WHAT THIS YEAR’S EMERGING MARKETS DEBACLE OUGHT TO TELL US

6/29/13

Emerging markets stocks have taken a beating so far this year.   The MSCI Emerging Markets Index is down 13% while the S&P 500 is up 13% year to date.  This post, however, is not about emerging markets stocks.  As loyal readers know, I keep a hefty portion of my equity investments in emerging markets stocks (See 6/20/13’s INVESTORS:   HERE’S WHAT TO DO WHEN THERE’S NOWHERE TO GO or…

GIMME THAT OLD TIME RELIGION), but not because I necessarily think they will do well in the six months, year, or even five years.  Yours truly owns a disproportionate dollar amount of emerging market stocks because I think that, over the long run, the growth prospects in those markets are better than the growth markets in the developed world.  I have no idea what the emerging markets will do in the next year or two years, and that lack of a crystal ball bothers me not a whit.

The Wall Street Journal reports this morning (“Air Goes out of Emerging Stocks,” Saturday/Sunday, 6/29-6/30/13) that, in a poll of 165 “money managers at top investment firms” taken last December by Russell Investments, emerging markets elicited more bullish sentiment than any other asset class.  2/3 of the surveyed managers were bullish on emerging markets stocks, which turned out to be perhaps the worst performing asset class.  At least as interesting is now that the emerging markets got pounded despite the professional investors’ bullishness, some of those esteemed pros are now changing their tune and getting bearish, effectively buying high and selling low, which is not the way to make money in the markets.  

The larger lesson has little if anything to do with emerging markets; instead, it has to do with the prescience of professional money managers as a group, a group of which I was a part for many years.   Judging from their not all that unusual huge miss on emerging markets, professional money managers are about as likely as you are, I am, or anyone is to be right about the short term direction of any market…about 50/50.   Perhaps in the wake of the emerging markets call of these esteemed, highly paid money managers, perhaps that 50/50 probability is too generous, but I digress.

 The lesson, it would seem, is two-fold.  First, completely forget about the short term performance of the asset classes in which you are invested or not invested.   The movement of markets, at least in the short term, is nearly completely random, and very, very few people can call those movements no matter how much you pay them, or how much Brylcream they put in their hair.  As I have said ad nauseam in the past, the way to make money in the markets while protecting yourself is to invest for the long term according to your risk tolerances and rebalance religiously.

Second, be wary of financial advisors and professional investors.  There are many (okay, some) very good ones, several of whom are known to yours truly personally.  But there are many more charlatans out there who can do little for you but take your money.  To the extent you don’t want to invest on your own, or, in many cases understandably, don’t feel you are capable of doing so, by all means, use a financial advisor.   But don’t leave your common sense at the door.  And never hire someone to help you with investing based on his or her purported ability to call the direction of markets.  As I’ve said before, anyone who thinks s/he can call the markets has not been sufficiently humbled by experience to be entrusted with any of your hard-earned money.

Since this post started out on the emerging markets, I feel compelled to make an observation on those markets, which will not at all affect my generous holdings in those markets.  As of yesterday’s close, the price/earning (P/E) ratio of the aforementioned MSCI Emerging Markets Index was 10.7 vs. the S&P’s 15.7 P/E.  That’s a very wide spread; normally, the S&P has a lower P/E because of the assumed faster growth in emerging markets.   When you combine those numbers with my normally contrarian view of the markets (and of life, but I digress) and consider the newfound bearishness on emerging markets among many in the professional investing community, yours truly is kind of liking those emerging markets.   But that view is no reason to go out and buy emerging markets stocks; I don’t have any idea where those, or any, markets are going for the short or intermediate run…but at least I know I don’t know where markets are going.

EGYPT AND MR. MASLOW

6/28/13

As Egypt prepares for the huge demonstrations planned for Sunday against the Islamist government of President Mohammed Morsi, we are being reminded of the difficult conditions in Egypt, most notably high food prices and a lack of jobs.  

Back in the days when the Egyptian revolt was brewing, I wrote extensively on that revolution in Rant Political and the Insightful Pontificator.   My only post on this topic for Mighty Quinn on Politics and Money was 1/29/13’s EGYPT:  MEET THE NEW BOSS, SAME AS THE OLD BOSS?   My thoughts on the situation in Egypt have changed not at all since the outbreak of the revolution, to wit, such sentiments as democracy, self-rule, etc., etc., may sound fine in the newsrooms and faculty lounges of the West.   But when people are struggling to eke out what we would consider a pathetically meager existence, people simply don’t care what CNN and the faculty at Columbia think is good for them.   They want to work and they want to eat.   Indeed, most of the frustration with Hosni Mubarak resulted from skyrocketing commodity prices in Egypt; increases in the price of wheat were most acutely felt in what was and is the world’s largest importer of wheat.   Simply recall Maslow’s Hierarchy of Needs, which you learned in your psychology, sociology, management, or marketing classes and you will understand what is going on in Egypt and throughout much of the Middle East as the “revolutions” so adoringly covered by the western media leave the populations of the afflicted countries indifferent, disillusioned, or far worse. 

In Egypt, things are even worse.  Not only is the hardscrabble working population left worse off than when the revolution began, but even the starry-eyed, overeducated, underworked scions of the better off who, to the cheers of the West, sparked much of the revolutionary activity, are left out in the cold as their revolution has been highjacked by Islamists.   The people are poorer.  The naïve idle are frustrated.  The nation sinks into dysotpia.   And who is being blamed for the misery?   You guessed it…the United States.  And deservedly so; until we can learn to keep our proboscis out of places where it doesn’t belong (See, for example, only my latest post on Syria, SYRIA AND THE WAR PARTY:  “AFTER YOU GET WHAT YOU WANT YOU DON’T WANT IT…”, 6/17/13), we deserve the derision we get throughout the Middle East and much of the entire developing world.

But western popinjays and poltroons in the media, academia, and “public life” can strut, preen, and declare their allegiance to high minded ideals like “democracy,” a term that not even they fully comprehend.

TREASURY INFLATION PROTECTED SECURITIES (“TIPS”): REPLACING PANIC WITH CALM PERSPECTIVE

6/26/13

As anyone with a pulse who has been able to somehow tear himself or herself away from the “All Blackhawks, All the Time Because, After All, What Could Possibly Be Nearly As Important” coverage here in Chicago knows, bonds have taken a terrific beating of late.  Treasury Inflation Protected Securities (“TIPS”) of which I have been so enamored, and of which I own so many (as a proportion of our total holdings) have been beaten up at least as badly as conventional bonds.  

Some numbers can best convey the carnage in TIPS.   I am using the “closing” 10 year TIP yield (I had to be approximate for 12/10/12 and 6/24/13 on the yields; I’m an investor in TIPs, not a trader of TIPs, and so don’t necessarily follow the yield on a daily basis.) and the closing price of the exchange traded fund (“ETF”) TIP as indicators of levels:

Date                             10 Year TIP yield                     TIP Price

12/10/12 (High)            -1.00% (App)                          123.30

4/5/13 (2013 High)       -0.78%                                     122.57

6/24/13 (2013 Low)     0.60% (App)                            110.02

6/26/13 (Today)           0.54%                                      110.72

Note how tough the last few months have been.   Obviously, I had some doubts about my loyalty to TIPS, especially given the misgivings I expressed in my last post on TIPS, 2/2/13’s YES, I’M STILL HOLDING ONTO MY TIPS and the posts to which it referred my readers. 

But, as I indicated on 6/20/13 (INVESTORS:   HERE’S WHAT TO DO WHEN THERE’S NOWHERE TO GO or…GIMME THAT OLD TIME RELIGION), I have taken no action on my TIPS, or on any of my investment positions, in response to the market turmoil of the last several weeks.  Full disclosure, though…I do have a rebalancing date on Friday and may sell or buy TIPS as part of that rebalancing, but rebalancing has nothing to do with one’s perceptions of the market; it is, instead, the sine qua non of rational investing and must be done religiously regardless of one’s feelings about the market, as I have said and written ad nauseam in the past and will say and write until the day I die.

Besides my aversion to getting emotional and consequently doing dumb things in response to market gyrations, there is another reason I have done nothing on TIPS, or anything else in my portfolios, and do not, on reflection, feel bad about not lightening up on TIP position.  That reason is PERSPECTIVE.

Let’s use the price of the ETF TIP as a surrogate for TIP performance.  I purchased my largest TIP position in three bites…in June, 2004, July, 2005, and June, 2006, coinciding, not at all coincidentally, if you will, with one of my rebalance dates and with my gradualist approach to investing.  I have reinvested all interest payments or, technically, dividends since TIP is an exchange traded fund.   My average price on my TIP position is 104.738, which is, of course, inflated by the reinvestment of dividends at higher TIP prices.   Those 2004, 2005, and 2006 purchases were made at the prices of 102.44, 107.23, and 100.56, respectively.

As can be seen in the numerical array above, TIP closed today at 110.72, considerably above my average price and, more importantly, since these are bonds, I have been collecting, and reinvesting, interest payments along the way.   Further, when I bought those bonds, I didn’t have the expectation that TIP would trade as high as 123.30, at least not as quickly as it did; such price appreciation, when added to the dividends collected and reinvested, would result in an unusually high return a bond investment, or at least for a bond investment in which credit was and is not a consideration.  As loyal readers know, I knew at or about the time of the high that TIPS, like conventional bonds, had run too far, too fast, courtesy of the Fed, and real rates were bound to increase, bringing both conventionals and TIPS down.

So do I wish I had sold my TIPs at or near the high?  Of course, one always wishes one could sell at a high, but, perhaps strangely, I don’t feel bad that I didn’t sell 12 points or so higher. 

Am I crazy?  Why wouldn’t I have liked to have sold something around 123 that is currently trading at 110.72?  The answer is simple:  I am not smart enough to pick the high on anything.   Further, even assuming I got lucky and  picked and sold at the high, I am not smart enough to get back in at a decent entry point.  If I were so “smart” as to think I could trade TIPS, I might have gotten out at 110, a high price relative to my average cost, and gotten back in at 123 rather than the opposite.   So rather than try to do things that I am, and most people are, incapable of doing, I simply held my TIPS position.  In so doing, I have enjoyed a pretty decent return…judging from my 104.74 average price, the 110.72 average price, the coupons, if you will, that I have clipped and reinvested in the intervening years, and the inherent safety of a government issued bond with built-in inflation protection.

Further, at the prevailing yields of 2.54% on the conventional 10 year and 54 basis points (“bps”) on the 10 year TIP, the implied projected inflation rate is 2% for the next ten years.   A lot of people believe that inflation will average less than 2% over the last ten years.  I am not one of them.   On a relative basis, then, I would be a big buyer of TIPS at these levels…if I were inclined to be a trader of, rather than an investor in, TIPS.

IRS SCRUTINY OF 501(C)(4) APPLICANTS: A PLAGUE ON BOTH THEIR HOUSES!

6/25/13

Congressional Democrats yesterday released IRS documents that purportedly show that the special scrutiny the agency gave to applicants for 501(c)(4) status was not limited to conservative groups.  (See my 5/13/13 piece THE IRS, THE OBAMA ADMINISTRATION, AND THE CONSERVATIVES:  LESSONS FROM WHAT SEEMS LIKE YESTERDAY for background on this issue.) While terms like “patriot” and “tea party” were used to flag applications for closer looks, so was the term “progressive.”  It was also learned that groups pushing for one side or the other (or the other or the other, one supposes, but I digress) in the various Middle Eastern conflicts were flagged along with people arguing on either side of the health insurance debate.    

Perhaps assuming that these documents are correct is an inadvisable leap of faith.   They were released in the heat, or at least the intense afterglow, of a bitter partisan battle by a side desperately trying to extinguish an issue that is potentially very damaging to its leader and leaders.  However, those who, like yours truly, have a healthy disdain for both sides of the political preening and primping that masquerades as governance today are as willing to believe one side in any partisan argument as we are to believe the other...not much at all.   But there is no more reason to believe that the documents showing scrutiny of liberal groups were somehow fabricated than there is to believe that documents showing excessive scrutiny of conservative groups were similarly fabricated.  So let’s assume both the new and the old evidence is correct and that the IRS was “targeting” both liberal and conservative groups and groups involved in Middle Eastern politics.   If this is true, I say “Good.”  If I were given to the bouts of emotion that would lead someone to say something like “Hooray,” I would probably say that as well.

Why am I so happy that the IRS was “targeting” for more intense examination liberal and conservative groups applying for 501(c)(4) status?   Applications for such status were pouring into the IRS like water over Niagara Falls.   When the government decides to dispense tax breaks for anything, even the most anti-government groups get in line and push as closely to the front as possible.   Given the deluge of 501(c)(4) applications, the IRS had to winnow down the workload; it had to act efficiently.  I, for one, applaud the efforts of any agency to act efficiently and save the taxpayers some money.   The IRS was simply trying to cull the phonies, or the leaches or the barnacles, in the most efficient way possible. 

Everyone would like to have the taxpayers (i.e., you and I) finance his or her efforts to advance his or her agenda, especially if he can make advancing his or her agenda and opinions a full-time job.   Fulminating beats working for a living, and if one can have the government finance such a sinecure, one has found the career equivalent of valhalla.

There is, however, a larger point here.  As I said in my aforementioned 5/13/13 post,

The IRS doesn’t make the tax laws; the people we elect make the tax laws.  The IRS simply enforces the tax laws and is usually not as unreasonable and unyielding as some would have you believe, but that is grist for another mill.

The best solution to the problem with 501(c)(4) organizations is not to have an  under-resourced and overworked agency find clever ways to work through the pile of applications more efficiently and to winnow out the frauds who are only looking for a subsidy for doing what concerned citizens in a self-governing republic ought to do as part of their civic duty, i.e., advocate for clauses.  The best solution would be to eliminate the 501(c)(4) designation altogether.  Why in the world should one be entitled to a tax exemption if one is conducting an enterprise that is in the business of pushing political positions?   If I want to make my living advocating for causes, that’s my business.   But I am not entitled to have you as a taxpayer subsidize, though the tax code, the organization I have set up to engage in my advocacy.

Like many of my proposals, the elimination of 501(c)(4)s will probably never be achieved.  Our esteemed public servants in Congress and in the White House derive too much benefit from such organizations that serve an ancillary, or perhaps not so ancillary, purpose of keeping these poltroons in office.  Why would Congress eliminate an indirect subsidy to the lifelong larks they call careers, especially when beating up on those who administer the program can provide further avenues for fun, profit, and posturing for the popinjays in Washington?  

To ask Congress to eliminate 501(c)(4)s is nearly as quixotic as asking it to impose term limits.   But that doesn’t make the elimination of 501(c)(4)s and the imposition of term limits bad ideas.

INVESTORS: HERE’S WHAT TO DO WHEN THERE’S NOWHERE TO GO or…

6/20/13

The S&P took a 2.5% dump today.   The Dow and the NASDAQ experienced similar debacles.   Commodities all took gas.  And bonds got pounded.   Rough day for the longs, indeed, especially coming after a similarly rough day yesterday.  Fortunately for the home team, I had some effective shorts (long put positions) in my trading account, but, as I have said in the past, that account is so small as to be laughable; it exists only to focus my thinking for these posts and my usual discourse with friends.   Like everybody else, I took a beating today in the real money accounts, as did everybody else; there simply was no place to go to be long.

What was especially interesting, and somewhat painful for the home team, was that emerging markets stocks performed even more poorly than “domestic’ stocks, whatever the latter might be, but that is grist for another mill.   Some have speculated, in fact, that the cause for today’s worldwide stock market debacle was not so much the Fed as troubles in the financial system of China, the uber emerging market.   I like that theory, though, as I have said in the past, opining on why a market did what it did is nearly as foolhardy as calling the direction of markets.  

Whatever the reason, emerging markets got pounded today more heavily than U.S. markets and have been having a difficult time of it for a lot longer than the last few days.  As someone who has outsized exposure to emerging market equities (roughly 30% of my equities are in emerging market indices), yours truly is especially feeling the pain of the emerging markets.  My problems are being compounded by a relatively heavy exposure to gold and other precious metals, which have also been taking on water of late.  My far greater exposure to Treasury Inflation Protected Securities (TIPS) (See my 2/2/13 post, YES, I’M STILL HOLDING ONTO MY TIPS, only the latest post in which I expressed misgivings regarding TIPS but decided to hold onto them.), which aren’t getting beaten up nearly as badly as stocks but are showing some very stock-like downside, compounds the problem.

So what am I going to do in response to the market moves of late?   Regular readers know the answer to this question:   NOTHING outside my insignificant trading account.   No one knows what the market is going to do; as I said in my 4/16/13 piece S&P YIELDS VS. BOND YIELDS:  I’M YOUR MAN WHEN IT COMES TO STATING THE OBVIOUS.

My important point regarding stocks is that no one knows where stocks are going in any run but the long run and anyone who tells you s/he knows where stocks are going hasn’t been around long enough, or been sufficiently humbled by his or her hubris, to be entrusted with your money.

That point can easily be expanded beyond stocks to bonds and commodities.  So the only way to approach investing is, as I said in my 5/9/13 post OF 10 YEAR TREASURIES AND STEAMROLLERS:  RICH MARKETS CAN, AND DO, STAY RICH.

Calling markets, especially in the short term is, as I have said many times in the past, is very difficult.  There ratio of people who can call short term markets to those who think they can call short term markets is nearly microscopic.  So, at the expense of sounding like a broken record, the best approach to investing is a balanced approach.  Hold some stocks, hold some bonds, hold some precious metals, and hold some cash.  Dollar cost average if you can.  REBALANCE REGLIGIOUSLY.   Let the market do what it’s going to do.  Leave the trading to those who can do it…and those who think they can do it.   Let them provide the liquidity you need to function as a long term investor. 

Nothing that happened today, yesterday, or in the last month or year has changed my long term risk preferences or my long term perceptions of what types of investments would best meet my long term investing goals consistent with those risk preferences.   TIPS, emerging market stocks, high dividend paying domestic stocks, the broad stock indices, precious metals, and some cash all make sense for me and thus all have a permanent, or near permanent, place in my portfolio.    So I will hold them all and REBALANCE, RELIGIOUSLY, from those that are doing well in a given period to those that are doing poorly in a given period.   I will thus achieve my long term goals and save myself a lot of anxiety, of which I have more than enough in other aspects of my life.

Investing can be difficult if one wants to make it difficult by trying to prove how smart one is.  If one is happy staying out of trouble while making decent returns on one’s money and one can display even a modicum of patience, investing is not that difficult.   Remain calm, don’t chase your tail, take a balanced approach, and REBALANCE RELIGIOUSLY.  And if one is not in the business of investing, paying little or no attention to the financial media, at least as it relates to your portfolio, would not be a bad idea, either.

A MADIGAN FAMILY FEUD?: “DON'T EVER TAKE SIDES WITH ANYONE AGAINST THE FAMILY AGAIN. EVER.”

6/20/13

Michael Sneed reported in yesterday’s (Wednesday, 6/19’s, page 4) Chicago Sun-Times that there is some “tension between House Speaker Michael Madigan and his daughter, Illinois Attorney General Lisa Madigan, over the state’s pension crisis.”  Lisa Madigan will need union support in her presumed run for governor and the unions, or at least the public employee unions, don’t like Mike Madigan’s proposed solution to Illinois’ existential unfunded pension liability problem.  See my 5/2/13 post,  MIKE MADIGAN’S PENSION REFORM PLAN:  “THE BEST THAT (WE) CAN HOPE FOR IS TO DIE IN (OUR) SLEEP.” for more background on the Mike Madigan plan.

Ms. Sneed may be making more of this than really exists.  Yes, Lisa Madigan needs union support in her run for governor.   But where else are the public employee unions going to go?   Both Governor Pat Quinn and Bill Daley have endorsed Mike Madigan’s pension reform plan.   As of now, Lisa Madigan is the ONLY Democratic candidate, or presumed Democratic candidate, who has NOT endorsed her father’s pension plan.   Yes, it’s difficult for anyone to distinguish Lisa from Mike Madigan, given that the Speaker has made his daughter’s career (See one of yesterday’s posts, MIKE AND LISA MADIGAN:   WHAT’S A DAD TO DO?), but the facts remain:  Pat Quinn has endorsed the Madigan plan.  Some even say that the Governor is pursuing a strategy of courting private sector unions through his generous, at least for the times, public works programs while writing off the public sector unions as lost due to his efforts to address the public pension problem.  Bill Daley has endorsed the Madigan plan.   Lisa Madigan has not endorsed the Madigan plan.

This supposed Madigan family feud may be a case of a head fake on the part of the Madigans, one of those situations in which a Potemkin feud is concocted in order to distance, in the public’s eye, two politicians who are normally figuratively conjoined at the hip.  Unlike some much-hyped arguments of the present and past that appear to be or were genuine, this intramural Madigan tussle may be a situation in which the supposed disagreement is indeed a complete work of fiction (See yesterday’s other post MIKE MADIGAN, JOHN CULLERTON, AND PENSIONS:   SOMETIMES A CIGAR IS JUST A CIGAR?), meant to allow Lisa to cultivate the public unions who have nowhere else to go.

This would not be the first time political operations have planted stories in the newspaper, and especially in Ms. Sneed’s column; I highly recommend Golden: How Rod Blagojevich Talked Himself Out of the Governor’s Office and Into Prison by Jeff Coen and John Chase for examples of Ms. Sneed’s column being used in this manner.

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 how things work in Chicago and Illinois politics. 

MIKE AND LISA MADIGAN: WHAT’S A DAD TO DO?

6/19/13

A poll commissioned by Bill Daley’s gubernatorial campaign (See, inter alia, most recently my 6/17/13 post BILL DALEY’S GRASP OF FINANCE AND ECONOMICS:   WAS I MISINFORMED? and more saliently my 6/13/13 post BILL DALEY AND THE GOVERNOR’S OFFICE:   THE BROTHER ALSO RISES? and my 6/6/13 post “GOVERNOR BILL DALEY…SENATOR BILL DALEY.   THERE JUST WASN’T THE TIME…”) has shown that Lisa Madigan’s being Mike Madigan’s daughter will hurt her if (when?) she runs for governor.  

The poll showed that Lisa Madigan would defeat the only formally announced GOP candidate for governor, State Treasurer Dan Rutherford, by 11 percentage points.  However, when voters were reminded that Lisa Madigan’s dad is House Speaker Mike Madigan, the capo de cappi tuti of Illinois and Chicago politicians and were asked how they’d vote if Mr. Madigan stayed on as speaker, the race between Ms. Madigan and Mr. Rutherford becomes a dead heat.

Hmm…

Several things come to mind.

First, Bill Daley ought to look in the mirror; how does his being Rich Daley’s brother, and Dick Daley’s son, play downstate or in the ‘burbs?   The aforementioned poll did not explore this question.

Second, poll participants had to be reminded that Lisa Madigan’s dad is Mike Madigan?   And these people get to vote?   Remember this the next time someone pontificates on the wonders of democracy.

Third, let’s leave aside for a moment the near fact that if Lisa Madigan were not Mike Madigan’s daughter, she would not have served in the Illinois House and Senate, never been considered for Attorney General, and certainly not now be the governor in waiting.  Let’s instead buy blindly into the silly supposition that Ms. Madigan’s being Mr. Madigan’s daughter actually hurts her.

What could Mike Madigan do to help his daughter if his being Speaker of the House and chairman of the Illinois Democratic Party really is a disadvantage for young Lisa?

Some have suggested that Mr. Madigan could step down as Speaker but retain chairmanship of the Party, where they claim the real power lies.   But those who make this argument are stuck in the ‘60s or ‘70s.  As has long been the case, and as is illustrated, for the careful reader, in my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, the days of the power lying in the party office rather than the public office are long gone.  Rich Daley knew this when he was elected mayor in 1989 and eschewed the post of Cook County Regular Democratic Chairman, which his father held even longer than Richard J. held the mayor’s office.  Young Mr. Daley even left his post as committeeman of the 11^th Ward, giving the post to his brother John.   Rich Daley knew that, largely through the efforts of his father, power had shifted from the Party to the Fifth Floor of City Hall.   To the extent that holding a Party position, even THE Party position, might imperil holding onto the Mayor’s office, young Mr. Daley wanted no part of that party office.

If you don’t believe me, first read my books.   If that doesn’t work, ask how much power the following men, who held the office of Cook County Regular Democratic Party Chairman after Richard J. Daley, wielded.   You might even honestly ask yourself if you remember some of these names:

George Dunne

Ed Vrdolyak

Tom Lyons

Joe Berrios

Fast Eddie Vrdolyak had some power, but he would have had that power even if he weren’t Party Chairman.   A few people remember George Dunne, but largely as something of a Daley lackey or as a guy who got into a little trouble with some comely female county employees in his twilight years.   Does anyone remember Tom Lyons?  I could describe him; nondescript northwest side committeeman who wanted a job no one else wanted.  But even I had to look up his name.   Does anyone think Joe Berrios was or is nearly as powerful as Richard M. Daley or Rahm Emanuel?   Or even Ed Burke?

It’s no different at the state level; the Party is largely toothless in this media age.   Mike Madigan’s power derives not from his heading the Party but, rather, from his having been Speaker for all but a few of the last thirty years, his thus being constantly cultivated by people who know how to return favors, and his therefore having the ability to make or break virtually any Democratic member of the legislature.   Retaining the chairmanship of the Party means little or nothing; ask, if you can remember, the following gentlemen who preceded Mr. Madigan in the post:

Gary LaPaille, who was something of a Madigan lackey who stepped aside for his boss

Vince DeMuzio

Cal Sutker

Mike Madigan, being a good dad, might resign from the Speakership, or even the House, if Lisa becomes governor, and promise to do so during the campaign.   In the opinion of yours truly, however, he would be crazy to do so.   For Mike Madigan, the Speaker’s office is a permanent, lifetime job.   The governor’s office, on the other hand, holds no such employment security.   If Ms. Madigan does run and win, and both are still highly likely, she might serve for eight years; Even if she manages to match Jim Thompson’s 14 year tenure, that would leave her in power only half the time her father has been Speaker. 

Mike Madigan, even as a good father, is highly unlikely to give away the permanent job of Speaker so his daughter can be governor for a relatively few years.   I realize he’s 71 years old, but that isn’t old and I am quite sure that Mr. Madigan doesn’t consider himself old and/or anywhere near the twilight of his career.   I’m not making a prediction here; I don’t know Speaker Madigan and, even if I did, he wouldn’t tell me what he is thinking.  I am saying, however, that to give up the Speaker’s job would be silly and Mr. Madigan is not given to doing silly things; see today’s other post MIKE MADIGAN, JOHN CULLERTON, AND PENSIONS:   SOMETIMES A CIGAR IS JUST A CIGAR?

One supposes that Mr. Madigan could stay in the House but replace himself with some stooge (There is no lack of stooges in Illinois politics.) who would serve as a placeholder until Governor Lisa Madigan either loses office or moves to Washington (or possibly replaces another major Chicago political figure whose ultimate goal is moving to Washington, but I digress) in some capacity or another and Mike Madigan feels safe getting his old job back.  But stooges sometimes start to think that they aren’t so stoogish after all and get comfortable in their old jobs.   The consequences can be dire; see yesterday’s post THE LEGEND LIVES ON FROM THE TEAMSTERS ON DOWN OF THE BIG GUY THEY CALL JIMMY HOFFA.  Mr. Madigan is not likely to take such a chance.

Those who haven’t ignored the obvious in their pursuit of today’s story realize that Lisa Madigan is helped a heck of a lot more than she is hurt by her being Mike Madigan’s daughter.   Mike Madigan is highly unlikely to give up his post as Speaker so that his daughter can become governor for a few years.   Ms. Madigan’s lineage will not hurt her in a Democratic primary, especially a three-way Democratic primary.   And, given the state of the GOP in Illinois today and its, er, lack of credible candidates, her being the Speaker’s daughter might hurt Ms. Madigan, but not fatally so.  Mike Madigan’s having been Speaker more or less continuously for the last thirty years did nothing to stop him from winning a supermajority in the House in 2012, despite pathetic GOP efforts to the contrary.  Either the voters are not as appalled by Mr. Madigan as some people seem to think…or they simply don’t pay enough attention to express their disdain in the voting booth.

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 how things work in Chicago and Illinois politics. 

MIKE MADIGAN, JOHN CULLERTON, AND PENSIONS: SOMETIMES A CIGAR IS JUST A CIGAR?

6/19/13

The Chicago Sun-Times today ran a page 6 story, trumpeted on page 1, asking a question I asked back on May 8  (See my post of that date, THE CULLERTON PENSION PLAN:  “THE (PUBLIC EMPLOYEE UNIONS) FAMILY DON’T EVEN HAVE THAT KIND OF MUSCLE ANY MORE”???):  Is the House Speaker Mike Madigan/Senate President John Cullerton disagreement over the solution to Illinois’s public pension problem a genuine “feud,” as the Sun-Times put it, or, as I called it on May 8, “part of some Machiavellian dance to avoid doing anything about our pension problems” in order to somehow give Lisa Madigan a boost in her run for governor?

 

Not knowing either Mike Madigan or John Cullerton, and being quite sure that even those who know either gentleman are not privy to such inner thoughts, I don’t know whether the two legislative leaders genuinely differ on pensions or are trying to pull some sort of elaborate maneuver to discredit Pat Quinn and help Lisa Madigan.  I suspect, however, that the disagreement is genuine.   Mr. Madigan is too smart to try to pull something so likely to backfire in his face and that would seemingly involve too many people (more than one) to keep very far under wraps.  Furthermore, perhaps I am naïve, but I genuinely don’t think that Mr. Madigan is so callous, so uncaring about the direction of the state, and/or so silly that he would further imperil our state’s nearly broke finances in order to hand his daughter an even more hopeless set of circumstances should she run for governor and should he be able to deliver the office for her.

The speculation that the whole Madigan/Cullerton thing is a Potemkin feud, though, gives me the opportunity to tell a story about the last time I thought two Chicago pols were putting on a fake fight worthy of the WWE….

In early 2005, Governor Rod Blagojevich shut down a landfill operated by Frank Schmidt, a cousin of Blago’s mother-in-law, Marge Mell, the wife of Dick Mell, one of Chicago’s then and now most powerful aldermen and committeemen.  The Governor contended that the landfill was taking illegal material while Mr. Schmidt was assuring shady customers who thus violated that law that there would be no trouble because of Mr. Schmidt’s connection to Mr. Mell.  This set off a public feud between Mr. Blagojevich and his father-in-law, and political Godfather, Dick Mell that reached epic proportions.

I suspected that the Mell/Blago feud was an elaborate ruse, designed to distance, for the naïve, the Governor from his father-in-law, whose reputation as a take no prisoners, old time ward boss from Chicago didn’t play well in the suburbs and downstate.   Blago would be running for reelection in 2006 and a charade of a crusading environmentalist young governor standing up to an old time, favor dispensing ward boss at enormous personal and political cost to himself would enhance his chances downstate while not hurting him in the city due to the winks, nods, and “say no mores” that would be part of such a ruse.

However, I started to hear from people who knew and worked with Mell in the 33^rd ward that the father-in-law vs. son-in-law feud was very real.  I sort of brushed off these assurances as part of the play.  One evening shortly after the fireworks started I was at a function at my old high school and heard from a Jesuit priest who was active in politics on the northwest side that the Mell/Blago feud was very real.   While this claim had more credibility, I have long adhered to my trusted formula of not trusting anybody whom I have not known for at least twenty years, and then not completely, and still thought Blago and Mell could be jerking everyone’s chains.

When Dick Mell several weeks later accused his son-in-law’s new best friend, Chris Kelly, a corrupt contractor who ultimately committed suicide at least partially due to the troubles that grew out of his association with Blago, of trading commission appointments for “$50,000 campaign contributions,” we all knew, or soon would know, that Messrs. Blagojevich and Mell were not playing some game of three card monte.   All doubt was removed by Mr. Mell’s comments regarding Mr. Kelly, which Mr. Mell doubtless regretted later and which ultimately led to his son-in-law’s taking up residence in federal housing.

That incident may have nothing at all to do with what some, including the Sun-Times, are labeling the Madigan/Cullerton “feud.”  But that quick, and wrong, presumption of Machiavellian machinations did reinforce for me something I have long known but that the more sensationalist among my fellow Chicago politics aficionados can’t seem to grasp:   sometimes things are as they seem, sometimes a cigar is just a cigar…even in the labyrinthine world of Chicago politics.

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 how things work in Chicago and Illinois politics. 

THE LEGEND LIVES ON FROM THE TEAMSTERS ON DOWN OF THE BIG GUY THEY CALL JIMMY HOFFA

6/18/13

The FBI is once again digging around for Jimmy Hoffa, this time in Oakland County, Michigan and at the behest of aging Detroit Mob boss Tony Zerilli.  Mr. Zerilli was underboss of the Detroit Mob at the time of Mr. Hoffa’s disappearance in 1975 and so is in a position to know what happened to James Riddle Hoffa.

So far, the feds have found concrete slabs on the property in which they are digging, but no remains of Mr. Hoffa.  Digging will resume tomorrow.  Remember, however, that 38 years have passed since Mr. Hoffa went missing, so one wonders what could be found…or what could be gained from finding whatever that might be.

At any rate, I thought it was a good time to reprint a piece I wrote last Fall…when local authorities in Roseville Michigan were digging for Mr. Hoffa.

DIGGING FOR JIMMY HOFFA…AGAIN

9/27/12

The cops are digging around for Jimmy Hoffa again.  Police in the Detroit suburb of Roseville, Michigan are reportedly conducting tests around a driveway in that town looking for the body of the late Teamsters leader.   This particular bout of Hoffa searching reportedly comes in response to claims by a late stage cancer patient who saw fit to clear his conscience by reporting that he saw what could have been people burying a body under the driveway around the time of Mr. Hoffa’s disappearance from the parking lot of the Machus Red Fox Restaurant in Bloomfield Township in 1975.  

This, of course, is not the first time that law enforcement officials in some jurisdiction or another have searched for the body of Mr. Hoffa who, popular rumor has it, is actually buried in the end zone of the old Meadowlands, which is one of the few places that hasn’t been searched.  In fact, when my brother-in-law Tim decided to put a very nice pool in the backyard of his Long Island home, I counseled him to call, say, the Suffolk County Police, or maybe the feds, and tell them that he had heard rumors that Mr. Hoffa was buried in his backyard.  After the authorities had dug up the backyard and found nothing, I advised him to say something like

“Sorry for your trouble, boys.  No need to fill the hole back in; I don’t want to put you to any more trouble.”

Tim could have thus saved plenty of money on the pool installation,   He did not follow my counsel.  His loss.  But I digress.

As an amateur student of the American Mob, I have long been intrigued by the Hoffa case.  In fact, when I lived in the Detroit area in the early ‘80s, I made it a point to dine at the Machus Red Fox just because that is the point from which  Mr. Hoffa disappeared.  It wasn’t much of a sacrifice; it was quite a good place, but, again, I digress. 

Mr. Hoffa was the president of the Teamsters from 1957 until, technically, 1971.   But he was convinced of bribery and of misuse of Teamster funds in 1964 and finally went away in 1967, when he appointed his old pal Frank Fitzsimmons acting head of the Union.   Mr. Hoffa formally resigned as head of the union in 1971 and Mr. Fitzsimmons formally assumed the role of Teamsters president.  Shortly thereafter, Mr. Hoffa was pardoned by Richard Nixon, supposedly (probably, okay, definitely) in exchange for a Teamster endorsement of Mr. Nixon’s reelection.  But a condition of the pardon was a prohibition on union activities for Mr. Hoffa until 1980, the date on which his sentence would have ended were it not for the pardon.   This condition reportedly (probably, okay, definitely) was inserted at the behest of Mr. Fitzsimmons and those who were reportedly (probably, okay, definitely) running the Teamsters at the time   Why?   While Mr. Hoffa played ball with the Mob, especially regarding loans from Teamsters pension funds for, among other things, Vegas casinos  (loans, by the way, which proved money good and at least modestly profitable), he was not controlled by the Mob and could say “No.”  Mr. Fitzsimmons, on the other hand, was little more than a Mob puppet who didn’t dare say “No” to the people who were keeping him in his lucrative sinecure atop the Teamsters. 

So the Mob was very comfortable with Mr. Fitzsimmons and wanted to take no chances on a return of the powerful and headstrong Mr. Hoffa.  The result was the disappearance of Mr. Hoffa in 1975, while he was plotting his return to power through Local 299 in Detroit.  The prime suspects in the disappearance of Mr. Hoffa have long been the late Tony Jack Giacalone, a Detroit mobster, and Tony Pro Provenzano, a New Jersey Teamster official who just happened to be a capo in the Genovese family.  There are, of course, other theories about why Mr. Hoffa had to go, mostly centering around possible testimony before the House Select Committee on Assassinations (Former Chicago Boss Sam Giaconda’s meeting his untimely demise about the same time provides grist for that particular mill.), but the most plausible explanation for Mr. Hoffa’s death was his efforts to upset the apple cart, or apple truck, at the Teamsters.

So what?

This recent bout of digging for Mr. Hoffa give me an excuse to ask a question that has always troubled me about the Hoffa case:  why did the Teamsters and the Mob, without whom the then leadership of the Teamsters did little of much import, press for Mr. Hoffa’s release from jail, even with the accompanying restrictions on his union activity?   Did they honestly believe that Mr. Hoffa, a tough, resourceful, power hungry, but nonetheless effective for the members union guy was just going to say something like “Okay, fellas, I’ll just stand aside and let a pygmy like Frank Fitzsimmons do your bidding with my union; after all, that’s what the law says I have to do”?    While the Mob, broadly speaking, has never been as omniscient or omnipotent as popular enthusiasms would have you believe, the guys who run it are not stupid.   Wouldn’t they have been better off keeping Hoffa in jail until 1980, when he would have been 67, not old but older than 58, and Mr. Fitzsimmons, or some successor, would have been more entrenched and hence harder to unseat?   I know all about union brotherhood considerations and the promises made to Mr. Hoffa to try and get him out, but when money, and especially so much money, was at stake, the people who were in charge cared little for such relatively minor considerations.

We know why Nixon pardoned Hoffa.  But why did the Teamsters make the deal that led Nixon to pardon Hoffa?   This question has intrigued me since…about 1975.

BILL DALEY’S GRASP OF FINANCE AND ECONOMICS: WAS I MISINFORMED?

6/17/13

Today Bill Daley, who looks like a committed candidate for governor, at least at this juncture (See my 6/13/13 post BILL DALEY AND THE GOVERNOR’S OFFICE:   THE BROTHER ALSO RISES? and the posts to which it will refer you.), endorsed Mike Madigan’s pension reform package (See my 5/2/13 post, MIKE MADIGAN’S PENSION REFORM PLAN:  “THE BEST THAT (WE) CAN HOPE FOR IS TO DIE IN (OUR) SLEEP.”).   That was no surprise.  What was new, though perhaps not surprising, was a companion proposal Mr. Daley made:  He said that half the savings from pension reform should be spent on “education.”

I previously had thought that Mr. Daley had a firm, for a politician, grasp on financial and economic issues, but I suppose I was mistaken.  Let me try to explain something to him.  (Since I don’t know Mr. Daley and have never met Mr. Daley, I will have to do so in this forum.  As I have said before, it is unfortunate for both Mr. Daley and yours truly that we haven’t met.  At this juncture, it looks like the detriment to Mr. Daley of our being strangers if far greater than the detriment to yours truly.  But I digress.)

The reason that we need pension reform is not because we have a bunch of money lying around that we’d rather spend on other things than on public employee pensions.   The reason that we need pension reform is that WE DON’T HAVE THE MONEY to pay those pensions.   If we don’t reform our public pension system, we go broke.  (See one of Saturday’s posts,  WAS PAT QUINN “PUT ON THIS EARTH” TO SOLVE ILLINOIS’ PENSION PROBLEMS?)  If we do reform pensions, we avoid bankruptcy…unless the politicians go about spending the savings on other things, as one suspects this pack of poltroons will do.  

My suspicions regarding the propensity of the politicasters to blow any money we might save on other things have suddenly been heightened by Mr. Daley’s inane utterances regarding spending half the pension savings on “education,” which itself is code for “whatever the politicians want to spend money on as long as they can call it ‘education.’”  But that’s not the point.  The point is that the money is not there, is not projected to be there in any case, and will not be there even if we reform pensions.   If we could raise taxes or cut spending enough to meet our $100 billion pension liability, we wouldn’t have a problem.  But we can’t cut spending (or at least our pols, and, to be fair, almost all the citizenry, is unwilling to endure such cuts) or raise taxes to meet the liability, so we don’t and won’t have the money, whether we were to spend it on “education” or on pensions.

I hope, or at least I want to hope, that Mr. Daley, who is smarter than your typical pol, understands this and that his suggestion to spend the imagined windfall from pension reform on “education” is a purely political move, designed to garner support for pension reform from those who get a tingling feeling in their nether regions whenever a pol suggests spending money on “education.”  But I’m starting to think that my estimation of Mr. Daley’s financial acumen was inflated.  And if his proposal was purely political, someone should tell him that what Illinois needs now is not more of the same politics that got us into this soup but some leaders willing to make hard choices and to risk their lifetime sinecures doing so.

JAPANESE GROWTH RATES: THE ONLY PLACE IN THE WORLD NOSTALGIC FOR THE ‘70s

6/17/13

Japanese Prime Minister Shinzo Abe, speaking the other day in defense of his three pronged stimulus plan (See my 6/14/13 post, JAPAN:  THE MARKETS DETECT A PAPERING OVER OPERATION), said

“There is no reason whatsoever why achievable growth in Japan in the 1970s and 1980s isn’t achievable now.”

Hmm…

“…no reason whatsoever” why Japan can’t grow like it did in decades past?  I’ll give you several reasons, to wit,

• Demographics; Japan’s population is now the oldest in the developed, and probably the entire, world
• Japanese wages are far higher than they were in the past; Japan is now a high wage nation by any measure.
• Japan’s former role as preeminent Asian exporter has been assumed by China, and a whole host of other Asian nations have become export powerhouses.
• Japan’s massive debt; its public debt/GDP ratio, at 220%, is the highest in the developed, and probably the entire, world.
• Japan’s savings rate is down to Americanesque levels from the 44% level seen as recently as 1990; consequently, Japan will have to soon import not only raw materials but also capital to finance its brobdingnagian debts.

All the printing and spending of money (two legs of Mr. Abe’s three-legged plan) in the world won’t solve the above problems.

This is not to say that Japan cannot shake off its economic doldrums and resume its proper role as one of the world’s economic great powers if it undergoes the serious fundamental economic restructurings such resurgence would require.   But the growth rates of the ‘70s and ‘80s, when we were forced to read such tomes as Ezra Vogel’s Japan as Number One: Lessons for America in business school are not coming back.