CHRYSLER’S PROBLEM: IT’S (MOST OF) THE PRODUCT, STUPID!

1/31/13

The Wall Street Journal reported this (i.e., Thursday, 1/31/13, page B6) morning that “Chrysler’s Aging Cars Pose Hurdle.”  It seems that the Fiat miracle is taking more time, money, and effort than expected; while net income is increasing smartly at Chrysler, free cash flow over the next two years is expected to fall by half to $2 billion.  The primary reason for this relentless drain of company cash is the need to refurbish a tired and relatively sorry product line.

None of this comes as a surprise to my regular readers, who recall the following posts on one of this site’s precursors, The Insightful Pontificator:

“THIS ISN’T NEW YORK CITY, OR THE SECOND CITY, OR SIN CITY, AND WE’RE CERTAINLY NO ONE’S EMERALD CITY”, 2/7/11

WALTER P., LEE, AND ME?,  1/10/11

“UH OH, SERGIO…”, 7/3/10

“CAN THEY MAKE IT?  CAN THEY MAKE IT?”,  5/1/09, and

“WE ARE NOT AMUSED”, also of 5/1/09

The main point of those articles is that without good product, you don’t have a good company.   And Chrysler’s product has been wanting for years.   The Journal article has simply confirmed, and events and numbers have borne out, what my readers have known for years now.

Not all the Chrysler product is bad.   Jeep is selling briskly, and the Grand Cherokee is a hot and supposedly stellar product.  But the Grand Cherokee can’t be that good; its updated iteration was to be one of the eight new products Fiat/Chrysler’s CEO, the very capable Sergio Marchionne, wanted to introduce this year before money got too tight.  As I’ve said before, only Wall Street believes that the Jeep line is a great asset, probably because it is one of the few American brands that a Wall Street analyst would consider buying 

The Chrysler 300 is a truly great product, but that might be yours truly’s personal taste, and undying quest to find a product that would replace my long gone but still pined for 1990 Pontiac Bonneville SSE (aka “The Batmobile,” the last car with an automatic transmission that I truly loved), talking.   One of the few American sedans still available with a V8 (One of the others is the Dodge Charger, obviously another Chrysler product..), the Chrysler 300 is distinctive, powerful, safe, relatively fuel efficient, quiet luxurious, fun to drive, and a relative bargain.  And it’s a car that shows one means business.   But even the great Chrysler 300 is in a market segment characterized by (almost) equally great competition.   Still, if I ever get over what my friends and family deride as my manual transmission “fetish,” and start making some real money again, I’ll be driving one of these most testicular of automobiles.  But I digress.

The Ram pickup line also is a more than decent product, but still places third of three in its very competitive and profitable market segment.

Once one gets beyond Jeep, Ram, and the 300, one finds awfully slim pickings at Chrysler…and Mr. Marchionne knows it.   It is his urgent efforts to apply to Chrysler some of the product wizardry Fiat has displayed under his tutelage that are causing financial strain at the third of the Big 3.

One final, and somewhat personal, note:  the first of Mr. Marchionne’s efforts to produce some product fruit from Fiat’s purchase of Chrysler is the Dodge Dart, which seems to have fallen far short of expectations.   This Dart is built on the Alfa Romeo Giulietta platform and is supposed to ride and handle somewhat like an Alfa while providing a level of luxury, and an amount of room, beyond its competitors in the U.S. compact car market.   The car has, to put it only a bit too strongly, bombed, with poor sales and bloated inventories crowding dealer lots.   At first, the Dart’s problems were ascribed to the first few copies’ being available only with manual transmissions.   That problem was solved when Chrysler shipped subsequent, and much larger, batches of cars with slushboxes (i.e., automatic transmissions).  Still the car doesn’t sell.   Why?   Mr. Marchionne opined on Wednesday that there are too many variations and expensive features available of or on the Dart.

Mr. Marchionne is absolutely right.  Yours truly is interested in the Dart for the two reasons it isn’t selling:   It offers a manual transmission combined with some luxury features.  But I have all but given up my admittedly casual search for a Dart because I am confused by the baffling array of model combinations available and find that, when I have figured out what will meet my needs, I can buy a Honda Accord, which is one size larger and is, after all, a Honda, not a Dodge, for the same money.  At anything like the offered side, the otherwise excellent, or at least very good, Dart makes no sense.

However, if I could get a good enough deal on a Dart….

But it is difficult to prosper selling products nearly exclusively to people looking for, and insisting on, a great deal.

GEORGE RYAN AND THE “INABILITY” OF ILLINOIS TO SELL BONDS

1/31/13

The state of Illinois yesterday pulled (The State said “postponed.”) a $500mm bond issue intended to finance a slew of capital projects.   S&P recently downgraded the state to A- from A.  That technically ties Illinois with California for the state with the nation’s lowest bond rating, but since S&P has a “negative” outlook on Illinois and a “positive” outlook on California, our state is, in reality, at the bottom of the heap.  In pulling the deal, the administration of Governor Pat Quinn (no relation) cited that rating downgrade and the unsettling effect the inability of our public servants to address the state’s fiscal maladies has had on the market.  So it looks like the Governor is using the state’s inability to raise money in the public markets as a cudgel to prod the legislature (i.e., Illinois House Speaker Mike Madigan) to do something about our money woes.  Good luck with that, Governor; who do you think got us into this mess?  But I digress.

There are mixed reports on whether the projects that are supposed to be financed by the deal will go forward; the Wall Street Journal said this (Thursday, 1/31/13, page A3) morning that the projects “aren’t expected to be delayed.”  The Chicago Tribune reported on page 8 of today’s paper that whether the projects will go ahead is “unclear.”  Since when did the unavailability of money stop a politician, and especially an Illinois politician, from spending said money?   But, again, I digress.

It’s not so much the State of Illinois’s inability to raise money that “postponed” this deal.  The State can raise the money; it just doesn’t want to pay the interest rates that it would have to pay on the paper.  According to Thomson Reuters, 10 year Illinois bonds yield about 3.2%, about 120 basis points (“bp”s) over 10 year treasuries.  But on an apples to apples, tax adjusted basis, assuming a 35% income tax rate (not the highest rate after the Obama tax increase, but let’s assume, correctly, that not every buyer of Illinois, or municipal in general, paper is in the highest tax bracket), the Illinois paper yields a touch over 4.9%, or nearly 2 ½ times as much as comparable treasury paper.  Astounding.

Further, one suspects, though one can never know, that the only reason that Illinois can sell bonds at those yields, and the only reason that its bonds are not rated junk (BB+, four notches lower than they are now, or below) is because the market, and the ratings agencies, assume that the federal government will not let a state go bankrupt.   Certainly nothing in the finances of the state of Illinois merits more than a junk rating and a yield at least, just to throw out a number, 100 bps (1%) higher than it is now.

So why does the state of Illinois have to pay so much to bribe (a very appropriate verb for out great state, don’t you think?) investors and/or speculators to buy its paper?  

The raw numbers, most saliently, the now $96.8 billion unfunded pension liability and approximately $8.4 billion owed to trade creditors, are bad enough.   But there is something else at work.  Our politicians simply can’t, or won’t, address the state’s fiscal problems, especially its pension problems   Terms like “unfunded liability,” “actuarial assumptions,” and “assumed investment rate” are abstractions to these pols; they will only feel pressure when checks start to bounce or Mike Madigan says “jump.”  Neither is likely to happen in the near term, though the former may be approaching more quickly than most people think.  Why this reluctance to do anything about our pension problems?   The same reason that we got into this problem in the first place:  As I said in my now seminal 1/9/13 piece at the now defunct Rant Political, ILLINOIS PENSION PROBLEMS:   SEND THE CHECK TO MY KIDS,

politicians have learned that, through granting generous pensions to public employees, they can buy today’s votes with tomorrow’s dollars.

Who is going to surrender such a holy grail?   And so while the politicians are nearly inexhaustibly congratulating themselves about doing something regarding immigration reform  (See WOULD THE LAST GUY TO LEAVE ILLINOIS PLEASE TURN OUT THE LIGHTS?, Rant Political, 1/28/13, reproduced below.) and may soon be doing the same about gay rights and maybe even a Chicago casino (See A CHICAGO CASINO:  MORE MONEY FOR THE POLS, MORE PROBLEMS FOR THE TAXPAYERS?, Rant Political, 1/9/13, reproduced below.), they continue to dither about what is clearly the most important and immediate issue:  the looming, if not real, bankruptcy, of the state of Illinois.

Such self-inflicted impotence on the part of our public servants would be bad enough for Illinois’s ability to sell bonds, but there is something else at work:   Illinois’s history and culture, the latter real or perceived, of corruption.   With George Ryan’s having left prison yesterday, only one former Illinois governor is currently living in federally provided housing.   But four of our past eight elected governors have done time, albeit one (Dan Walker) for crimes committed after leaving office.   This is the one area in which Illinois stands head and shoulders above its 49 brethren.  

No one accuses Mr. Quinn (no relation) our current governor, of the types of shenanigans that landed four of his recent predecessors in the hoosegow; his faults lie in the area of competence rather than criminality.  But it is not too much of a stretch to say that, while some people might be surprised, few would be shocked, if virtually any other prominent figure in Chicago/Illinois politics suddenly became the focus of intense federal scrutiny.   This is the legacy left us not only by Rod Blagojevich, George Ryan, Dan Walker, and Otto Kerner, but also by legions of lesser pols throughout the state who have had to become federal guests because of their dastardly deeds.

Further, even leaving aside criminality, the honesty of the whole Illinois political system, and of most of its participants, has to justifiably come into question.   This is a state that repeatedly elects corrupt politicians to high office.   This is a state that nearly revels in its reputation for dirty, dishonest politics, for having the “best politicians money can buy” and where the honesty of a politician is often gauged by his determination to, once bought, stay bought.

Is this the type of state in which you would want to invest?   How much would it take to bribe (again, a very appropriate verb for the Prairie State) you into lending the state of Illinois money?  

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on this subject.

Promised reproduced articles:

WOULD THE LAST GUY TO LEAVE ILLINOIS PLEASE TURN OUT THE LIGHTS?

1/28/13

Illinois Governor Pat Quinn (no relation) signed legislation yesterday allowing illegal immigrants to obtain driver’s licenses in the Land of Lincoln.   The platform on which Mr. Quinn signed this bill into law was crowded with politicians of all ethnicities and of both parties, as if there were two parties in Illinois, but that is grist for another mill.  

Leave aside the merits of the bill, which are, despite the breathlessness of the press coverage, debatable and certainly not self-evident.   What really stunned yours truly about the signing ceremony was that the assorted pols spoke for a combined TWO HOURS in the wake of the signing.   TWO HOURS of being subjected to the bloviations of self-important politicians is enough to make even the most determined, American dream seeking immigrant turn around and head home.  

What is really illustrative about the two hours of self-congratulations, and perhaps about the bill itself, is what it says about the lilliputians we have elected in the Prairie State.   Our state’s major problem is not illegal immigration which, while affecting the lives of many throughout the state, is a federal issue.   Our state’s major problem is that it is growing broke.   Like most states, Illinois is growing broke because the politicians have figured out that, through granting generous, unaffordable benefits to public employees, they can buy today’s votes with tomorrow’s dollars, (See my 1/9/13 post  ILLINOIS PENSION PROBLEMS:   SEND THE CHECK TO MY KIDS.), hence our $95 billion unfunded pension liability.   The politicians on the dais yesterday, breaking their arms patting themselves on the back over passing into a law a bill of questionable importance and efficacy, are the same politicians who have spent the state into oblivion and the same politicians who lack the spine to do anything about the problem they created; again, see my 1/9 post.

Yet these poltroons and popinjays see fit to endlessly and tirelessly congratulate themselves over the licenses for illegals bill…and feel it necessary to take two hours of people’s valuable time to display their manifest wisdom to those on the receiving end of their largesse.   When do they appear before those on the giving end?

A CHICAGO CASINO:  MORE MONEY FOR THE POLS, MORE PROBLEMS FOR THE TAXPAYERS?

1/9/13

While Illinois legislators continue to look for ways to delay action on the pension time bomb that could soon make our state uninhabitable by any rational person, the secondary, and at least tangentially related, issue of a Chicago casino still lurks very close to the surface.  A deal that will bring a casino to the city of Chicago is a virtual lock, now that Governor Pat Quinn (no relation) and Mayor Rahm Emanuel have done the usual chest beating dance designed to show their constituencies that they are tough yet concerned.   And it looks like the ill-fated, perpetually bothersome, and therefore appropriately named Thompson Center, just north of City Hall, might well be the site of the proposed paean to parlous profligacy. 

But one has to ask what benefit a casino would bring to the taxpayers, given Mr. Quinn’s (no relation) insistence, and Mr. Emanuel’s seeming agreement, that 100% of the tax and fee revenue generated by such a casino be earmarked for school construction and modernization.  If all the money goes to construction of new schools and modernization of old ones, nothing, zero, nada, bupkus will go toward solving Illinois’s $95 billion pension problem, Chicago’s proportionally similar pension woes, or paying the state’s unpaid bills.  All we will have accomplished by opening the Loop, or some other city site, to gambling is to give the politicians more money to spend under the diaphanous ruse of “education.”   And it gets worse…not only will the politicians spend the money the casino generates, but they will commit to long term projects based on casino revenue projections that, if history is any guide, will prove too optimistic, leaving such projects to be funded by already exhausted general revenues in the (not too far) out years.   The casino will not solve Illinois’s, or Chicago’s, fiscal problems…it will at best have no impact on them and more probably exacerbate them.

On the other hand, perhaps the politicians in the Land of Lincoln are being clever enough to realize that money is a fungible commodity.  Then they can fund school projects with casino money and use money that would otherwise have been spent on those projects to pay past due bills and fund pensions.  Those with a sense of the history of our once great state remember that was the approach employed when the Illinois lottery was initiated; all the lottery proceeds went to the schools, leaving funds that would have gone to the schools available for pols to spend elsewhere in their endless crusades to remain on the public payroll.   If the same approach is used with casino revenues, and the newly available funds are used not for spending in areas other than school construction but, rather, to fund pensions and to pay bills, a casino would indeed have a salubrious impact on our state’s finances.   But those are too huge “if”s.   Further, such an outcome would require duplicity on the part of our politicians, but that is one of the few “virtues” our state displays in fulsome abundance.

JEREMY SIEGEL, MONEY FUNDS, AND THE STOCK MARKET

1/31/13

Esteemed Professor of Finance at the University of Pennsylvania, and noted permabull, Jeremy Siegel was on CNBC this morning arguing, as he always does, that stocks very cheap and, consequently, the only place to put one’s money is in stocks.  He argued that the much vaunted move of the retail investor into the equity markets has only scratched the surface.  In support of this contention, Professor Siegel argued that there are $3 trillion of assets in money market funds and that much of that money could flow into equities as people tire of earning nothing on their money.  Professor Siegel is far from alone in making this argument; it is a perennial staple of the bulls’ talking points.

As I have stated before, when I was young I knew everything about stocks and the advisability of investing in stocks at any given time.  I knew when the market was cheap and when it was rich, and was ever ready to tell you, or anyone, my opinion on the stock market’s attractiveness or lack thereof.   As I got older, however, I seem to have lost a measure of grey matter because I am largely agnostic on whether stocks are cheap or rich.  The market and what it does seem to get more mysterious by the day.   So I don’t know whether, at this juncture, the market is cheap or rich and, while I have opinions, I am far less confident of those opinions than I was twenty or thirty years ago.

So if one is bullish, as is Jeremy Siegel almost all the time, that is fine; if one is bearish, that is fine as well.   The bulls are about as likely as the bears to be right.  But if one is bullish, the “money market funds have a lot of money to invest” argument is poor reason to be bullish because money market funds always have a lot of assets parked in them; at present, that figure is about $2.7 trillion.   But the vast, overwhelming majority of that money will stay in money market funds; it is not chomping at the bit to dive into the stock market.   The permanent home of most money fund assets is the money market fund.

To cite very recent history, total money fund assets on were about $2.58 trillion on 9/12/12.  They are now, as I said before, about $2.7 trillion.  Thus, money fund assets have increased about $120 billion in the last four and a half months.   $120 billion seems like a large number, but not if you are a Congressperson or are considering the size of the U.S. economy.  To the extent that $120 billion matters, however, if one were to follow Dr. Siegel’s logic, that increase in money fund assets would have a desultory effect on the market as assets grew in money funds rather than flowing out of such funds into stocks.  But the S&P 500 is up just a touch over 3% in the same period.   Admittedly, this is a short time frame, but it is nevertheless illustrative.  And to argue that there were other things at work over the last four and a half months is to argue my point: money fund assets flows have little to do with stock market moves.  Thus, to prognosticate that the stock market is cheap because there is a “lot of money” on the sidelines is to miss the fact that most money fund assets are not on the sidelines; they are on the field on which they choose to play and will stay there.

BEN BERNANKE VS. THE DOLLAR AND THE ELDERLY

1/29/13

Yours truly has been alarmed for years now about the aggressiveness of the Fed’s monetary easing; in fact, I feel so strongly about it that I made it the subject of my final post at Rant Finance, P/E RATIOS, EASY MONEY, AND OTHER FINAL THOUGHTS FOR MIGHTY INSIGHTS AT RANT FINANCE

which I have reproduced below.  

The Fed’s easy money policy of zero short term interest rates and at least three rounds (but who’s counting?) of quantitative easings (“QE”s) was ostensibly designed to somehow remedy a problem born of too much spending and borrowing by encouraging more spending and borrowing.  In the process, the policy has financially decimated much of our nation’s elderly population who had the temerity to actually save and invest rather than, as the Fed would advise, follow the advice of my warped generation and spend every last penny and then some out of a perverse notion that spending like a fool will somehow make on happy, fulfilled, and intelligent looking.  Not only have the elderly been tossed over the cliff, but easy money also has the potential to do for our currency what the Fed has already done to the elderly. 

The stated primary goal of Ben Bernanke’s war on the elderly and the greenback is to stimulate the economy by making borrowing and spending cheaper.  A secondary, not often stated, but never denied goal of the Fed’s easy money policy is to force up the price of stocks and other risk assets.  The Fed has so far failed to have much luck stimulating the real economy; we are still growing at a mediocre, at best, pace.  But the Fed has done a remarkable job of stimulating the stock market; note the doubling of the market since Obsequious Ben and His Merry Men embarked on their not all that brave crusade against saving.  The relative success of the efforts to stimulate the economy and goose the stock market have led both the cynical (I prefer realistic.) and the not so cynical to suggest that indeed the primary motive behind the Fed’s rapid easing strategy was to save the stock market and Wall Street rather than the economy.

So how has the Fed managed to succeed in propelling the stock market to levels that seem, to some of us, out of line with paltry progress of the real economy?   The most stated, and obvious, means of sparking the market is pushing the elderly (There Ben goes again!) and other risk averse investors out of safe investments like CDs and money market funds and into the stock market.   The guy who is getting zero on his savings, and thus rapidly eating into his nest egg, looks to earn something somewhere, so he goes into dividend paying stocks or longer and/or less creditworthy bonds.   He is more exposed than he would like to, or should, be and will get cold-cocked if (when?) the stock and other riskier markets head back down, but Ben Bernanke and his pals (and future employers) on Wall Street are happy, so who cares?

There is a less obvious way, however, that the Fed’s easy money policy has goosed the stock market.   The policy has directly driven down treasury and mortgage backed securities rates but has also brought down interest rates along the maturity and credit spectrum.   Even high yield, or junk, bond rates have been brought down dramatically since just about all rates key off treasuries and one of the receptacles of yield seeking money is the high yield bond market.   Spreads in the high yield market are tight, though not alarmingly so.   But given the low level of treasury yields, absolute yields on junk bonds are at or near historic lows; the ETF HYG is yielding around 5.3%, while another popular high yield index, the FINRA-BLP Active High Yield U.S. Corporate Bond Index, yields around 5.9%.   These yields stagger yours truly, who made his bones in the high yield market back in the ‘80s when junk yields were routinely twice as high, but I digress.

With the thirst for yield driving down the price of junk financing, it becomes very cheap for private equity firms to finance leveraged buyouts (“LBO”s).   Indeed, as the Wall Street Journal reported last week, LBO activity is picking up and is expected to ramp up further given the seemingly improving economy and the easy and cheap availability of junk financing.  This not only puts a big quantitative, and larger qualitative, bid under the stock market, but it makes a lot of people richer:  private equity guys, investment bankers, bond salesmen, Wall Street lawyers, to name a few.   So, in the eyes of Obsequious Ben and His Merry Men, the mission has been accomplished.   After all, it is not the elderly middle class saver who will be writing the checks when these monetary estimables at the Fed decide it is time to cash in on their years of “public service,” so who cares that this policy of enriching Wall Street has impoverished our senior citizens?

PROMISED EARLIER POST:

P/E RATIOS, EASY MONEY, AND OTHER FINAL THOUGHTS FOR MIGHTY INSIGHTS AT RANT FINANCE

1/28/13

Stock prices, interest rates, and one of my recurring topics at Rant Finance, worldwide monetary laxity, occupy my thoughts as Rant Finance winds down and yours truly moves on to a new blog, Mighty Quinn on Politics and Money.

--Some argue that stock, even after the breathtaking rally of the last several weeks, are cheap, citing the S&P’s price/earnings (“P/E”) ratio of about 14.   Bulls further elaborate on this argument by stating that, while 14 is not a rich multiple even under “normal” circumstances (debatable, according to yours truly),with interest rates still not all that far from historic lows, the market’s multiple should be much higher.

Whether stocks are cheap or rich is beyond me; back when I was young and knew everything, I was in the habit of telling anyone who showed even the list bit of curiosity or interest what I thought about the level and direction of the stock market.   Now that I have been around for a few trips around the block and have seemingly lost a great deal of my former smarts in the process, I am nearly always agnostic on the direction of markets.  (I elaborated on the futility of trying to call markets in one of my first posts on Rant Finance, NOSTRADAMUSES ON PARADE, 5/7/12.)  But even if one thinks stocks are cheap at these levels, the “multiples should be much higher at these levels of interest rates” argument is a poor reason for such bullishness.  

Interest rates are not low due to natural market forces such as the sluggishness of the economy or a consensus regarding the quiescence of inflation; rates are low because the Fed has done everything it can to keep them low and has stated that it will continue to do so for the foreseeable future.   People know that rates are artificially low and that this Potemkin low rate environment cannot last forever.   Thus, the multiple expansion pressure that low interest rates normally exert is, in all likelihood, not a factor in the present rabbit hole monetary environment we are experiencing.

--Speaking of the present rabbit hole monetary environment, one of my recurring themes in my musings on this site has been that world monetary authorities have completely abrogated their responsibilities to maintain the values of the currencies over which they have been given tutelage.  See, for example, my 10/23/12 piece,  ARTIFICIALLY LOW RATES:  FROM MR. BIBLE’S LIPS TO GOD’S EARS and my 9/11/12 piece, A LOOK AT MARIO DRAGHI FROM THE FAR SIDE and the posts to which they will refer you.

The latest incidence of the monetary authorities tossing their inflation responsibilities over the side in order to provide some temporary juice to their domestic economies is the wholesale printing of yen by Bank of Japan (“BOJ”) President Masaaki Shirakawa has been undertaking at the behest of new Prime Minister Shinzo Abe.   (See my 12/19/12 piece, SHINZO ABE TO THE BANK OF JAPAN:  BE MORE AMERICAN!)  Yes, Japan has plenty of problems, only one of which is the constant fear of tipping into full scale deflation.  And, yes, some monetary loosening is needed as part of a comprehensive cure for Japan’s problems, if indeed such a cure is possible.   But German Chancellor Angela Merkel and Bundesbank President Jens Weidmann were right last week when they accused Messrs. Shirakawa and Abe, and Mr. Shirakawa’s colleagues among world monetary authorities, of engaging in a wholesale currency war, heartily joining in a competition to see who could debase his or her currency the most quickly and decisively.   The credibility of Ms. Merkel and Mr. Weidmann would be stronger if they did not allow themselves to be rolled by their colleagues in the eurozone, but that is grist for another mill that has been visited on numerous occasions on Mighty Insights at Rant Finance.  See my 6/29/12 post “PICTURE SHOW, SECOND BALCONY, WAS THE PLACE WE’D MEET, GO DUTCH TREAT, YOU WERE SWEET...” and my 5/3/12 post, DANKE SCHOEN, CHANCELLOR MERKEL. 

If the rest of the world doesn’t become more German on monetary matters, indeed, if the Germans don’t become more German on monetary matters, there is little hope for the future of fiat currencies.   Since most central bankers, and most saliently our own Ben Bernanke, have chosen to abrogate their responsibilities and show no signs of becoming more Teutonic in their approach to their jobs, it is hard not to hold gold, silver, and other alternative stores of value, even at these seemingly inflated prices.

EGYPT: MEET THE NEW BOSS, SAME AS THE OLD BOSS?

1/29/13

Egypt is rapidly, and eminently predictably, descending into a dystopia of either utter chaos or the reimposition of tyrannical rule, this time with Mohammed Morsi and the Muslim Brotherhood replacing Hosni Mubarak as the bad guy du jour.   Either would be bad for Western strategic and humanitarian interests.  The latter, though, seems preferable to a failed state sitting astride the Suez Canal and the oil fields of North Africa, abutting Israel, and in reasonably close proximity to the what looks to the latest theater of the “worldwide war on terrorism,” the fragile states of the southern Sahara and the Horn of Africa.  But we are talking about picking our poisons when confronting possible outcomes in Egypt.   None of this is a surprise to my readers; see my 1/15/12 piece in the Insightful Pontificator DON’T BOTHER TO WAKE ME WHEN THE REVOLUTION’S OVER and the posts to which it will refer you.

In this latest manifestation of the inevitable chaos into which Egypt is falling, riots broke out over the weekend as a general response to the increasingly authoritarian rule of President Morsi.  When Mr. Morsi imposed a state of emergency in the cities of Port Said, Suez, and Ismailia, the rioting intensified.  The protesters’ main point of contention is that Mr. Morsi is simply a redux of Hosni Mubarak in Islamic guise.  They may be right.   If they are, though, one might argue that authoritarian, even dictatorial, rule is inevitable when starry-eyed academics and media dreamers push over-educated, underemployed “youths” to push for “democracy” in countries that are completely unprepared for self-rule.

Further, if the protesters are indeed right and the whole struggle for “democracy” has been an exercise in replacing one dictator for another, the response of those of us reasonably conversant with history should be something akin to “So what else is new?”  Since the dawn of civilization, and especially in modern times, the story of genuine revolution, in which governments are overthrown and replaced (The American Revolution was not such a revolution; the government of George III was not overthrown; a group of colonies shook off British rule but had no quarrel with the way the folks back in England chose to govern themselves.  Hmm…once again, we could learn a lot from our Founding Fathers, but I digress.) has been one in which one tyranny is replaced by another, often more brutal and evil than its predecessor.  And the new boss is often worse than the old one.   Some examples:

--In Iran, the Shah was replaced by Ayatollah Khomeini and the mullahs.

--In Afghanistan, the Soviets were thrown out and eventually replaced by the Taliban.  (The sound of throat clearing here would probably be appropriate.)

--In Rhodesia, which became Zimbabwe, white minority rule was replaced by the maniacal Robert Mugabe.

--In Cuba, Fulgencio Batista was replaced by Fidel Castro.

--In Spain, the monarchy was replaced first by a fledgling Republic but ultimately by Franco after becoming a practice field for World War II.

--In Russia, Tsar Nicholas II was replaced first by the Mensheviks and then by the Bolsheviks.

--In France, the monarchy was replaced ultimately by Napoleon.

--In Rome, dictator Julius Caesar was assassinated.  The result was not a return to the Republic, but, rather, the Empire.   The Empire had its positive attributes, but also brought us, rather soon after Julius’s death, the likes of Caligula and Nero.

Those more conversant with medieval and ancient history could doubtless come up with more examples.   But the point is that, despite the fervent hopes of Western academics, media, and politicians, self-rule is not for everyone.   And not everyone wants self-rule.  Think Maslow’s hierarchy of needs.  Until a society stabilizes to the point at which people can eat, support their families, and achieve a modicum of prosperity, the average person cares far more about where his or her next meal will come from than s/he cares about voting and, unlike the starry-eyed spawn of the ‘60s and ‘70s at CNN and its ilk, cannot simply leave the country when the latest western crusade for “democracy” has its near inevitable consequences.

Egypt is a mess; though there is always hope that President Morsi will usher in a moderate Islamic rule akin to that of Turkey, the greater likelihood is that Egypt will either descend into chaos or be ruled by an Islamic dictatorship.   The West bears a measure of responsibility for whatever outcome transpires; Western self-styled intelligentsia, after all, were naively cheering on the “youth” demonstrating for “democracy” in Tahrir Square and letting perhaps good intentions trump strategic and humanitarian interests and good sense.   We should keep this in mind the next time John McCain, or Barack Obama, urges us to intervene in the interests of “democracy” or “self-rule.”  In Syria, for instance.  Or in any of the other places where the offspring of the elite decide they know what is best for the average working stiff who is just trying to make it to work alive so that s/he can feed his or her family.

PAUL RYAN: MORE PAP AND PABULUM FROM THE MASTER OF HYPOCRISY

1/26/13

Representative and erstwhile vice-presidential candidate Paul Ryan (R., Wis.) appeared at a National Review Institute event today and accomplished nothing other than demonstrating how far the National Review has fallen since the death of Bill Buckley.

Mr. Ryan offered up the usual pap and pabulum of which he is one of Washington’s foremost dispensers.  Some examples:

"We can't get rattled. We won't play the villain in his morality plays. We have to stay united. We have to show that if given the chance, we can govern. We have better ideas."

"If we want to promote conservatism, we'll need to use every tool at our disposal.  Sometimes, we will have to reject the president's proposals — that time may come more than once. And sometimes we'll have to make them better."

The Wisconsin wunderkind went on to bloviate that the GOP should have two main goals for the next four years:  "to mitigate bad policies" and "to advance good policy wherever we can."

This is what passes for deep thought in today’s GOP.

Mr. Ryan could have been truly refreshing and honest, admittedly two traits completely out of character for him, had he provided advice based not on the completely false image he seeks to portray, and that the hapless GOPers have somehow bought, but on the way he has actually conducted himself.  If he spoke based on what he DOES, rather than what he SAYS, Mr. Ryan would have said something like:

“I’ll give you some advice.   Don’t be a chump and work your butt off in the private sector where hours are long, work is tedious, no cameras follow you around and there are no legions of sycophants around whose job it is to tell you how wonderful you are.

“No, don’t be an idiot.  Get on the public payroll and stay there, like I have for my entire life.  Focus your efforts on never having to do the things you advise other people to do, on never having to live with the consequences of the laws you endorse and help to pass.  And never, ever live or work outside Washington; this place is amazing!

“And if you really want to cash in, spend your time at the public trough decrying everyone else at the public trough.  Spend your time decrying the debilitating impact and innate evil of the very government whose checks you cash for a living.

“Further, never, ever let your purported philosophy of government stand in the way of your career, of your adulation, of your advancement.   When that philosophy conflicts with further solidifying, and expanding, your spot at the trough, go with the latter.   Look at me!   I talk about small government and the virtues of the private sector all the time.  But when not voting for TARP, or the car bailout, or Medicare Part D might have had the remotest chance of ending my sinecure here and forcing me to get a real job back in Wisconsin among the people I purport to represent, why, I just voted heartily for those most egregious expansions of government in the history of my time on the Hill.

“Don’t worry about being attacked for, or even called on, the utter hypocrisy that would characterize your very career.   The so-called ‘conservative’ movement is filled with people who won’t care about what you do; they will just lap up what you say.  They will praise you as a guy with the ‘right stuff,” they will just roll around and swallow the figurative cow excrement you shovel them.   These chumps will actually believe you mean what you say!  Can you believe it?”


Now, THAT would have been a truly honest speech.  But we are talking about Paul Ryan here, so such a speech would never, ever take place.

FEDERAL SPENDING: MAKE THEM PAY!

1/26/13

In her weekly column in this weekend’s (i.e., Saturday/Sunday, 1/26-1/27/13) Wall Street Journal, Peggy Noonan makes the following statement in arguing against the fiscal policy of Barack Obama and for fiscal prudence:

“Some, especially those who are younger, do not fully understand that what is supporting them is actually coming from other people.   To them, it seems to come from ‘the government,’ the big marble machine far away that prints money.”

Under normal circumstances, Ms. Noonan would be right, as she usually is.   But these aren’t normal circumstances; in the Bush/Obama years, we have fallen down the fiscal policy rabbit hole.

The hole in Ms. Noonan’s argument is, ironically, highlighted in her description of the government’s being, in some people’s perceptions, a machine that “prints money.”   In the modern Bush/Obama approach to fiscal policy, 30 cents of every dollar spent is borrowed.   So nobody is paying for roughly one third of the government services that people are demanding or are otherwise being handed.   One could argue that we are paying the interest on the money borrowed, but, at today’s near historically low interest rates, the interest on the debt is negligible.   Wait until interest rates return to “normal” levels if you want to see truly brobdingnagian deficits, but I digress.

Speaking of low interest rates, they are low because the Fed has aggressively expanded the money supply and targeted interest rates in its never ending crusade against elderly savers in order to reward the spenders and borrowers who got us into the economic miasma from which the experts tell us we are emerging.  The major component of this effort is purchasing treasury and mortgage backed securities with money that the Fed creates almost literally out of thin air.  In fact, the Fed buys roughly ¾ of net treasury borrowing in such a manner.  

So…

We are borrowing about 30 cents of every dollar we spend.   The Fed, in turn, is providing, by money creation, 75 cents of every dollar we borrow.   So what we have is a monetary policy problem perhaps as large as our fiscal problem.  Indeed, the monetary problem is probably larger because without such vigorous and energetic cooperation from the Fed, the government could not borrow, and spend, so much money.

So…

Ms. Noonan, who would be right under normal circumstances, is only partially right in the brave new world of BushObamanomics.  No one is paying for a large measure of the government “services” that are being provided.   We are effectively getting government at a 30% discount.   Nothing drives up demand like discounted prices; no wonder the demand, from all points along the political spectrum, for government continues to grow!

If indeed we want to throttle the growth of government (and yours truly and Peggy Noonan surely do), we should make someone pay for the government we demand.   Then those who have to foot the entire bill might be inspired to offer some spirited resistance to those who demand more and more from government.   No one likes higher taxes, especially yours truly.  But perhaps a balanced budget amendment that would wind up requiring higher taxes when people demand more government might be the most effective means of checking the seemingly never ending expansion of the federal leviathan.  Nothing else has worked.

THE WRIGLEY FIELD REHAB: “(RAHM) LIKED MY DEAL, DIDN’T HE?”

1/24/13

Rarely is yours truly in a position or mood to praise either the Ricketts family or Mayor Rahm Emanuel.   However, the deal that the Ricketts’ offered the city, and that Mayor Emanuel was able to extract with hard bargaining, seems too good to be true.

The Ricketts want to refurbish Wrigley Field, which, for all its beauty and splendor on a television screen, is falling apart.  Like most mega-wealthy owners of big league sports teams elbowing their way to a prime position at the public trough, the family sought some kind of a public subsidy to help with their project.  At first, the family proposed retaining all, or at least a major share, of the increase in amusement taxes collected at Wrigley for the next several decades, to help with the $300 million renovation.   A deal was almost reached until the family’s patriarch upset the Mayor by considering bankrolling a media campaign against the Mr. Emanuel’s former boss, Barack Obama.   (See my 9/17/12 post on Rant Political, HOW BIG A HYPOCRITE IS JOE RICKETTS, reproduced below and my 5/18/12 post on the Insightful Pontificator, PIPING THE MAN’S TUNE on this aspect of the subject.)  Negotiations resumed, as they always do when politicians and wealthy, connected people see an opportunity to mutually benefit from the expenditure of taxpayer money, after the Joe Ricketts/Barack Obama storm had blown over.

One supposes that we should be grateful for Joe Ricketts’ tirade that scuttled the talks based on the amusement tax subsidy; the deal that has emerged from the resurrected negotiations seems too good to be true.   The Ricketts’ now say that they will refurbish Wrigley with no ($0) public subsidy if only the city will allow them to display more advertising in the park, have unlimited night games and several night concerts at the field, and use Sheffield Avenue as a blocked off site for street festivals during home games.   The Mayor is trying to extract an even better deal, proposing, for example, that the 30 game limit on night contests not be eliminated but, rather, expanded to 40 or so games.   It seems to this observer, though, that rather than hold out for a little trimming at the edges, the Mayor ought to hit the Ricketts’ bid before the family arises from its torpor and the deal goes away.

In this era of politicians’ dancing on the financial strings of billionaire team owners, it is unheard of for a major stadium to be constructed or overhauled without the taxpayers footing the bill one way or the other.   But here we have a deal in which the taxpayers are asked to give up nothing and the only people who are hurt are the owners of the “rooftop clubs” across Waveland and Sheffield from the ballpark and an amorphous group of people known as “the neighbors.”

It’s hard to work up much sympathy for either of these supposedly aggrieved parties.  The “rooftop club” owners are stealing the Cubs’ product and feel entitled to keep stealing it in perpetuity.   One could argue that the club owners have invested big money in their facilities based on a deal that they thought guaranteed them access to their purloined product for decades.   But even if the proposed deal goes through, the clubs will still exist and profit.  The views they can provide will not be as unobstructed as they currently are due to more advertising blocking the sight lines and there is a chance that the owners will consequently have to charge less for their purloined product.   Sob.

And the neighbors?   They moved in next, or in reasonable proximity to, a ballpark that has been there since the outbreak of World War I in Europe and now they’re complaining about crowds and night games?   This is much akin to people who move in next door to an airport and complain about the noise.

Neither the “rooftop clubs” nor the “neighbors” have much of an argument, but they both have the ear of Alderman Tom Tunney, and the rooftops have paid big money for that ear, to the tune of $190,000 in direct and indirect campaign contributions.   And nothing focuses the attention of a politician, and especially a Chicago alderman, like cash.   So Mr. Tunney is, at least at this juncture, fighting the deal, preferring that the taxpayers be forced to reach into their pockets so that the “rooftop owners” will continue to reach into their pockets for him.  

But since when has Rahm Emanuel given much consideration to the thoughts, desires, and pleadings of members of his City Council?   If he decides he likes the Ricketts deal, Alderman Tom Tunney will be collateral damage.    After all, there are plenty of people who could be 44^th Ward Alderman, but there aren’t many such stellar opportunities to burnish a Mayor’s image as champion of the taxpayers.

Just one more thought:   This deal does indeed sound too good to be true.  Either I have to wake up from this dream or there’s something malodorous in this deal that neither I nor anyone else has been able to sniff yet.

 THE AFOREMENTIONED ARTICLE ON JOE RICKETTS:

HOW BIG A HYPOCRITE IS JOE RICKETTS?

9/17/12

Joe Ricketts, the billionaire founder of what has come to be known as TD Ameritrade, has put up $10mm for an independent media campaign supporting the presidential candidacy of Mitt Romney and another $2mm for a similar campaign supporting GOP congressional candidates.    He is providing the funding through an independent PAC called (Get this.) The Ending Spending Action Fund, eschewing contributions to similar independent PACs so he could spend his own money the way he wants to spend it, an admirable course of action.

But…

isn’t Joe Ricketts the patriarch of the Ricketts family that owns the Chicago Cubs?   And isn’t that same Ricketts family negotiating with (begging, really) Chicago Mayor Rahm Emanuel for massive taxpayer subsidies for the modernization of Wrigley Field, the only asset that makes the Cubs a viable franchise?  (See a 5/18/12 piece in The Insightful Pontificator entitled PIPING THE MAN’S TUNE for more commentary on this very situation and my 9/10/12 Rant Political piece THINK THE TEACHERS’ STRIKE WILL HURT RAHM EMANUEL?   THINK AGAIN, along with my 8/4/12 piece TRUSTING THE CHICAGO POLITICIANS, for background on the state of Chicago politics under Mayor Emanuel.)

If Joe Ricketts is so dead set against spending, why is his family asking the taxpayers of Chicago to spend money making them even richer than they already are?   Is this yet another case of a self-styled conservative opposing federal spending unless it helps him?   No one, or at least no sane person, would argue that all government spending is bad, but most of us do not make our determinations regarding the salubriousness of public spending by the degree to which it helps us.

One might try to argue that the senior Mr. Ricketts is not involved in the Cubs, that it is his kids, who run the team, who are bowing and scraping before Mr. Emanuel for the luscious taxpayer bone they so crave.  But the team is owned by a family trust, in which Mr. Ricketts remains involved and which would not exist but for his efforts.  Without Mr. Ricketts, his kids would not have had anything like the money necessary to buy their latest toy; the Ricketts family owns the Cubs and without Mr. Ricketts there would be no Ricketts family, figuratively and literally.

Joe Ricketts talks a good game and puts his money where his mouth is. Unlike his big spending, GOP supporting colleagues, he is not a blind party loyalist but is bipartisan in his desire to control spending and unseat incumbents who exacerbate our spending problem.  But actions speak louder than words, and the actions of the family he heads are echoing the refrain we seem to hear from many self proclaimed small government conservatives:

“I hate it when government spends money…on other people.”