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Sunday, June 27, 2010

 

When You're Not, You're Not

The old saying about momentum in everyday life is "When you're hot, you're hot, but when you're not, you're not." Many things seem to run in streaks for no good reason, as any veteran craps player will tell you, and right now, the Administration in Washington is on one of the most awful streaks you could imagine, both from the standpoint of performance and politics. Consider:

The G20 met this weekend with the President on the silly side of international economics, trying to convince the developed world to adopt his nonsensical stimulus strategy of incurring ever more debt to artificially increase consumption and public employment in hopes they will import more of our goods and assist the US, as well as their own, economies. Of course, stimulus has been a notable failure here, and where everyone is in deficit and watching their currencies disintegrate, would be a suicidal policy for the UK, much of the EU, etc. Fortunately, these countries seem to have leaders who recognize that they have to get their fiscal houses in order, and if that means swallowing a few years more of lousy economic performance, so be it.

Why in The Wide World of Sports people can't give the Steve Forbes/John Rutledge economic plan a chance (as Ronald Reagan and Margaret Thatcher did) and combine tax cuts and spending increases to make government smaller and more efficient I don't know. Tax regimes need to be much simpler too, if only so that economic strategies by governments can have more predictable results.

Right now, we are facing into a total disaster in 2011 and beyond because of this country's looming tax increases, especially on investment returns, and budgets that are just out of control. While the general public is all in a lather about TARP money (which will all be repaid eventually) public unions and pensions are bankrupting states, municipalities and the federal government. They have also become Mr. Obama's main constituency.

So the G20 basically stiffed the President; can you blame them? They can join the club.

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Also stiffing the President was the flamboyant General McChrystal, who apparently determined that the feckless administration that he was working for was too inept to bear, and had the bad taste to tell Rolling Stone Magazine, confirmed (and then some) by his staff. Clearly, the General simply wanted out and lacked the grace to simply resign. The replacement, General Petraeus is no doubt a good choice, coming off the successful surge campaign in Iraq, but really, he is not the Savior either, and I have a feeling people will inevitably be disappointed. First of all, when you face a troop withdrawal deadline, you already have a strike against you since the Taliban knows it can succeed by running out the clock. Second, and perhaps more significant, Afghanistan is about the worst place in the world to try to conduct a counter insurgency. Mr. Obama may have pushed the campaign point that Iraq was the "wrong" war, and that the real terrorists were in Afghanistan. Maybe so, but Mr. Bush, who was dumb like a fox, knew the easily winnable war was Iraq and the morass was Afghanistan.

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Then there's financial services reform. The conference committee was an entertaining spectacle, thanks to that great vaudeville act, Frank and Dodd. As policy, it was an exercise in demonization and window dressing. Unfortunately, the reforms settled upon have little to do with either the causes of the 2008 financial collapse nor preventing future fiascoes. Barney stubbornly prevented any discussion about what to do about the GSE's, Fannie and Freddie. There was a move to encourage proper mortgage standards, but where are the needed actions to remove official rating agency regulatory sanction? This is not to say that no good came from the Conference Committee. The bill is better than it might have been.

However, the real issue is how to get back to a reasonable regulatory regime, something that was lost when Graham, Leach Bliley replaced the New Deal regulations that separated commercial banking, investment banking and insurance. Putting the toothpaste back in the tube is always impossible, but the so-called Volcker rule was a step in the right direction. And that was weakened in conference.

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Then, a federal judge decreed that the Administration's oil drilling ban was an overreach, and confirmed that on appeal. The Administration will no doubt appeal higher, but probably lose again, good news for the economy and the energy industry, bad news (politically) for Obama. Of course, it didn't take long for the Administration and media friend attack dogs to come out and try to impugn the judge because of his investments. This won't work, it will only feed the public's growing negative impression of Dems.

To make matters worse for the Administration, the Supreme Court landed with both feet against the so-called "honest services law" used to convict Enron's Skilling, other business leaders, and even Joe Bruno, New York's former Senate Majority Leader. These characters are not exactly role models, but neither are they history's greatest scoundrels. This law, like RICO and NY's Martin Act (exploited by Eliot Spitzer and his crony, Eric Dinallo, now a candidate for NY AG) is a catch- all that is used to criminalize routine political and business behavior that liberals don't like. These are the cases that give people in the Cato Institute nightmares. They should all be thrown out,. Congratulations to the Supreme Court justices for having the courage to defy this administration and congress to make the right decision and to do it decisively.

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The US team did a good job at the World Cup despite losing to Ghana yesterday, yet another game that showed that our program has to improve defensively in order to contend. Not really a surprise considering how US tastes tend to be more aggressive, want more scoring in the game, etc. Until the rules are changed considerably though, you have to avoid falling behind in any World Class soccer game.

The other theme of this tournament is that referees have way too much influence over the result. A penalty call in the box is almost a sure goal, too strong a penalty. Worse, this nonsense of two yellow cards causing a suspension for the next game is too severe a penalty considering that cards are given out even for routine fouls.

To put some balance in the game, I still say the offside rule should be scrapped and teams should be allowed to substitute more freely. Until there are more goals, the US audience will continue to be limited for soccer, though enthusiastic.

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As we near the All Star break, we are just delighted with the baseball season this year where there are great races in nearly all divisions. We have a three team race in the NL East, with the Phillies back on the beam now that Rollins is back, the Braves have lots of home games left, and the Mets are playing better and better. It looks like the Reds can give the Cards a race in the NL Central, though I expect the Cards to prevail. In the West, there are four teams in contention. San Diego's hitless wonders have the pitching, so do the Giants, but the dark horse is Colorado.

In the AL East, there is now a legit three team race, though all three have flaws that prevent them from running away. The Yanks are showing age in some spots, and unreliability in the rotation, and Boston has injuries. We'll see. In the Central, the White Sox are back in the race, and it should be a barn burner with the Twins and Tigers. And in the West, where no one is that good, I think even Seattle can get back in the picture with a good streak, if they don't trade everyone first. Otherwise, I expect Mike Scioscia and the Angels to overhaul the high scoring Rangers.

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We are trying to preserve capital in this stinky market. On Monday, we sold 500 shares of FSI International (FSII) at 5.15. We bought these on 9/8/09 for 1.01. Really, how bad can a five timer be, even if you have to pay short term taxes. On Wednesday, we bought 200 Goldman Sachs preferred (GS.PR.D) at 18.74 for the IRA. With BP taking Goldman Sachs' place in the Dems' cross hairs, we felt better about picking up some shares at this depressed price. On Friday, we bought 400 shares of TATT, also for the IRA, at 6.74. Not proud of this one, but as FSII has shown, you never really know which average downs are going to work.

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