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Sunday, July 13, 2014

 

Obama's numbers in free fall


This comes to you from Boston, MA., following a very busy period that has seen few if any posts, for which I apologize profusely.  It certainly hasn't been for lack of material.

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The President's media friends are soft-pedaling it but Obama's numbers are in Bush 43 territory or worse.  But why shouldn't they be?  Is anything really going right with this Administration?  Even the better jobs numbers reflect part - time and low wage jobs, with little or no move by the long term unemployed to rejoin the work force.  But most of those have learned that they can make it without traditional jobs, living on unemployment, food stamps, subsidized or free health insurance and taking off the books assignments as they come.  The marginal benefit of having a regular full time job is not worth the downsides, so who can blame folks for making a perfectly rational choice.  But keep that in mind the next time you are asked whether you favor yet another extension of unemployment benefits.
As for increasing the minimum wage, I don't think that's a fix for much of anything.

Meanwhile, the Administration's failures are all too obvious. Its policies on the Mid-East, Russia and Ukraine, immigration, green energy and climate, etc. have all been shown to be fruitless at best, misguided at worst.  It has had no answer on the Benghazi and IRS scandals, where they appear more culpable by the day.  The Keystone pipeline project remains mired in progressive political hell, with Canada now fully prepared to sell its oil in Asia.   And recent Supreme Court decisions have indicated impeachable offenses in the areas of recess appointments and Agency discretion (notably, the EPA) where the Administration has ignored the rule of law and arguably violated its Constitutional responsibilities.

Not that the Republicans have any desire to start an impeachment round, having learned that it backfires when the President is a media darling, a la Bill Clinton.  Besides, the GOP has its own problems, failing to articulate a clear solution on immigration, and seeing its fracking allies tied to Oklahoma earthquake activity.  The GOP does look pretty good for the 2014 elections, but has yet to see a compelling candidate emerge for 2016.  I don't believe Senator Paul is a serious candidate, and if I had to guess, I would say the top two right now are Rep. Ryan and Gov. Kasich.  But it's very early for all that.
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On a happier note, I did get to see Counting Crows in Central Park, and that is a great summer concert venue.  Crows have a new album in the works, to be released in early September.
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The interminable easy money policy by the Fed has been criticized here before.  We think near zero interest rates have been doing more harm than good for some time.  Of course, we start from the premise that the dual mandate from Congress (minimize unemployment and keep the dollar stable) is a mistake to begin with, since we believe the Fed's job should be to keep the dollar stable.   In fact, the Fed has made matters much worse by targeting two per cent annual inflation as its definition of a stable dollar.  That is anything but since the dollar's value will be halved every 36 years at that inflation rate.  The Fed has now built that inflation expectation into the economy, and the statistics show that higher inflation is already occurring, though its effects are spotty so far.  But that's why I continue to buy gold and tips.

The WSJ printed an excerpt from an interview the Daily Princetonian recently conducted with former Fed Chairman Paul Volcker (who broke the back of the severe inflation of the 1970's).  Here are excerpts from the excerpts:

DP: Does high inflation matter as long as it's expected?
PV: It sure does,,,The responsibility of the government is to have a stable currency.  This kind of stuff that you're being taught at Princeton disturbs me.  Your teachers must be telling you that if you've got expected inflation, then everybody adjusts and then its OK.  Is that what they're telling you?  Where did the question come from?
DP: and to get back to the central banking a little bit, given the trade-off between inflation and unemployment-
PV: I don't believe that.  That's my answer to that question.  That is a scenario and a delusion, which economists have gotten Nobel Prizes twenty years ago to disprove.
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So what did you think of the World Cup?  Clearly New Yorkers were heavily into it and I imagine it was pretty much the same around the country.  I guess lots of people will watch tomorrow's final between Germany and Argentina.  I kind of expect Germany to win.  By the way, this final is more or less a Jewish nightmare, since Nazi hunters generally had to track their targets down in, you guessed it, Argentina.
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I hope you are watching 24, back to its old riveting self, thanks largely to a great, if somewhat familiar story line compressed into fewer episodes.  It should also be pointed out that the brilliance of William Devane as the President has carried the show this season.  Also, if somehow you missed True Detective,  HBO is rerunning the series and I believe for binge watchers, all six episodes are available on demand.
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Back home after a very pleasant three days in Boston, where the weather was great and there were lots of can't miss food options.  But still did not get to Fenway.  Next time, maybe.
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One reliable way for me to attract critical comments is to go off on my rant about the climate control freaks, who are panicked because scientists' models show that man's productive efforts are changing the climate (presumably for the worse?).  My objection is that the models do not nearly replicate actual earth conditions so in the absence of direct evidence and controlled experiments, no one can really say whether these theories are correct or not.  That the earth has been in a warming trend for a century or so is not in dispute (though it appears that trend has not continued for the last decade or so), only its cause.  That more and more articles get published supporting my skeptical position just feeds my obsession (and drives the true believers nuts).

So naturally it warmed the cockels of my heart ("who needs hot cockels" - Woody Allen) to read Confessions of a Computer Modeler by Robert J. Caprara in a recent WSJ op ed section.  Here are some excerpts:
After earning a master's degree in environmental engineering in 1982...my first job was as a consultant to the EPA.  I was hired to build a model to assess the impact of its Construction Grants Program...The computer model was huge - it analyzed every river, sewer treatment plant and drinking water intake in the country...The model showed huge gains from the program (in) water quality...By the late 1980's, however, any gains from upgrading sewer treatments would be offset by the additional pollution load coming from people who moved from on-site septic tanks to public sewers, which dump the waste into rivers.  Basically, the model said we had hit the point of diminishing returns. 
When I presented the results to the EPA official...he said that I should go back and sharpen my pencil.  I tweaked coefficients and recalibrated data.  But when I reran everything the numbers didn't change much.  He told me to run the numbers again.  After three iterations I finally blurted out, "What number are you looking for?"  He didn't miss a beat; he told me that he needed to show $2 billion of benefits to get the program renewed.  I finally turned enough knobs to get the answer he wanted and everyone was happy. 
I...assume he understood the inherent inaccuracies of these types of models.  There are no exact values for the coefficients in models such as these.  There are only ranges of potential values.  By moving a bunch of these parameters to one side or the other you can usually get very different results, often in line with your initial beliefs.  Surely the scientific community wouldn't succomb to these pressures like us money - grabbing consultants.  Aren't they laboring for knowledge instead of profit?  If you believe that, boy do I have a computer model to sell you.
The academic community competes for grants, tenure and recognition; consultants compete for clients.  And...many professors moonlight as consultants, authors, talking heads, etc.  I am not saying this is a bad thing.  The legal system is adversarial and for the most part functions well.  The same is true for science.  So here is my advice:  Those who are convinced that humans are drastically changing the climate for the worse and those who aren't should accept and welcome a vibrant, robust back-and -forth.
Those who do believe that humans are driving climate change retort that the science is "settled" and those who don't agree are "deniers" and "flat-earthers."  Even the president mocks anyone who disagrees.  One thing I have learned is how hard it is to convince people with a computer model.  This does not mean people are dumb.  They usually have great BS detectors, and when they see one side of a debate trying to shut down the other side, they will most likely assume it has something to hide, has the weaker argument, or both.
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The market has stopped its steady grind upward for now and the mood is pretty cautious.  Our formula has called for a lot of sales.  

Purchases   
Date    Symbol     Shares     Price     Comments

5/21      TAI           100       20.97      Rare fund purchase
5/21      NWBI       200      13.20       Value Buy
5/23      BYD         200       10.62        Zero Buy
5/28      IAU          200        12.23       Gold ETF
6/4        GIFI         200        18.48       Value - Tulane Portfolio
6/13      NVEC       50         51.15       Zero Buy
6/16      BK.PR.C  100        22.81      Preferred
6/20      GNE         300          7.30      Value Buy
6/24      ONCS      3400        0.60      Zero buy - our lotto ticket
6/26      WFC.PR.P 100       23.73

Sales                                                   Date Bought      Price

5/23      AWCMY   200         5.36          2/11/10         5.85
5/23      AWCMY   200         5.36          2/25/10         5.31
5/27      AA             100        13.52        12/9/08          9.46
5/27      AA             100        13.52        9/28/11          10.50
5/28      HON           50         92.28        9/16/11          46.99
5/28      KNX          100        23.82        1/10/00            3.33       Love them 7 timers
6/2        ECL             25        109.12       8/25/05          32.10 
6/4       AVSR         6600       0.0035      2005-2007    Lost 11,000 - You have to clean out the dogs
6/5         TFX            25        107.56       6/16/06          51.20
6/9        USAK         200        18.60        8/24/12           3.74
6/10       PCP             10       272.95       10/6/08            69   Quads require patience
6/13       PQ              400         6.43        11/22/04           4.46       Tulane portfolio
6/18       HUB.A         25      121.40        12/22/00          23.56
6/19       GENC         100       10.89         2/2/09              8.17
6/19       GENC         100       10.89         2/23/09            6.15      
6/23       GIFI            100       21.61         3/16/09            7.04   Tulane portfolio
6/26       SLB              25      114.87         5/12/05           34.05  SLB is best of breed
6/30       PQ               300         7.50         4/10/12            5.80  Tulane portfolio
      
                                                          

   



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