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Tuesday, May 04, 2010


Plenty of Blame to go Around

With sovereign debt crises seemingly indicating that the EU's Social Democracies are coming apart at their fiscal seams, we needn't get too smug in the good old US of A, where not only do we have a federal government budget that has lost its moorings, we are also looking at a lot of states and municipalities that will be unable to fund services and service debts. In fact, I am seriously considering whether the triple tax exemption in my in-state municipal bond fund is worth the risk of defaults on the underlying assets. This at a time when the Obama and Paterson administrations are doing all they can to raise the value of the tax exemptions by raising all the tax rates they can think of.

Of course, the Obama administration's answer to everything, and their major election talking point, will be to say that this is a deficit they merely inherited from the preceding administration of the other incompetent party. This overlooks two inconvenient truths. First, with much of the TARP bailout now paid back, the gigantic increase in government debt nearly all belongs to the current administration, courtesy of their silly, ineffectual stimulus giveaway and their inability to provide the actual incentives to work and produce that would really end this recession. But second, and more to the point of this post, they forget that while George Bush led his administration through a moribund second term, and failed to exercise his veto pen nearly enough, it was Congress that passed all those spending bills. And in 2006, the Dems took over Congress. So it was Reid and Pelosi who were Bush 43's partners in deficit crime, and the Dem's should share the blame for those disasters of 2007-2009. If you don't believe that, just ask any congressional Republican who spent those two years trying to rein in Fannie and Freddie while they were being safeguarded by Dem's, who were banking all that campaign cash contributed by the GSE's. By the way, Mr. Obama was one of the leading beneficiaries.

This has led some thinking Republicans to wonder if the best result for November 2010 would be to win enough seats to hamstring the Dem's without actually taking over the majority and sharing the blame for what will inevitably go wrong in 2011-2013. This thinking is just too cute by half. When you have the chance for a majority, you take it, as Newt Gingrich did in 1994. It is necessary to stop the government grab that is going on now. As government takes on more and more functions and performs them all so ineptly, it becomes clear we need politicians who will recognize that what we need is for government at all levels to do less but do it much more effectively.

There was a time, to be confirmed by those of us old enough to remember, when government recruited very bright people and performed at an extremely high level. So when President Kennedy committed the nation to winning the race to the moon even after the Soviets got a huge head start, he could be confident that NASA would have the highest quality scientists and engineers to get the job done. In those days, people went into government service to accomplish great things, not to secure a cozy early retirement and then double dip into social security.

Today, we have government performing high minded functions but adding little value. So in a day when taxpayers spend huge sums to fund OSHA, when companies spend huge sums to comply with OSHA regulations (and pay fines for meaningless violations), we still have the same fatal accidents and environmental disasters in our mining and drilling industries we always had. So we have the regulatory function, but no value added for our money.

And then, to defend our outlandish union pay scales and benefits, we insist in our trade agreements that foreign nations adopt the same ineffective practices we have to "protect" their workers. It would be laughable if it weren't so disfunctional. With it all, we can't compete in the manufacture of commodity products or other basic industries so we now have a growing structural unemployment problem, after years of enlightened tax policy that drove nearly full employment. When the Bush tax cuts expire, my expectation is that we will have a very serious economic double dip recession. Perhaps the stock market is starting to discount that in pricing equities.

The question we should be pondering is, if the GOP wins big, as I expect it to in November and gains enough leverage to impact decision making in Washington, will the party have the courage and intellectual chops to take on our economic problems as Governor Christie is in New Jersey, or will they just drift along as in the Bush years? The party has the leaders who know the right way and seem to have the goods to get it done - people like Paul Ryan, John Kasich, and yes, Newt Gingrich. We'll see.

We make a lot of predictions at redwavemusings and try to resist the temptation to trumpet how many we get right, but I have to say that we were both perceptive and objective regarding the Mets road trip so far. No sooner did they get to the Confines of Brotherly Love than balls started flying out of the ballpark, unlike City Field where you practically have to hit it into orbit to clear the fence. And yes, the formerly light hitting Metso's hit their share of them, though the pitchers Pelfry and Santana, all but unhittable at home, also got lit up pretty well. Only Roy Halladay seemed immune to the gopher ball, but I think he could keep it in the park in Williamsport or maybe even on a paddle ball court.

Homers have continued on the Mets next stop in Cincinatti, but our goal of a 500 road trip is still (barely) within reach. So we got that goin' for us, which is nice.

We have had three swoon dives out of the last six sessions on Wall Street and as per the formula, that has us back to the buy side. On Friday, we went out on the risk limb buying 1700 shares of the resurgent Sirius XM Radio (SIRI) at 1.20, a zero buy if ever there was one. Though the Company has actually reported a quarterly profit, and has (barely) positive shareholder equity, its market value is still way out of proportion to any concept of the company's actual value. Still, we kinda believe. Yesterday, we bought 100 shares of a MetLife preferred issue (MET.PR.B), eschewing risk in this case, in favor of a 6.5% yield. We put it in the IRA at a cost of 24.16 per share.

We also patted ourselves on the back for our prompt sale of RIG last week at 89 and change after watching the stock trade at 72 and change today. We haven't owned BP since removing it from our buy/hold list after its long ago Texas accident.

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