Ken Nelson

Trust just one thing… whatever he is saying is good for him, probably bad for you

Tyler Cowen suggests 5 arguments you won’t hear often when discussing the question of further fiscal stimulus.  I was struck by #4:

4. Rather than just arguing about the most likely scenario, we should apply the same worst case scenario thinking that is recommended for climate change.

He implies that that wasn’t the argument Obama used. I recall it differently. I recall Obama saying words to the effect of debt is bad, but a depression is worse – let’s spend trillions!

And of course, he was pitching a worst case that would appeal to regular folk, but the real worst case he was hoping to avoid was economic collapse happening in his potential 8 years in office.  He wanted to kick the can down the road a decade at least.

I favor fiscal stimulus but in a smart way.  I favor moves that reward, in the long term, investment and smart risk taking.  Lower taxes. Less government spending. Less regulations.  The government might take in less money, but the economy would grow rapidly. And isn’t that the goal?  Oh… it isn’t?

The fundamental problem the economy has is that those largely in control of it view it as something to plunder not nurture.

"The U.S. government will become insolvent before BP does," said Bruce Lanni, a stock analyst with Nollenberg Capital Partners.

From this article.

If you factor in tax offsets, I suspect BP will end up whole, and the US government down quite a bit on this oil spill.

 
Need not apply

Apparently, many available jobs aren’t available to the unemployed:

Employment experts say they believe companies are increasingly interested only in applicants who already have a job.

"I think it is more prevalent than it used to be," said Rich Thompson, vice president of learning and performance for Adecco Group North America, the world’s largest staffing firm. "I don’t have hard numbers, but three out of the last four conversations I’ve had about openings, this requirement was brought up."

Instinctively you probably don’t like this. Instinctively, I do. Why?  I suspect you’ve never hired anybody.  Unemployed people, in my experience, are unemployed for good reasons and usually aren’t worth hiring. The unemployed population is certainly different now as the bad economy pushes people out of work, but think about who is out there.

• Chronically unemployed
• Laid off because they were too expensive relative to what they produce
• Laid off because while affordable they hadn’t yet built up skills needed
• Laid off in spite of talent/value due to raw economic necessity (wrong place, wrong time)

You might find something decent in the last category. And I give folks that find themselves in that situation due consideration.  The second, laid off because they are not a good value, may pay off if they are willing to compromise on salary. But you then face the angst they have over reduced salary and their constant pressure to return to it (at your expense or elsewhere).

So limiting applicants to those working already is just easier, and more likely to produce good results.   It’s good business – and isn’t that what this nation needs more of, not less?

What would I do if I were unemployed now?   I’d work my toush off.  I’ve got no right to be a software company President. I’d sell books at Barnes and Noble, or wait tables at Olive Garden – and be the best that store or restaurant had. And if there was absolutely nothing where I was, I’d move and support my family from afar renting a cheap room or staying with a relative.  There is no substitute for effort and there are no guarantees.

The dependency ratio (worker to supported group) approaches one to one in the coming decades:

Of course, this will change as I age because there is no way that 64 will be the last year of working. That will dance ahead of me, just out of reach. My purpose, after all, is to be feasted on for life.

Hayek’s classic is the #1 book on Amazon (thanks to Glenn Beck).

But, lets say you have a liberal neighbors, you know.. agreeable, he has a goatee, she separates their trash, but…. the Obama sticker on their Prius shouts to the world “we don’t get it!”.   And while they have signed copies of Saul Alinksy’s work, their heads would explode if they dug into Hayek.  Take heart… a comic book version is available online:

H/T: Instapundit

One of the most compelling factors was the horrific impact past bailouts have had on other competitors in the sector. Bailouts rewarded the worst managements, the least deserving shareholders, and the most reckless creditors.

In this article on how 6 banks made $51 billion thanks to government largesse. The rest lost money.

Any bets on how much the largesse correlates to political donations?

A Harvard study shows what we all knew… pork barrel projects are bad for the economy.  But what is really new about this study is that it shows that pork is actually bad for the economy of the recipient districts:

In fact, the study found that in the years following a congressman acquiring a powerful committee assignment, the average company in his state cut back capital expenditures by 15 percent. In one prominent example, Alabama went from receiving $6 million less in annual earmark spending than other states to $90 million above the state average after Republican Sen. Richard Shelby assumed the chairmanship of the Senate Intelligence Committee in 1997. Shelby earmarked $15 million for low-cost fabricated housing, but the study found that one of Alabama’s largest suppliers of this housing, Homes Inc., correspondingly reduced capital expenditures by 79.5 percent and downsized its work force by 30 percent.

Politically driven investment usually stinks when measured in actual returns not calculated by the politicians.

Pork is just a means of spending billions so that politicians can get donations in the millions.

Comes in bulk, union members

The Democrats want to bail out private union pension funds to the tune of…. infinity.

Although right now taxpayers could possibly be on the hook for $165 billion, the liability could essentially be unlimited because these pensions have to be paid out until the workers die.

Sorry… not interested. You’ve already cost the nation too much in productivity, lost jobs, and bailouts. Suck eggs union members.

/rant

I hate buying unemployed cats beer and cable tv.

It bugs me that Congress is about to extend unemployment benefits again.

Look, I’m not unsympathetic to their plight, but I don’t see the benefit of spending money just to delay (and prolong) a reckoning that must be faced.  Nor do I blame them for taking the money Congress offers. But enough is enough.

Cut the payments. Let them adjust their job, pay and lifestyle expectations. Maybe former middle managers will drive  trucks. Or manage a McDonalds.  Some will fall out the bottom and will be helped by state or city funded welfare.  So be it.

The idea of paying people to sit around and do nothing for large periods of time appalls me.   It just seems so wasteful, at a time when we can ill afford waste.

Have them mow the lawns of people that pay taxes. Or join the military. Or something.  Don’t just just sit there and watch cable and collect my money or money freshly printed for you from the future.  And don’t say “I’m trying to find work”. No you aren’t. If you were you’d have found something – maybe at reduced pay, but something.  I see people doing it all the time. How about the former well paid construction worker that now cleans my office building? Or the former payroll bookkeeper I knew that now is a shift manager at McDonalds.  I respect them profoundly for the steps they’ve taken to bring money in. 

Is this a harsh view?  No. It is a real view. You do not have a right to your previous job. You do not have a right to sit on your ass collecting other people’s money forever. I don’t care what you do, just do something.

\rant

Business Insider has a list of 13 housing markets that will “never” recover.  Number 1 (worst) is Riverside, CA:

1. Riverside, CA. Housing prices are down 52% and unemployment is at 18%

So what does “never” mean in investor terms?  10 years? 20 years?  I think it a safe bet that Riverside (and the other 12 places listed) will still suck in 10 years. 20 years… a lot can happen, but I’ll bet that the place never recovers due to continued outside pressures (like California’s crazy government, continued illegal immigration, and the Federal government’s economic collapse).

More simply put… what do you see that would cause any of this to improve?  All I see are bad decisions and bad pressures.

Try to cut the budget here in this Budget Simulator.

I tried it and was unhappy with the options they gave me. Here is where I ended up:

The problem I had with the “simulator” is they have nice options, like “cut federal work force by 5%”.  Cool. I checked that box. But WHERE IS THE BOX FOR 15%?

They falsely limited real choices and tilted the “argument” towards raising revenue.

In my book ALL SPENDING is on the table.  We could easily cut entire departments – Dept of Education, for instance and not miss it. 

So take the poll, it is mildly interesting, but be aware that you are really being manipulated into FALSELY thinking that raising revenue is the “answer”. It isn’t.

John Droz Jr. has an interesting presentation debunking renewable energy’s potential.

Although he is a PhD the presentation is geared towards non-scientific average citizens.

Read the whole thing… it is loaded with useful comparisons like this one:

Just a thought.. it isn’t JUST the sheer size of the deficit that should cause such concern over our state and federal governmental finances.  A real concern should also be how poorly the debt was used. It went to buy votes, not to invest in anything that will yield returns to pay for the loans.

Additionally, interest on the debt will crowd out productive investment in the future.

Trouble looms – on all fronts.

 
Actual wizard money: worth about as much as defaulted CDOs

Tyler Cowen explains the allure of the financial magic that attracted our financial sector and how minor errors in estimates explode the magical spell:

Suppose that we misspecified the underlying probability of mortgage default and we later discover the true probability is not .05 but .06.  In terms of our original mortgages the true default rate is 20 percent higher than we thought–not good but not deadly either.  However, with this small error, the probability of default in the 10 tranche jumps from p=.0282 to p=.0775, a 175% increase.  Moreover, the probability of default of the CDO jumps from p=.0005 to p=.247, a 45,000% increase!

A bit “mathy” but read it and you will understand how the best intentions (create a bullet proof investment) often go awry.  Like so many complicated systems, safety comes from separation and redundancy not aggregation.

Via CalculatedRisk

Over 70% of homes in Nevada have negative equity. Ouch.

I own three homes. They seem to be holding value, down from their peak, but well above what I paid for them.  Fingers crossed.

Not that it matters. If I do make money on them, I’m sure my profits will be inflated away or out right stolen. It’s hard to get “excited” about investments when the results are meaningless.  It is even harder to find something worth or safe investing in right now.