Neil Boortz steps in doo-doo

Boortz, a "libertarian" basically said...

"Neal Boortz said that in times of disaster we should save the rich people first." Well, hell, yes, we should save the rich people first. You know, they're the ones that are responsible for this prosperity. I mean, you go out there and you look at this vast sea of evacuees, OK? You want to get an economy going in some city? Well, who you gonna take back? The people who own businesses? Or the people that sit around waiting to get their minimum wage job, work 'til Friday, get a paycheck and then not show up again until the following Wednesday?

Note that:

1. Boortz assumes there's no middle class. Got that folks? He thinks you're either rich or you're poor. Do you feel rich? Do you feel like if you don't work your butt off that you might be poor? (This is a good topic for a Buddhist post on wealth, but I'll note that and go on...)

2. Everyone who flies coach can see what model Boortz is using.

3. Note the Newspeak: "You know, they're the ones that are responsible for this prosperity." Prosperity? I paid $50 for a doctor visit and an antibiotic on a co-pay; 3 years ago it cost me $20. Gasoline? Heating? Prosperity? I don't think violence is ever the answer but in a more informed society I'd expect people to be storming the barricades over the prosperity we'll have if current trends continue.

Do you all want to fly coach the way it is today?

The middle class is threatened in America with extinction. This is the agenda of the Bush regime. It's not an exageration to say that. What is most odd about Boortz's remark is that he already assumes this extinction has taken place. It is not the rich, it is the middle and working classes that "create wealth." The rich just profit from it.

More pundit absurdity...

Robert J. Samuelson writes in the Washington Post...and it's clear he's so out of touch with ordinary Americans that he's not aware a) we're already feeling the pinch, b) we're all concerned about our retirement, c) the impending bird flue epidemic is going to shake things up so randomly that we can't sort it out, and d) even we get that the long term trend is to erode our standard of living. He says:

This need not be a disaster. On paper, the economy could compensate in many ways: more exports and fewer imports (much U.S. consumer spending went to imports); stronger business investment; extra government spending for hurricane rebuilding. Britain's recent experience could be suggestive. Two years ago home prices were soaring (roughly 20 percent annual increases), interest rates were low, homeowners were extracting huge cash profits (equal to 9 percent of disposable income at the peak) and consumer spending was high, says economist Howard Archer of Global Insight in London. Worried about inflation, the Bank of England raised interest rates. Consumer spending, economic growth and home price increases (now about 3 percent annually) all abated. Unemployment has edged up; still, there's been no recession.

The fading of America's wealth effect, should it occur, might be equally dull and benign. But there are grimmer possibilities. One is that many adverse forces are now converging: higher energy prices, higher interest rates and debt payments, higher inflation, falling wealth gains. None matters much alone, but "their combination is creating more consumer risk," writes Susan Sterne of Economic Analysis Associates. For two decades free-spending American consumers have anchored the U.S. and world economies. If they no longer play that role, it's an open and worrisome question who will.

Until we have disincentives for corporations to import, and we have incentives for education, manufacturing, and socialized health care, yeah, its downhill from here, with a bullet, especially if the Fed raises rates to cut our gas consumption...

Important read from Kos...

Say what you will politically about Kos, this diary by Hunter on the subtext of the Plame story is well worth reading. It's as though we're unaware of the big "inside story" of the fact that the Washington D.C. media has been co-opted by the Bush regime on the Plame affair, or at least has stories they don't like to bring up very much.

But there's other stories ignored or forgotten here too; Hunter, for all his dilligence, doesn't recall the fact that these are very, very rich people involved; the "secret identity" of Andrea Mitchell, is never brought out, but somehow she thinks it's OK to minimize the impact of disclosing the really, really secret identity of a covert operative.

This economics stuff is complex...

Link

WASHINGTON (MarketWatch) - Prices of goods imported into the U.S. climbed 2.3% in September, the highest in 15 years, as costs of natural gas and oil continued to rise.

he September import price index was far above the 0.9% expected by economists surveyed by MarketWatch.

Prices for imported natural gas rose 28.8% in September, as imported oil prices rose 7.3%, the Department of Labor said Thursday.

Excluding oil, import prices climbed a record 1.2%. Excluding all fuels, prices rose 0.4%.

August's import price index was revised to 1.2% from 1.3%.

Now let's see...with labor squeezed, this should keep the tendency toward recession, but this will show up as price increases all around, and for lots of stuff people actually use: construction materials, seafood, half the crap at Wal-Mart, etc.

This type of price increase can't be washed away by raising interest rates; it can only be addressed by doing something that hasn't been done for a while: making more goods in the US.

But why do that? Is there a real cost-advantage yet? Probably not; I don't think we're at this point yet, where workers making stuff by themselves can cut out the middle man and make a profit.

Cool Link: Financial Markets Center

The Financial Markets Center, which helps "provide information, analysis and teaching tools about central banking and the financial sector." Cool to read: Financial disclosures for each Fed governor.

Oddly enough some have lots of money in stocks as of this report, but not Greenspan; T-Bills are his primary instrument of choice.

How to marginalize the Republicans...

I, like Mark Schmitt and Kevin Drum have read The Politics of Polarization.

I happen to have read it though, at the time I heard about "What's the Matter with What's the Matter in Kansas," or at least the summary presented in Common Dreams. Those 2 things deserve to be read together...

So here's my synthesis and critique of all of the above:

• When the authors of Polarization say:
  
  

  Stop hiding behind domestic policy and honestly confront the biggest issue
  of our time: national defense, and especially the use of military force.
  
  ...Democrats must emphasize the importance of the American military as a potential
  force for good in the world, and in so doing they need to engage “Michael Moore
  Democrats,” who instinctively view American power as suspect.

  
  
  This is quite wrong, right there, and that gets my radar up. I know very few "Michael Moore Democrats." I suspect Michael Moore is not a "Michael Moore Democrat."
  
  Democrats need to confront, perhaps this smear by the right, but a smear it most definitely is. I for one think the Republicans are dangerous to our defense precisely because they are so quick to deploy and use force for imperial ends. But we have no need to do that. We do need to defend ourselves, and to do so in a fashion that makes sense. We need to address our strategic weaknesses, oil dependency and health care dependency on foreign countries chief among them.
  
  But if somebody attacks us, we should respond. Going after Saddam was an act of mendacity, not bravery. Letting bin Laden go was being weak on defense. The Republicans are guilty of that charge.
  
  
• When the authors say,
  
  

  Show tolerance and common sense on hot-button social issues.

  
  
  They say "don't back gay marriage," and of course Kerry didn't and Clinton didn't. This much is true:
  
  

  At the same time, Democrats must paint a clear picture of Republican extremists, who advocate a level of government intrusion into people’s lives that conflicts with their desire to be left alone.

  
  
  
• When they say, "Support an economic policy that embraces global competition and a modernized social safety net that protects American workers in a vibrant and churning economy," I would say, ripping a page from Gingrich: be futurist, be passionately for human rights, for the environment, and understand the interconnectedness of things: Say "peak oil," call the Republicans on their atavistic response to bird flu, etc.
  
  
• The closest thing that the authors of Polarization get to my final topic here is "Finally, Democrats have to pay more attention to the very personal quality of elections, especially presidential elections, in the media age," which while worth reading ignores the current golden opportunity presented by Frist, De Lay, Rove et al. as alluded to by Kos here: political corruption is the new abortion and being weak on defense rolled into one. Look at a commercial like this:
  
  Voice over w/ black and white "historical" photos and video framed on a black background: The Roman Empire...The French Bourbon dynasty...Argentina....all these governments declined and fell because at least in part of rampant corruption...
  
  You get the picture. Corruption in government can be "Willie Hortoned," and be used to get the populace up in arms over the current state of affairs: but only if we have an articulate and disciplined vision of being against corruption. We need specific policies that wedge Repubs, and keep government honest.
  
  This also syncs with what I read in the summary of WTMWWTMIK, by Katrina vanden Heuvel in The Nation.
  

Moral people should be morally outraged at what's going on in Washington with the Repubs. The meme propagated must be "who cares about abortion?" We'll all get bird flu in the Repubs continue in power. Because it's true.

Special rights for evangelical Christians?

Link

WASHINGTON - (KRT) - President Bush and his advisers on Wednesday defended their efforts to inject religion into the confirmation fight over Harriet Miers, suggesting that faith is a legitimate factor in evaluating her nomination to the Supreme Court.

Presidential aides have cited Miers' membership in an evangelical Christian church in urging conservatives to support her.

"People want to know why I picked Harriet Miers. They want to know Harriet Miers' background," Bush said. "Part of Harriet Miers' life is her religion. Part of it has to do with the fact that she was a pioneer woman and a trailblazer in the law in Texas...

Ummm...there shouldn't be litmust tests for anybody's religious beliefs or lack thereof.

It's not surprising, of course, but it is certainly offensive; would her religious beliefs be "a factor" if she was a Hindu? A Muslim? A Wiccan? A Buddhist?

I don't expect people to be put on the court - or kept off it- because they're any of the above mentioned religions, or if they have no religion at all.

Stupid Market Article of the Day...

Link

A growing group of forecasters see a monster-sized rally just ahead. Here's why -- plus 15 of StockScouter's top-rated market giants.
The professional Wall Street spin machine has kicked into overdrive in the past two weeks. A slew of strategists have stridden into the teeth of Hurricane October with forecasts saying stocks in the final three months of this year will clock in with a juicy 8% gain -- equal to the average fourth-quarter gain over the past decade.

As you might expect, there is plenty of bearish dissent, and the doomsayers certainly appear to have the upper hand of late. But more remarkable, perhaps, is a growing minority of forecasters who are looking for much, much better results...

A key element of both the Dent and Hays outlook is the observation that most extreme bull phases of the last century – 1915 to 1919, 1925 to 1929, 1935 to 1937, 1985 to 1987 and 1995 to 1999 -- were preceded by major corrections (or crashes), followed by a strong initial recovery and then a one-to-two-year trading range. Of course, the implication is that the crash in this case was the 2000-2002 bear market, the recovery rally happened in 2003 and the trading range was seen from 2004 to 2005. Dent suggests that the markets “are simply waiting for signs that the Fed can’t tighten much further” and for oil to correct below $58-to-$62 support levels “to suggest a top in that bubble.”

One prominent analyst who is looking for quite the opposite of a bull move is veteran technician John Murphy. In a note to clients over the weekend, he said a combination of Elliott Wave analysis, the four-year presidential cycle, seasonal trends, weekly and monthly index charts, sector rotations, rising inflation and higher interest rates have persuaded him that the cyclical bull market that started in the spring of 2003 “is just about over.” He added: “The most dangerous time for the market is the autumn of 2005 to the autumn of 2006."

You've got even below $58 dollar a barrel oil a significant dent in people's pocket books from higher gas and heating prices, you've got interest rate hikes with no immediate sign of stopping, you've got a president known for putting cronies above competence in charge of naming the next Federal Reserve Bank chairman, you've got the prospect of continued commodity inflation if the rest of the world continues on a growht course, and you've got bird flu, a wild card, that could kill tens of millions of people in the space of a short amount of time.


For some reason the markets have ignored the sage advice today from Jon Markman, contributing editor for MSN Money. I can't imagine why.

Finally! The hope for liberty in the US!

Cheney! Yes! Cheney!

But wait- there's more...Raw Story is reporting that the WSJ will report on Fitzgerald looking into broader conspiracy charges from the White House "Iraq Group."

And just two days ago or so Thich Nhat Hanh was marching for peace.

Pretty powerful practice, no?

I know, I know, it's a coincidence. But hey, it's a nice coincidence.

Couple that with the news on Frist's not so blind trust (who must be overjoyed that his legal troubles are for the moment overshadowed by bigger fishes), and Tom DeLay's indictment (will Abramoff sing?) and it looks like a trifecta.

Update: And if you are still in denial why treasongate matters, firedoglake explains it all for you...

Update: Kevin Drum says the WSJ article merely says,

....Mr. Fitzgerald's pursuit now suggests he might be investigating not a narrow case on the leaking of the agent's name, but perhaps a broader conspiracy.

I agree with Drum; although it's not yet the proverbial fat lady singing, it isn't good news for Rove or Cheney. We will see soon enough, but yeah, it's feelin' a lot like Christmas Eve.

Morgan Stanley: No Harriet Myers-types for the Fed, please

More from Stephen Roach...
link

Historically, the Fed has always been a chairman-dominated institution. Yes, policy is made by committee -- a seven-person Board of Governors, joined by a rotating group of five of the 12 District Bank presidents (that always includes the representative from New York). While each member of the Federal Open Market Committee has one vote, the Chairman’s vote has always carried the greatest weight in the deliberations of the modern-day Fed. As such, it should not be surprising that financial markets take the transition to a new Fed Chairman as a very serious event. This one person has long been emblematic of the character of the institution.

The history of recent Fed leadership transitions does not read well in the financial markets. The last one occurred in August 1987, when Alan Greenspan assumed the reins of power. A little more than two months later, the US stock market crashed. Paul Volcker became Chairman in August 1979 -- a transition that that was quickly followed by a wrenching sell-off in the bond market. And the US dollar was in serious trouble from the very start of G. William Miller’s brief term as Fed chairman, which commenced in March 1978...



... Going from the known to the unknown is invariably unsettling -- even under the best of circumstances. Unfortunately, the circumstance surrounding the last three Fed transitions were far from ideal.

Alas, that is very much the case today. Saddled with a record current account deficit, the US is more dependent than ever on the confidence of foreign investors to fund ongoing economic growth. When Greenspan hands over the reins to his successor in early 2006, the current account deficit will be at least 6.5% of GDP. That’s more than four times the average external shortfall of 1.5% that prevailed during the three most recent transition points -- 1978, 1979, and 1987. Moreover, in a post-Katrina, energy-shocked climate, there is good reason to expect additional reductions in personal and government saving in the months ahead -- actually, deeper dis-saving (deficits) on both counts. As a result, already-depressed national saving should move even lower, prompting further deterioration in America’s already massive current account deficit. In other words, America’s dependence on the “kindness of strangers” is likely to increase significantly at precisely the point of an historically-delicate transition to a new a new Fed chairman.

And that, I’m afraid, brings me to the most controversial point of all -- the selection process, itself. With the consent of the US Senate, the choice of selecting a new Fed chairman falls to the President. Generalizing on the basis of George W. Bush’s most recent senior appointments, I suspect the President will look for three key traits in a new Fed chairman -- familiarity, loyalty, and a pro-growth bias. This is not meant to be critical. It is a carefully determined observation based on the President’s record. In the case of a Fed Chairman, those criteria imply that President Bush will probably not select the next Paul Volcker -- a tough, independent policy maker who might be predisposed toward “tight money.” While this is inconsistent with the President’s statement on this matter at a recent press conference, in the end, I still believe George W. Bush will opt for a trusted team player who shares the goals and objectives of his political agenda.

This could well pose a serious problem for US financial markets. With America’s external financing critically dependent on the foreign confidence factor, any doubts over central bank independence will not go over well. That’s especially the case for a US economy beset with record imbalances, a potential inflation scare, and bubble-like conditions in asset markets. Foreign investors have been extraordinarily generous in the terms they have offered for funding America’s external deficit. In part, that generosity may reflect the “Greenspan factor” -- the confidence that investors have in Alan Greenspan’s adroit management of periodic international financial crises. With the Greenspan factor about to be taken out of the confidence equation, any fears of an “easy money” Fed could well prompt foreign investors to exact concessions in those financing terms in the form of a weaker dollar and higher real interest rates.

Thich Nhat Hanh leads 3,000 on a peace march in LA...

link

LOS ANGELES, USA -- There was no cheering, no chanting and no sign waving. The march organized by Buddhist monk and peace activist Thich Nhat Hanh brought together 3,000 people to enjoy an unusual state in this city silence.

Activist mom Cindy Sheehan, who garnered national attention this summer with her anti-war vigil outside President Bush's Crawford ranch, was among those who attended the Saturday event at MacArthur Park west of downtown Los Angeles. She and Hanh embraced before the march began, but Hanh was not shy about expressing his view of Sheehan's tactics.

"I don't think shouting angrily at government can help us end the war," he said. "When we are able to change our own thinking, the government will have to change."

Hanh later told the audience: "We don't think shouting in anger can help. If you make people angry and fearful, then you cannot reduce violence and fear.

"When you speak to people, you should speak to them in a language they can understand. By doing that, we can turn our enemies into our friends."

He's right, but I'd also say it's understandable why emotions fly high here: we are, after all, talking about matters of life and death. Putting that energy to good use to stop the killing is what being skillful is about; it takes a long time, and understanding that we haven't walked the full distance in another's shoes.

(HT: Danny Fischer @ The Buddhist Chaplains' Sangha)

Przewalski's horse is coming back...

link

Luckily the horses, incapable of speech as they are, don't have to pronounce their name (przh-VAHL-skee, I suspect, not zhe-VALH-skee).

Anyway, here's some basic Russian phrases...you never know when they might come in handy, especially if you're a horse...

Heeeeere's Crony!

Link

Or, as they used to say in the old Spy Magazine, "log rolling in our time"...

"You are the best governor ever - deserving of great respect," Harriet E. Miers wrote to George W. Bush days after his 51st birthday in July 1997. She also found him "cool," said he and his wife, Laura, were "the greatest!" and told him: "Keep up the great work. Texas is blessed."...

Mr. Bush returned the admiration, the files show. After Ms. Miers's birthday wishes, he wrote thanks and a "happy 52nd to you." He added, "I appreciate your friendship and candor - never hold back your sage advice."...

Mr. Bush added: "When it comes to cross-examination, Harriet can fillet better than Mrs. Paul. I know first-hand. She is my lawyer."

A few days later, Ms. Miers wrote to thank the Bushes, saying, "Texas has a very popular governor and first lady!" She recalled a little girl who collected Mr. Bush's autograph and said, "I was struck by the tremendous impact you have on the children whose lives you touch.

However, we do get a peek into her judicial philosphy...

Minutes of [lottery] commission meetings showed Ms. Miers in command, questioning employees and other commissioners on topics like advertising, charitable bingo operations and bids to help manage the lotteries. One lawmaker asked what groups could run bingo, saying, "Could the Ku Klux Klan?"

Ms. Miers responded, "Well, I would certainly hope not."

Must...resist...referring...to...Bob...Jones...

(Via ATL Dem @ Kos)

Where to put one's money: Current economic/political trends...

I am thinking about the general problem of retirement portfolio allocation, given the current economic conditions. This is a classical allocation problem, where putting money in one set of aset classes has a certain risk/reward profile. But it is also a mirror of the current economic and political trends facing America today.

• Peak oil: despite the polyanna-ish voices to the contrary (it is astounding to me that anyone actually questions this assumption), there is a limit to which we can pump the gooey stuff to make the explosive stuff. Peak oil may - probably- not produce, in my opinion, exactly a "clusterfuck nation," but it will certainly impose a constraint on which economies grow and how fast in the short term, and in the long term should - I think, if handled wisely, certainly not the way Bush is doing it with crony capitalism- actually produce sustained long term benefits for the US economy...but...we still have...
  
  
• Inflation: and what I suspect is the relative inability of the Fed to control it. This, I think is a huge threat to the economy; yeah, there's this huge corporate, government, and personal debt, and an epidemic of over-consumption of Americans on all levels. But the paradoxical thing, is that much of the shit people need is expensive: a roof over their heads, an education for their kids, and medical care are already obscenely priced. "Cheaper" needs such as food, clothing, also cost money, and the latter two will be subject to inevitable commodity inflation. Discretionary spending will likely be cut, but after a while, people will be paying for the "necessities," as well as their own debt service.
  
  
• The end of the US "ownership" of "creative destruction" of the American economy. If, as I believe, Europe and Japan embrace "creative destruction," with a human face, there will be very little reason for investment in the US; we'll be like Argentina, in the near term.
  
  
• The rise of emerging markets: still very risky, this is a new source of both demand and cheaper labor/goods. Emerging markets will basically help produce cheaper goods until they don't.
  
  
• Bird flu. This scenario (to have been another chicken-little-was-right thingy) actually goes against the prevailing economic trends, but not in a pretty way: if 5% or 10% of all people who get this die, this will have a notable impact on demand in the short term, sending it substantially lower world wide. In the long term, it might actually, uh, makes the survivors richer; at least that's what happened on a mass scale after the black plague.
  
  
  

Putting it all together here's my short and mid and longer term prognostications; your mileage may vary:

1. There is no reason for US markets to perform any better than European or Japanese markets in the near, mid or long term..

2. There is no reason to be anything other than a dollar bear in the mid-to long term; the end of "peak oil" means the end of dollar supremacy.

3. Emerging markets will likely get their act together because they can. Brazil is self-sufficent in fossil fuels, and has told the world it won't pay royalties on AIDS drug patents. Argentina gave the IMF the finger. In the last couple of years, those countries' equity markets have skyrocketed. Of course, the rub is all emerging markets are not alike.

4. The US with its high rates of consumption of everything, and its high rates of importing everything, is most susceptible to commodity inflation. If the US uses the Fed to "control" inflation with higher interest rates, it risks playing a global game of chicken that goes in 2 directions: one way (interest rates too low) discourages investors in American debt, the other way (interest rates too high) brings on a global recession(we are, after all the consumers of last resort). Everybody- everybody wants a "soft landing," but because the central banks always work with a limited amount of information, sooner or later they will fail to achieve it and there will likely be a global recession or, if you like, a "restructuring."

5. Demographics and the bird flu favor pharmaceutical companies; the US at some point will have to get tough with them, though.

Given all the above, it is clear that an underweighting of US equities, an overweighting of Europe/Japan equities, and an overweighting of emerging market equities (carefully chosen) is in order. In addition, some protection in hard currency/commodities is needed too (if only because the "gold standard" nuts on the right might push events in that directon). Note that I'm speaking of "weighting" within the context of some assumed portfolio allocation; I should at some point set up the "general" problem, which will be a nice exercise in the math at least for me.

Because of this math I haven't sketched out yet, bonds are tricky; there is some optimum overall allocation of bonds by country, risk, and maturity; suffice it to say that putting your nest egg into long term bonds denominated entirely in US dollars isn't a good idea in my opinion.

Update: on energy, I think this is pretty good middle of the road advice:

For policymakers, the oil market presents a classic case of decision under uncertainty. There are two axes to consider. First, either the optimists are right or wrong. Second, either the world invests in technology/exploration, or it does not. So there are four combinations. (1) Optimists right/Few investments: Civilization is safe, with little waste. (2) Optimists right/Big investments: Civilization is safe, but has wasted some resources. (3) Optimists wrong/Few investments: Civilization is NOT safe. (4) Optimists wrong/Big investments: Civilization safe, but not as rich as if oil were unlimited. For a policymaker, it is better to spur the investments, because the worst possible outcome is a bit of waste. This waste can likely be absorbed by economic growth.

For individual investors, the problem is different, because investment portfolios are necessarily small and concentrated. From this viewpoint, a more effective mechanism for pooling global energy risks seems advisable. Clearly, individual investments in energy development, technology, and conservation will be a growing part of portfolios over the years to come.

Moreover, a key point is that the disagreement between optimists and pessimists is about prospects in the long term, not short term. Hence, immediate investment implications are not very different. There will likely be more attraciveness in investments in energy technology, exploration, and conservation.

Not to mention environmental technologies spurred by alternative investments in energy...

More gloom and doom...

I'll briefly quote one of the Marketwatch stories mentioned below:

Investors who can overcome their myopia stand to gain huge amounts over the very long term.

These and related thoughts went through my mind when I read the most recent issue of Fosback's Fund Forecaster, edited by Norman Fosback. In it, Fosback explored developments that may not have any noticeable impact on the markets over the next week, month, or even the next year - but which could very well have a huge impact over the next several decades...

The picture that emerges is, in Fosback's words, "not pretty": Foreign opinion of the U.S. has already begun to fall markedly, and will likely continue falling. Though the downward pressure of this on U.S. investment markets will not be felt overnight, over the next several decades its impact will be profound...

In a nutshell, Fosback argues that the U.S. experience in Iraq and Katrina has eroded the world's belief in U.S. invincibility and competence. What's happening in Iraq is revealing to the world "our inadequacy of imposing a political vision on those to whom that vision is alien. Now, in the New Orleans aftermath, the world has witnessed firsthand America's extraordinary ineptitude in dealing with a purely internal, and preventable, crisis."

As a result, according to Fosback, the "American leadership mystique has been shattered." To put this another way, "the U.S. 'model' is no longer viewed by billions around the globe as the world's one best hope."

Which brings me to the venerable Stephen Roach, and his sunny outlook for today:

Hindsight is always a great luxury. This would certainly have been the year for global investors to have avoided dollar-denominated assets. While the dollar itself has held up surprisingly well, US stocks and bonds have not. Year to date, the S&P 500 is down 1.3% versus a 9.5% increase for the All-Country World ex US Index (in US dollars). Returns in Japan, Europe, and most emerging markets have been terrific. Despite all the euphoria over sustained upside earnings surprises in the US, equity returns have been hammered by a wrenching compression of multiples. US sovereign bonds have also underperformed most of their global counterparts; year-to-date returns of 1.7% on 10-year Treasuries have fallen far short of above 9% returns for German bunds and emerging market debt. Only Japanese government bonds have lagged those in the US -- hardly surprising in light of the nascent recovery in the Japanese economy.

The single most important question for global asset allocation is whether this year’s under-performance of dollar-based assets is just an anomaly, or the beginning of a multiyear trend. For what it’s worth, I suspect it’s the latter. The metrics I continue to use suggest that there has been only scant progress on the road to global rebalancing. The disparity between the world’s current account surpluses and deficits continues to widen, likely to hit a record of nearly 5% of world GDP in 2006. America’s massive external deficit of 6.4% of GDP in the first half of 2005 -- on track to account for 70% of all the world’s deficits this year -- seems set to go from bad to worse over the next year, as the US saving shortfall is exacerbated by energy-related pressures on households and Katrina-related pressures on the Federal government. And the US consumption share remains at a record 71% of GDP, well in excess of shares in Europe (58%), Japan (55%), and China (42%). The world may have woken up to the imperatives of rebalancing. So far, however, there is very little to show in the morning after.

The good news is that the laggards of the world are on the mend. Restructuring and reforms are leading the way in the surplus-saving economies of Japan and Europe. Yet it is very different in America. Suffering its greatest shortfall of domestic saving in modern history -- a net national saving rate that has averaged just 1.5% of GDP since early 2002 -- the US lacks the internal wherewithal to support investment in public goods such as infrastructure, homeland security, and a safety net for the underclass (see my 9 September 2005 dispatch, “The Shoestring Economy”). When saving-short America needs funding, it turns to the rest of the world to provide the capital. Global lenders have been delighted to so -- and, so far, have offered the flows at extremely generous financing terms insofar as the dollar and real interest rates are concerned...

America has long stood alone in embracing the “creative destruction” of corporate restructuring. The US penchant for shredding social contracts and forcing bad companies out of business is widely viewed as a unique aspect of “flexibility” that other nations were reluctant to embrace. America was the unquestioned front-runner in the global restructuring sweepstakes.

That was then. Today, the restructuring playing field has many more players than was the case in the 1980s and 1990s. That’s certainly been the case in Japan over the past several years and now appears to be so in Germany. The balance between headcount reductions and job creation is key in discerning the macro impacts of ongoing micro shifts in corporate performance. The first phase of restructuring is usually dominated by plant closings, outsourcing, and net job destruction -- a distinct negative for personal income generation and consumption. In the second phase, the balance shifts toward renewal, expansion, and net job creation -- conditions that foster a healing of consumer confidence and income generation, which eventually sets the stage for a pickup in private consumption. After a decade of restructuring, Japan may well be on the cusp of entering the healing phase. In Germany, corporate restructuring remains in the painful first phase -- although the gap between job reductions and creation has been narrowing this year. That’s usually a good leading indicator of a shift to the healing phase.

The point is that the US no longer has the restructuring story to itself -- a distinct shift from the climate of the past 20 years. Moreover, Delphi’s bankruptcy underscores the heavy lifting that still lies ahead for Corporate America and the US workforce. That, in turn, draws into question the relative restructuring premium that has benefited dollar-denominated assets over this period. Moreover, there is good reason to believe that the US model will now have to face some new and important challenges of its own -- not just the pension time bomb symbolized by Delphi but also the downside of another asset bubble, shifting political winds, new leadership at the Fed, and the inevitable current account adjustment. This spells unrelenting pressure on US-centric global growth and asset allocation.

There's probably still lots of money to be made overseas, but I tend to agree with the above 2 gentlemen; unless Americans figure out "Phase 3," there doesn't seem much point to keep money invested in the US, unless you know exactly where it's going and why.

Read these 2 Marketwatch Stories.

This one.

And this one.

Just read 'em.

Joe Liberman, Lowell Weicker, National Review, Jury Trials, and civic responsibility...

The usual gang is harrumphing about faux democrat Joe Liberman's showing up at "National Review's 50th Birthday Party," or whatever.

Atrios, linked above, links to a pretty racist rant from National Review back when I was a day short of two months old. While I agree with Atrios that the idea of supporting a journal that makes the early days of Planned Parenthood look, well, oh, heck, they were racist, too...I was struck by this bit:

National Review editorial, 8/24/1957, 4:7, pp. 148-9: The most important event of the past three weeks was the remarkable and unexpected vote by the Senate to guarantee to defendants in a criminal contempt action the privilege of a jury trial. That vote does not necessarily affirm a citizen's intrinsic rights: trial by jury in contempt actions, civil or criminal, is not an American birthright, and it cannot, therefore, be maintained that the Senate's vote upheld, pure and simple, the Common Law...

Now jury trials exist to make sure that "one's peers" judge one; not instruments of the state, and therein lies the rub: I don't have links handy, but jury trials in America often devolve into spin games between prosecution and defense; it's information that's kept from juries that is often evocative of guilt or innocence.

Grand juries, of course, are another matter entirely; in Grand juries the jurors can often ask questions; the "ham sandwich can be indicted" chestnut is true because, as I understand it, the standard of proof is pretty low.

Therein lies my dilemma: I've been called for jury duty. If empanelled, chances are I'll be excused. I actually do believe there's such a thing as "jury nullification." If drug cases came before me, I'd be more inclined to acquit than anything else; I think as a society the way we handle even meth cases is apalling.

Moreover, I understand the spin game; I'd have reasonable doubts unless the prosecutor presented a slam dunk case but even then...why didn't the defendant plead down?

I've been called before to jury duty & never served because attorneys see the occupation "engineer" and it invariably raises a red flag to them. Too reality-oriented for them.

So to tie loose ends together: I suspect that jury trials, as done in the US, at least at the petit jury level, don't often produce justice, because of the above effects; so despite National Review's early racist elitism, I suspect that the way it's done in certain other countries might actually produce justice more often, provided there's an accountable government to begin with, which, given the current regime in power, is indeed quite an assumption. So I'm conflicted over the whole thing, but ideally,, would want to, you know, actually have the possibility of justice. As long as things are as they are now, it's probably not likely. I could, do a "not commit" Supreme Court thingy in being empanelled, that would likely be seen in a microsecond by proscution or defense in voir dire. Or, I could be perfectly honest with them (which is likely what I would do anyway). But even that doesn't seem like justice to me; there ought to be people like me on juries, despite the inconvenience of it to me personally (busy, busy time at work).


Anyhow, Lowell Weicker was the guy Liberman beat way back when. Liberman does support nasty things; he's in hock to the insurance and banking interests, and should go Republican. Weicker, bless his heart, left the Repubs a while back. He was as good a Republican as you'd get.

Good voter guide for Vancouver, WA

The folks at "LifePac" (who appear to be another zygotes-are-people-as well-as-brain-dead-are-people anti-human life group)want to keep Vancouver, WA libraries decrepit because, apparently, adults can read on the internet there, semi-privately, what they, LifePac, call "pornograpy."

Vancouver WA needs very badly better libraries. In the process, these busybodies have filed "candidate questionaires" seeking candidates positions on, inter alia, "Intelligent" "Design" being "taught" in schools.

Anybody living locally, you know what to do: put the kibosh on anyone they recommend, and vote for anyone they oppose.

The Mayor of Vancouver will be a toughie, though; both seem to be insensitive to religious plurality, but the fact that they don't like Royce Pollard and their almost recommended opponent is less qualified to run a city than my 4 year old son speaks for something.

Unleash Chang...

This story about Jeb Bush came out recently...

Unleash the who? ...

Amid all the stories about destruction from hurricanes Katrina and Rita, it was easy to miss other happenings around the world over the past month.

Take, for example, a story out of Florida that chronicled Gov. Jeb Bush ending a state congressional swearing-in ceremony by telling attendees of his imaginary warrior friend named Chang.

Bush shared that Chang is a mystical hero who believes in the purest of conservative political ideals, and that when Bush is politically perplexed, he "unleashes the Chang" to help him make the right decision.

After a standing ovation, Bush unveiled a golden sword that he presented as a gift to Rep. Marco Rubio, the new speaker of the state house and advised him to become a great conservative warrior.

Luckily, Brad De Long has an explanation:

When George H. W. Bush in the 1970s and 1980s threatened to "unleash Chang" on his tennis opponents, he was referring to China's onetime strongman and thereafter Taiwan's dictator Chiang Kaishek, leader of the Nationalist Party, the man who had largely reunified China in the 1920s with his army's "Northern Expedition," lost the Chinese Civil War to Mao Zedong's Chinese Communist Party, and then taken refuge with his Guomindang party cadres on Taiwan. After the start of the Korean War, the American 7th Fleet protected Chiang (and Taiwan) from Mao's People's Liberation Army.

Republican wingnuts, however, pretended that the 7th Fleet actually protected Mao's Communists (who had, after all, won the Chinese Civil War) from Chiang's Nationalists (who had, after all, lost it) by keeping Chiang Kaishek leashed. They periodically called for the U.S. to "unleash Chiang Kaishek"--so that Chiang, you see, could invade and conquer the Chinese mainland.

When George H. W. Bush, playing tennis (and losing) in the 1970s and 1980s, would threaten to "unleash Chiang," he was mocking the right-wing nuts of his generation.

That clears that one up...

On second thought, though, I think "JEB" Bush actually knows the origin of Chang, and despite De Long's opinion that Jeb's incurious, I opine otherwise: no, he's cynical, and assumes incuriousness on the part of his fellow conservatives. Which I think would be a spot on assumption.

Robert Bork calls the Harriet Miers pick a "disaster."

link

But I'm sure he meant it in the nicest possible way.