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Sunday, October 26, 2008


9 days to go, and not lookin' good

If you can believe the polls, the McCain campaign continues to founder in the key swing states, as the independent votes actually in play react to the economic mess and the virtual certainty of recession by blaming the party of the current administration. Though Congress has even lower approval ratings than the President, it is always difficult to make the argument that they share or own most of the blame for the problems, and McCain is nowhere near articulate enough to pull that off.

That the polls could be wrong or that there could be an eleventh hour shift of the electorate has occurred to many, though the Dems and their media friends would have you believe that "it's over." One thing that is over is the battle for the minds of the many (and it increases every cycle) voters who vote early in the states where that is allowed. The Obama people seem to have done a remarkable job getting those folks out to vote, and presumably they have a good idea of the likelihood of those people to vote for their candidate.

Talk radio right wing hosts like Rush and Mark Levin have increased the intensity of their agitation about Obama's socialist tendencies, and that may be having an impact. If it wasn't, I doubt you would be seeing libs and Dems so exorcised about them, but Rush and Mark mainly serve to fire up the base.

As bad as things look for the Presidency, the real horror show for conservatives is the increasing likelihood that the Dems will have a filibuster proof majority in the Senate. The magic number for that is 60, and unless Sununu and a few other trailing GOP incumbents snatch victory from the jaws of defeat, the Obama's can pass more of their program that they would otherwise. Question: would Obama and the Dems really follow the Hoover-FDR prescription for depression by raising taxes and restricting trade during the early stages of a serious recession? One can only hope that Obama will be bringing in strong enough economic advisors (like Rubin and Volcker) to avoid such obvious mistakes.


Speaking of Senators, our senior Senator in NY, Chuck Schumer, has long been an embarrassment (most dangerous place in Washington - between Schumer and a microphone) but one really has to wonder about the liberal media's lack of interest in the apparent scandal involving his imprudent Indy Mac comments that precipitated a run on that bank and its insolvency. I thought at the time that even someone as irresponsible as Chuck would have known better, but now it comes out that business interests that were leading contributors to his campaign fund had an interest in Indy Mac's failure. Their aim, which ultimately came to pass, was to pick up Indy Mac assets on the cheap. So it seems that Schumer's comments were not merely stupid and irresponsible, but also served the interests of his financial supporters.

Imagine the media firestorm if a Republican had done the same thing!


Now that the Treasury has determined that it makes more sense to invest in banks and financial services companies than to buy their toxic assets, we are witnessing the unseemly lineup of all kinds of entities at the public trough, looking for a little spare equity capital. These now include not just financial companies, but also auto manufacturers, insurance companies, and even states whose budgets are under water.

Seems to me this is exactly what those opposing the bailout bill were warning about -the socialization of our system, and the reduction of the private sector's area of freedom. These equity investments will not come without strings attached, and the limits on executive pay are the least of those. Frankly, I hope the Treasury adopts the Nancy Reagan philosophy - "just say no."


One reason it is getting increasingly difficult for Republicans to make their case is that more and more Americans are reaching adulthood without the foggiest idea of what the Constitution actually says and without the shared values that Americans of the baby boomer and prior generations learned. No wonder Supreme Court devotees of originalism are so maligned in the liberal media. The young reporters of today believe, like Barack Obama, that the Constitution says whatever they like, or at least, should be freely interpreted according to their own preferences. "Civics" as it used to be called, is not really taught properly any more in the public schools, and hasn't been for two generations. Conspiracy theorists would point out that the teachers' unions see the world the way liberals do and have successfully indoctrinated two generations to think the same way.

The state of American history education is as bad or worse. In discussing with a liberal friend the readiness of Sarah Palin to be President, I pointed out that it has been quite common for mediocrities and players from the small stage to be elected VP. This is because VP candidates are generally chosen, as was Palin, for political reasons and not based on immediate competence. Often, those elected have grown into the job, and especially when called upon to succeed to the Presidency. When asked for examples, I immediately pointed out that Harry Truman was a political hack chosen as a compromise candidate even though many, including FDR himself, knew the President was in failing health. To my astonishment, this otherwise intelligent person admitted not knowing that Truman had ever been Vice President and had succeeded to the Presidency! Further discussion revealed that this person also did not know that Dick Nixon had served as VP under Ike for 8 years. And this person is a younger baby boomer!

They warn you not to discuss religion and politics in social situations, but really, how can you hope to have any kind of sensible discussion when people are so ignorant concerning the basic raw data? They do know the Democratic party line though - George Bush = worst President ever; Dick Cheney - unelected President (well he was elected to serve in the Administration, I thought). The Iraq War - sucks, a war of choice, etc.

That's another thing I have noticed when talking with my younger friends and colleagues is that everything "sucks." By that I mean, they constantly use that term to describe whatever happens they don't like, even trifles. Sitting at a college football game, the kid behind me was typical. Two yard gain for the home team - that sucked. Incomplete pass - sucks! Bad call? That's right, that sucked too.

We used that term as kids, but sparingly and at least reserved it for things that were really horrible, not just a little annoying.

People think the economy is a mess now, but given what we know about the magnitude of layoffs still to be announced, I don't think most people have any understanding about how bad this recession is going to be. The stock market is discounting a beauty of a recession, and that's why you see these repeated tests of the 8200 level. We are trying our best to make a bottom, and I think it may have happened Friday, more likely tomorrow or Tuesday. The market is also discounting the expected Obama victory and the likelihood of an increase in the tax rates on capital gains and dividends. And of course, we are still working through all the deleveraging, with the main action now involving the hedge funds trying to unwind their positions. There is no way these guys can all get out the door at the same time, not when they were leveraged at 5-1, some at 30-1. It's not for no reason that I predicted that half of the hedgies that started 2008 would close their funds by year end.

I think it is fair to say that the market this fall has...sucked.

Still nibbling, with no payoff yet, but we live in hope and follow the formula that takes emotion out of investing, while most of the players are paralyzed by emotion and panic. Last Monday, we bought 700 shares of Books A Million (BAMM), the southern book store chain that has been such a great trading vehicle for me over the years. The price was 3.10. On Wednesday, we bought another 700 shares of Marine Max (HZO) at 3.01 and promptly lost a third of that by the end of the week.

The formula also did get us to sell some shares when the market was riding high, and that is perhaps its greatest strength. As the WSJ noted a couple of weeks ago, "A (pure) buy and hold strategy has been a waste of time and money over the past decade."

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