Best 1st Quarter for Stocks Since 1998

So far, so good.

In early January, I predicted a bull market for stocks this year. From the Union Tribune

The bulls weren’t bullish enough.
The stock market just had its best first quarter in 14 years. The surge has sent Wall Street analysts, some of whose forecasts seemed too sunny three months ago, scrambling to raise their estimates for the year.
“That it’s up isn’t surprising. It’s the magnitude,” said Robert Doll, the chief equity investment manager at BlackRock, the world’s biggest money manager.

Lest you think that this is of interest only to the rich, remember that a majority of pension plans are somehow tied into the stock market. And of course quite a number of investors are in stocks directly, or at least through mutual funds. The wealth of American households moves with the stock market even more than most American households realize. 

This is also good for jobs for at least a couple of reasons. One, companies will have access to more capital that can be used to expand and hire. Two, stock market gains means that more people can afford to retire. More retirees means more job openings. More than a few baby boomers have had to defer retirement because of poor performing investments. 

 In my mind, little seems to have changed since I wrote here in early January that, 

P/E ratios are low and consumption is down. If people are paying only $10 for every $1 of earnings now, think what will happen as higher sales increase profits (GM and Ford, for instance, are now retooled to become profitable at much lower production volumes than before) at the same time that optimism drives P/E ratios up. A rise in profits of, say, 20% coupled with a rise in P/E from about 11 to, say, 15 could mean a rise in indices in the tens of percent. 

There is other good news that suggests that this gain in market indices is not a bubble. Multifactor productivity is up by a record amount. (This measures how much we're actually producing in value with labor and capital, the ultimate, most important measure of whether we can sustain profits and wages.) And consumption, too, is up the most in seven months. (Consumption is 70% of GDP and thus the biggest driver of GDP growth and all that comes with it.)

I don't think that the gains are done yet. I'm still bullish.

(How Many Eggs Does It Take?) To Unmake an Omelette

I've started Charles Murray's book, Coming Apart. More to say when I'm done but just this first impression reading about how vastly different was the world in 1960 from 2010.

It seems as though social conservatives have a tough job, longing as they do for the past. Whatever the policy implications - and no matter how noble the goal - it always seems like they're trying to unscramble eggs.

A Simple Budget Agreement Process?

The budget is a beautiful thing. It forces a people to translate their warm and fuzzy feelings about politics into concrete priorities and numbers. Of late, we seem to have a problem with that process. I would like to suggest a solution.

The House just passed Paul Ryan's budget but that bill is unlikely to pass the Senate. By now we are all aware that Republicans and Democrats, the House and Senate, have different opinions about how we should be taxed and how our money should be spent. Their compulsion to prove those differences rather than resolve them must be a big part of why their approval rating is in the single digits.

Politics is different from war in that it is built on compromise. So what if we all agreed that each party - and maybe even each individual member of Congress - has different values? And what if we were to say that this difference was only the beginning, not the end of the discussion? And what if we were to further say that we value the values of every member of Congress equally? Perhaps all this could result in a real budget.

Imagine a scenario in which every individual member of Congress submitted their own budgets. Ron Paul might submit zero dollars for the EPA and the Board of Education and Dennis Kucinich might triple their budgets. But whatever each individual did, these budgets would be averaged into the new, conglomerate budget. (And yes there would be details to work out. At what level of detail should budgets be submitted? Do you simply take the average of the averages of the House and Senate budgets to arrive at the bill to submit to the President? None of these issues seem insurmountable.)

This would do at least two things.

1., it would expedite a task that currently eludes completion.

2. more importantly, it would force ownership of this task onto individuals. A congresswoman returning to her district could not talk about what DC did or did not do but would have submitted a specific budget with easy to read totals. "Why did you not submit a balanced budget?" she could be asked. "Why did you seek to cut money for the National Science Foundation?" "Why did you cut social security?" This would create more traction, it seems to me, on the issues that so quickly become vague and devolve into hand-waving. Everyone would be more clear that they could only influence totals, not dictate them, a reminder that we're a country of more than 300 million people with about that many opinions. But it would at the same time be a reminder that we - as individuals - are responsible and allow us to take control of our own decisions rather than become helpless about our inability to influence the decisions and values of others. Our representatives would all have clear ownership of a budget and realize that it was merely one input into a larger budget. (And the savvy representatives would likely seek some way to fracture this process further, inviting their constituents to also submit budgets so they'd have some basis for claiming that their own budgets were representative.)

Maybe it is just me, but it seems like it might be easier to calculate the average of numerical values than to negotiate an agreement on actual values.

Girls are Smarter Than Boys ...

Victor Frankl and Meaning

Holocaust survivor Victor Frankl makes his case for what matters most.



And then ...

The Best Economic News Yet

There was a great piece of news released yesterday by the Bureau of Labor Statistics here. Multifactor productivity is up. A lot.This might prove even more important than news that filing for unemployment is at its lowest in four years. Multifactor productivity is the highest it's been in a quarter of a century.

Multifactor Productivity matters. It measures how much value labor and capital are creating. When it goes up, there is more money to pay both capital and employees.

From 1987 to 2010, multifactor productivity rose 0.9 percent. 
From 2009 to 2010, it rose 3.5 percent, more than triple the average of the last quarter century.

This feeds into my sense that we're at the dawn of big gains in productivity, stock values, and wages. Higher productivity means we're creating more value. That's good news.

caveats: 

1. I'm not going to get into the fact that at different times labor is more or less able to get their fair share of this joint gain in productivity. Suffice it to say, if multifactor productivity doesn't go up, wage increases are not going to happen; the more it does go up, the greater the possibility that wages will go up.
2. I still think that until corporations become more entrepreneurial, these economic gains won't necessarily translate into widespread job growth. If jobs grew at the rate that they did in the 1960s, we would be experiencing average annual job growth of about 5 million jobs per year. That works out to more than 400,000 per month, or roughly double the good reports we've seen the last few months.
3. Also, the recession itself may have played a part in this, Hesitant to invest, companies recovering from the recession may have found ways to raise their productivity without further investments or hiring. If that is a one off thing, then this will be a blip; if it suggests new levels of resourcefulness, it could become a new trend.

This Mess of Civilization That Emerged from the Mesopotamia

The Sumerians invented civilization. Among other things, it was in Sumeria that humanity had the first pottery wheel, first school, first map of the world, first writing, and first thought of dividing time and space into multiples of 60. Eden comes from the Mesopotamian word for plains, where this first civilization emerged in Iraq between the Tigres and Euphrates.Many of their inventions have continued to define us to this day; alcohol, for instance, is a Mesopotamian word. 

Michael Wood, in his brilliant video, Iraq: Cradle of Civilization, tells the story of how the Sumerians got civilization.

“One of the great Sumerian myths tells how the goddess Inanna brought the arts of civilization from the god of wisdom, Enki of Eridu, like Pandora’s box. Here were the delights of society, exquisite craftsmanship, beautiful clothes, the arts of sex and music. But civilization has a darker side, said Enki, which has to be accepted along with the good. There was the art of being mighty, the art of being kind, the art of straightforwardness, the art of deceit, the art of kingship, justice, and the enduring crown, the resounding note of a musical instrument, rejoicing of the heart, the kindling of strife, the plundering of cities, the setting up of lamentations, fear, pity, terror, all this is civilization, said the god of wisdom. All this I give you, and you must take it all with no argument, and once taken you cannot give it back.” 

So what was the answer for this? Because even though this was written about 2,500 to 3,000 years ago, it still seems an apt description. Well, it seems that the Sumerians anticipated that question as well, an answer we can find in the Epic of Gilgamesh from their civilization's (which is to say humanity's) first literature. Gilgamesh built the walls of the city Uruk and his adventure included the story of the flood and the ark, a story adopted into later traditions. And his story ended in his failed quest for eternal life. The narrator of his epic advises him on how to deal with this failure and - it seems - deal with the complicated mess that is civilization.

“Gilgamesh. What you seek you will never find, for when the gods created man they let death be his lot. Eternal life they withheld. Let your everyday be full of joy. Love the child that holds your hand. Let your wife delight in your embrace. For these alone are the concerns of humanity.”

Outlawing Comedy

A couple of weeks ago, Republican defenders of Rush Limbaugh said that Bill Maher, in his standup act, had also made offensive remarks about women.

Today, Newt Gingrich said that Obama should apologize over Robert De Niro's joke about the wives of the GOP candidates. (De Niro said that America is not ready for a white first lady.) Curiously, the First Lady's office did issue a statement saying that they thought the comment was inappropriate.

I can see where this is going. Politicians are making preparations to outlaw comedy. They know that there is no other way they'll ever be taken seriously.

The Limits of Happiness

We like to think that happiness is a goal compatible with every other. While I think that it is as worthwhile a measure of life as any, I think it can also be misleading. There are times when the effort to accomplish something brings frustration, not happiness.

So here is the question.

First imagine that life is simply lived on some scale.

If your life is a 1, you are happy. Delighted. BUT, you accomplish nothing. You achieve nothing, make no contribution to anyone else or to society as  whole. Your whole life is self-contained.

If your life is a 10, your life is defined by achievement. You contribute to people around you and to society as a whole. Because of you, life is permanently better for others. Yet you experience no happiness yourself. Your life is full of frustration.

On that scale where do you choose to live?

Fascinating piece on happiness by Carol Graham here.

Let's Be Clear About Deficits

Let's be clear.
If you are a politician who says that you don't like deficit spending but you ...
1. don't know specifically what spending you would cut or taxes you would raise to eliminate the deficit,
AND
2. are not actively working to create consensus on those specific changes (or some reasonable variation on those) within Congress ...

then you are not against deficit spending, you just wish that math didn't work the way it does.

Apple's Lack of Creativity

Apple is often hailed as one of the most creative companies in the world, and for good reason. They've passed Exxon in market value, the apparent triumph of product design and innovation over the claim on oil and processes and distribution outlets to turn that into energy.

When it comes to product design, I think you could argue that Apple is the most creative company operating today. They don't seem to do the really interesting research that AT&T did in its day or that IBM seemingly still does - the kind of research that leads to innovations like transistors or nanotechnology. But they make products that provoke feelings akin to love, and outside of chocolatiers, not many can make such a claim.

But Apple now has nearly $100 billion in cash, which seems to me fairly convincing proof that they aren't particularly adept at translating technological invention know-how into competence in social invention.

Of course, in their defense corporations generally don't see social invention of any importance.

Countries have learned to treat social invention - that is, entrepreneurship - as important for progress. Companies have not.

Imagine if Apple were to trust its culture enough to use its $100 billion to fund startups and initiatives from within the company. What if rather than sit on the cash like they were waiting for bad times or simply paying it out in dividends, they instead used what they've learned about products, projects, and employees to begin funding new ventures, most that would fail (think the Lisa computer) but all that could become fodder for future successes (think about how the Lisa computer became the foundation for the Mac).

Apple could go down in history as the GM of its time - a highly successful company that rode a wave of technology popularization. Or it could go down in history as a pioneer, using their success with one kind of invention (product) to fund and create expertise in a new kind of invention (social), learning how to evolve a company that makes products into a company that makes companies. If they learn how to do that, they'll need all $100 billion - and then some. But if they learn how to do that, their stock price of $600 could begin to look as quaint as did Berkshire Hathaway's stock price of $600 (Warren Buffett's Berkshire stock traded at $122,190 a share Friday, some days moving $600 a share.)

Geoff Dyer Writes About a Photo

Capa’s photograph shows the moment when all the unvoiced hopes in that photograph – in that look – come true. And not just the hopes of Kertesz’s couple, but the hopes of all lovers separated by war.

The hot Mediterranean landscape. Dust on the bicycle tires. The sun on her tanned arms. Their shadows mingling. The flutter of butterflies above the tangled hedgerow. The crumbling wall at the field’s edge is the result not of the sudden obliteration of bombs, but of the slow attrition of seasons. It is possible to grow old in this landscape. All the sounds – the rustle of cicadas, the noise of his boots on the road, the slow whir of the bicycle (his or hers? It has a crossbar) – offer an irenic contrast to the deafening machinery of tanks and artillery. The photograph would be diminished without the bicycle. It would be ruined without her long hair. Her hair says this is how she was when he left, she has not changed, she has remained true to him.

Noticing these things fills me with longing. I want to be that soldier.

Since that is impossible, I resolve to go on a cycling holiday in Sicily. I want, also, to know their story. When did they meet? Have they made love? How long have they been walking? Where are they heading? How long is the journey? The photograph itself urges us to ask questions like this, but if we look – and listen – hard it will provide the answers. Listen.

They do not care how long the walk ahead of them is, the greater the distance, the longer they can be together like this. She will ask about the things that have happened to him, he will be hesitant at first, but there is no hurry. She begins to remember his silence, the way it was implied by his handwriting, by the letters he sent. Eventually, he will tell her of the friends he has lost, the terrible things he has seen. He is impatient for news of friends and relatives, back in their village or town.

She will tell him about her brother, who was also in the army and who was wounded, about his parents, about the funny thing that happened to the schoolteacher and the butcher’s dog. They will walk along, their shoulders bumping, noticing everything about each other again, each a little apprehensive of disappointing the other in some small way. At some stage, perhaps when they are resting by the roadside or perhaps when they lie down to sleep under the star-clogged sky, she will turn to him and say, “Am I still as pretty as when you left?”

Knowing what his answer will be, feeling the roughness of his hand as he pushes the hair behind her ear, watching his mouth as he says, “More. Much more.”

And the defeat of Italy, the end of the war? Maybe they will talk of that too, but not now, not now.

Geoff Dyer’s book, Otherwise Known as the Human Condition, from which this is excerpted, just won the National Book Critics Circle award, Now you have some sense of why. 

The Big Fuss About Contraception

"They aren't talking about banning contraceptives. They're only saying that employers don't have to pay for them," friends of mine assured me when I expressed amazement at the GOP.

And suddenly, it became clear to me why so many side with Republicans on this issue: Rush Limbaugh actually articulated the sentiment of a majority of Americans when he said that he didn't want to pay for some woman to have sex. Not on his dime. We don't insist that employers buy us dinner but we do insist that they buy us sex? From that perspective, Rush is right. Or at least seems that way until you think about reality.

Why should we pay for people to have sex?
The reality is that people have sex. They have been having sex for millions of years. The people who can least afford to have children are the people who can least afford contraceptives. We don't pay people to have sex; history proves that people will pay to have sex. We pay to avoid unwanted pregnancies.

People shouldn't have sex unless they're willing to have children.
For a host of reasons too varied to get into here, roughly half of adults are single. More, the vast majority of married women have no intention of having as many children as they would should the abstain from use of contraceptives; very few women have the nearly a dozen children they could birth without taking some kind of precaution.

To say that people should not use contraceptives is to say that they should only have sex in years when they want to have children.

Why should contraceptives be a public responsibility? Why make the community pay?
It's simple. If you're in a country with less access to contraceptives, you're in a country with more poverty and all the various problems that come with it.

There is perhaps no simpler measure of development than birth rates. In poor countries, women have few options other than bearing and raising children. In developed nations, women have control over the timing and number of children they have. The result of empowering women is higher levels of education and income for women - and the girls and boys they mother. Any smart community will invest in giving women this power for the same reason that it invests in education, research, roads, and every other advance that gives its people more autonomy, that makes them more affluent. The differences between Sweden and Afghanistan have as much to do with the rights they give their women as any traditional economic factors; a woman who has no control over her own body has little control over her own life.

Even if you don't think that women deserve rights, your desire for economic progress should make you grudgingly agree to ensure that she can afford contraceptives.

Baby Boomers and the Perpetual Republican Presidency

50% of Americans now disapprove of Obama's performance. In spite of what has seemed to many of us a nearly surreal GOP primary season, it is distinctly possible that Romney or Santorum could win in November. 

If that happens, the Republicans are likely to keep their grip on the presidency for some time to come. 

Job creation has become at least as important as GDP growth as a measure of economic health and that is likely to do tremendously well over the next decade. Why? Two simple reasons: we're coming off of a terrible decade for job creation, meaning that there is a serious backlog of (by now) affordable employees ready for most any kind of job and baby boomers are going to start retiring.

Baby boomers have been changing demographics since they were born; their retirement will mean sweeping changes for the job market. Most notably, they'll be leaving in such numbers that merely replacing them will mean substantial job creation. 

If you want a great photo-op, it helps to be standing on the good side of history. Whoever is president over the next four years will look great by the measure of job creation. And whichever party holds the president is likely to extend that image into a long, extended grip on the presidency. 

The Democrats have to take consolation from the fact that Obama's low approval ratings still translates - for now - into a narrow win in November. Quite the time for the Republicans to decide that they'd rather have Alan Keyes than Eisenhower as their role model. 

Time Travel

It's 9 PM ET on Super Tuesday and Santorum could still win this thing. Wow.
I should be horrified but have to admit that what this suggests about the plausibility of time travel is just fascinating. Policies from the 19th century right here in the 21st century. The mind boggles.

Bill Gates and Thomas Friedman Talk Political Solutions

It's fascinating that one of the examples of "technocratic leadership" that Gates refers to in this video is someone who simply points out that the budget won't get balanced by just budget cuts or even budget cuts coupled with tax cuts only on the very rich. Arithmetic has become technocratic?

In any case, this is a conversation worth 20 minutes of your time and it yet it only takes 16 minutes. If you're the kind of person who enjoys this sort of thing, you'll really enjoy this.


America's Future: A Conversation with Bill Gates & Thomas Friedman from The Gates Notes on Vimeo.

The Angry Candidates

I was wondering the other day why Rick Santorum and Newt Gingrich often seem so angry. Then it occurred to me that this might be inevitable.

Republicans make clear their contempt for government. They just don't like it. And they don't like politicians.

So imagine that you are a member of this party and it is your job to run this government that your party so hates. You couldn't be happy about that. The only thing that might be worse is to be running for president and being considered unworthy of a role most of your party holds in contempt. Not even deserving of contempt. Hmm. How could you be anything but angry?

NASDAQ Doubles During Obama Administration

The NASDAQ has doubled since Obama took office. Obviously, those Wall Street capitalists haven't appreciated the seriousness of the GOP warnings that Obama is a socialist intent on destroying the economy.

(It closed today at 2988.97. On Jan 20 of ‘09, it closed at 1476.42.)

Oh, and just for reference, the NASDAQ dropped by nearly half (about 47%, dropping from 2772.73 to the fore-mentioned 1476.42) under George W. Bush.

Many readers would be tempted to say that this is just chance. They could be right. But if so, it seems like chance persistently favors the Democrats when it comes to market performance. Using the Dow to compare the performance of the market under Democrats and Republicans, you get the following table. Quite simply, this table shows the different returns for two families. The one family puts their money into the Dow Jones each time a Republican becomes president and then withdraws it all to put it under the mattress each time a Democrat takes office. The other family invests in the market only during Democratic administrations. If each started with $100,000, their holdings would have been very different by the close of the market today. The Democratic loyalists would have $3.5 million (precisely, $3,475,577) and the Republican loyalists would have only $500k (actually, $509,720). The last column shows how the total for one compares to the other. The Dem's total is 6.82X that of the Republicans; which is just another way of saying that the Rep's total is only 15% of the Democrats. 

One reason for this  might have to do with the big shift in the last century that management guru Peter Drucker said was one of the most under-, or un-reported trends in markets: the rise of ordinary people as investors. At the start of the century, the rich, the elite, held most shares of stock. By the close of the century, through mutual funds and pension funds primarily, average workers - or at least the better paid professionals we could call knowledge workers - held most shares of stock. In this light, the fact that the Democrats who generally do more to favor labor than Republicans (in the UK liberals make this easier to track by simply referring to themselves as the Labour Party) is not so mysterious: better paid labor has more money to invest and this - among other things - helps to drive demand for goods that include both product sales and shares of stock, the two biggest drivers in the rise of stock prices. When labor does better, so do capitalists, in no small part because labor and capitalists have come to overlap so much.