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Tuesday, November 20, 2012


Post Election Blues

We certainly called the election wrong, relying on the Rasmussen poll which in this case, was less accurate than the WSJ/Marist poll, that's for sure.  Rasmussen has outperformed in recent years by correctly gauging turnout.  However, many of the polls, but especially Rasmussen, underestimated the ability of Dems to get their voters out, and that was mainly the difference, along with the GOP's blind spot with Hispanics really coming home to roost.  Quite correctly, GOP leaders are reassessing their prospects for the future, and the image of the party may be in need of a makeover.  It is clear to me that while Republican emphasis on social issues has helped the party dominate in statehouses (including 30 or more incumbent governors), that emphasis is killing the party nationally.  It is making it all but impossible to hold its own with female and young voters.  This is a poor position for the long term.

This all begs the question about what's going to happen to PPACA and the fiscal cliff.  Though Obama's victory was more decisive than expected, especially in terms of the electoral college, it is hardly the stuff of mandates.  The Dems attempt to spin the victory as such is an overreach.  However, Republicans, for the good of both the country and the party, need to approach these issues with responsibility and consideration for their voters and potential voters.

With respect to PPACA, many governors have come to the conclusion that it is too expensive for their states to have a state run exchange and to expand medicaid.  I'm ok with that position, as long as they recognize that PPACA is going to be implemented anyway.  That's the political reality of the Democratic controlled Senate and another Obama term.

On taxes, I would love to see a compromise that does away with the silly tax rate (15%) for hedge fund managers and raises tax rates for those at $1 million of income or more (rather than $250,000).  This would allow the GOP to fulfill its commitment to small business (i.e. subchapter S corporations).  I would like to see the payroll tax stimulus (that stimulated nothing) go by the boards.  That plus the PPACA tax should be enough on the revenue side, pending a revival of the economy, although curtailing certain deductions might be worth looking at.  I would like to see more done on the spending side than on the revenue side.

Another alternative would be to bring back Bowles Simpson for a second look.  Ryan held out for entitlement reductions the first time, and I guess that was a bridge too far for Dems then.  But now everyone except the most bazaar progressives recognizes that entitlements have to be dealt with, so lets implement Bowles Simpson as a first step, then get on with the entitlement fixes later.
However it happens, we have to do something about the fiscal situation before we reach the tipping point, and it's possible it is already too late.  At $16 trillion and counting, the deficit is already at a point where restoration of reasonable interest rates will burden the federal government with interest payments that will be unmanageable, and will force huge budget cuts anyway.  If interest on Treasuries averaged even 3%, we are looking at a half trillion dollar interest burden already.  And make no mistake - this endless period of abnormally low interest rates the Fed has induced is killing all kinds of industries and population blocks: S&L's, insurance companies, pension funds, seniors and others on fixed income, college endowments, the list goes on and on.  If the deficit is allowed to continue to grow by a trillion per year, there will be no way out of the low interest scenario, and we will be in a death spiral, the result of which must be inflation and socialism.  How can people who will not face into this and will not allow meaningful cuts in any of the programs we can't afford be called anything but socialists?  Obama, Geithner, and  Bernanke will go down in history as the stooges who ended the 225 year run of our constitutional republic's prosperity.

But there is no way to hold a civil conversation with these people.  I just read a column in Newsday (Nov. 19) authored by one Bob Keeler called Stop the Reckless Calls for Impeachment.  Aside from the fact that I haven't heard any such calls, the column is just loaded with whoppers fast becoming progressive orthodoxy.  Ostensibly about Bengazi and the hearings at the House Committee on Foreign Affairs, the column lauds retiring (thank God) congressman Gary Ackerman (D-NY) for pulling no punches.  His rant, aimed at GOP leadership: If you want to know who is responsible in this town, buy yourself a mirror."  He claimed that the Administration requested $440 million more than it was authorized for security, and for that, I guess Ackerman feels House leadership was to blame.  But how can that be?  The Senate hasn't passed a budget in years, and the Obama budget failed to get a single vote from either party.  So there has been no budget, and no cuts either.  Do Ackerman and Keeler seriously suggest that out of a trillion dollar deficit, the Administration was unable to devote the $440 million that they are saying would have somehow provided adequate security in Bengazi?

Keeler's also raises the red herring from the campaign, namely "as events in Bengazi unfolded, Mitt Romney jumped in with premature and off-the-point criticism of President Obama adding an element of farce to a national tragedy."  But the farce was that Romney's supposedly irresponsible comments proved to be accurate in their depiction of the events, while the Administration's tortured explanation about offensive films turned out to be completely inaccurate and political.  In retrospect, the handling of the Bengazi and Petraeus affairs, as well as the Iranian attack on our drone, causing all of that to come out AFTER election day, is suspiciously political.  The Dems are excellent at blunting criticism with ad hominem rejoinders, and that's what they did to Romney, rather than actually discuss the issue or why they had it so wrong.  Since the media is quick to pile on and legitimize Dems' attacks, the GOP faces a difficult communications challenge that they have to figure out how to counter.

As for jazz, we are looking forward to December when Phil Woods, Roy Haynes, Freddie Cole, and the Birdland Big Band all bring their shows to Birdland.  Wander in and chances are pretty reasonable you'll find me there.  It's going to be a great month of music so come, and bring your credit cards.  Monday night, I'm off to National Harbor for another long stay with my favorite insurance regulators.  Hopefully, we'll find an Irish Pub or two (maybe Murphy's?) in Old Town Alexandria.  

We didn't post any stock transactions last time, so there are a fair number to catch up on, and per the formula, they are all buys, after collecting some takeover proceeds and then watching the market tank following the poor electoral showing by business friendly candidates.  On 10/24, we bought 50 shares of NVE Corp (NVEC) at 52.30.  On 11/1, we bought 20 TIPS (TIP) at 122.17.  On 11/6, we bought 100 shares of Gulf Island (GIFI), a value buy from the Tulane portfolio, at 22.09.  On 11/6, we paid 5.50 each for 400 shares of struggling Boyd Gaming (BYD), a zero buy.  Then on 11/7, we bought 100 shares of San Diego Power preferred (SDO.PR.A) at 25.  On 11/8, we bought 200 shares of Graham Corp (GHM) for 17.53, a value buy, and 700 shares of slumping USA Trucking (USAK) for 3.05.  Then on 11/9, we bought 100 shares of Suntrust preferred (STI.PR.A) at 23.98.  On 11/12, we bought 300 shares of First Niagara (FNFG) for the IRA and still live in hope.  The price was 7.57.  Yesterday, back from Florida, we bought 50 shares of Dupont (DD) at 42.56 and 15 shares of the Gold ETF (GLD) for 167.74.  No question, we are buying low.  Lets see if we get to sell any of these dogs high.

In case anyone didn't notice, as soon as the President was re-elected, savvy traders sold off, collecting their capital gains while tax rates are still low.  This was predictable, and in fact, as per the formula, we had been selling quite a bit before the slump hit.  Now we see companies issuing large special dividends to squeeze those in before year end.  This is why tax changes, especially when deferred or signaled before they are effective , never result in the collections that are forecast.  Dems, believing in static analysis, for some reason refuse to believe that taxpayers will act rationally in the face of tax changes.  And that's why they will never accept the true realities of supply side solutions and dynamic analysis.   

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