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Thursday, February 19, 2009


Rocky start for the Obama team

"Don't judge a golfer by how his swing looks. Watch where the ball goes." - Bill Russell

So it is with politicians and leaders. Forget the rhetoric, which is often purposely misleading. Watch what they do. Unfortunately, what politicians say creates an impression, an image that is often politically more important than what they actually do. George W. Bush, as inept a communicator as any President in the television era, created all the wrong impressions, and it was from that perspective that his policy decisions were viewed and judged by the media and the public. History will be kinder, since a lot of his policy approaches will be proven correct (other than the mishandling of our current financial mess) and his broken syntax will be recalled with more humor and less mean spirited derision.

If the honeymoon with President Obama and his administration seems undisturbed a month into his term, I would attribute it to the fact that, heck, it's only been a month, there is a well - known media bias in favor of liberal Democrats, and his communications skills are as good as W's were bad. But let's be clear. If you're watching where the policy "ball" is going, and not how its being communicated, you have to be concerned about the following:

1. So far, Mr. Obama is proving that everything the McCain campaign predicted about how he would govern was right on the money. Though he is talking the centrist game, in fact, Obama is governing well to the left, the same pattern that we saw Bill Clinton cleverly execute during his first term. Proof positive is the so-called stimulus plan, stuffed with all the Pelosi/Reid pent up legislative spending ideas they could jam into it, without losing the 60 votes needed to pass the Senate. So the GOP got THE most offensive stuff out of the bill, and that made it palatable for a few eastern moderate Republicans to go along, under the pressure of the Obama campaign to paint the opposition as obstructionists.

2. In foreign affairs, the full scale appeasement campaign is on, again mirroring the Clinton years, with tough talk alternating with clear signals that the US won't take meaningful action. This has been true with respect to both North Korea and Iran for starters. The fiasco with Guantanamo (it's closing, no it's not) and with Afghanistan (the 17,000 troop surge will actually not be in place until the summer?) are just the beginning, I'm afraid. By the way, the Russians are having all they can do to keep from laughing at us publicly, seeing us repeat their mistake by getting bogged down in Afghanistan. Even the Brits know better than to do that, also from bitter experience.

3. On the financial mess, the administration has been very active, but not at all effective, rolling out more and more bailout spending to no apparent effect. Meanwhile, the public relations machine works overtime on the subject of executive compensation, as if fixing that will somehow cure anything. Let's stipulate that executive pay has been a major insult, but the folks bearing the cost have been their beleaguered public stockholders. The financial markets have given a clear thumbs down on the administration's efforts, and the public is probably not far behind, finding a particular aversion to the foreclosure bailout plan allowing people to keep homes they never could have afforded.

So this administration has gotten out of the gate poorly, but shaky starts have become the norm for Presidential terms. There are so many jobs to fill, the government is just so big, and the preceding administration usually allows some tough problems to build up during its lame duck period. Also, the ideas that resonate in campaigns often look unworkable, even foolish, once you grab the reins. So we will stipulate that it's too soon to judge the current administration, only to suggest that so far we are concerned, not impressed.


On the financial mess, it's really not fair to criticize everyone and everything without suggesting a program to get things back on track. So here goes (with few surprises for regular musings readers):

1. The only bailout we really need is the "Bad Bank" approach. I actually think the idea the administration had to use private and public money for the bad bank was a good one, since the hard part about buying these toxic assets is to price them correctly. Put that together quickly and we can stop worrying about massive FDIC interventions and about the solvency of bank counterparties. But is is not clear that the Treasury has figured out how to implement this.

2. Allow historical cost accounting for performing debt instruments in GAAP and for risk based capital calculations. This will nip the vicious cycle of asset devaluation and capital shortages in the bud. Mark-to-mark accounting is killing us.

3. Tell the Fed to develop a mechanism for pegging the dollar to gold, and stop trying to control interest rates. Return the Fed to a single economic responsibility - dollar stability - and restore responsibility for the maintenance of economic health to the administration (Treasury). The Fed should establish a nominal dollar price target range for an ounce of gold ($750-800) and lift that target by 1% or 1.5% per year, allowing only a healthy rate of inflation, but not deflation. Fed open market operations and the discount window can be used to maintain the dollar within the target range. Let the private sector determine the cost of money (interest rates).

4. Otherwise, and certainly once things are stable, let the companies that have to fail, fail. How many generations will have to bail out Chrysler before we realize that this company cannot succeed? But don't nationalize banks, as some are now suggesting, simply because mark-to-market accounting rules force them to raise capital they don't really need to meet cash needs.

5. Regulations, whether relating to the environment, public safety and welfare, or anything else should be subjected to rigorous cost/benefit analysis before implementation. Look at the environmental impact studies it takes to get a plant built and compare that to the comparatively inconsequential hurdles to passing new regulations that cause serious economic harm. The second order impacts from such regulations hurt the public far worse than all the nuclear power plants operating in the US ever have.


Speaking of second order effects, wait until you see the impact tax increases in states like New York have on what's left of our business community there. It seems that only Mayor Blumberg among politicians in the state have figured out that eliminating all of the bonuses and high salaries on Wall Street have destroyed the public treasuries along with the economy. Who do the folks in the state legislature think has been paying for all these state government employees and services anyway?

California has learned the hard way about job and business flight due to extreme tax levels. Now we see them offering giant subsidies to Hollywood, trying to bring their film industry back.

Well, maybe the accidental NY Governor Paterson will figure it out before it's too late, but I doubt it. Polls basically show that he won't beat anyone in 2010, and the public now has the firm impression that he simply isn't up to the job. This is a guy everyone was rooting for initially.

No one gives much thought to who gets the Lieutenant-Governor spot on a ticket. If anything, the job is even more embarrassing than being Vice President. Maybe we need to rethink that. I guess that is why people soured on Governor Palin. She would have been just fine as VP, but lacked the experience if she ever needed to move into the top spot, and maybe the chops too. That's the situation in New York right now, not that the job is easy or the agenda favorable. Unfortunately, this guy has got to go, but the election is not for 21 months, and that's a long time to be saddled with this group. Then, it's going to be Governor Cuomo, I suppose.


Tuesday night, my full service broker's jazz buddies, which include me, went to the Jazz Standard, a favorite venue on East 27th, to see Helen Sung, whom I have blogged about previously, leading a quartet. There was a full house, and the anticipation in the room was feverish. Clearly, Ms. Sung has quickly earned a devoted and loyal New York following, and for good reason. The pianist is perhaps the most exciting young player on the scene. For this gig, the group was recording a live CD, so both sets would be the same selections, giving them two takes, in effect.

We were at the first set, and I can tell you that each of the nine selections was good enough to be a print. Ms. Sung's virtuosity and powerful playing was complemented perfectly by drummer Eric Harland, whose set required some repair after the third selection, the result of his own powerful approach to the bass drum. When the set was over, I was exhausted and all I could say was, "they're going to do THAT SET again?" If I didn't have to catch a train, I would have loved to stay for it.

Ms. Sung is headed for some dates in Europe. She's a must see when she returns.

This is really a brutal stock market. There's no relief when you get to the water torture stage of a bear market, and they're murdering my preferred stocks even worse than the common. Tuesday, I bought 300 more shares of Ladish (LDSH), at the low, low price of 9.51, and it immediately dove even lower. Yesterday, we bounced right back with a new name, Raven Industries (RAVN), my last selection from this year's Forbes best small company list. I bought 100 shares at 20.88. Let's hope the Raven won't be squawking, "Nevermore."

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