Gold and Commodity Exposure in Your Portfolio

John Maynard Keynes quoted Lenin as saying that best way to destroy the capitalist system is to debauch the currency. There is debate whether Lenin said it or not. In any case much harm can be done from inflation. Since 1979, the compound inflation rate in the United States has been 3.7%. This has accompanied a lengthy stock market increase and a much larger production of dollars by the Federal Reserve Bank. The US money supply has increased several times, but there is a much larger amount of dollars in circulation around the globe, perhaps as much as 8 or 9 times the number of dollars in circulation in the US. The result of this is that the dollar is at all-time lows against a range of currencies, and has the prospect of depreciating further. The reduction in the buying power of the dollar is beneficial for exporters and may attract some factories back to the US. But it will harm those who hold dollars. In particular, those who hold savings accounts and long term bonds will be harmed as prices increase. Similarly, those on pensions and annuities will be harmed. The days when inflation was merely a domestic affair are over. The depreciating dollar means that many prices are increasing now. If Ben Bernanke continues to inflate the number of dollars (reduce the Fed Funds rate) then there could be a sell-off by foreign governments, who are holding trillions of dollars that are depreciating in value. In turn, this would cause inflation here.

This kind of instability poses as serious a risk to your portfolio as the risk of a stock market decline. A stock market decline is a possibility if the Fed reacts to the sharp dollar declines appropriately, that is, by raising interest rates. If the Fed continues to cater to Wall Street and America's wealthy on food stamps (those who benefit from the stock market increases that unrealistically low interest rates have caused) then the stock market might continue to go up until the inflation gets so bad that nominal interest rates are forced up by inflation. Jim Cramer will literally be forcing senior citizens to eat dog food just so he can see his portfolio increase.

It is conceivable that given the irresponsibility that the Bernanke Fed has demonstrated so far there will be a major inflation. This will exacerbate the income inequality that liberal economists harp on but erroneously attribute to fiscal policy.

Gold stocks have been performing very well this year and I have been quite happy as a result. As well, the metal itself as well as other commodities such as oil and grain have been going up very nicely. If there is a massive dollar depreciation, which is not an unrealistic risk, having a good share of your money in commodities will protect you.

One way to invest in commodity stocks is through the Ivy Natural Resources Fund . The trailing 5 year returns are 34.05% versus 21% for the S&P 500. As well, the Powershares index fund family has a number of commodity and dollar bearish indexes. These include gold, silver, oil, energy, agricultural, commodity index, dollar bearish and a number of others.

The frightening thing about massive inflation is that the investment that you naturally think of as most safe, cash, gets trashed. A dollar held since 1979 is worth about 34 cents today. In a massive inflation, the depreciation would go much further much more quickly.

Friends, I urge you to cover yourselves. The "economic miracle" of the past 25 years has been a three-card-Monty game. The 25-year old bliss in the stock market results from currency depreciation that is inherently unethical (because it is based on stealing from the poor to give to the rich). It will have serious consequences for conservative investors, and possibly end with a major stock market decline. It could be much worse than what I am describing if there is a major sell off of the dollar.

New York Times at New Lows

Joseph E. Stiglitz reviews Naomi Klein's Shock Doctrine in the September 30, 2007 New York Times Book Review. Klein's book is currently number 4 on the New York Times bestseller list. I have not read it, and do not intend to, so I will not comment on the book, but rather on Stiglitz's review on p. 12.

The most intriguing part of Stiglitz's review is Naomi Klein's photograph in the print edition. Klein peers from a heavy swath of expensive makeup, I suspect Estee Lauder, and her hairstyle and lipstick alone probably cost about as much as an African farm worker makes in a year. What better image for a phony liberal/left critic of capitalism?

Given that Ms. Klein's coiffure is magnificently appointed, we may expect her to rail against globalization and the provision of manufactures to low income consumers who, probably in her view, would be better off prancing about in grass skirts and of course chucking spears. We are not disappointed.

Professor Stiglitz's review illustrates why the Times has become increasingly irrelevant and dull. For instance, Ms. Klein associates Milton Friedman with Pinochet's crimes, which were indeed horrific. According to Conservepedia.com and moreorless.com Pinochet was responsible for 3,197 murders, roughly the same number as occurred on 9/11. Recently, though, the Times's Thomas L. Friedman has suggested that he hopes that "anyone who runs on a 9/11 platform gets trounced." Despite the 17-year gap since Pinochet held office, Klein's book pounces on Pinochet's 3,197 murders (horrific they be)while Thomas L. Friedman, also in the pages of the Times sneers at al Qaeda's 3,000 murders that occurred six years ago. In contrast to Pinochet, Fidel Castro, currently in office and rarely criticized in the Times, has murdered roughly 100,000 victims, 33 times the number that Pinochet murdered. The New York Times had supported Castro in his insurgency and yet Stiglitz does not qualify his remarks about Milton Friedman.

Stiglitz and Klein sociopathically ignore that the chief mass murders of the last century were committed by those who opposed globalization, many of whom found themselves in the good graces of the Times. These include Stalin, for whom Walter Duranty apologized in the 1930s, as well as Castro and Mao, whom John Kenneth Galbraith praised to the heavens in a 1972 New York Times Magazine article. Mao alone was responsible for 25 million murders 8,333 times the number that Pinochet killed. The sick, sociopathic history of the anti-globalization left, in which Stiglitz and Klein participate, is repugnant.

Klein and Stiglitz together with the anti-globalization movement have blood-soaked hands. That anyone takes what this crew has to say seriously is astonishing.

An invitation to Barbara Bowen and Susan O'Malley of the Professional Staff Congress

Dear Professor Karkhanis, President Bowen and Community College Officer O'Malley:

I have contacted the Judge Judy television show at http://www.judgejudy.com/home/home.asp. I have suggested that they contact President Bowen and Community College Officer O'Malley as co-complainants and Professor Karkhanis as defendant in an arbitration of O'Malley v Karkhanis on Judge Judy. I urge you to contact the show independently via the Judge Judy website, as this would provide an appropriate venue for the activities of the Professional Staff Congress and, as well, help the PSC to work on and improve its dispute resolution ability.

Sincerely,

Mitchell Langbert

Professor David Arnow and Collegiality in the Professional Staff Congress

The Emerson Inn and Spa is more collegial than the Professional Staff Congress.

My wife and I having just returned from a lovely dinner with my in laws, who are visiting us and staying at the Emerson Inn and Spa in Mount Pleasant, New York, received an e-mail fromProfessor David Arnow, whom I do not know and I have never previously contacted. Professor Arnow wrote:

>"You bloggeth:

>"> Dear President Bowen: I am working on a blog about the O'Malley v. Karkhanis law suit. I was wondering if you would care to comment on it. In particular, what is the role of "collegiality" in O'Malley's decision to sue; and do you believe that law suits are an integral part of collegiality?"

>"My first question for you is: Have you stopped molesting small children yet?

>"And my second question is: Supposed I posed this question everywhere. Would you sue? Or would you take it in the collegial, satirical sense that it was perhaps intended?"

I had not heard of Arnow before, but have since done a web search and learned that he is my colleague at Brooklyn College.

A number of years ago, my ex-wife, Enid Wolfe Langbert, who is an attorney who has been involved in commercial litigation and published a book entitled "The Bill of Rights--the Right to a Fair Trial", was thinking of writing a book called "The Bleak House Syndrome". The idea of the bleak house syndrome is similar to Pareto's law, i.e., 20 percent of inputs are responsible for 80 percent of outputs. The bleak house syndrome is that two percent of the population is responsible for ninety percent of the litigation and that a certain psychological pattern is associated with litigation. Subsequently, I studied a bit about the economics of litigation in graduate school and learned that rational players do not litigate unless the benefits of litigation outweigh the sum of the two sides' trial costs since it makes more sense to settle a dispute otherwise.

Moreover, transactions costs are relevant. One management aim is to reduce the costs of doing business. Managers aim to reduce the costs of transactions such as attorney costs as far as possible. Ouchi, in his book Theory Z, has argued that high-trust personnel systems, which the Japanese firms exemplified in the 1980s, are more cost effective than bureaucratic or regulated ones.

Collegiality has a similar justification. Academics argue that they are best qualified to evaluate each other and so can do so more efficiently than outsiders. Part of this argument must hinge on academics' ability to resolve disputes without intervention from outsiders. If outsiders and the court system are best able to resolve disputes among academics, then the system of collegiality need not exist. Indeed, there are far cheaper methods available for dispute resolution even in bureaucratic firms. These include mediation, arbitration, interpersonal skills training and supervision. Hence, academics' resort to litigation suggests that collegial processes have failed. Susan O'Malley's law suit is an excellent argument for the Academic Bill of Rights.

I responded to Professor Arnow simply as follows:

"Tell me, Dave. Do you think that suing is the collegial course?"

Professor Arnow responded as follows:

>"Defenders of Karkhanis just don't have the moral high ground to invoke 'collegiality'.

>"As for law suits: for all its faults, the U.S. system of law towers over that of any other country I know. Law suits that redress wrongs are part of that system. If there really is a wrong, it ought to be redressed, shouldn't it? How would you right a wrong? Fisticuffs?

>"I don't know the details of Libel law, but I know that it is happily fairly limited, compared say to the U.K., and so the absurd lies you spin for the Sun are protected-- as they should be. Still, repeated false public accusations of specific criminal acts might satisfy the definition of libel. Your buddy may have crossed the line. Not to worry, I'm sure that the people you and he work for have very deep pockets.

>"Now, answer the questions that I posed below. Don't try to wriggle out of them:

>>" My first question for you is: Have you stopped molesting small children yet?
>>
>>" And my second question is: Supposed I posed this question everywhere. Would you sue? Or would you take it in the collegial, satirical sense that it was perhaps intended?"

My obvious answer is no, unless there is some significant economic reason for me to sue. I do not suffer from the "bleak house syndrome". However, if I am financially damaged, then a law suit would be logical. Very few private firms see employees sue each other. An employee who sues a fellow employee would be viewed as odd in most firms, and would certainly damage their career. Employees in private industry have sufficient interpersonal skills to resolve workplace disputes without costly litigation. This seems not to be the case with the associates of the Professional Staff Congress.

Professor Arnow feels that anyone who is associated with Sharad Karkhanis doesn't "have the moral high ground to invoke 'collegiality'". This suggests to me defamation of Professor Karkhanis's reputation.

I have always puzzled over the claims of academics (with reference to KC Johnson, for example) that "collegiality", defined as interpersonal skills, ought to be a criterion for personnel and tenure decisions. Arnow's e-mail suggests that some senior professors at Brooklyn College lack these, so requiring them for tenure in special cases is at best tenuous and certainly hypocritical.

Arnow goes on to make the less-than-collegial claim that my comments to the Sun yesterday are "absurd lies" that I "spin for the Sun".

He also makes the rather odd statement "I'm sure that the people you and he (Karkhanis) work for have very deep pockets." This statement is especially odd because Karkhanis, Arnow and I work(ed) for the City University of New York, the same employer. Is Arnow suggesting that Brooklyn College will finance Karkhanis's lawsuit? I am having trouble with this. Does Arnow believe I'm paid by one of George Soros's institutes?

My response to Arnow was as follows:

> "I'm going to put your e-mail on my blog. (1) Who are you? (2) What is the moral high ground to which you're referring? Do you have an ethical model or standard? If so, please clarify.

>"(3) Your belief that engaging in litigation as part of the collegial process is based on what definition of collegiality? Please define collegiality.

>"(4)Any concept of collegiality would involve methods of resolving conflicts. For instance, if you know about labor relations you know that arbitration has been favored by the United States Supreme Court over civil litigation in the context of labor disputes. In recent years, even more flexible approaches of resolving conflicts, such as living agreements, have been part of labor relations in some plants. The concept of collegiality involves shared governance. Such a definition would imply dispute resolution methods that are less formal than arbitration and are based on trust and shared values, i;.e., are more like living agreements. Are you claiming that civil litigation is included in the definition of collegiality? If so, do you think than an intensified degree of government regulation might be valuable to reduce conflict costs? Litigation is among the most costly methods of dispute resolution. Less expensive ones would include face to face meetings, mediation, arbitration, collective bargaining, grievances and the like.

>"If collegiality is so inflexible and inept as to require the legal system as a preferred dispute resolution method, should government look for lower cost dispute resolution methods than litigation, as it has done in the labor context, to regulate academics? In that case, you seem to be suggesting that the Academic Bill of Rights would be a wise improvement over current academic collegial processes, which are high cost. Please do tell. Are you arguing for the Academic Bill of Rights?"

David Arnow's collegial response to me was:

>"You can put my email anywhere you like, but the gibberish above) again evades my questions about whether you've stopped molesting small children and I am not going to waste any more time writing to you. I'm adding you to my spam filter."

Yes, the Professional Staff Congress is collegial. Collegial indeed.