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Monday, May 27, 2013

 

Scandalitis

Second term scandals have compromised every re-elected President since Truman.  Whatever the reason, it seems that no administration thinks short cuts and questionable tactics will get them in trouble.  Believing they can manage any issue that comes up, the Presidents' advisors have left them vulnerable to the consequences of their flawed, and sometimes illegal activities.  Often, this comes about when the folks in charge and their supporters come to believe that it's so important for them to stay in power (and so important to disable their opponents) that any means are justified.  If you want to see this attitude portrayed on a daily basis, go to any liberal blog.

This administration wasted no time getting knee deep in the muck.  In fact, the re-election drive seemed to disable and short circuit whatever ethical groundings they had.  We already have three fairly clear violations of the smell test, if not the law and the constitution.  The first is the Bhengazi mess, a clear instance of trying to manage the bad news, but worse, position the President's opposing candidate as the liar when they knew full well they were lying and he (Romney) was telling the truth.  That this strategem was successful as an election tactic makes the discovery of the crime all the more damaging for the President, while making the media less credible.  Though ignored by his partisan faithful, they will find that for those opposed to Mr. Obama, this issue will simply not go away.  Interestingly, it has also clouded the potential Clinton 2016 candidacy.

Scandal number 2 concerns the IRS targeting of Conservative non-profit issue groups, and the different criteria applied to their applications for tax-free status versus groups to the left.  The fact that this is in the long tradition of politically motivated IRS abuse does not make the issue less serious.  It simply makes one recall the Nixon era IRS abuses that were also part of an arrogant White House's desire to punish its ( perceived) enemies, or at best, look the other way.  This also had its impact on the election (since contributors held up on their gifts pending delayed IRS decisions).  The parallel to the Nixon re-election motivated scandals and cover up is fairly striking.

Scandal number 3 involves the subpoena to obtain Associated Press records aimed at uncovering sources for leaks and other perceived negative reporting.  The AP prides itself on objective reporting (though many of us doubt its credentials along that line); this is one the media takes more personally than the other scandals where they were willing to help the Administration, by downplaying them or providing justification.   But here, their own ox is being gored, and they don't like it one bit.  So this scandal may have the longest legs.

The well known political commentator Charlie Cook recently wrote that because the Obama favorability poll numbers haven't moved much, and because about 50% or a little more of the public is untroubled by these issues, it demonstrates that these issues will not be winners for Republicans.  He advises GOP leaders to get off the scandals and go about "fixing" their own party.  With all due respect to Charlie, and acknowledging that he could be right about the politics (since as Romney famously said, 50% of the voters will line up with Dems no matter what since they pay no taxes, and many are on the receiving end of various entitlements), he is dead wrong about what conservatives and Republicans "should" do. 

People enter politics to achieve policy goals.  Yes, you want to win elections and  influence laws and regulations, but dropping or changing your policy objectives to poll better defeats the whole and essential purpose.  Better to lose elections while making your point - see Barry Goldwater, circa 1964.  Yes he got slaughtered in the 1964 election, with consequences that caused lasting damage (e.g. the Great Society) but he also set the stage for Ronald Reagan, who in turn made it possible for Newt Gingrich to succeed to the Speakership.

As we have often said, despite its failures to control spending domestically, the much maligned George W. Bush Presidency made its points too, and will be well remembered for them.  Remember the "Axis of Evil" - Iraq, Iran, and North Korea?  Does anyone now still think that the latter two are nothing to worry about?  As for Iraq, who knows what we would be dealing with had Saddam and his hoodlums been left in power?  What we  do know is that the premature withdrawal executed by Obama has left that country sadly back in the throes of daily and deadly violence.

So my opinion is that you couldn't be more wrong Charlie.  Yours is the opinion of someone who has observed politics for too long as if it were s spectator sport and not a real life test of policy differences.
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Meanwhile, Congressional leaders are feeling relieved that a couple of good months of tax collections has put off the moment when the debt limit has to be raised again by a few months, which is the next time serious deficit cutters get to use their leverage.  I wonder if some are naively thinking that the tax increases that took effect last January are having their impact.  If they are, they are completely misjudging what is happening, which is likely to cause very poor economic policy decisions.

The good news came about not because there are now higher tax rates, but because for the 2012 tax year returns, filed in April, taxpayers received fewer and smaller refunds, and many owed large amounts of taxes.  This happened even though (in fact, because) tax rates in 2012 did not go up.  What happened is that individuals and businesses accelerated income that would normally have hit in 2013 into 2012 to avoid whatever increased tax rates were on the way.  The most obvious of these actions were the special dividends and accelerated dividends publicly owned corporations paid to shareholders before year end.  Also, individual shareholders booked capital gains but deferred their capital losses into 2013 - precisely the opposite of what the normal year end tax strategy would be.  This has resulted in what many conservatives and supply siders predicted (including this one) - a massive tax haul by the federal govenment in the first half of 2013, to be followed by  tax famine over the next twelve months.  When that famine hits, and the budget red ink starts to pile higher than ever, it will be interesting to hear what the Dems want to do and see what the Federal Reserve does.

By the way, a fair amount of the blame  for what's going on should be assigned to the Fed, just as it deserved more of the blame for the economic fiasco of 2008 (which Dems were only too happy to assign to the Bush Administration).  The Fed's low interest policy is enriching banks at the expense of creditors, savers, pensioners, and fixed income investors (like life insurers). The Fed is blowing up a stock market bubble, which too few individuals have participated in.  For those who have, their IRA's and 401K's should be restored.  Those getting to the party late will be slaughtered as per usual.  Meanwhile, the seeds for a terrible inflation are being sewn.  The Fed keeps saying that we are under its 2% inflation target, and they are concerned about that.  That begs a bunch of questions.  Why is there a 2% inflation target, or any inflation target?  Shouldn't the Fed try to keep a more stable dollar?  What makes the Fed think it can control inflation so securely anyway since they never have before?   And who is measuring this inflation and how?  My wife tells me everything is going up, and that's what I see too. 

As for the economy,  it trudges along.  The job numbers look better but they are still bad in the context of recovery.  Clearly, business is concerned about adding people in advance of the implementation of the Affordable? Care Act. That monstrosity of ill conceived legislation now appears like a train wreck to even many of its advocates.  The Administration and the HHS will go down to the wire to implement on schedule, but each passing day and headline make it more obvious that there needs to be a delay, perhaps of at least a year.  Already, the program to support the uninsurables has run out of funds.  What a mess, but hardly a surprise.  Why would we expect the gang that can't shoot straight to successfully transform one-sixth of the economy almost overnight?
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So, we saw Jane Monheit at Birdland on Firiday night and she turned in a fine show with many selections from her newest album.  The highlight had to be a Beatles cover tying together "Golden Slumbers" with "The Long and Winding Road."  Another great cover was the Buffy St Marie classic, "Until Its Time for you to Go."  The only downside was that the show was in direct competition with another of our favorites, Bria Skonberg, headlining at the Carlisle.  We'll look for other chances to see Bria's act.

Tonight, it's off to City Field to see Mets - Yanks.  The Mets have been playing horribly; really, when does the nanager finally assume some responsibility for this level of play?  As bad as they have been, the Yanks have overachieved, thanks to excellent pitching, both starting and out of the bullpen.  The oldest adage in baseball says that good pitching beats good hitting.  And certainly it beats no hitting, which is what my beloved Metso's have been  supplying.
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As per normal, we have been selling into this rally.  On May 6, we sold 100 shares of Conrad (CNRD) at 27.  We paid 1.30 on 4/26/05.  Love that Tulane portfolio.  On May 7, we sold 400 shares of USA Trucking (USAK) at 5.90.  We paid 5.84 on 11/18/02.  On 5/8, we sold 50 shares of Thermo Fisher Scientific (TMO) at 83.93.  We paid 19.88 on 1/13/03.  On 5/13, we sold 200 shares of Boyd Gaming (BYD) for 13.88.  We paid 10.98 for 100 on 7/7/08, and 9.30 for 100 on 7/21/08.  On 5/14, we sold 200 shares of IDT at 16.  We paid 9.35 on 12/21/11.  On 5/16, we sold 100 shares of Lowes (LOW) at 43.16.  We paid 22.92 on 2/20/08 when it looked like no one would ever remodel their home.  Finally, we bought something on 5/17, Main St. Capital (MAIN), 100 shares at 31.12.  This is a brand new name that full service broker brought to our attention.  Then on 5/20, we sold 100 shares of AAON at 31.69.  We paid 9.71 on 9/25/06.      On 5/22, we switched to the buy side, paying 23.12 for 100 shares of Protective Life Preferred (PLP).  And on 5/24, we bought 200 shares of Endesa (ENI) at 17.48.

Comments:
Exceptional clarity on the scandals. Thank you.
 
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