31 January 2012

What Bread Tells us About Fiscal Policy

It's true that baking bread involves mixing ingredients, letting them rise, and then baking them. It is not true that these steps can be done in any order. Pop the ingredients into the oven before you've mixed them, or before they have had a chance to rise, and your results will be very different. Timing and sequence matter.

The same is true of fiscal policy. It's true that a country would like to get to full employment and would like to run sustainable deficits. It's not true that a country can do this in any order.

Britain elected one of the smartest conservative politicians around, making David Cameron Prime Minister 20-some months ago. Cameron was savvy enough to realize that the outrageous deficits had to be reduced through a combination of tax hikes and budget cuts. He was intent on getting Britain's fiscal house in order and when he first took steps in that direction, the British rewarded him with a rise in poll numbers.

In the last quarter of 2011, though, Britain's GDP contracted. Cameron did the right thing at the wrong time.

Even here in the US, the big push to get our budgets in order is hurting us. GDP growth in 2011 was only 1.7 percent. One reason why is that government spending dropped by 2.1 percent. While the private sector was adding jobs, the public sector was laying off.

Timing seems to be perpetually ignored in the talk about budgets. Balancing budgets before getting to full employment - or at least reaching a strong rate of job creation - is akin to popping unmixed ingredients into the oven. Or, at the very least, baking before the dough has risen.

If this recovery is flat, it might just be because we've let bakers with a belief in instant yeast into the kitchen.

07 January 2012

Bullish on Stocks

More than once, when preparing for a trip to a colder region of the country, I hesitated before packing clothes warmer than what would be comfortable here in warmer San Diego. Even if I'd been there the week before, I struggled to imagine weather so different than what I was experiencing at the moment. It seems like our forecasts even for simple and obvious things tend to been rooted more in the status quo than in what is probable. 

That said, it does seem as though economic forecasters are finally beginning to imagine a 2012 that is different from 2011. I've already forecast the creation of 2 to 3 million jobs and a drop in unemployment to 7.5% or less. But there's more worth forecasting.

The car and housing markets will rebound simply because so many have been deferring buying a new car and getting their own place. Household debt has been paid down considerably in the last few years and people seem poised to buy. The ripple effects of this will do much to drive economic growth, job creation, and a rise in stock prices.

The bubble in gold will finally burst. Gold has so little intrinsic value that it is a waste of investment money anyway. Money put into real estate can help to build houses. Money put into stocks can help to expand businesses, create jobs, and fund R&D. The money put into gold is just a waste, and the gold bubble is likely to burst as anticipation of the apocalypse fades into the realization that the economy - after a lost decade - can, in fact, still behave normally. Most of gold's gains in the last decade have been based purely on speculation and Glen Beck ads.

Now is also a sweet time for real estate investment. Monthly costs on properties are incredibly low, given that property prices are so depressed at the same time that interest rates are so low. Look for an "unexpected" rise in real estate prices as soon as late this year, early next (2013). 

But I'm most optimistic about stocks. US stocks in particular. 

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. 

Europe's economy may do better in 2012 (its companies in particular), but the Euro will probably still frighten investors. More money could move into American dollars and real estate (some) and stocks (mostly) seem like the best place to park money. That could add even more fuel to stock prices. 

The stock market seems mostly reflective of bad news now. And it is certainly possible that things will continue to stagnate. But the upside seems to be mostly ignored. Trillions of dollars are still sloshing about the globe in search of returns. It's probably a good idea to be positioned in stocks before that money comes rushing into the stock market than after it comes in. 

04 January 2012

The Most Important Thing To Remember for 2012

One of my favorite quotes is from Peter Drucker. "Most problems cannot be solved. And most problems are made irrelevant by success."

Drucker the management consultant was talking about companies tendency to put their best and brightest on solving problems rather than pursuing possibilities. I think that the idea applies more broadly.

You will always have problems. Always. If your focus is on "fixing" problems you'll inevitably feel frustrated. You won't. In addition, life is short. It is a waste of time to apply a scarce resource (your time) to unending problems.

Let go of your problems. Instead, try to grab hold of success. That's hard enough but at least it is a possible task.

Huntsman's Policy / Politics Dilemma

Jon Huntsman is the only GOP candidate who simply stated that he believes that scientists probably better understand climate change and evolution well enough to be trusted on the topic. Last night, he got 1% of the vote at the Iowa caucus.
This, as much as anything, seems to capture what is wrong with Republican politics. The gap between what makes for smart policy and smart policy is wide and seemingly growing. Whether it is ignoring climate change or getting excited about starting a war with Iran, any candidate wanting to win over Republican voters seemingly has to thumb his nose at what makes sense in terms of policy.

Bachmann - From Guano to Goner

Michele Bachmann's closing speech last night sounded to me like something you'd have heard from that poor woman on the street corner who everyone avoids making eye contact with. Perhaps the most disconcerting thing was that once her speech was done, the broadcast switched back to pundits who didn't seem the least perturbed by her tone or message.
Here, in its entirety (I don't know what a person would excerpt) is a piece from National Journal. What is missing is the strident, nearly hysterical tone of it. You judge whether these are the words of a woman who inspires confidence or just confusion.
In a speech before the doors closed at the Iowa caucuses, Rep. Michele Bachmann insisted on Tuesday night she won't allow President Obama to "implement socialism" in the United States.
Here's an excerpt from Bachmann's speech at Cedar Falls at the University of Northern Iowa, standing alongside her mother:
"Iowans are rejoicing tonight because of that opportunity to reclaim our republic. We will do that. Standing with me is the woman who gave me life right here in Black Hawk county 55 years ago, and as I think of her, and as I think of the sacrifices that she laid down and made in my own life, I think to myself that we don't stand here alone.
"We are surrounded by a cloud of witnesses of generations who have gone on before. Going back to the time of William Penn who came to this country to bring the truth of the gospel of Jesus Christ, to the time of the pilgrims who came here also to share the gospel of Jesus Christ, who stated that they willingly laid down their lives-- literally as stepping stones-- so that the next generation would prosper and know religious liberty.
"Generation after generation has sacrificed for us, including our military, including our veterans. My father signed up to serve honorably in the United States Air Force here in Black Hawk county. It is for them, it is for their memory that we are here tonight because we are here to reclaim the greatness of this country.
"We are unwilling to allow Barack Obama to implement socialism in the United States of America. That will happen on our watch! We won't let it."
Michele Bachmann was forced to end her campaign today. At moments like this, I'm inclined to believe that American democracy can be trusted. 

03 January 2012

Last Tweets of 2011

At times he demonstrated a gift for numbers. One morning, for example, he multiplied all the zeros in his cheerios at a glance.

To make numbers less abstract, present federal budget numbers as "per household" and calories as "hours to walk off."

Even after losing 5M jobs his 1st year (worst since Great Depression), Obama's job loss total is ½M less than Bush thru first 34 months.

Personal ad I'd like to see - Dog needs driver: finally caught a car.

"Group rink:" when a group of people all simultaneously thinks it is their phone that's ringing.

Matt 6:32 has 1st emoticon? "... after all these things do the Gentiles seek:) for your heavenly Father knoweth that ye have need 

Catapults seem like an overlooked solution for short-distance commutes.

Technically the Chargers are not yet eliminated from the playoffs. Just as technically I'm not yet eliminated from the GOP nomination.

RT @sacca Today started well before yesterday.

S&P may downgrade Euro Zone - including Germany. This, the same ratings agency that assured us subprime mortgages were safe.

Postal service could make billions by making service easier. Why not just bill like phone companies - end of month based on usage, letters and packages picked up at your door w/o postage?

Pujols offered $220M by Marlins. Assuming same performance next 10 yrs as last, that's more than half a million per HR or $100k per hit.

Wouldn't the most practical personalized ring simply be a voice saying,"Yes, Ron. This is YOUR phone ringing."

What if we're in a new economy? My "Simple Answer to Job Creation" Op-Ed is in this morning's Union-Tribunehttp://bit.ly/vsh1cA

So today the European Union decided to fine countries in financial trouble. Akin to making bankrupt people loan money to themselves?

Got carded tonight trying to buy Jr. Mints.

In the future, all work will be automated but people will take games so seriously that they'll get degrees in them.

Could have sworn I just saw kids openly celebrating Christmas. Now I'm beginning wonder if Rick Perry has gotten anything else wrong.

Candidates only pretend to strain against time limits on debate responses. Much easier to defend inane ideas for only 1 min.

His comedy sounded less like ad lib than ad libido.

Mitt asks Newt to return millions made lobbying. Newt asks Mitt to return millions made destroying jobs. A new, very personal tax plan.

Have no idea how I'll ever explain to my grandchildren why our generation paid so much attention to Donald Trump.

It's like a 2-dimensional Rubik's cube - can't figure out how to make this secret Santa program work here in the home office.

The on-spot poll analyst Nate Silver @fivethirtyeight says there are still FIVE plausible winnners in next month's Iowa caucus.

Iraq withdrawal after 4,802 coalition casualties (4,484 US), 113,728 Iraqi civilian deaths, and $823.2 billion. 

I suddenly don't care that Ron Paul's economic plan was just like the one that inspired Dickens. I love this guy.

Political debates would be infinitely more fascinating if your opponent got to choose one rebuttal before which you had to suck helium.

We will get better politicians when we get better citizens.

What about turning the White House into national museum and moving president into "Green" House designed for latest in sustainability?

Speaking of fascinating: Aldous Huxley, author of Brave New World, was so fascinated by LSD that he took it intravenously as he was dying.

Kim Jong-il was apparently very. Ill that is.

RT @GarryShandling I played college basketball at North Carolina. Ok, North Korea. But, I was a starter.

Does anyone have data about the turnover within "the top 1%" in income? Wonder if it's closer to 10% or 90% who qualify just once due to one-time events like selling a business.

It was so much calmer around the house now that she'd sent her husband away to boarding office.

"Worrying is praying for the things you don’t want."http://bit.ly/tbNGnu from @ThomasLBryner

Hope Obama saved 1 wish for the economy. Bin Laden, Gaddafi & Kim Jong Il dead & no GOP candidate can hold a lead for more than a month.

Vaclav Havel, " words are capable of shaking the entire structure of government .. words can prove mightier than 10 military divisions”

The more airtime for country music in a metropolitan area, the higher are suicide rates. http://bit.ly/sDcWqR Causation or correlation?

Doppler-ganger effect: growing sense of foreboding that an approaching person may be your double, a sense that recedes after they pass.

Kim Jong Il once shot a 38 for 18 holes of golf. And, presumably, substances like heroin and hallucinogenics. http://bit.ly/sj1ERr

I've decided to begin an aggressive campaign of revisionist personal history.

#NewYearsResolutionsReconsidered - become the Michael Jackson of Polka.

Virginia Republican Party just ensured "outsider" status to everyone but Romney and Paul by denying everyone else room on the ballot. http://reut.rs/uvWJvC

No. I don't miss the seasons.

Good to see that Drew Brees has finally recovered from the pain of being traded from the San Diego Chargers.(Oh, and congrats on breaking single season passing yards record.)

British dogs watch TV 50 minutes a day [per Harpers]. From this we can conclude that they're obviously uninterested in plot resolution.

So excited about 2012. It includes a leap year, Olympics, an election & the end of Mayan Civilization. And that's just what's scheduled.

RT @alanwebber   "I never predict. I look out the window and see what's visible but not yet seen." Peter Drucker

You read it here first: by end of 2012, unemployment will be under 7.5%. (Assumes 2.5+ million jobs created, the avg from '60 to '99.)

File under political / social laws: it's easier to distort reality than change it.

Holiday dinners are like amateur talk radio. Without screeners. Or predictable political orientation. Or the option to hang up.

The presidential cabinet needs a jester whose job is to mock them about their limits and to dangle before them the null hypothesis.

Relieved to know that I still have a couple of days before I have to start procrastinating in my resolve to be a better person.

I'm accepting year end donations for my new charity, "Dictators without Borders."

I'm doing "Old Year's Resolutions" this year. One day of radical transformation might actually be plausible.

S&P 500 rose 8%, then dropped 19%, then rose 14% to finish 2011 EXACTLY where it started: 1257. That Family Circus kid whose walks were punctuated with so many circuitous tangets has become a day trader?

No need for life extension if we could work out technology for pausing time so that time didn't advance any faster than we actually used it.

I may have reached the age that I should begin making new year's resignations: things about myself to which I simply resign myself for 2012.