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.