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Sunday, November 14, 2010


Football, Chicken and other sports

Pro football can be a strange game. The Jets again got pushed around for half the game today, made some great halftime adjustments, took charge, only to see the Brownies execute a beautful drive at the end of regulation to tie the score. Dame Fortune again smiled on my team in overtime, the Jets recovering a key fumble and finally scoring in the last minute of the extra period after a missed tackle. So another game we were lucky to win, but another good job in the clutch.

Then there are the Giants, who have simply been thrashing everyone. Today, they got the Cowboys, a recent thrashee, in Jersey, with a new head coach and a second string QB at the controls. Lo and behold, Big Blue came up flat and lost badly to the 1-7 Cowboys. Go figure. And people wonder why I don't gamble on this sport.

Then there is the sad story of Chad Pennington. In the latter stages of an injury plagued career, Chad lost his starting job at Miami in pre-season only to get a chance today because of injury to Miami's starter. So what happens? Chad's chronically bad shoulder gets hurt early in the game and out he goes. Time to retire, if you ask me. Chad will be a better QB coach than he was a player.

Then there are the Lions, who thoroughly outplayed the Jets in an overtime loss last week, visiting winless Buffalo today. Both of these teams are much better than their records, yet you would think that the Lions would be able to continue their improvement against an arguably weaker opponent. But no, the Bills break their virgin, and the Lions extend their road losing streak to something like 25 games.

On any given Sunday...there will be a dozen or so games.

David Axelrod was his usual stubborn self on this morning's news shows, and was in good partisan form considering he only has about six months of this thankless job before he returns to Chicago to manage the Obama re-election effort. He'll be glad he has his reknowned thick skin for that one. It was almost comical to observe the administration's tortured efforts to somehow spin the President's G-20 performance last week into something positive. It brought to mind that JFK soundbite from the
1960 debates when he hammered the Eisenhower administration for allowing "American prestige to reach an all-time low." if that was even remotely close to the truth, it must be said that Obama has somehow surpassed even that low point. However, he will have to share that "achievement" with Ben Bernanke, to be fair, since the Fed is supposed to be independent.

Most of what the G-19 was complaining about really amounts to the effect on the dollar of the Fed's quantitative easing (QE2) and other tactics to pump liquidity into the economy. Of course, everyone else seems to get that the Fed is pushing on a string, that there is already plenty of liquidity in our banks and corporations, it is simply that businesses do not believe in this recovery because of the regulatory displacement caused by the health reform law and the financial reform law. Hence, the lack of impetus to invest, hire and take risk. The ultimate impacts of QE2 will be a much weaker dollar and inflation. It is laughable to hear Obama and his cronies explain that they are worried about deflation. Why didn't Obama make Bob Prechter his chief economic advisor if he is really worried about that? He's about the only guy I know who still believes deflation is an immediate threat.

This argument has been going on for a long time but apparently it bears repeating. When prices increase along the supply/demand curve, that is not inflation, that is market dynamics. When the supply demand curve itself shifts up, that could be inflation. Infaltion has one cause - too much money chasing too little input (goods, commodity raw materials, employees, etc.) When output is high and when supply excesses and shortages occur, we can get price changes along the supply demand curve, but those are neither inflationary nor deflationary. Prices retreated during the recession, as they often do, because effective demand was temporarily suppressed and inventories (of houses for example) got too high. That causes output to fall until we get back to equilibrium. But when the Fed keeps printing money to buy Federal debt, we are creating real inflation and that is what will happen. It may not occur immediately, but it will be cranked in inevitably. If you were around and watching, this is what happened during the Carter Administration when Federal debt was monetized by the Fed.

Dems like some inflation. They like a weaker dollar. It helps their base pay off their debts. Their base doesn't save much. Ultimately, inflation is a tax that hurts everyone and then, the bulk of the public demands a stronger dollar and that inflation be cooled. That's when a Paul Volcker and the Friedman school of economists get called in. The damage caused by this inflation will not be restricted to the U.S. since our currency is the world's de facto fiat money. That is why the rest of the G-20 is pissed at us, and insulted that Mr. Obama seems to have slept through his entire Econ 101 course.


Progressives are also in a lather this week because they believe that Obama is going to cave on all their policy prescriptions, most immediately on the extention of the current tax rates. Wouldst it were true! I think what will happen is that we are about to watch our politicians play a game of "taxation chicken." For once, I do agree that D's must blink first.

The most logical action by the lame duck session would be a compromise to extend all of the current rates for two years, effectively kicking the can to whoever gets elected president in 2012. However, D's will try for a two year extension of the upper income rates and an indefinite extension of the other rates. This would set up a 2012 dynamic where if nothing further happened, the upper income rates could expire, without the ability for R's to hold the middle and lower income rates "hostage."

R's should, and will, of course resist any such decoupling. If that becomes the D's best and final offer, R's should call their bluff and allow all the current rates to expire. The public will be apoplectic about a Congress so stupid as to raise taxes early in such a weak recovery. When the new Congress gets to town, R's and moderate D's (including the many red and purple state Senators defending their seats in 2012) will probably quickly pass the two year extension of all the rates. That will put the chicken ball in Obama's court, and he will have to deal with his progressive base if he decides to forgo the veto.

I still see it that way (the last post included a first draft of this scenario) and it will be fun to watch the academic progressives in their hour of chagrin.

On Monday, we bought 20 more shares of the TIP ETF (TIP) at 111.69 for the IRA. Then on Thursday, we sold 100 shares of Carmax (KMX) out of the IRA for 33.44. These were purchased on 1/20/09, the depth of the downturn, for 7.99. Sometimes, a little courage does get you a 22 month quad. Other times it gets you a Blockbuster. On Friday, we bought 300 more shares of Gencor (GENC) for the IRA at 7.21, a value buy.

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