Obama = Hitler

I found this timeless classic on Youtube.  It captures the Obama administration to a "T".  If you've seen it before, you'll want to see it again.

Stock Market Volatility

As of this writing the Dow Jones Industrial Average is up 389 points today, and it was up 450 points an hour ago.  The graph above, from IStockAnalyst.com is of Thursday's Dow.  The 700 point intra-day dip is widely attributed to a trading error.

The trading error scenario spooks me.  If a trader's error can move the Dow 700 points, then that same trader can manipulate the market 700 points.  Saying that a single, unidentifiable trader can manipulate the entire stock market 700 points changes my world view. 

I do not believe in conspiracy or market manipulation theories because economic incentives and the power of imitation are powerful enough to explain virtually all patterns.  Conspiracies exist at times, but they cannot explain most real world phenomena.  Add to that the psychological bias known as fundamental attribution error, the tendency for people to see situations as due to human causes.  For example, for most of human history people believed that Zeus or similar anthropomorphic gods caused thunder and lightening. Conspiracy theories are Zeus-like explanations.

If you had asked me last week whether a single individual could cause a ten percent fall in the Dow by manipulating price, I would have answered absolutely not.  But everyone else, every major financial news source, says I'd have been wrong.  There are enough players who can do this that (1) a simple mistake caused Thursday's 7% intra-day dip and (2) no one can figure out who it was, which means that there are enough such players to make it hard to figure out.  Short term market fluctuations are even less meaningful than I would have thought.


The VIX, a measure of stock market volatility, had mushroomed in recent days (see Yahoo! chart here)  but it fell sharply today, 30% as of 10 AM, following the announcement of a European rescue plan for Greece. Nevertheless, it is still high.  High volatility is associated with stock market bottoms, at least in the intermediate term.

Let's say the sharp dip on Thursday and the sharp increase today are due to the Greek crisis. It seems to me that the Greek cure will work for several years but not forever.  In order to solve their problems, Europeans will need to curtail spending, which would seem to have a detrimental effect on demand, hence profits, hence the markets.  Sounds like the US as well. Without monetary expansion the world economy is burnt toast. The real quality of life has been falling for decades as Federal Reserve Bank monetary expansion has subsidized government, hedge funds and Wall Street at the expense of productive Americans.

One analyst on Kitco  is predicting hyper-inflation as the US and Europe continue to subsidize real estate and stock markets through monetary expansion.  Bloomberg reports today that Ben Bernanke and the Fed have redefined what they mean by "tightening."  Undergrad economics students learn that the Fed tightens by selling treasury bonds to big money-center banks.  The cash received for the bond sales is taken out of circulation, reducing the money supply. In turn, that pushes interest rates up.  But here is what Bloomberg says the Fed now means by "tightening", according to Mitch Stapley of Fifth Third Asset Management:

"Altering a pledge to keep short-term borrowing costs low or articulating plans to begin selling the $1.1 trillion in mortgage-backed securities it now holds will amount to a tightening of monetary policy because the announcements will send bond yields higher, raising borrowing costs, said Mitch Stapley, chief fixed-income officer at Fifth Third Asset Management in Grand Rapids, Michigan."

In other words, the Fed will tighten by saying it will tighten, not by actually tightening.  That sounds a lot like my diet plan, except saying I'm going to diet doesn't have any real long term effect.

The central banks are painted into a corner.  If they raise rates then the world markets will fall.  If they continue to keep them at extraordinarily low levels (money market funds are essentially paying zero now) then there will be escalating inflation.   When inflation starts, there will be few ways to stop it.  One option might be to let the inflation ride. The Kitco analyst is thus predicting a 50,000 Dow, up five-fold from today.

A 50,000 Dow would mean that a dollar today would be worth a small fraction of its current value.  I don't subscribe to that prediction (who knows?) but it does need to be considered.  The other alternative, responsible tightening, would lead to falls in employment and an economic slow down.  Given that unemployment increased recently to 9.9%, according to the Bureau of Labor Statistics, I suspect that Bernanke, et al. aren't in a hurry to raise rates.*

The response to the rising unemployment will likely be additional infusions of money into an already bloated monetary base (recall that Mr. Bernanke and the Fed tripled the monetary base in 2008, and that money is still ready for banks' use).

I happen to have "A" credit (I'm insane, I should have bought a McMansion and gotten the Fed to pay off the mortgage) and have started to get those invitations for credit card checks like I used to get a few years ago.  Might inflation be right around the corner?

The one factor that has offset the inflationary bias in the economy is China.  But China is likely to be thinking about expanding its home market rather than continuing to work for ever lower wages selling exports bought in a depreciating US dollar.  If China starts pulling out of the dollar, then stock market increases will be over-matched by commodity increases as the dollar dwindles into the dust heap.



*The BlS writes:

"Nonfarm payroll employment rose by 290,000 in April, 

the unemployment rate  edged up to 9.9 percent, and 

the labor force increased sharply, the U.S. 
Bureau of Labor Statistics reported today. 

Job gains occurred in manufacturing, professional 

and business services, health care, and leisure 

and hospitality. Federal government employment 

also rose, reflecting continued hiring 
of temporary workers for Census 2010."

Washington's War on Men

Wall Street Journal editor David Wessel says on this video, which I picked up from Market Watch, that even when the economy recovers Larry Summers expects one in six men to remain permanently unemployed. This would likely be among the less educated and lower income.  In another Market Watch article Eleanore Goldberg points out that single women purchasing homes outnumber single men purchasing homes two to one.

The Federal Reserve Bank's policies have harmed low-wage workers, squeezing their pay through inflation while subsidizing investment and commercial banks through monetary creation.  I am not so clear why women should be outperforming men in America's declining economy, declining because finance has been massively subsidized at the expense of innovation and hard work.

Men need to make more efforts to learn marketable skills, obviously.  Perhaps false expectations have deluded many men, whereas women have tended to assume that they are at a disadvantage and so tried harder.  America increasingly strikes me as a place much less desirable in which to live than it was several decades ago when, say, I entered college.  I did not dream that so much decline would occur so fast.  Big government and a socialized economy, the policies that American universities advocate, have hammered America into the dust.

Americans need to wake up to the decline and end the socialism with which Washington has harmed so many.

How to Cut State Government

Gus Murphy of Brooklyn had written to our local newspaper, the Olive Press, asking how to cut government. Here is my response:

Dear Editor:

Gus Murphy asks for specifics as to how to cut government spending (May 6) and the Wicks Law is one of many.   

30-50% of New York State's budget is waste.  Medicaid and other health-related fraud amounts to billions.  A nurse at the Kingston/Rhinebeck Tea Party told me that in her opinion nearly half of Medicaid spending is for waste. Until this year New York's per capita spending on Medicaid was double that of California's. If she is even half right, the savings from Medicaid fraud and waste alone amount to ten percent of the state's budget.  

One national statistic is that the average public sector employee's pay is $39.22 per hour and the average private sector employee's pay is $27.42 per hour.   How about if public sector employees, starting with school teachers, earned parity with the equivalent work in the private sector using comparable worth (pay evaluation) methods?

Moreover, why can't school teachers be paid for productivity?  School vouchers would do this through competition.  Too many public schools have become ideological brainwashing centers and have failed to teach the three 'rs.  Diane Ravitch shows in her book Left Back: A Century of Battles over School Reform that "Progressive" education techniques have demonstrably failed, yet education schools, school districts and teachers insist on them.  Vouchers could cure this, and cure excessive administration and pay levels.

Procurement is a problem.  The balance of quality and low bid practices depends on management knowledge that government cannot develop because it depends on annual budgets rather than long term performance measures.  Leasing decisions are made that make this year's budget look good at the expense of next year's. Infrastructure repairs cost money this year but save money over the long term.  Bridges and roads become more expensive to repair as time passes. Vehicle fleets are allowed to fall apart, in part because public perception favors state employees driving older cars, but the older cars are more expensive because of repair bills. 

As of the early 1990s the state did not know and could not value its own land holdings. Land was being given away to various parties such as charities without knowing the land's value.  The Erie Canal was a major tract and the state had to do a major survey just to figure out what it owned before it could start re-development. 

Because public sector accounting remains obfuscatory, it is difficult to compare state operations across states, which is essential to good management. Rather than fighting for coherent budget and financial statement categories that can be compared across states, and for integrated accounting system within the state, the Governmental Accounting Standards Board was set up in the mid 1990s and created half-way measures.  Depreciation still is not charged against state buildings, for instance.  Programs cannot be compared to programs across states.   Budgets for construction are backcharged to agencies and made difficult to compare because they are co-mingled with other program costs.

The bottom line is that no one can look at the operation of a program, say a commission on banking, and compare its costs to a comparable commission in other states. That is no accident.  No media source has raised the desirability of having this. No media source has discussed the effects of annual budgeting on long term costs.  No media source has made an issue of accounting practices since the 1970s.  The attitude in New York is: if it's broken, don't fix it; and if money is wasted, so what? 

After decades of Democratic Party rule in this state, millions have fled, services are dismal, and the economy is in steep decline. Here we see the result of the ideologically driven school system, because the public cannot figure out that if you keep raising taxes and squandering the money, the state will become poorer and decline.  New Yorkers are going to need to learn for themselves what the Greeks are learning for themselves. And like the Greeks, given 12 years of brainwashing that they went through in school, New Yorkers will blame everyone else in the world and will call them "racists" but will not blame the true culprit: the voters and public of New York State that has voted for self-destructive policies and the Democratic Party. 

Sincerely,

 

Mitchell Langbert