< meta name="DC.Date.Valid.End" content="20050825"> Amendment Nine: June 2005

Wednesday, June 29, 2005

Iraq Stuff

Everyone wants to talk about it, so in Fed X's absence, I will oblige. Bush's speech last night was a good one, if we were in Vietnam, or Japan, or even Iraq the first time around for that matter. But "sticking it out" and "standin' by our guns" isn't going to make Iraqis "stand up", its going to make the insurgency stronger. This isn't the Alamo, or Dunkirk, or anything romantic and old like that. This is a very modern insurgency employing modern strategies and attaching itself to the global terror network in a way we've never faced before. Its a "new" conflict and needs to be fought with new means. Pulling out old John Wayne lines seems like a losing idea to me, we aren't fighting Tonto's evil twin, we're fighting a highly decentralized, global network determined to grind us down one piece at a time. "Standin' our ground" seems like doing exactly what the enemy wants.

Another thing I noted in the aftermath with the pundits was that all the monkey guests were doing their best to trot out: "well yes, we need to wait until the Iraqis are at a point where they can handle this on their own, and when that time comes we'll leave." The equally monkey interviewers never bothered to ask a simple question, how long is it gonna take for the Iraqi security forces to exceed the performance of 120,000 highly trained, well-equipped, wired in American troops... cause they seem to be having some trouble handling this. Do these low-performing apes really expect me to believe that as soon as the flags change, and Iraqis are running the patrols, that the insurgency will magically melt-away? The only reason these bastards are shooting is because of the red white and blue? Come on, thats monkey business folks.

Tuesday, June 28, 2005

What if...?

Here's an idea chrisschross and I were trying out. She seems to think it works out well, and she would have posted here but Federalist is nowhere to be found to give her access... so I'm posting in her place. We both assume this will be an unpopular idea for many of this site's readers, but we like being unpopular! Chriss has promised to be "around" in the comments, so feel free to let her have it as well.

What if we didn't have health insurance? Yeah, NO HEALTH INSURANCE! All you would have is catastrophic coverage, or disaster coverage, or even perhaps emergency coverage for those in more fragile health conditions. But no health insurance in the way we have it today. All medical costs would be OOPs. Trips to the doctor for routine checkups would be paid for in cash (as they are in many Asian societies), and all of us would have to start taking more control over our health care and health maintenance. We could no longer just say: "well, my doctor told me take these pills", we could only say: "after talking to my doctor, I decided to take these pills". You could even have supplemental pharmaceutical coverage for people needing such, but it would be just, supplemental, not part of a comprehensive plan. And most importantly, employers would no longer be required to offer coverage.

Everyone I know asks the question, usually at first, what about people who can't afford emergency or disaster coverage? Well, the government could offer vouchers for the poor to cover those. In fact, with the decrease in administrative costs, the government could probably afford to cover a lot more seniors AND pay for their pharmacy requirements as well. But those are details, this is just big picture. And the picture we're trying to paint is one where people are empowered to make more decisions for themselves, because statistics show those are usually closer to optimal decisions. So what do you say? A no healthcare insurance regime...?

Saturday, June 25, 2005

Foot & Mouth

I'll be moving to Asia in about a week. While traders here are trying to digest the latest mad cow news, what few people in the US know about is the latest foot and mouth news. The Hong Kong Special Admin Region recently confirmed foot and mouth disease. The reason this matters is because it shows a big eastward shift in the distribution of FMD throughout mainland China. When the virus enters animal populations for the first time, outbreaks are often severe and prolonged. This also risks outbreak in neighbouring countries, including the Russian region of Amur. Now, the best way to trade on this is... ?

Thursday, June 23, 2005

Corporate Military

There are 120,000 private contractors offering military services in Iraq today. See this PBS site for a video w/more details. The line between defense of the nation's interest and defense of the private interest has never been so blurred. Interestingly, it also helps mask the true cost of the experiment in Iraq.

Tuesday, June 21, 2005

Real Estate Bubble

The topic of the month, real estate bubbles, just got an interesting glance from a colleague of mine. His view is simple, average useful life span of commercial and residential buildings is fifty years (give or take a decade). Post-war construction boom lasted well into the 60s. We're fifty years from the beginning of the post-war construction boom, so we're in a post-war "re-building" boomlet. According to him, it should last about a decade. Contrarian for sure, but seems like good sense.

Sunday, June 19, 2005

Energy Crisis & Central Bankers

Dan proposes doubling the cost of a gallon of gasoline. This is close to the experience of the 1973 oil shock, and Dan concedes that his proposal would pass through and cause a general price level increase (as it has done every single time there has been a supply shock). Central bankers don't like this because they have no good choices. Here's why.

The dark blue thin lines are the original aggregate demand and supply curves (blue dot is today). The positive change in price levels is unknown, as Dan himself remains unclear on how much of an impact on CPI such a proposal would cause.

What is undisputed however is that every major supply shock in energy since the 1930s caused a jump in CPI (green line).

Central bankers then have three options. Either they can increase monetary supply which increases aggregate demand (red line), this though results in the same output at a higher price (red dot).

Or central bankers can decrease monetary supply which decreases aggregate demand (pink line), this though results in lower output at the same price (pink dot).

The third choice though is the one central bankers typically use, marginally less output for marginally more cost. This is stagflation (light blue zone).

Friday, June 17, 2005

D. Kozlowski

Should've hired Jackson's defense team. Guilty on four counts of larceny according to my Bloomberg. Nice! And Swartz guilty as well. Two-fer~!

More Hedge Fund Nonesense

James Tisch, heir to the Tisch family fortune, and CEO of two of the family's crown jewels, Diamond Offshore and Loews Corp., was on Bloomberg today. He was asked if he thought hedge funds should be "more closely looked at." He paused, took a deep breath, leaned in and spoke these wise words: "Well, yes." He then immediately turned into a clown and began spewing nonesense. According to Tisch, hedge funds aren't traditional investors, they trade in and trade out of companies, even good companies, because they don't take the long approach. Tisch felt we need more people who take a long approach. He then said that the hedge funds are why the volitility isn't there. Despite that absurd contradiction, I'd like to take on the notion that hedge funds are somehow bad faith investors because they trade in and out of companies quite regularly.

Hedge funds deliver year over year return to their investors well above the market, well above mutual funds, and well above most straight private equity players. The way you know I'm not blowing smoke about this is because you know that hedge funds right now are bloated with cash. More and more money is pouring into these guys even as the criticism levels turn up a notch or two. Remember, money makes money. There are all sorts of funds and strategies with different levels of risk and return, fixed-income, tax advantaged, vultures, macros, etc. If hedge funds took a long only approach (and there are actually some who do this - even some vultures who play long only), they would be harder pressed to deliver returns. Why? Simple, by trading out of underperforming companies, by shorting poor performing companies, hedge fund managers become more active, and seize more control over the operations and direction of those companies. Tisch on the other hand wants us to sit back and let him give his family stock options and low interest loans while shareholders sufffer the consequences.

The negativity your seeing right now, and the various lines and arguments against hedge funds being tried out on CNBC and other financial networks is a concerted effort, slowly building, by guys like Tisch. That is, by business roundtable folks with deep pockets, family fortunes, and ties to the power center. Democrats like to call them "crony capitalists", hedge funds just call them "management." There is a war for control right now between active investors and crony capitalist management. The stakes are high, and the fact that some of the best known biz roundtable guys are out there stoking the fire is a sign that the struggle is reaching a new level. America has a big choice to make, are we gonna let investors and owners control their companies, or are we gonna let management keep running good companies into the ground?

Friday, June 10, 2005

The Worst Book Title in American History . . .

. . . is (OK, what is your guess?)
Brings out the worst instincts in any society.
Implies contempt for children, and their children yet unborn.
Like the gates of hell, requires the abandonment of hope from all..
Defiles the sacrifices of the WWII generation, who thought they were securing for coming generations a greatness exceeding their own.
Condemns civilization's central value: that the greatest generation is always the next one.

The Prime Minister

Since Sharpshanks didn't include me in his hiatus post, I feel free to blog with abandon!

With the presidency slowly moving towards figurehead status, responsible for attending court functions like aircraft carrier landings, extra-marital affairs in the oval office, and surprise thanksgiving day feasts with the troops overseas, it is little wonder that the vice-presidency is now the single most powerful office in the land. Even though Americans technically elect their vice-president, it is possible through the power of resignation, that an unbroken chain of rule could be established at the office of the prime ministry - afterall, the virtue of good administration need not descend to partisan rancor. Letting the previous PM rollover his tenure could be an official tip of the hat towards bipartisanship, showing how big and above the fray our President's truly are.

Herein are today's questions: 1) who will succeed Cheney as PM (I mean, VP), and 2) by what date? I predict Cheney resigns in early August, as the summer heat begins to spoil the cabbage. His successor will be James Baker. What do you say?

Thursday, June 09, 2005

More On Pensions

CBO Director Douglas Holtz-Eakin testified today at a House Budget Committee hearing concering an estimated $71B deficit for PBG over the next decade. He said employers would have to pay a five fold increase in premiums to close the deficit. What he didn't say is what is clear, pensions are obligations we can't afford to keep anymore. That dance is over. The next giant who goes 11 may take pensions to the grave for good. More on what this means here.


Mitya is out of town for a few weeks and won't be blogging. Federalist is similarly off the web for a little while. I'll be popping in and out when something interesting happens. More regular posting will resume beginning next week.

Tuesday, June 07, 2005


Big day for Federalist today. Us financial geeks send you hearty congrats. Well done. Bottles of wine on the way!!!!!

Monday, June 06, 2005

Walmart Showdown Looms In Cleveland

The Cleveland AFL-CIO is upping the ante in a fight against a Walmart supercenter planned for historic ground in Cleveland.

We promise this to Cleveland, to Wal-Mart and to the city’s grocery workers: There will either be no Wal-Mart Supercenter at Steelyard Commons, or the labor community in Cleveland will devote whatever resources necessary to make it the first unionized Wal-Mart in American history.

What do you think a unionized Walmart in Cleveland will do to Walmart's stock price?

Friday, June 03, 2005

Actually, NOPE!

Publius really gets this post all wrong. First, in his ever chary way, he loses Billmon's invective and effectively castrates the argument, destroying what little potency it had; which is essentially that Americans are lazy (great insight by the way). Then, Publius takes it a step farther and decides that despite Bush, "we - the American public- are equally to blame."

Thats just simply wrong. I could make the argument that who is to blame is John Kerry for laying back and letting the Swift Boats destroy the one asset he had as a campaigner: his war record. I could also make the argument that James Carville is to blame for not obliterating the GOP with one liners like: "I can look around this room and point my finger at a half dozen people to hold accountable for 9/11, but only of them is the President of the United States!" I could also make the argument that Donna Brazile failed to deliver the vaunted GOTV machine which everyone has had a hard-on about since 2000 (where it failed the first time). But I won't make those arguments.

Instead, what I'll say is this, you can't blame "we - the American public" for deciding to stay with the whore we brought to the dance when the only alternative is some equally skanky, dressed up harlot who hasn't even promised to put out! Now, if that makes "us - the American public" fat and lazy, thats one thing, but if that makes "us - the American public" responsible for the Iraq saga, well Mr. Publius thats where you and I part ways. Sort of like I said before, there are probably eight, nine, maybe twenty million people you can blame for the Iraq war, but only one of them is named George W. Bush.

Thursday, June 02, 2005

Did Anyone Notice?

This Memorial Day the Senate recessed withOUT voting on the defense authorization bill. Steve Clemons gives details:
Senior Republican Congressional sources have informed The Washington Note that the funding of the Defense Department and the front-line needs of U.S. soldiers are being held back to hammer John Warner.
Let me see here, there are soldiers, marines, airmen, getting killed in Iraq and the White House is playing politics with the Defense budget? Are you kidding me? How much more burden can our boys over there take on for ol' W?

Wednesday, June 01, 2005

No Pensions = Higher Taxes

Like a shot across the bow, or something like that. FT's Deborah Brewster reports a big "no shit sherlock" headline on pension funds. But even though everyone knows it, it needs repeating. Pensions are in horrible shape. Let me explain the game from a vulture's point of view. Corp X. can't make its interest payment on its upcoming note. It needs to borrow just to keep afloat, it does by maxing out its credit facility for the next two quarters. Then, the next bond payment comes up, bondholders don't want to talk about a pre-pack, Corp X. has no choice but to go into default and file for C. 11 protection. Corp. X won't be allowed to leave C. 11 until it cleans out its balance sheet and makes all secured creditors whole again. That means all unsecured creditors get shafted. So they fight like hell to keep as much value as they can. It turns out pension plans are one of the biggest groups of unsecured creditors for corporate america. But they aren't as big as unsecured bondholders (normally), so they often wind up getting screwed in the name of: "Pension Benefit Guaranty Fund" which is a supposed to pay those pension plans that get shed in bankruptcy. For vultures, we can't stand pension plans. They get in the way of an otherwise salvageable business. If its possible, we like to see them make concessions for equity, that way we're assured a market when we need to exit. Of course, this doesn't seem nice at all for us to do. But from an investment standpoint, pensions are like swollen scabs, bound to bleed again unless you tape them over. As much as can be dumped into PBG gets dumped for just that reason.

The FT today though points out that state pensions are in just as bad a shape as corporate plans. Or at least, state pensions are as bad off as everyone thinks corporate pensions are, and corporate pensions are worse off! PBG has already warned that with more corporate 11s taking the pension nosedive and coming back up with the lighter load, it may need a taxpayer bailout. But with state pension plans, there are only two ways to bridge the gulf between promise made and promise kept, benefit cuts or higher taxes. You see that, higher taxes on both ends? State pension bailouts, and corporate pension bailouts.

Now let me tell you what this looks like to me. Basically the business roundtable folks have given the nod to shedding pension plans from the corporate america labor force once and for all. They would never publicly say this of course, but when United does it, and when GM says it might have to do it ("it" meaning die a corporate death in C. 11 and rise again w/out a pension obligation), the word is, pensions are history. The implicit bargain is, "if you let us do this without first going into 11, we can save jobs". This is a bunch of bullshit! These guys have run most of these companies like their own personal castles for the last twenty years. They've been underfunding and raiding their pension plans while simulataneously increasing their bonuses and stock buyback plans. You trust them to save jobs? Maybe their own, but not mine. I'd much rather have these dinosaur companies go through C.11 so we can restructure them, kick management in the balls a little, and teach them how to keep their balance sheet clean again. My advice to Democrats, make this a big issue and don't give into the whining of billionaire CEOs about saving jobs, cause when they're threw running great companies into the ground, the only job left will be that of undertaker.