Sunday, July 31, 2011
The Eleventh Hour Non-Surprise
As expected, at the eleventh hour, we seem to be on the verge of a debt limit agreement, no thanks to the President and the Treasury Secretary who have been nothing but relentless in politicizing the issue because they believe it inures to their re-elect benefit. Of course, they are not entirely to blame - the debt limit has always been a political football. Both parties have made it difficult for the other party's administration to raise the limit in recent years even though everyone knows it must be raised. In fact, Obama himself famously voted against raising the limit in 2006.
What is different this time is that after the Bush administration allowed the deficit to balloon in 2006-2008, due to the war, the failure to veto a single spending bill, the Medicare part D, and finally the financial crisis, (before anyone even starts to complain about the tax cut, let's remember that it juiced revenues until the 2008-9 recession hit) Obama doubled the deficit in his first year, accelerating the red ink above and beyond anything his predecessor ever contemplated. In fact, while GWB ineffectually rued the expanding deficits, Obama seemed to embrace them as a Keynesian solution to the recession. In that respect, his stimulus spending has failed totally.
On top of that, the looming expenditures attaching to the ill-conceived Affordable Care Act (a misnomer if ever there was one) threatens to accelerate deficits to yet another level. So true conservatives and Tea Party types view the raising of the debt limit as another blank check for Congress to write, an offer it never refuses. They have been determined to extract true deficit control in exchange for the debt limit increase this time. Some of their ideas make a lot of sense, the requirement for specific cuts over ten years at least equal to the debt limit increase, possible repeal of CLASS, and tax reform. Others - the balanced budget amendment for example - not so much.
In any event, according to my friend David Espo's wire service report released within the last hour by the AP, the deal contemplates two stages with a commission determining the terms of the second stage. In the first stage, entitlements and tax rates both escape change. So the deal is likely to have elements of each of the Reid, McConnell and Boehner proposals. The leaders will be trying to round up the votes tomorrow, and I think they will succeed, though both Tea Partiers and liberals will be hard to rein in since they will find objectionable provisions. But I think voters will demand that the measure pass.
The political fallout from all this is hard to predict, but I see no reason to change my view that the President has been badly hurt and now has a pretty much indelible image as a free spender and a class warrior, neither of which will help him in 2012. Worse, he looked ineffectual. I think the Tea Party folks will benefit since they seemed to be the ones really taking our fiscal mess seriously. I expect the way has been paved for DeMint to replace McConnell at some point and Cantor to replace Boehner.
As for GOP candidates, I guess Bachmann may be helped a little, but I don't expect her to be the nominee anyway. I didn't think any of the prospective GOP candidates, including Romney, provided useful input. I guess this means that the option to draft one of the attractive sitting governors is still on the table for the GOP.
As for the country, the debt limit debate was important in that the terms of debate have been reset. But to get things working, we've got a lot of changes to make. These include repeal of the Nixon era law against impoundment, repeal of PPACA, repeal of much of Dodd Frank, resetting regulatory agencies throughout the federal government, wrapping up the two wars (what are we still doing in Afghanistan anyway, now that bin Laden is dead?), approval of the three (at least) free trade agreements with Columbia, Panama and South Korea, and very importantly, tax reform. The Fed will have a difficult job in making the necessary interest rate increases without tipping the budget into a death spiral. These will be challenging times indeed.
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I have to admit, I don't really know what to make of the News Corp hacking scandal. Apparently this has been normal operating procedure among the UK tabloids, and that includes the corruption of police and political figures. It is amusing the way the left pounced on the Murdochs during their hours of public agony.
For me, this seems another clear case where criminal activity has taken place, but not the crime of the century and the reaction seems disproportionate. That said, the press, like the academic world, seems to have overreached concerning their frequent assertions of special privilege. No problem seeing them get recentered a little.
------------------------------------------------------------------------------
The baseball trading deadline was today, and the sport's economics being what they are, you had the usual flurry of deals where contending teams shored up lineups, obtaining front line players in contract walk years from non-contending teams in exchange for unproven prospects. When economics and players contracts dictate personnel moves, fantasy players and other fanatics are amused, but I have to believe kids are turned off. This is why baseball's fan base is at risk and one reason why so many kids play lacrosse and soccer in preference to baseball. It is difficult for kids to be loyal to teams and players when trades are made for economic reasons to the detriment of team performance.
That said, New Yorkers are enjoying the season with both teams exceeding expectations and the Yankees looking forward to their probable post-season appearance. Interestingly, the races for the division leads are more in doubt than the wild cards. It just makes you wonder why Bud is so sure an additional wild card is the answer. I would prefer to see the American League add two teams, perhaps in San Juan and in Mexico somewhere (or Dominican Republic) and then we could have 4 eight team divisions. If Bud wants to include the second place teams in the post season, I could live with that.
------------------------------------------------------------------------------
Friday night, the Birdland Big Band was in top form before the usual full house, and they reprised a rare treat - the West Side Story medley that launched the band on its successful weekly gig. They played it in lieu of their normal finishing selection, also entitled Birdland, but no one seemed to mind. Most of us had forgotten just how great the medley arrangement is, played by New York's top band in its own house.
--------------------------------------------------------------------------------
The Norwegian horror show, reminiscent of Oklahoma City, should bring to mind that with bin Laden dead and Al Queda apparently in disarray, this is a good time for us to pull back, certainly from Afghanistan, which would save some money, and perhaps reverse the momentum toward ill will in the world. We need to modulate our activity in Iraq too, but there is grave concern (and there should be more concern in the Administration) about increasing Iranian activity in the country.
It is clear that not enough of these homicidal nuts are on the proper medication.
In fact, hospitals around the country are reporting shortages of all kinds of drugs
and it is impacting patients. Maybe it's time for us to reconsider the laws governing patent protection and whether such protection needs to be extended or decreased. As for the FDA, I would like to see their activities reviewed top to bottom.
We are not being well served by federal regulators these days, and that's a big reason why private investment is slow.
-------------------------------------------------------------------------------
We sold 100 shares of XCEL Energy (XEL) on 7/25 at 24.38. We paid 15.78 for these shares on 5/17/04. Then we switched to the buy side, as the market has been on the defensive for a while. We bought 700 more shares of FSI International (FSII) on 7/25for 2.97, a value buy but one you should not try at home, since this is the very definition of a speculative stock. On 7/27, we added 100 shares of International Data (IDT) for 24.97. Then on 7/29, staring right into the face of the phony default crisis, we bought 20 shares of the Inflation Protected Treasury ETF (TIP) at 113.16. The coming inflation will not be phony, I'm afraid.
What is different this time is that after the Bush administration allowed the deficit to balloon in 2006-2008, due to the war, the failure to veto a single spending bill, the Medicare part D, and finally the financial crisis, (before anyone even starts to complain about the tax cut, let's remember that it juiced revenues until the 2008-9 recession hit) Obama doubled the deficit in his first year, accelerating the red ink above and beyond anything his predecessor ever contemplated. In fact, while GWB ineffectually rued the expanding deficits, Obama seemed to embrace them as a Keynesian solution to the recession. In that respect, his stimulus spending has failed totally.
On top of that, the looming expenditures attaching to the ill-conceived Affordable Care Act (a misnomer if ever there was one) threatens to accelerate deficits to yet another level. So true conservatives and Tea Party types view the raising of the debt limit as another blank check for Congress to write, an offer it never refuses. They have been determined to extract true deficit control in exchange for the debt limit increase this time. Some of their ideas make a lot of sense, the requirement for specific cuts over ten years at least equal to the debt limit increase, possible repeal of CLASS, and tax reform. Others - the balanced budget amendment for example - not so much.
In any event, according to my friend David Espo's wire service report released within the last hour by the AP, the deal contemplates two stages with a commission determining the terms of the second stage. In the first stage, entitlements and tax rates both escape change. So the deal is likely to have elements of each of the Reid, McConnell and Boehner proposals. The leaders will be trying to round up the votes tomorrow, and I think they will succeed, though both Tea Partiers and liberals will be hard to rein in since they will find objectionable provisions. But I think voters will demand that the measure pass.
The political fallout from all this is hard to predict, but I see no reason to change my view that the President has been badly hurt and now has a pretty much indelible image as a free spender and a class warrior, neither of which will help him in 2012. Worse, he looked ineffectual. I think the Tea Party folks will benefit since they seemed to be the ones really taking our fiscal mess seriously. I expect the way has been paved for DeMint to replace McConnell at some point and Cantor to replace Boehner.
As for GOP candidates, I guess Bachmann may be helped a little, but I don't expect her to be the nominee anyway. I didn't think any of the prospective GOP candidates, including Romney, provided useful input. I guess this means that the option to draft one of the attractive sitting governors is still on the table for the GOP.
As for the country, the debt limit debate was important in that the terms of debate have been reset. But to get things working, we've got a lot of changes to make. These include repeal of the Nixon era law against impoundment, repeal of PPACA, repeal of much of Dodd Frank, resetting regulatory agencies throughout the federal government, wrapping up the two wars (what are we still doing in Afghanistan anyway, now that bin Laden is dead?), approval of the three (at least) free trade agreements with Columbia, Panama and South Korea, and very importantly, tax reform. The Fed will have a difficult job in making the necessary interest rate increases without tipping the budget into a death spiral. These will be challenging times indeed.
------------------------------------------------------------------------------
I have to admit, I don't really know what to make of the News Corp hacking scandal. Apparently this has been normal operating procedure among the UK tabloids, and that includes the corruption of police and political figures. It is amusing the way the left pounced on the Murdochs during their hours of public agony.
For me, this seems another clear case where criminal activity has taken place, but not the crime of the century and the reaction seems disproportionate. That said, the press, like the academic world, seems to have overreached concerning their frequent assertions of special privilege. No problem seeing them get recentered a little.
------------------------------------------------------------------------------
The baseball trading deadline was today, and the sport's economics being what they are, you had the usual flurry of deals where contending teams shored up lineups, obtaining front line players in contract walk years from non-contending teams in exchange for unproven prospects. When economics and players contracts dictate personnel moves, fantasy players and other fanatics are amused, but I have to believe kids are turned off. This is why baseball's fan base is at risk and one reason why so many kids play lacrosse and soccer in preference to baseball. It is difficult for kids to be loyal to teams and players when trades are made for economic reasons to the detriment of team performance.
That said, New Yorkers are enjoying the season with both teams exceeding expectations and the Yankees looking forward to their probable post-season appearance. Interestingly, the races for the division leads are more in doubt than the wild cards. It just makes you wonder why Bud is so sure an additional wild card is the answer. I would prefer to see the American League add two teams, perhaps in San Juan and in Mexico somewhere (or Dominican Republic) and then we could have 4 eight team divisions. If Bud wants to include the second place teams in the post season, I could live with that.
------------------------------------------------------------------------------
Friday night, the Birdland Big Band was in top form before the usual full house, and they reprised a rare treat - the West Side Story medley that launched the band on its successful weekly gig. They played it in lieu of their normal finishing selection, also entitled Birdland, but no one seemed to mind. Most of us had forgotten just how great the medley arrangement is, played by New York's top band in its own house.
--------------------------------------------------------------------------------
The Norwegian horror show, reminiscent of Oklahoma City, should bring to mind that with bin Laden dead and Al Queda apparently in disarray, this is a good time for us to pull back, certainly from Afghanistan, which would save some money, and perhaps reverse the momentum toward ill will in the world. We need to modulate our activity in Iraq too, but there is grave concern (and there should be more concern in the Administration) about increasing Iranian activity in the country.
It is clear that not enough of these homicidal nuts are on the proper medication.
In fact, hospitals around the country are reporting shortages of all kinds of drugs
and it is impacting patients. Maybe it's time for us to reconsider the laws governing patent protection and whether such protection needs to be extended or decreased. As for the FDA, I would like to see their activities reviewed top to bottom.
We are not being well served by federal regulators these days, and that's a big reason why private investment is slow.
-------------------------------------------------------------------------------
We sold 100 shares of XCEL Energy (XEL) on 7/25 at 24.38. We paid 15.78 for these shares on 5/17/04. Then we switched to the buy side, as the market has been on the defensive for a while. We bought 700 more shares of FSI International (FSII) on 7/25for 2.97, a value buy but one you should not try at home, since this is the very definition of a speculative stock. On 7/27, we added 100 shares of International Data (IDT) for 24.97. Then on 7/29, staring right into the face of the phony default crisis, we bought 20 shares of the Inflation Protected Treasury ETF (TIP) at 113.16. The coming inflation will not be phony, I'm afraid.
