Back during the late 1990s' tech-and-Internet stock bubble my wife noticed that whenever television broadcasters or their Wall Street puppet masters predicted that a stock would go up, it would go down, and vice versa. Therefore, if an announcer said that a stock was going to go up, it might be a useful strategy to sell short. If she had followed that idea over the ensuring few years she would have made a bundle. But in investing timing is everything. (Incidentally, if you followed the advice of people who told you to invest for the long term rather than try to time the market, how have you been doing since 2001, a ten year period?)
That said, to quote a cliche, even a stopped watch is right twice a day. My stock broker recently forwarded Morgan Stanley Smith Barney's (MSSB) "On the Markets", its monthly market commentary. The pamphlet makes a few points. The headline on its cover is "Getting Ready for Higher Inflation" and, seven years after I first became interested in gold they are advocating a 5 percent position in commodities. That suggests that gold is into the supposed third leg of its bull market, the first being the period of limited awareness and the second being the period of smart money awareness. Now, the retail investor is being told to invest in commodities. The last leg is the bubble leg.
Smith Barney recommends emerging markets stocks and consumer staples stocks. They also recommend REITs and TIPS, inflation backed bonds. All of these recommendations key off the Federal Reserve monetary policy. The early November quantitative easing will inject $600 billion into the monetary base, which likely will over time have a bigger effect on the money supply. I have been receiving numerous credit offers in recent weeks, much like the early part of the last decade. That means to me that credit offerings are expanding. The stock market in general also looks good as the quantity of money drives interest rates hence the stock market. Because of the insane credit easing consumer stocks seem like a reasonable idea. I recently purchased the US Philip Morris (MO) and am thinking of the international Philip Morris (PM). Also, a few liquor stocks might be a good idea. As the Democrats and Republicans squeeze the public to subsidize the stock market, there will be plenty of drinking and smoking. MO pays a six percent dividend right now, and my stock broker recommended it as an alternative to cash or bonds.
I don't necessarily like the idea of REITs because of the real estate problems but emerging market stock markets like the BRICs (Brazil, Russia, India and China) seem like a good idea. I disagree with MSSB's recommendation for long term bonds. That is, unless you are planning to trade. Incidentally, the same caveat holds true for stocks and commodities. When inflation starts to counteract the economic value of the freshly printed money (the Fed has more than tripled the money supply since 2008 and the ultimate effects might be greater) the stock market will fall because real interest rates will start to rise. So markets are increasingly treacherous and you need to invest for the short or intermediate term, not for the long term. I don't believe in day trading or anything like that. Rather, invest when something is low or likely to increase and pull out when it is in bubble mode. I don't think we're seeing any bubbles now, although commodities are heating up and I think the stock market will too this year.
Happy New Year.
Saturday, January 1, 2011
Friday, December 31, 2010
Legacy Media's Standards Sink Lower: Case of Ezra Klein
Contrairimairi sent me this video. Ezra Klein, a guy who works as a reporter for the Washington Post, apparently thought that the Constitution was written over a hundred years ago when it was written over 200 years ago. The thing that gets me isn't that Ezra Klein is ignorant or that the Washington Post hires ignorant reporters, but rather that anyone bothers to watch a television program on which ignoramuses like Klein appear.
Klein not only lacks basic historical knowledge. His claim that the Constitution is not binding might come as a surprise to his friends at the American Civil Liberties Union, and, for that matter, Barack Obama, who derives the authority for his criminal administration from that tattered document. If Mr. Klein and his Progressive comrades think that the central state is going to continue to be taken seriously, perhaps they might consider looking to the Constitution for the few shreds of remaining legitimacy that the sorry-ass government thugs in Washington can claim.
Klein not only lacks basic historical knowledge. His claim that the Constitution is not binding might come as a surprise to his friends at the American Civil Liberties Union, and, for that matter, Barack Obama, who derives the authority for his criminal administration from that tattered document. If Mr. Klein and his Progressive comrades think that the central state is going to continue to be taken seriously, perhaps they might consider looking to the Constitution for the few shreds of remaining legitimacy that the sorry-ass government thugs in Washington can claim.
Wednesday, December 29, 2010
Why Participate in the Political Process?
Two economists have discussed why people participate in political processes. Both books were published in 1970, around when college students were demonstrating at Columbia, Kent State and elsewhere. The first, Albert O. Hirschman in his book Exit, Voice and Loyalty suggests that there are two alternative methods of expressing dissatisfaction. Exit is market behavior. If you don't like a pizzeria's pizza, stop going. You exit without voicing disapproval. In contrast, people often voice complaints. For instance, my sister was unhappy with her phone service. She complained. When that didn't work she went to the Public Service Commission. Would she have gone to the Public Service Commission about a pizza? I doubt it because there is a free market in pizza but a monopoly in her phone service.
Hirschman outlines the times when voice supersedes exit, one of which is monopoly. Labor theorists have applied this to labor unions. By establishing elements of monopoly in the workplace, unions have two faces, a monopoly face and a voice face (see What Do Unions Do? by R. Freeman and J. Medoff). In Hirschman's view, creation of loyalty makes people more likely to use voice rather than exit. Loyalty is equivalent to what business strategists call differentiation. If you're loyal you protest because protest costs resources and loyalty increases protest's benefits.
Kenneth E. Boulding's idea with respect to protest hasn't received as much publicity as Hirschman's. In Economics as a Science (pp. 82-5) Boulding claims that there are two kinds of discontent, personal and political. "Personal discontent with a location drives a man to migrate rather than to press for urban renewal. Personal discontent with existing income drives a man to try new occupations." Political discontent, in contrast, involves effort to change the political system.
Boulding argues the person with personal discontent is not likely to be politically active and is likely to see political activity as detrimental to his ambition. In contrast, the politically active person "the revolutionary, the alienated, the dissident, whether of left or right, is apt to be either a middle aged person who has failed in the satisfaction of his personal discontent and become stuck in a location, an occupation or even a marriage from which he cannot escape and which he finds undesirable, or a young person who has found the competitive 'rat race' of the educational and economic establishment too much for him and has decided hat he wil get more satisfaction out of trying to change the system. It is at least a plausible hypothesis that in social situations where personal discontent is frequently frustrated, economic development is slow and there are rigid class structures and caste structures that prohibit upward mobility, discontent is more likely to take a political form. On the other hand, it is also true that in rigid and oppressive societies in which political discontent is brutally suppressed and the chances of political change seem poor people get discouraged from political action and tend to express their discontent in private mobility."
Hirschman's model predicts that those most loyal to the US will protest its decline. Boulding's model suggests that as opportunity declines protests will be more frequent as more and more Americans face, as I did in New York City in the 1970s and 1980s, declining economic opportunity as the more vibrant firms exit a United States increasingly dominated by privileged special interests and financial institutions.
Hirschman outlines the times when voice supersedes exit, one of which is monopoly. Labor theorists have applied this to labor unions. By establishing elements of monopoly in the workplace, unions have two faces, a monopoly face and a voice face (see What Do Unions Do? by R. Freeman and J. Medoff). In Hirschman's view, creation of loyalty makes people more likely to use voice rather than exit. Loyalty is equivalent to what business strategists call differentiation. If you're loyal you protest because protest costs resources and loyalty increases protest's benefits.
Kenneth E. Boulding's idea with respect to protest hasn't received as much publicity as Hirschman's. In Economics as a Science (pp. 82-5) Boulding claims that there are two kinds of discontent, personal and political. "Personal discontent with a location drives a man to migrate rather than to press for urban renewal. Personal discontent with existing income drives a man to try new occupations." Political discontent, in contrast, involves effort to change the political system.
Boulding argues the person with personal discontent is not likely to be politically active and is likely to see political activity as detrimental to his ambition. In contrast, the politically active person "the revolutionary, the alienated, the dissident, whether of left or right, is apt to be either a middle aged person who has failed in the satisfaction of his personal discontent and become stuck in a location, an occupation or even a marriage from which he cannot escape and which he finds undesirable, or a young person who has found the competitive 'rat race' of the educational and economic establishment too much for him and has decided hat he wil get more satisfaction out of trying to change the system. It is at least a plausible hypothesis that in social situations where personal discontent is frequently frustrated, economic development is slow and there are rigid class structures and caste structures that prohibit upward mobility, discontent is more likely to take a political form. On the other hand, it is also true that in rigid and oppressive societies in which political discontent is brutally suppressed and the chances of political change seem poor people get discouraged from political action and tend to express their discontent in private mobility."
Hirschman's model predicts that those most loyal to the US will protest its decline. Boulding's model suggests that as opportunity declines protests will be more frequent as more and more Americans face, as I did in New York City in the 1970s and 1980s, declining economic opportunity as the more vibrant firms exit a United States increasingly dominated by privileged special interests and financial institutions.
Understanding Ownership of the Fed
A reader has been communicating with me about the ownership of the Fed. He or she points out that the President and the Congress have the right to appoint the chairman and board of governors of the Fed. Therefore, the member banks' subscription to Fed stock does not mean that they own the Fed. Power, in this view, is the President's, Congress's and the public's.
This argument overlooks the implications of stock ownership. By definition, ownership of stock in a corporation constitutes ownership of the corporation. It is true that the President's appointment of the board of governors and the chairman modifies some implications. However, there is another point that is more important. The stock ownership creates a fiduciary relationship. Any corporation must be operated in its owners' interests. Therefore, calling the member banks' holdings in the Fed "stock" rather than "loans" or "subscription fees" suggests that the framers meant to vest the crucial aspect of ownership in the banks, namely, that the Fed should be operated in their interest and not the public interest.
Bankers work with trusts all the time. The basic relationship of banks to their depositors is fiduciary. Hence, they instinctively understand what the reader has trouble accepting, that appointment of a trustee on behalf of a beneficiary does not change the beneficiary's underlying ownership. The appoint of a guardian for a minor orphan's assets does not change the orphan's owning the assets. Likewise, the president's appointment of a Fed chairman does not change the fiduciary relationship the Fed bears to its stockholders, the commercial banks.
Recently, Congress voted down Ron Paul's bill that would have required public audits of the Fed. This is significant evidence that Congress and the public have never believed (to believe that two groups of knuckleheads have any beliefs at all on the subject) that the Fed serves the public interests. What owner would refuse information about his assets? One of the fundamental rules about trusts is that the trustee must disclose all relevant information. That Congress does not want the information means that Congress does not think it or the public would benefit from the information. Hence, Congress and the public do not think that they are the Fed's beneficiaries.
This argument overlooks the implications of stock ownership. By definition, ownership of stock in a corporation constitutes ownership of the corporation. It is true that the President's appointment of the board of governors and the chairman modifies some implications. However, there is another point that is more important. The stock ownership creates a fiduciary relationship. Any corporation must be operated in its owners' interests. Therefore, calling the member banks' holdings in the Fed "stock" rather than "loans" or "subscription fees" suggests that the framers meant to vest the crucial aspect of ownership in the banks, namely, that the Fed should be operated in their interest and not the public interest.
Bankers work with trusts all the time. The basic relationship of banks to their depositors is fiduciary. Hence, they instinctively understand what the reader has trouble accepting, that appointment of a trustee on behalf of a beneficiary does not change the beneficiary's underlying ownership. The appoint of a guardian for a minor orphan's assets does not change the orphan's owning the assets. Likewise, the president's appointment of a Fed chairman does not change the fiduciary relationship the Fed bears to its stockholders, the commercial banks.
Recently, Congress voted down Ron Paul's bill that would have required public audits of the Fed. This is significant evidence that Congress and the public have never believed (to believe that two groups of knuckleheads have any beliefs at all on the subject) that the Fed serves the public interests. What owner would refuse information about his assets? One of the fundamental rules about trusts is that the trustee must disclose all relevant information. That Congress does not want the information means that Congress does not think it or the public would benefit from the information. Hence, Congress and the public do not think that they are the Fed's beneficiaries.
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