THIS PARTICULAR STUPID THANKSGIVING TRADITION PREDATES THE “OPEN ON THANKSGIVING” IDIOCY

11/26/13

We are all aware of the stupid tradition of the President of the United State’s “pardoning” a turkey around Thanksgiving Day.   John Kennedy started this nonsense (as he did so much other nonsense…like Vietnam and the Great Society) back when he was darkening the White House door with his other shenanigans.  The first Bush continued the bi-partisan bout of brainlessness by making the exoneration an official presidential pardon.

A couple questions…

First, just how much time does the president, whomever he may be, have on his hands?

Second, I just learned today, in Michael Sneed’s column in the Chicago Sun-Times, that this year’s turkeys destined for pardon were trucked to Washington D.C. from a farm in Minnesota.  Who pays for this idiotic nonsense?   Please don’t tell me the taxpayers do!

People will argue “What can it cost to truck in a few turkeys?”   The first answer is “Plenty” by normal people terms.  The second answer is that, even if, in government terms, the cost of trucking the turkeys is peanuts, what’s wrong with small cuts in government spending?   Small cuts add up.  And eschewing small cuts because they are small leads to big spending.  

Blessed Thanksgiving, everybody.  And note that it’s not “Turkey Day”; it’s THANKSgiving, a day designated by President Lincoln for thanking God for the gifts He has bestowed on us.   Let’s remember that and enjoy the holiday before the almighty dollar society in which we live completely destroys this holiday...as it has done with the Holiday Formerly Known As Christmas.

“OKLAHOMA VS. ILLINOIS”: COMMENTS FROM SOMEONE WHO KNOWS SOMETHING ABOUT ILLINOIS POLITICS

11/26/13

A good friend forwarded a message to me that seems to be making its way around the internet.  The message, entitled “Illinois vs. Oklahoma,” by a Harlan Twible blames the Democrats for Illinois’ financial problems and draws an unfavorable comparison to Oklahoma, but the author’s comments on the latter center around illegal immigration rather than finances.

The piece contained one of my favorite quotes, which the author quoted but did not attribute to its source, which reportedly was Henry Ford…

"Any man who thinks he can be happy and prosperous by letting the Government take care of him; better take a closer look at the American Indian."

Yes, Ford was both an industrial genius and a political kook.   But this is one of those instances when his political/social views were absolutely correct, if it is indeed his quote.   Including this quote was not the only area in which Mr. Twible made convincing points.  Nonetheless, those points need refinement.

I was asked by my buddy to comment on the author’s observations on Illinois’ political/financial situation.   I thought my readers might be interested in my observations.  I limited those comments to Illinois; I didn’t touch the author’s views on Oklahoma’s approach to illegal immigration:

Illinois is a mess; for all intents and purposes it is bankrupt, and if we followed the same GAAP conventions for pensions that corporations do, that would be even more obvious.  Chicago's situation is at least as perilous.  Our situation is yet another case of pols buying people's votes with other people's money; ironically, often with the people's own money, which is what Tocqueville warned us about nearly 200 years ago now.

The Detroit analogy is more on target than most people think.  We continually play a game of denial in Chicago.  We thump our chests and say, while giggling at those who make the Motown analogy, "Chicago isn't Detroit" and then go on to cite our more diversified economy while avoiding the obvious political analogy of reckless spending by pols who remain reassured by the assumption that we will always find a way to pay for their excesses...somewhere down the road.   And in the post-industrial age, the raison d' etres for places like Detroit and Chicago are similarly slim, so the diversified economy argument will weaken, and do so quickly.   Mayor Emanuel and his obsequiants in the media and in favored quarters of the “business community” seem to think that businesses are lining up to live here because they want to bask in the glow of the Mayor’s greatness.  Such is the through process of those who believe that government is everything.

Chicago is a great place.  Illinois is a great place.  I love them both.  But they are not as great as those of us who love them seem to think they are.   There are plenty of objectively nice(r) places to live and to do business in this country.   We are soon approaching a point at which people will not put up with the shenanigans of the pols just to be able to live here.

I'd take issue with just a couple things regarding Illinois in the Twible piece....

First, his chain of command in Illinois is wrong.  The real chain of command would have Mike Madigan at the top and Rahm Emanuel near the top.   The governor has nowhere near the power his office would indicate; this has been the case for a long time in Illinois.   In fact, the governor of this state, whomever he may be, only has power to the extent he can work with, and accommodate, the Democratic power base, which is located in Chicago and manifests itself in control of the legislature and the huge concentration of statewide votes in and around Chicago.  

This leads to my next point.   We have a strange breed of GOPer here in Illinois who, since s/he craves power above all else like all pols, plays a game of get-along, go-along.  (Come to think of it, perhaps our GOPers are not all that strange; most Republicans everywhere crave power above all else and hence continually play a game of get-along, go-along, but I digress.)  This has been the case since at least the '50s, when Governor Stratton played footsie with the first and real Mayor Daley.  So the Republicans in this state are far from blameless for our pension mess.  In fact, the mess had at least some  roots in the Thompson and Edgar administrations, who went along with juicy pension deals with the teachers and other public employee unions so that Messrs. Thompson and Edgar could bask in the glow of teachers' unions endorsements, or at least pats on the head.

But Twible’s major point is certainly correct; the Democratic establishment has controlled things in this state forever.  Mike Madigan has been Speaker of the House for the last thirty or so years, with a brief (I think four year) interregnum in the '90s.   Clearly, the Dems wear the jacket.  But to assume that things would get, or be, much better if the GOP took power is delusional and naive.  Even if they had the guts to attack this problem, rather than attempt to curry the favor of the public employees' unions in order to secure their newfound positions of power, we are probably too far gone to fix this mess.

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. 

YES, I’M STILL HOLDING ONTO MY TIPS…UPDATED EDITION

11/21/13

Today’s (Thursday, 11/21/13’s, page C1) Wall Street Journal featured a front page article in the Money and Finance section entitled “Inflation Linked Bonds Take a Hit.”   The paper reports, accurately, that Treasury Inflation Protected Securities (“TIPS”) have taken something a beating, in bond terms, this year, with a total return of negative 7%.  (While the article doesn’t specify where this number for “TIPS” came from, I’m assuming that it is measuring return based on the exchange traded fund (“ETF”) TIP; the ETF’s year to date return matches that negative 7% number.)   This miserable, by bond standards, performance has been the obvious result of two distinctly anti-TIP developments in the economy and the financial markets.  First, all bonds, or at least all treasury bonds, have had a bad year as the economy improves and the Fed hints at tapering (Oh, how I’ve come to hate this latest term from which one cannot seem to escape!  But I digress.) its bond buying program.  Second, there is no measurable inflation in the economy.   The CPI is increasing at a 1% annual.  Whether that number jibes with one’s experience is another issue; the inflation compensating increments to TIPS are based on the CPI, so that is the measure with which we are forced to live in this circumstance.

As regular readers know, I’m a big (for me; by most standards, I’m not a big holder of anything) holder of TIPS in my own accounts, and have been for years.  I have counseled friends and consultees to own TIPS for just as long.  I continue to both hold TIPS and advise people to hold TIPS despite some misgivings and hand wringing near the top of the TIP market; see 6/26/13’s TREASURY INFLATION PROTECTED SECURITIES (“TIPS”):  REPLACING PANIC WITH CALM PERSPECTIVE and 2/2/13’s YES, I’M STILL HOLDING ONTO MY TIPS.

Am I displeased, sullen and down in the mouth, about my large TIP holdings?   No.  The same Wall Street Journal article points out that, before this year’s debacle, in the three years from 2009 to 2012, TIPS returned 44%, which works out to an annual return of 12.9%, which, in bond terms, if a terrific performance.  Even after this year’s 7% hit, TIPS are up 34% over the last three years, which works out to an annual return of 7.6%.  This remains an outstanding return for a  credit instrument with no real default risk.   I’m happy, bordering on the ecstatic, with the four year return on TIPS and, if you’ve been holding them, you should be, too; this is investing, not trading!

Note also, in one of those “not for nothing” observations, that since I wrote the aforementioned 6/26/13 piece, TIPS are up a touch.  The ETF was trading at 110.72 then and it is at 111.23 as I write this, plus they’ve paid five dividends.

Why do I insist on holding onto my TIPS?   Aren’t we experiencing conditions that continue to argue against TIPS?   If I were inclined to trade major portions of my portfolio, I might, and only might, be tempted to get out of TIPS with the hopes of getting in again at a lower price.  But I’m not trading my TIPS because I decided long ago that TIPS make sense in our economic environment for long term investors who are either very risk averse or who simply want a buffer against several nasty possibilities in the financial markets. 

I agree that, at this juncture, those horribles, such as inflation or a plunge in the stock markets, do not look imminent, though I am starting to think the probability of the latter is increasing.   However, unlike those who pretend to be for a living, I realize that I am not clairvoyant.  The older I get, the more I realize I don’t know, especially about the short term movements of the financial markets.   I am about as likely to be right as I am to be wrong on any short to intermediate term call in markets, as are those who pretend they can see the future, and I am not willing to bet my long term investment results on such fuzzy odds.  If I were inclined to trade these things, I would be about as likely to get out at a bottom and in at a top as I would be to get out at a top and in at a bottom.

So, yes, I continue to hold my TIPS.   They have delivered a near spectacular risk adjusted return over the long period I have held them and I expect them to do nearly as well over the similarly long anticipated remainder of my holding period.   While economic and financial conditions right now do not favor TIPS, things change fast.  And, despite their high opinions of their own prognosticatory skills, the “experts” rarely can tell you, with any degree of consistency, when those changes will come.

“…LIVIN’ ON MONEY THAT I AIN’T MADE YET…”

11/15/13

The New York Fed came out with its quarterly report on consumer debt yesterday.  Conventional thinkers are nearly overjoyed at the news that total consumer debt increased by $127 billion, or 1.1%, for the third quarter, the fastest pace since 2008. 

Some of this increase in debt came about because of fewer mortgage foreclosures and bankruptcies during the third quarter.  As regular readers know, it was bankruptcies and foreclosures, or nice ways of describing stiffing one’s creditors, that provided Wall Street economists an opportunity to wax joyful about the “deleveraging” and “balance sheet clean-up” that the American consumer was “achieving.”  Now that we are stiffing fewer of our creditors, it seems that debt outstanding is going up.  The obvious suspicion, therefore, is that debt in any realistic sense has been going up all along but that a trail of sorry creditors was masking our continuing propensity to take on debt in order to achieve the “lifestyle” we are somehow entitled to simply by virtue of living in the United States of America.

Other observations arise from the New York Fed data.   First, those who think that taking on more debt to excrete away more money on stuff we don’t need is the key to our economic recovery, while being overjoyed at the increase in debt levels, are sullen and down-in-the-mouth that credit card debt is barely growing; it was up $4 billion, or 0.6%, in the third quarter.  Though we would prefer actual decreases in credit card debt to mere slowings of its increases, those of us who are so benighted as to think that we have to learn to save money again see this slowdown in revolving credit accumulation as a favorable development.   Perhaps our sanguinity is poorly placed.   Just as I was reading about the slowdown in the growth of credit card debt, I heard an ad on the radio from a mortgage broker who was preaching the fiscal soundness of refinancing one’s credit card debt by taking out mortgage debt.   One wonders how much the return of the popularity of this game of financial three card monte had to do with the slowdown in the growth of total credit card outstanding in the third quarter.  More importantly, one sees the return of the highly popular dinner out financed with a thirty year mortgage as yet another reminder of the people’s short memories and another sign of financial trouble down the road.

Second, the widely advertised big culprit in the increase in consumer debt is the increase in student loans, which passed $1 trillion last quarter by increasing $33 billion, or 3.3%.   Mark my words:   this surge in student debt, and the growing acceptance of student debt as something one takes on in the perfectly normal course of one’s life, is not only an enormous financial problem for the borrowers and for the economy on a whole, but it is speeding us down the road to making higher education yet another “free” entitlement.  

There are some who ascribe to the Obama Administration enough Machiavellian cunning to believe that the whole defecation show that ObamaCare has become is just a ploy to get the American people to throw up their hands and beg for a single payer health system as a solution to the intentionally inflicted maladies the Affordable (Says who?) Care Act has thrust upon them.   Whether yours truly gives the Obamaites such credit is open to question.  But I can easily see the growing, and increasingly unrepayable, pile of student debt as a Machiavellian way of getting the government to pay for college by simply forgiving the debt, thereby stiffing those of us who made the sacrifices, and choices, necessary to pay for our own kids’ education.   That’s government for you.

Third, even though student debt is supposedly the most salient source of increasing consumer debt, people don’t mention that car loans outstanding went up even more on a percentage basis, or by 3.8% to $845 billion.  I’ve said it before and I’ll say it again:  nearly all the prosperity we are seeing in the auto business and in the auto stocks has been manufactured by the Fed.   Other than housing, what industry benefits more from engineered interest rates than the automobile business?   All this talk of pent-up demand is largely nonsense.   Yes, the fleet is old but one can drive a modern car hundreds of thousands of miles with little difficulty.   What we call pent up demand would stay pent up were it not for the cheap financing Ben Bernanke’s War on the Elderly has provided for new car buyers.   Auto sales are a bubble that would burst quickly if the low interest rate elixir is ever removed.   This is, of course, yet another reason that the Fed cannot let rates normalize, on either the long or short end, any time soon, but that is another conversation. 

PAUL VALLAS ON THE TICKET: PAT QUINN MAKES ANOTHER BRILLIANT MOVE TOWARD RE-ELECTION

11/8/13

Regardless of what you think of the guy’s ideology, background, or performance on the job, you have to admit that Illinois Governor Pat Quinn (no relation) is running a brilliant campaign for re-election.  (See my 9/16/13 post ILLINOIS DEMOCRATIC PRIMARY:  DALEY IS OUT; IS LISA BACK IN? for only the most recent of my comments on the campaign.)  The latest manifestation of this brilliance is his selection of Paul Vallas as his running mate.

Mr. Vallas’ being on the Quinn ticket makes sense for all the obvious reasons.  Originally a budget wonk in Springfield who caught a lot of important people’s eyes, he was appointed budget director for Chicago Mayor Richard M. Daley early in the reign of Richard II, when the scion was a good mayor and fiscal manager, before Mr. Daley became a living, breathing argument for the wisdom of term limits.  After leaving that post, Mr. Vallas did a great job, or at least as good a job as anyone could do, given the circumstances, as the CEO of the Chicago Public School System.  After a failed run for governor (against Rod Blagojevich; how would you like to have that vote back?), which was partially Mr. Vallas’s fault but was at least partially engineered by the bosses in Chicago who ran Roland Burris to siphon the black vote from Mr. Vallas in the primary, Mr. Vallas went on to run the public school systems in Philadelphia, New Orleans, and, currently, Bridgeport, Connecticut.  His performance in all three tough jobs has been admirable.  So Mr. Vallas has expertise in the areas of education and budgets, the first of which is always important and the second of which is beyond critical at this point in Illinois’ history.

Some can argue that Mr. Vallas had made enemies among the teachers’ unions in his tenure at the helm of the CPS.  But so what?   Mr. Quinn has already enraged the public employee unions with his aggressive push for a solution to the state’s public pension problems.  And where else are the public employee unions going to go?  

So Mr. Vallas is a great candidate for the obvious reasons.  But yours truly also finds merit in the selection for what it says about Governor Quinn.  Mr. Quinn’s Republican opponents, who are supposed to eschew such things as racial, ethnic, and gender quotas out of principal, go about selecting running mates who just happen to be women, Hispanic-Americans, Asian-Americans, or some combination thereof.  Mr. Quinn, however, eschews such tokenism and selects a running mate based on the man’s merits.  This refusal to kowtow to the conventional wisdom is a mark of character on Mr. Quinn’s part. 

Don’t think voters don’t notice Mr. Quinn’s good sense…and his opponents’ hypocrisy lily-livered obeisance to pollsters, conventional wisdom, and addle-brained political correctness.  Don’t misunderstand me; Mr. Quinn has made a career of obeisance to pollsters, conventional wisdom, and addle-brained political correctness, but voters have short attention spans and hence politics becomes a game of “What ya done (for me or to me) lately?”

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. 

OBAMACARE: CAN THE REPUBLICANS OPEN THE GIFT THE DEMOCRATS HAVE JUST HANDED THEM?

11/8/13

As I pointed out a few days ago (THE OBAMACARE ROLLOUT 'S ECONOMIC IMPACT:  “YOU THINK THIS COUNTRY’S IN BAD SHAPE, JUST WAIT ‘TIL I GET THROUGH WITH IT!”, 11/6/13), the debacle at least the initial rollout of ObamaCare has done more damage to the economy than most people think, and certainly far more than the non-event government shutdown about which so many economists continue to wring their hands.   The political consequences of the ObamaCare defecation show, however, are at least as profound, transcend party politics, and will have their own impact on the economy.

The overwhelming reaction to the increased prices, the sieve like jalopy of a website, and the general overall confusion and uncertainty associated with the ObamaCare startup is a now pervasive feeling throughout the land that we have an incompetent in the White House, a guy who never had a real job, is not as smart as he and his most ardent supporters suppose (Nobody is, by the way.), and is in way over his head.  This is damaging to the Democratic Party, for sure, but also is bad for the country and for the economy.  The consequences of a rudderless ship of state for business and consumer confidence and in international political and economic affairs can be devastating.  Money likes to go to where it is treated well and, barring that, at least likes to go where it has a reasonable idea of how it will be treated.  So the follow-on effects of the problems ObamaCare is facing have the potential to be more long lasting and widespread than they appear at first glance.

In the less important, buy maybe more fun, realm of partisan politics, the ObamaCare travails have done incalculable damage to Mr. Obama and the party he heads.   Those middle ground voters are not only being socked with the stress inducing consequences of the ObamaCare rollout, but they are now coming to the conclusion that the whole idea of ObamaCare was a mistake, a costly experiment in social engineering by a group of people who have no idea of how Mr. and Mrs. America live their lives and how challenging those lives have become.  They are disgusted and ready for a change.

The first opportunity to act on these feelings of disgust will come in the Fall of next year.  The bigger opportunity will come in the Fall of 2016.  Both are a long way off in realistic political terms.  But even at this early juncture, one overwhelming conclusion is that if the Republicans cannot capitalize on this dropping of the ball by Mr. Obama and his cohorts, they ought to just fold up the tent and go home.  This is a huge opportunity that, thankfully for the Republicans, did not rely on any skill or intelligence by the GOP; it was a pure gift to a party that, given its political obtuseness, needs to subsist on gifts.

Can the GOP capitalize on this?   Recent history would indicate that it can’t.  But maybe the Republicans can capitalize if they realize that the reason they now have a chance is that the people are tired of incompetence.   So rather than emphasize arcane issues in which many, if not most, people think government should be at best only ancillarily involved, perhaps the GOP ought to emphasize competence…the ability to get things done, an ability long and sadly lacking in Washington.   People are not ideological; people want results.  They may or may not want much from government, but they want government to deliver what it promises.  Government’s part in the life of the populace may not be a major concern in people’s lives, but people certainly want government to do its part, whatever it may be.

Is this an argument for a certain recently re-elected governor from New Jersey who has shown a distaste for ideological arguments paired with an ability to achieve results?   At least at this point, certainly.   If the GOP wants to win, it better nominate the big guy from Jersey.  If it wants to live in an echo chamber, constantly rehashing arguments most people don’t listen to, it can nominate one of the ideological warriors from Congress and continue to get a charge from listening to its imagined unappreciated brilliance.

THE OBAMACARE ROLL OUT'S ECONOMIC IMPACT: “YOU THINK THIS COUNTRY’S IN BAD SHAPE, JUST WAIT ‘TIL I GET THROUGH WITH IT!”

11/6/13

We are incessantly hearing from the “experts” about the impact that the government shutdown has had, and that the sequester will have, on our economy.  Why do we hear so little about the impact the ObamaCare debacle is having, and will have, on the economy?

Millions of Americans who buy their own insurance, of whom yours truly is one, will pay higher, sometimes vastly higher, premiums.   While this is anecdotal, I have talked to no one among my acquaintances who buy their own insurance (and there are many) who will not be paying higher premiums.   Those individual policy purchasers who don’t yet know whether they will face higher premiums are confronted at the very least with uncertainty regarding their premiums, their coverage, and the processes necessary to obtain compliant coverage within the constraints of a health care insurance site no one trusts, and with good reason.   What impact do you suppose a big hike in monthly unavoidable expenses, and uncertainty regarding how much higher those expenses will be, will have on the economy?

Businesses have been given their one year reprieve from having to provide insurance for their employees.  But even when that reprieve was granted, it only prolonged the existing uncertainty businesses faced.   Now all these stories swirling around about the horror show individuals are facing obtaining, and paying for, policies that satisfy the bureaucrats and politicians (who, bear in mind, have never had to buy their own insurance in their lives) can only exacerbate the worst fears of business owners regarding providing prescribed coverage for their employees.   Prolonged, heightened uncertainty on the part of businesses…what do you think that does for hiring plans?

The Affordable Health Care Act is proving to be, at least at this juncture, a bigger defecation show than its most vociferous detractors predicted it would be.  Given the salience, the importance, and the potential political power this issue packs, we have heard plenty about the screwed up, sieve-like ObamaCare website and the higher costs people will have to pay to satisfy the whims of the bureaucrats, the politicians, and their campaign contributors.   But why haven’t we heard much about the economic, or the market, impact of this disaster?

It seems to yours truly that if one wants to talk about roadblocks to sustained recovery, one ought to start with an insurance scheme that will suck purchasing power out of the economy like a vacuum cleaner while discouraging businesses from making long term investment or hiring plans.   All the Fed money printing in the world would have a hard time circumventing the obstacles ObamaCare has placed in the way of sustained recovery. 

What impact will this have on the markets?  As loyal readers know, I am not one to call markets; they seem to do what they want to do.   The ObamaCare travails have so far done nothing to abate the “Where else will we go?” mentality that keeps the stock markets rocketing upward.  But if the markets ever revert to the fundamentals, one has to think that this atrociously miserably executed roll out of a poorly thought out plan designed by people who appear to be hapless and clueless does not bode well for continuation of this Potemkin rally.