Posts filed under “BP Cafe”
Electing the Janitor-in-Chief
October 31, 2008
By John Mauldin
This week we survey the economic landscape that the new president will inherit. It is a polite understatement to say that he will be getting a serious mess. In reality, the US goes to the polls this next Tuesday to elect a Janitor-in-Chief. He will face a task that rivals that of Hercules in cleaning out the Stygian stables (legendary huge stables that had not been mucked out for ten years). However, there are no convenient rivers at hand for a probable President Obama to redirect that will quickly be able to clean out the mess left in the stables of our economy. This will indeed be an Herculean task and one that will take most of the first term of the next administration. So, let’s look at what will face the next president. It should make for an interesting, even if not optimistic, letter.
But first, a quick commercial. My friend Steve Blumenthal at CMG wanted me to remind you that there are money managers who have been able to create value in these markets. If you are wondering where to turn to in this rather difficult environment (to say the least!), I suggest you go to his website, register, and then let them show you what a blend of active managers that are on his platform would have done over the past few months and years. These are primarily managers who will trade a managed account (using various proprietary styles) in your name and are quite liquid. And if you are an advisor or broker and would like to see the managers on his platform and how you can access them for you clients, sign up and let Steve and his team know you are in the business. The link is http://www.cmgfunds.net/public/mauldin_questionnaire.asp.
CMG is the firm to which I refer investors who typically have a net worth of less than $2 million. If you are an accredited investor with a higher net worth and would like to see what a portfolio of alternative investments, including hedge funds and actively managed commodity funds, has done this year, I suggest you go to www.accreditedinvestor.ws and my partners at Altegris Investments in the US (and Absolute Return Partners in London and Europe) will be glad to talk with you. And if you are a registered investment advisor or broker in the US, you should seriously consider signing up and talking with the team at Altegris. Some of the solutions they have might be ideal for your clients. (In this regard, I am president and a registered representative of Millennium Wave Securities, LLC, member FINRA. Please note that past performance is not indicative of future results and pay special attention to all the risk disclosures at the websites and at the end of this letter.) And now to the letter.
Electing the Janitor-in-Chief
I normally do not get into politics in this letter, as my beat is economics and investing. But this election has large economic implications. Even though I am a long-time Republican, I can still read polls. And it looks like Obama will be our next president. (I have already paid off my bets made last year, for what it’s worth.)
First, let’s look at what will be the main problem facing the new president. George Bush came into office with the country already in recession. Over time the economy recovered, albeit somewhat slowly. As I have demonstrated numerous times, the recovery was fueled by Mortgage Equity Withdrawals. Over 2% and sometimes over 3% of GDP growth in 2002-2006 was the result of rising housing prices, allowing consumers to borrow against their homes and spend on whatever they chose.
Chris Whalen runs Institutional Risk Analytics.
He comes from an interesting family, with a father who was a senior advisor in both the Nixon and Reagan administrations.
Chris interviewed his father and Roger Kubarych, on the Federal Reserve, various government policies, the current state of politics, and the present economic environment. It makes for fascinating reading…
We turn to two veteran observers of the Fed and the US political process to get some perspective on the financial crisis and the policy makers who have arguably caused much of the present economic difficulty.
Roger M. Kubarych is Chief US Economist of UniCredit Global Research, part of UniCredit Markets and Investment Banking. He joined HVB Americas Inc., now part of UniCredit Group, in July 2001 with responsibility for advising management and clients on economic, financial market, and policy developments with significant implications for banking and investment decisions. He is also the Henry Kaufman Adjunct Senior Fellow for International Economics and Finance at the Council on Foreign Relations. He has published two books: Stress Testing the System: Simulating the Global Consequences of the Next Financial Crisis (2001) and Foreign Exchange Markets in the United States (1980).
Richard J. Whalen is an author and consultant who lives in New York. During his tenure at Fortune, Whalen wrote The Founding Father: The Story of Joseph P. Kennedy. His critically acclaimed book was on the New York Times’ bestseller list for more than a year. He served as a special assistant in Richard M. Nixon’s successful 1968 presidential campaign and as senior consultant to Secretary of State William Rogers in 1969-71, and then left government to launch his own political and economic intelligence and consulting firm. In 1972, Whalen wrote a prophetic study of the Nixon presidency, Catch the Falling Flag, A Republican’s Challenge to His Party, published a month before the Watergate break-in. A senior policy adviser to Ronald Reagan from 1975 through the 1980 presidential campaign, Whalen was an informal adviser thereafter. IRA co-founder
Christopher Whalen, who conducted this interview, is his eldest child.
The IRA: So Roger, we love to read your stuff, but don’t see it often enough.
Kubarych: I get to write a lot but most of what I write is internal and goes to clients and management. Henry Kaufman taught me that a little exclusivity is a good thing. Henry, by the way, still runs Henry Kaufman & Co., still has consulting clients, still finds time to help his sons with their businesses, still writes and still disagrees with power, including the powers on some of the boards on which he serves.
Whalen: He is much missed from center stage, where he operated for many years. He and Paul Volcker and people of that vintage have a toughness of mind that is missing from the plastic people we find in politics in more recent years.
The IRA: Yesterday you were talking about this issue of toughness and about President Herbert Hoover, who you spoke of in glowing terms. What did you mean by that? His memoirs is perfectly constructed and organized, like a report to the Congress, the product of a very orderly and disciplined mind.
Whalen: He had the foresight to see the need to create the Reconstruction Finance Corporation in 1928. In my view, the Bush Administration and the Congress should be recreating the RFC now so that the next president has the tools to deal with the implosion in real estate markets, recapitalizing the banks and reviving economic activity generally. The fact that these structures were in place when FDR took office was a big advantage.
Kubarych: And the RFC actually got going in 1933 in a serious way.
Whalen: Hoover saw what was coming but he did not understand the modern state and modern finance well enough to realize that time was running out and would overcome him. Secretary Hank Paulson and the Bush White House still do not understand that time is running out and that we need to immediately revive the RFC model to deal with the looming economic collapse. This effort must start immediately after Election Day. Hoover was part of that lengthy transition where the President was elected in November but sworn in the following March, now we can hardly even afford to wait till January.
Michael Panzner writes: > Yesterday, the Commerce Department reported that the U.S. economy shrank at a 0.3% pace in the third quarter. Although there is some question about whether government reported data reflects reality, one thing seems clear from looking at a cross-section of GDP data from other countries: economic contraction is widespread. > GDP…Read More
Jake of Economopic writes: > While the media is celebrating the fact that: Personal income increased $24.5 billion, or 0.2 percent, and disposable personal income (DPI) increased $25.7 billion, or 0.2 percent, in September, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $33.6 billion, or 0.3 percent. Real per capita disposable…Read More
by Marion Maneker
As the election closes out amid the wet squelch of the economy, it’s worth looking forward toward the Obama transition. In the past, I’ve wondered about who would be holding down the fort at Treasury. Jon Heilemann answered that in this week’s New York magazine: “. . . the inside betting is on a Larry Summers encore. ‘They’re gonna want somebody who knows the building, knows the economy, has been confirmed before and been advising them on economics,’ says the former Clinton aide. ‘I’d be flabbergasted if they chose somebody else.’”
But events have moved so quickly, the real question isn’t personnel but policy. With the financial system sort-of stable, there’s going to be a crying need for an economic “iron lung.” Not just the auto industry bailout, which is just as much about pensions as it is about jobs, but a massive effort to rebuild the American economy from the ground up. Here’s where Time’s Joe Klein gives us a few clues: “As Obama told me in our interview, a government-propelled transition to an alternative-energy economy will be his most important initiative. Translated into Washington terms, this means a massive infrastructure and stimulus package — in the neighborhood of $300 billion, according to the current speculation. [ . . . ] The Beltway consensus is that the economic crisis makes it necessary now. But public cynicism about government requires that the next President builds accountability into his spending programs. That’s why the Infrastructure Bank that Obama proposed during the campaign may be crucial: it would create a bipartisan board of five governors who would judge and approve all major projects. In normal times, getting an Infrastructure Bank through Congress would be impossible. “It is a direct threat to their way of life,” says Norman Ornstein of the American Enterprise Institute. “It changes the dynamic of how you deal with earmarks,” by taking the decision-making, and to some extent the credit, away from politicians.’
I will be covering a global stock market performance round-up after the month end, but thought it would make for interesting reading to briefly review the action of the past three days.
The numbers speak for themselves, showing the MSCI World Index and the MSCI Emerging Markets index surging by 14.2% and 23.5% respectively since Monday’s closing levels. Strong stuff indeed, but these rallies still leave the two indices down by 43.4% and 58.1% respectively since the highs of October last year.
The strongest performers over the past few days were Russia (+37.0%), Hong Kong (+30.1%), Brazil (+27.2%) and Japan (+26.1%). This begs the question: Are these bourses back in bull markets according the traditional definition of a 20% improvement? Read More
David Singer writes: I was going through the Economic Calendar for tomorrow. I went to The Mortgage Bankers Association (MBA) website and began poking around the place. I found the most recent report. Then I went back to November 2004, and checked out that information… Two quick observations I find interesting: 2004 – % of…Read More
Its Dues Paying Time: American Myths Being Destroyed — And What May Happen Next
by Carl Haefling
This piece is one I promised a number of folks as I received emails while traveling and upon my return learned that my doom and gloom predictions had become reality. Over the past 3 or 4 years I have written extensively about the systemic issues regarding real estate. I have believed, since Greenspan lowered interest rates following 9/11 in an effort to prevent a recession, that the unintended consequence of over stimulating the real estate markets would have dramatic consequences. My intention here is to reflect about my life long experience in the stock market, how that experience shapes me today, and my belief about what possibilities lie in front of us.
However, before going further let me make a few upfront statements. I am not an economist; I have never been paid as a stock analyst nor to run a hedge fund or mutual fund. When I was 42 I took a very small brokerage business and turned it into a money management business giving me full discretion over the clients’ assets in the account. I began with about $3m in assets and turned it into $120m without adding additional funds in about 13 years. I had an annualized return of over 40% a year and then decided to quit. Enough was enough, and from my perspective the signs were clear that it was about to get ugly. I had learned that though I was successfully managing other’s people money, the stresses and responsibilities were high. As I created money, I was changing the course of people’s lives, including my own.
As the size of the assets under my management increased, my staff did not. It was me, me and more of me. I was licensed with a firm in Cleveland who executed my transactions and held the securities, but I did all of the work including answering the phone.
Category: BP Cafe
by Bill Bonner
I, Alan Aurifericus Nefarious Greenspan, Chairman of the Federal Reserve Bank, holder of the Medal of Freedom, Knight of the British Empire, member of the French Legion of Honor, known to my peers as the “greatest central banker who ever lived,” (I will not trouble you with all my titles. I will not mention, for example, that I was the winner of the prestigious Enron Prize for distinguished public service, awarded on November 1, 2001, just days after Enron began to collapse in a heap of corruption charges) am about to give you the strange history of my later years.
For I will dispense with childhood…even with young adulthood, and those dreary sessions with that terminally dreary woman, Ayn Rand, who couldn’t write a compelling sentence if her life depended on it. I’ll also dispense with my own dreary years at the Council of Economic Advisors, and pass directly to the time I spent as the most powerful man in the world. For here are my real titles: Emperor of the world’s most powerful money, despot of the world’s largest and most dynamic economy, and architect of the most audacious financial system this sorry globe has ever seen.
Yes, I, Alan Greenspan, ruled the financial world. But who ruled Alan Greenspan? Ah…I will come to that, and tell you how, while presiding over the biggest boom ever I became caught in what I may call the “golden predicament” from which I have never since become disentangled.
This is not by any means the first thing I have written. I have written much over the years. But it was all written for a purpose, which only a few were able to discern. Most readers foolishly saw the cluttered mind of a dithering economist or the clumsy, stuttering pen of a professional bureaucrat. Many listening to my wandering speeches and twisting sentences thought that English was not my first language. They thought they detected a faint accent, like that of Henry Kissinger or Michael Caine. They mocked me as “incomprehensible” or “indecipherable.” They watched what they thought was an obsequious bureaucrat squirm. They had no idea what I was really up to and what I can only now reveal.
But they admired me, too. I knew it. Because they saw in me a kind of genius…a Bernoulli of banking…a Newton of numbers…a Leibnitz of lucre…a Copernicus of currency. My mind worked at such a high pitch, they believed, that my thoughts were inaudible to most humans. They counted on me to keep the great empire’s economy trundling forward. Little (actually nothing) did they know of my real thoughts and designs.
But now, all has changed. Now, I can write clearly and speak the truth.
For now I am leaving my post. There is no further need for me to dissemble; no further need for me to pretend to kow-tow before Congressional committees; no further need to hide the real facts from my employers and the American people. Now, I swear by the gods, what I write comes from my own hand, and not from some overpaid, anonymous flack.
Some are born in crisis, some create crisis, and others have crisis thrust upon them.
Category: BP Cafe