to change the corrupt and special interests that have heretofore characterized national politics. They also expected him to rise above partisan politics for the greater good and involve people of integrity in his new and transparent administration. Instead, the president’s first 100 days has shown his willingness to set unilaterally (with his democratic and liberal congress) long term, financially irreversible and profound strategic directions for our nation. Transparency seems to have vanished as a general objective but has been used as a weapon for political expedience to embarrass his opposition, such as to punish the Bush administration for war crimes. His cabinet nominations have been drawn from the same pool of tainted politicians that his administration was supposed to eliminate. So much for cleaning up old-style Washington politics.
Furthermore, the fiscally-conservative Democrats and Independents that bought into the moderate, centrist persona that Obama conjured up to win the election are still recovering from the whiplash of him darting to the left soon after his inauguration.
Most Republicans saw that head fake coming and probably feel they got what they expected from an Obama presidency, even if they’re now horrified with how the nation is being managed. The good news for them is that so far Obama continues to be a talker and not a doer, and given his penchant for popularity he may change directions if the political tea leaves so dictate.
Obama’s inaction may also be bad news for the nation. If Obama doesn’t take definitive action soon to put us on a path to economic prosperity, our American goose may be cooked. We’ve gotten plenty of lip service about change, but only after the details are worked out and actually implemented will we know if it’s change for its own sake or change we can believe in.
Tuesday, April 28, 2009
Friday, April 17, 2009
Is Iran's Ahmadinejad for Real?
I was transfixed and hopeful when I heard the news yesterday that Iran's President Mahmoud Ahmadinejad was preparing a proposal to begin "a fresh start with the West." Apparently, however, the forthcoming proposal may not adequately address Iran's uranium enrichment program. That quickly turned my hope to solid skepticism. I was heartened to learn that the U.S., the European Union, China and Russia had already rejected Iran's proposal probably because of that glaring omission. It's obvious that Iran has everything to gain and the West (most probably) has everything to lose with the proposal as it stands now and I was glad that at least the major world powers rejected it unanimously and emphatically. Isn't this the guy who vowed to wipe Israel off the face of the Earth and take the U.S. with it? Isn't Iran working tenaciously to develop nuclear weapons in order to accomplish that mission? The U.S. and the West have been desperately trying to keep Iran from getting those weapons. There can be no "fresh start" without first addressing and reconciling those opposing points of view.
It appears that Ahmadinejad has at least three reasons for wanting to chat it up with us and the rest of the West, without conditions of course. First, he is apparently fighting for his political life in the upcoming June national presidential election. The polls apparently indicate that his opponent, Mr. Mousavi, is cleaning his clock, so Ahmadinejad could think that making nice with the U.S. and the rest of the West might win him some support at home. Second, the West can't very well continue its effort to stop Iran from building nukes if it is "negotiating in good faith" with Iran. Third, and for the same reason, it is unlikely that Israel will take military action against Iran, which it vowed to do because of Iran's horrific threat against it, while its best ally, the U.S., and Iran are engaged in discussions to begin anew and bury the hatchet.
The bottom line is that if Iran wants to forge a new and more moderate relationship with the West, it must know that it must first knock off the nuke activity. Claiming that Iran's interest in nukes is for electricity generation is insulting. And, insulting the intelligence of those you're supposedly trying to make nice with is hardly the way to bring about a new beginning. It will be interesting to see just how serious Ahmadinejad is about reaching out to the West in the weeks ahead, especially as Iran's June election nears.
It appears that Ahmadinejad has at least three reasons for wanting to chat it up with us and the rest of the West, without conditions of course. First, he is apparently fighting for his political life in the upcoming June national presidential election. The polls apparently indicate that his opponent, Mr. Mousavi, is cleaning his clock, so Ahmadinejad could think that making nice with the U.S. and the rest of the West might win him some support at home. Second, the West can't very well continue its effort to stop Iran from building nukes if it is "negotiating in good faith" with Iran. Third, and for the same reason, it is unlikely that Israel will take military action against Iran, which it vowed to do because of Iran's horrific threat against it, while its best ally, the U.S., and Iran are engaged in discussions to begin anew and bury the hatchet.
The bottom line is that if Iran wants to forge a new and more moderate relationship with the West, it must know that it must first knock off the nuke activity. Claiming that Iran's interest in nukes is for electricity generation is insulting. And, insulting the intelligence of those you're supposedly trying to make nice with is hardly the way to bring about a new beginning. It will be interesting to see just how serious Ahmadinejad is about reaching out to the West in the weeks ahead, especially as Iran's June election nears.
Tuesday, April 14, 2009
Obama's New Economy May Be a House of Cards
There was nothing new in the President's speech yesterday. The first half blamed the Bush administration for our current economic woes and the second half consisted of general highlights of his broad economic agenda.
The President intends to set the nation on a firm foundation for long term growth and prosperity by implementing an agenda that he’s outlined ad nauseum every week since his inauguration, but now summarized succinctly with five points:
1. Regulate Wall Street;
2. Improve education;
3. Champion the use of alternative renewable energy;
4. Reform our health care system; and
5. Reign-in and ultimately reduce the exploding Government deficit.
Everyone knows that cultivating renewable energy and health care reform are in our nation's long term best interest, but everyone also knows that these profound changes will not come cheap or without some sacrifices. And that's the problem. We still don't know any more about the specifics of his plan than we did when Mr. Obama was a candidate for President. We do know that the last two points are at odds with one another and that points one and three could severely stymie our economic recovery. Expanding Government's role in our health care system while trying to reduce the Government deficit would be as futile as putting one's finger in a dam to hold back a raging flood.
It's not obvious that more Government regulation of our financial system would be beneficial either, considering the Government's demonstrated incompetence in managing Citigroup and AIG and other financial institutions during the past couple of years. Imagine the damage it could do with permanent authority to micro-manage our entire financial system. Also, a carbon tax on oil is expected as part of the President's plan to encourage the use of alternative renewable energy sources. That will effectively increase taxes significantly for everyone and stall our economic recovery.
The President's convenient use of "straw men" to undermine and downplay substantive and serious criticism also reduces confidence in his agenda. In his speech, for example, he said his critics want to reduce Government spending, when in fact they advised against his proposed dramatic increases. The President also said he inherited a large Government deficit, which is true, but does that justify proposing to double and triple that deficit during the next five and ten years, respectively?
The President's credibility is also called into question when he shades or tells half-truths. He says that greed and lack of regulation on Wall Street got us into this financial firestorm, but conveniently overlooks the fact that the Clinton administration ignited the fire, when in the late 1990s it created the boom in subprime lending and risky mortgage-backed securities in order to push its agenda to enable more Americans to buy homes. Also, the President's claim that Government spending must increase to spur economic recovery is not supported by empirical evidence. Most economists, including his own advisors, know that fiscal stimulus, especially government spending, has never been particularly effective in shortening recessions or precipitating economic recovery.
Mr. President, it's time to put all your cards on the table and tell us in detail what you really have in mind. You should also tell us the inconvenient truths along with the benefits of your plan. We don't need to be "sold," we need to be persuaded by facts and reason.
The President intends to set the nation on a firm foundation for long term growth and prosperity by implementing an agenda that he’s outlined ad nauseum every week since his inauguration, but now summarized succinctly with five points:
1. Regulate Wall Street;
2. Improve education;
3. Champion the use of alternative renewable energy;
4. Reform our health care system; and
5. Reign-in and ultimately reduce the exploding Government deficit.
Everyone knows that cultivating renewable energy and health care reform are in our nation's long term best interest, but everyone also knows that these profound changes will not come cheap or without some sacrifices. And that's the problem. We still don't know any more about the specifics of his plan than we did when Mr. Obama was a candidate for President. We do know that the last two points are at odds with one another and that points one and three could severely stymie our economic recovery. Expanding Government's role in our health care system while trying to reduce the Government deficit would be as futile as putting one's finger in a dam to hold back a raging flood.
It's not obvious that more Government regulation of our financial system would be beneficial either, considering the Government's demonstrated incompetence in managing Citigroup and AIG and other financial institutions during the past couple of years. Imagine the damage it could do with permanent authority to micro-manage our entire financial system. Also, a carbon tax on oil is expected as part of the President's plan to encourage the use of alternative renewable energy sources. That will effectively increase taxes significantly for everyone and stall our economic recovery.
The President's convenient use of "straw men" to undermine and downplay substantive and serious criticism also reduces confidence in his agenda. In his speech, for example, he said his critics want to reduce Government spending, when in fact they advised against his proposed dramatic increases. The President also said he inherited a large Government deficit, which is true, but does that justify proposing to double and triple that deficit during the next five and ten years, respectively?
The President's credibility is also called into question when he shades or tells half-truths. He says that greed and lack of regulation on Wall Street got us into this financial firestorm, but conveniently overlooks the fact that the Clinton administration ignited the fire, when in the late 1990s it created the boom in subprime lending and risky mortgage-backed securities in order to push its agenda to enable more Americans to buy homes. Also, the President's claim that Government spending must increase to spur economic recovery is not supported by empirical evidence. Most economists, including his own advisors, know that fiscal stimulus, especially government spending, has never been particularly effective in shortening recessions or precipitating economic recovery.
Mr. President, it's time to put all your cards on the table and tell us in detail what you really have in mind. You should also tell us the inconvenient truths along with the benefits of your plan. We don't need to be "sold," we need to be persuaded by facts and reason.
Sunday, April 5, 2009
New World Order Must Require G-20 Nations to Pay to Play
At the G-20 meeting last week, President Obama apologized for America's "failure to appreciate Europe's leading role in the world." I didn't know Europe had a leading role in the world. Besides, what more could or should the U.S do to show its appreciation? The U.S. and shamefully few allies have defended Europe's as well as the rest of the world's freedom since World War II. They have also intervened to quell skirmishes, encroachments, conflicts, attacks and other acts of international aggression faithfully many times over the past 60 years. U.S. military spending exceeds one trillion dollars a year, which amounts to more than half the world's total military spending. That saves the rest of the world more than one trillion dollars every year to spend at its discretion. All America receives in return is criticism for its motives and its methods for keeping the world safe. The U.S. also spends by far more than any other nation on earth for global humanitarian endeavors for which it receives criticism for not contributing a greater percentage of its gross domestic product. Who should be apologizing to whom?
Europeans cheered the President's denigrating remarks about our nation, but the U.S. received little in return for its confession and apology. The G-20 rejected the President's plea to them to use stimulative spending to support their own economic growth. At least they agreed to spend $1.1 Trillion assisting the global financial system. France and Germany agreed to "fully support the U.S. strategy in Afghanistan" but fell short of committing troops to support our own. They will, however, provide personnel for training and development. Americans have become so riddled with guilt about its bad behavior around the world that we are conditioned to feel grateful when other nations cooperate with us, even when they contribute to their own cause!
Going forward, it will be interesting to see if the new spirit of cooperation garners any G-20 support for our security efforts with regard to Afghanistan, Iran, North Korea and any other problem areas that threaten the security of the entire free world. Why should they? They know the U.S. is prepared to get the job done without their assistance. They can wash their hands, literally and figuratively, of all the dirty work and sleep soundly knowing they retain the option to criticize the U.S. if public opinion turns against the actions it chooses to take. Many nations revel in their envious positions of being both beneficiary and critic of U.S. efforts to keep them safe.
The G-20 is now discussing the concept of a transnational agency that would oversee and regulate the global financial system, promote free trade, and oversee other matters of an international economic nature. For it to work effectively it will require the U.S. and other G-20 nations to relinquish their sovereign control over significant aspects of their economies and financial institutions. If it proceeds, some global bureaucratic regulatory authority effectively accountable to no one in America would be empowered to make decisions with far-reaching impact on our economic well being. It's a bad idea and anyone willing to trade our Government "by and for the people" for such an arrangement should seriously rethink their position. Clearly, the U.S. has more to lose and less to gain than all the other parties to such a plan. Luckily, I don't see it happening any time soon.
Without sovereignty or "teeth" to enforce its policies, a transnational regulatory agency is likely to be a feckless waste of time and bureaucracy. The European Union and United Nations are living examples of transnational entities without sovereignty, and both are impotent and ineffectual to the point that many question their continued viability and existence.
Regardless of the outcome of the creation of a transnational regulatory agency, the President's effort to elicit the trust and cooperation of our global community makes sense and should be applauded. The world would be better off if the U.S. remains its leader. However, in a New World order with the U.S. sharing the status of just one nation among many, I would hope that it would share its resource burdens accordingly. Going forward every member nation wanting to "play" should have to "pay" for the privilege, because partnerships work best when all partners have a meaningful stake invested in their success. The U.S. must insist that participating nations ante up money and manpower, commensurate with their capabilities, to insure their tangible stake in and ongoing commitment to the global collaborative effort.
Europeans cheered the President's denigrating remarks about our nation, but the U.S. received little in return for its confession and apology. The G-20 rejected the President's plea to them to use stimulative spending to support their own economic growth. At least they agreed to spend $1.1 Trillion assisting the global financial system. France and Germany agreed to "fully support the U.S. strategy in Afghanistan" but fell short of committing troops to support our own. They will, however, provide personnel for training and development. Americans have become so riddled with guilt about its bad behavior around the world that we are conditioned to feel grateful when other nations cooperate with us, even when they contribute to their own cause!
Going forward, it will be interesting to see if the new spirit of cooperation garners any G-20 support for our security efforts with regard to Afghanistan, Iran, North Korea and any other problem areas that threaten the security of the entire free world. Why should they? They know the U.S. is prepared to get the job done without their assistance. They can wash their hands, literally and figuratively, of all the dirty work and sleep soundly knowing they retain the option to criticize the U.S. if public opinion turns against the actions it chooses to take. Many nations revel in their envious positions of being both beneficiary and critic of U.S. efforts to keep them safe.
The G-20 is now discussing the concept of a transnational agency that would oversee and regulate the global financial system, promote free trade, and oversee other matters of an international economic nature. For it to work effectively it will require the U.S. and other G-20 nations to relinquish their sovereign control over significant aspects of their economies and financial institutions. If it proceeds, some global bureaucratic regulatory authority effectively accountable to no one in America would be empowered to make decisions with far-reaching impact on our economic well being. It's a bad idea and anyone willing to trade our Government "by and for the people" for such an arrangement should seriously rethink their position. Clearly, the U.S. has more to lose and less to gain than all the other parties to such a plan. Luckily, I don't see it happening any time soon.
Without sovereignty or "teeth" to enforce its policies, a transnational regulatory agency is likely to be a feckless waste of time and bureaucracy. The European Union and United Nations are living examples of transnational entities without sovereignty, and both are impotent and ineffectual to the point that many question their continued viability and existence.
Regardless of the outcome of the creation of a transnational regulatory agency, the President's effort to elicit the trust and cooperation of our global community makes sense and should be applauded. The world would be better off if the U.S. remains its leader. However, in a New World order with the U.S. sharing the status of just one nation among many, I would hope that it would share its resource burdens accordingly. Going forward every member nation wanting to "play" should have to "pay" for the privilege, because partnerships work best when all partners have a meaningful stake invested in their success. The U.S. must insist that participating nations ante up money and manpower, commensurate with their capabilities, to insure their tangible stake in and ongoing commitment to the global collaborative effort.
Saturday, April 4, 2009
Stock Market Crash 2008-9: Lessons for Investors (Part 2 of 2)
Part 2 highlights lessons specific to managing your money in these uncertain and turbulent times:
LEVERAGE CAN BE A DREAM COME TRUE IN UP MARKETS AND YOUR BIGGEST NIGHTMARE ON THE WAY DOWN. Cheap and plentiful debt reinvigorated the market after the fallout following 9-11 and ultimately propelled the market to new heights in a few short years. That debt also led to a housing bubble that burst in 2007 and single-handedly nearly brought down our entire global financial system. At its peak, global debt levels exceeded global GDP by nearly a 4-to-1 ratio. Experts believe that the global debt ratio will need to be cut in half or more before the massive de-levering of the global economy occurring now comes to an end. The process will be painful and is expected to last for several years. At a micro level, investors need to consider debt/equity ratios in their investments and understand that higher expected returns are often the result of higher debt/equity ratios. Those investments are inherently riskier and ultimately vulnerable to being lost during severe market downturns.
FINANCIAL MEDIA AND TV PUNDITS CAN OFFER VALUABLE MARKET INSIGHTS, BUT RARELY PROVIDE WORTHWHILE INVESTMENT ADVICE.. Mark Twain once quipped that "if you don’t read the newspaper you’re uninformed; if you do you’re misinformed." For the past two years, the mainstream financial media seemed as numb as the rest of us to market realities, as their reports vacillated between optimistic and pessimistic market forecasts. Look to the media to gain important insights about the mechanics of how the market works or to provide a historical context for market events, but resist acting on media advice when managing your portfolios.
YOU MUST PLAY A MEANINGFUL ROLE IN MANAGING YOUR MONEY. Recent financial scandals, such as Bernard Madoff’s $65 Billion Ponzi scheme, make it clear that you can not be too careful in managing your money, even when employing long-standing reputable professionals. So, even if you trust and respect the expertise of your broker/financial advisor/investment manager, remember that you are uniquely qualified and motivated to watch out for your own interests.
YOU SHOULD INVEST IN SMALL INCREMENTS, SLOWLY OVER TIME. Dollar-cost-averaging is one popular technique for implementing such a discipline, and directs investors to periodically commit (e.g., monthly, quarterly) a fixed amount of money to their investment portfolios. Doing so will guarantee that you buy more investment shares in down markets than up markets, which can make a real difference in your investment returns in these volatile markets.
DON’T BE GREEDY; TAKE PROFITS AS THEY BECOME AVAILABLE. No one ever went broke taking a profit, and the mirror image of investing slowly is to take some profits periodically as they arise. In rising markets you may feel foolish cashing out of investments as they appreciate, but when the bottom drops out of the market, suddenly and unexpectedly, you’ll feel vindicated and relieved that you conscientiously took some of those profits.
ALWAYS KEEP SOME CASH ON HAND FOR UNEXPECTED BUYING OPPORTUNITIES. Extreme market volatility is unsettling, but volatility creates significant buying opportunities when you least expect them. You need to be ready. As you trade in and out of your investments, you should hold at least 5-10% of your portfolio in cash at all times.
STRIVE TO MINIMIZE INVESTMENT COSTS. This may be the most important lesson highlighted herein, and the one most likely to yield tangible results. The investment environment for many years to come promises to be fraught with many serious challenges, such as high inflation and high interest rates, which will make attractive investment returns more difficult than ever to achieve. You can’t control market movements but you can control many of your investment costs, and reducing them may be easier than you think. For example, stock index funds that deliver the same returns often vary materially in the annual fees/costs they charge investors. Sometimes cost disparities may be as much as 50-100 basis points (or 0.5-1.00%) and those seemingly small cost differences can add up to substantial cost savings over long time periods. A 50 basis point saving on a $10,000 investment in a stock index fund that grows at 8% per year can produce a total cost saving of nearly $800 over ten years. In addition, you should avoid "load" mutual funds that charge an up-front fee, or at least have a compelling reason to choose one when you do. Some funds can be complicated, especially funds wrapped in annuities, and don’t always clearly delineate the various of fees and costs inherent in such products.
Managing your money has never been more difficult than it is today. These lessons are intended to provide some discipline for managing your money effectively during the challenging times ahead.
LEVERAGE CAN BE A DREAM COME TRUE IN UP MARKETS AND YOUR BIGGEST NIGHTMARE ON THE WAY DOWN. Cheap and plentiful debt reinvigorated the market after the fallout following 9-11 and ultimately propelled the market to new heights in a few short years. That debt also led to a housing bubble that burst in 2007 and single-handedly nearly brought down our entire global financial system. At its peak, global debt levels exceeded global GDP by nearly a 4-to-1 ratio. Experts believe that the global debt ratio will need to be cut in half or more before the massive de-levering of the global economy occurring now comes to an end. The process will be painful and is expected to last for several years. At a micro level, investors need to consider debt/equity ratios in their investments and understand that higher expected returns are often the result of higher debt/equity ratios. Those investments are inherently riskier and ultimately vulnerable to being lost during severe market downturns.
FINANCIAL MEDIA AND TV PUNDITS CAN OFFER VALUABLE MARKET INSIGHTS, BUT RARELY PROVIDE WORTHWHILE INVESTMENT ADVICE.. Mark Twain once quipped that "if you don’t read the newspaper you’re uninformed; if you do you’re misinformed." For the past two years, the mainstream financial media seemed as numb as the rest of us to market realities, as their reports vacillated between optimistic and pessimistic market forecasts. Look to the media to gain important insights about the mechanics of how the market works or to provide a historical context for market events, but resist acting on media advice when managing your portfolios.
YOU MUST PLAY A MEANINGFUL ROLE IN MANAGING YOUR MONEY. Recent financial scandals, such as Bernard Madoff’s $65 Billion Ponzi scheme, make it clear that you can not be too careful in managing your money, even when employing long-standing reputable professionals. So, even if you trust and respect the expertise of your broker/financial advisor/investment manager, remember that you are uniquely qualified and motivated to watch out for your own interests.
YOU SHOULD INVEST IN SMALL INCREMENTS, SLOWLY OVER TIME. Dollar-cost-averaging is one popular technique for implementing such a discipline, and directs investors to periodically commit (e.g., monthly, quarterly) a fixed amount of money to their investment portfolios. Doing so will guarantee that you buy more investment shares in down markets than up markets, which can make a real difference in your investment returns in these volatile markets.
DON’T BE GREEDY; TAKE PROFITS AS THEY BECOME AVAILABLE. No one ever went broke taking a profit, and the mirror image of investing slowly is to take some profits periodically as they arise. In rising markets you may feel foolish cashing out of investments as they appreciate, but when the bottom drops out of the market, suddenly and unexpectedly, you’ll feel vindicated and relieved that you conscientiously took some of those profits.
ALWAYS KEEP SOME CASH ON HAND FOR UNEXPECTED BUYING OPPORTUNITIES. Extreme market volatility is unsettling, but volatility creates significant buying opportunities when you least expect them. You need to be ready. As you trade in and out of your investments, you should hold at least 5-10% of your portfolio in cash at all times.
STRIVE TO MINIMIZE INVESTMENT COSTS. This may be the most important lesson highlighted herein, and the one most likely to yield tangible results. The investment environment for many years to come promises to be fraught with many serious challenges, such as high inflation and high interest rates, which will make attractive investment returns more difficult than ever to achieve. You can’t control market movements but you can control many of your investment costs, and reducing them may be easier than you think. For example, stock index funds that deliver the same returns often vary materially in the annual fees/costs they charge investors. Sometimes cost disparities may be as much as 50-100 basis points (or 0.5-1.00%) and those seemingly small cost differences can add up to substantial cost savings over long time periods. A 50 basis point saving on a $10,000 investment in a stock index fund that grows at 8% per year can produce a total cost saving of nearly $800 over ten years. In addition, you should avoid "load" mutual funds that charge an up-front fee, or at least have a compelling reason to choose one when you do. Some funds can be complicated, especially funds wrapped in annuities, and don’t always clearly delineate the various of fees and costs inherent in such products.
Managing your money has never been more difficult than it is today. These lessons are intended to provide some discipline for managing your money effectively during the challenging times ahead.
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