from www.nytimes.com
July 1, 2008
Deep Down, We Can’t Fool Even Ourselves
By JOHN TIERNEY
In voting against the Bush tax cut in 2001, Senator John McCain said he “cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate.” Today he campaigns in favor of extending that same tax cut beyond its expiration date.
Senator Barack Obama last year called himself a “longtime advocate” of public financing of election campaigns. This month, he reiterated his “support” for such financing while becoming the first major party presidential nominee ever to reject it for his own campaign.
Do you think either of these men is a hypocrite?
If so, does this hypocrite really believe, in his heart, what he is saying?
Fortunately, we don’t need to get into the fine points of taxes or campaign finances to take a stab at these questions. We can probably get further by looking at some experiments in what psychologists call moral hypocrisy.
This is a more devious form of hypocrisy than what was exhibited by, say, the governor of New York when he got caught patronizing a prostitute. It was obviously hypocritical behavior for a public official who had formerly prosecuted prostitutes and increased penalties for their customers, but at least Eliot Spitzer acknowledged his actions were wrong by anyone’s standards.
The moral hypocrite, by contrast, has convinced himself that he is acting virtuously even when he does something he would condemn in others. You can understand this “self-halo” effect — and perhaps discover it in someone very close to you — by considering what happened when two psychologists, Piercarlo Valdesolo and David DeSteno, tested people’s reactions to the following situation.
You show up for an experiment and are told that you and a person arriving later will each have to do a different task on a computer. One job involves a fairly easy hunt through photos that will take just 10 minutes. The other task is a more tedious exercise in mental geometry that takes 45 minutes. You get to decide how to divvy up the chores: either let a computer assign the tasks randomly, or make the assignments yourself. Either way, the other person will not know you had anything to do with the assignments. Now, what is the fair way to divvy up the chores?
When the researchers posed this question in the abstract to people who were not involved in the tasks, everyone gave the same answer: It would be unfair to give yourself the easy job.
But when the researchers actually put another group of people in this situation, more than three-quarters of them took the easy job. Then, under subsequent questioning, they gave themselves high marks for acting fairly. The researchers call this moral hypocrisy because the people were absolving themselves of violating a widely held standard of fairness (even though they themselves hadn’t explicitly endorsed that standard beforehand).
A double standard of morality also emerged when other people were arbitrarily divided in two groups and given differently colored wristbands. They watched as one person, either from their group or from the other group, went through the exercise and assigned himself the easy job.
Even though the observers had no personal stake in the outcome — they knew they would not be stuck with the boring job — they were still biased. On average, they judged it to be unfair for someone in the other group to give himself the easy job, but they considered it fair when someone in their own group did the same thing.
“Anyone who is on ‘our team’ is excused for moral transgressions,” said Dr. DeSteno, a psychologist at Northeastern University. “The importance of group cohesion, of any type, simply extends our moral radius for lenience. Basically, it’s a form of one person’s patriot is another’s terrorist.”
If a colored wristband is enough to skew your moral judgment, imagine how you are affected by the “D” or the “R” label on your voting registration. If you are a Democrat, you are more likely to think Mr. McCain hypocritically switched tax policies to pick up conservative votes, but Mr. Obama’s decision to abandon public financing probably looks more complicated. If you’re a Republican you’re likelier to figure Mr. Obama did it just so he could raise more money on his own, but you’re more willing to consider Mr. McCain’s economic rationales.
The more interesting question is how presidential candidates, and their supporters, turn into hypocrites. It has been demonstrated repeatedly in experiments that humans are remarkably sensitive to unfairness. We’ve survived as social animals because we are so good at spotting selfishness and punishing antisocial behavior.
So how we do violate our own moral code? Does our gut instinct for self-preservation override our moral reasoning? Do we use our powers of rationality to override our moral instinct?
“The question here,” Dr. DeSteno said, “is whether we’re designed at heart to be fair or selfish.”
To find out, he and Dr. Valdesolo brought more people into the lab and watched them selfishly assign themselves the easy task. Then, at the start of the subsequent questioning, some of these people were asked to memorize a list of numbers and retain it in their heads as they answered questions about the experiment and their actions.
That little bit of extra mental exertion was enough to eliminate hypocrisy. These people judged their own actions just as harshly as others did. Their brains were apparently too busy to rationalize their selfishness, so they fell back on their intuitive feelings about fairness.
“Hypocrisy is driven by mental processes over which we have volitional control,” said Dr. Valdesolo, a psychologist at Amherst College. “Our gut seems to be equally sensitive to our own and others’ transgressions, suggesting that we just need to find ways to better translate our moral feelings into moral actions.”
That is easier said than done, especially in an election year. Even if the presidential candidates know in their guts that they are being hypocritical, they cannot very well be kept busy the whole campaign doing mental arithmetic. Besides, they are surrounded by advisers with plenty of spare mental power to rationalize whatever it takes to win.
Politicians are hypocritical for the same reason the rest of us are: to gain the social benefits of appearing virtuous without incurring the personal costs of virtuous behavior. If you can deceive even yourself into believing that you’re acting for the common good, you’ll have more energy and confidence to further your own interests — and your self-halo can persuade others to help you along.
But as useful as hypocrisy can be, it’s apparently not quite as basic as the human instinct to do unto others as you would have them do unto you. Your mind can justify double standards, it seems, but in your heart you know you’re wrong.
Tuesday, July 1, 2008
The Moose stays in cash
courtesy Bill Dirlam of www.decisionmoose.com
JUNE 27— Nobody ever wants to jump in front of a dump truck, or for that matter, a central bank announcement, so the markets stay to the curb and wander aimlessly until the Fed’s midweek press release. Then they go nuts the last couple of days trying to figure out what it all meant. Fed meeting weeks are always a bit schitzo, and this one was no exception.
The Fed’s Wednesday message turned out to be the same one the Moose has been pushing for several months: stagflation. Moreover, the Fed appeared to reassert its emphasis on the “stag”, as in stagnant. Observers figured the bank’s governors (with one dissent) still feel that the weak economy and the fragile banking system must take precedence over a growing inflation threat.
After sleeping on it for a night, investors, fearing slower growth and weaker profits, dumped stocks on Thursday, knocking the Dow down 358 points to a two-year low. Money fled into bonds for safety, driving down yields, which in turn weakened the Dollar, spiking commodity prices and gold.
The Fed’s apparent notion is that our economy, beset by high energy prices and beholden to a financial system that is too strapped to make new loans, even if it wanted to, will ultimately weaken enough to curb inflation on its own. Needless to say, that is hardly a comforting thought for stock investors.
Remember that scene from “Butch Cassidy and the Sundance Kid” when the two realize that they have to jump off a humongous cliff into a raging river to escape a posse? Sundance refuses to jump, confiding finally that he can’t swim. Butch replies incredulously, “Are you crazy? The FALL will probably kill ya!”
Inflation? Hell, the ECONOMY will probably kill ya. Thanks, Ben. Very reassuring.
After jumping off the cliff Thursday, stock investors went down a small waterfall Friday (-104 Dow points) but then managed to dog-paddle to shore. It wasn’t a pretty two days, but better than expected consumption and personal income data for May on Friday morning blunted previous fears of imminent depression. (Can you say “tax rebate checks”. How about “one time shot”?)
For now, technical indications are that stocks are temporarily oversold and ready to bounce-- although volume and volatility measures are not entirely conclusive. End-of-quarter-new-quarter follies on Monday and Tuesday can be expected, however, and don’t forget the ECB.
As noted earlier, no one wants to jump in front of a central bank announcement, and the European Central Bank is up next week. Moreover, the ECB decision has become more problematic. They have been the toughest talker on inflation, practically promising a rate hike next week, but lately European economies, led by powerhouse Germany, have begun to show signs of cracking. Stagflation is creeping into the global consciousness.
Whether the ECB will choose to maintain credibility and raise rates as expected, risking recession, or reverse itself and hold steady awhile longer has suddenly become an open question. The ECB only has one mandate—- to fight inflation. It does not have to concern itself with growth and financial stability as the Fed does, although it would be foolish not to consider those things. Whatever the decision, it could have a bigger impact on the investment markets than the Fed’s decision did.
Thinking is if the ECB raises rates, increasing European bond yields’ attractiveness relative to Treasury yields, the Dollar could slide further short term. That would push commodity prices (which are denominated globally in Dollars) higher for U.S. consumers and those in nations whose currencies are tied to the Dollar (China, Saudi Arabia, etc.) U.S. stocks would be vulnerable to more on the downside.
How much of this week’s action is anticipating just such a development is unclear. We won’t know until after the announcement. That’s why folks step back from dump trucks and central banks.
Higher Dollar denominated commodities do not necessarily mean higher euro-equivalent commodity prices, however, and an ECB rate hike would dampen European demand, lessening inflation pressures there. Eventually, that might lead to a slowdown and a weaker euro, provided of course the U.S. is not in a death spiral itself at the time. Since we’ve been six to nine months ahead of Europe for awhile now, nothing is a lock in that regard.
The problem for both the U.S. and Europe is that the excess demand generating the current round of inflation is originating in the emerging markets. The Fed or the ECB playing with interest rates in quarter point increments will not have a direct impact on that demand anytime soon. We have to go through our own demand first to get at theirs, and that can be painful. It can be done, but only if there is enough political will.
The emerging market boom, after all, was born of Greenspan’s 1% Fed Funds Rate, a rate that was lower and kept in place much longer than commodity and bond prices indicated was necessary. Lower U.S. rates essentially make more Dollars available, and since commodities are traded in Dollars, more Dollars chasing a finite amount of goods raises prices. Commodity inflation was born. More accurately, at one percent interest, it was shot out of a cannon.
Since the current Fed has basically ignored market prices from day one, it comes as no surprise that imbalances have developed over time. (Note to Congress: the Fed has done more to spike oil prices of late than any commodities speculator.) In fairness to Bernanke, his predecessor left him with some truly impressive time bombs (like the emerging markets boom, sub-prime and the housing bust, and incipient global commodity inflation). His choices have been difficult. I am thankful that they were not mine. (See ya. Wouldn’t wanna be ya.)
Unless there is a global economic collapse, I’m afraid that the Fed, by ignoring the markets’ inflation signals for almost a year, may have brought us to the brink of the worst inflation we’ve seen in this country in thirty years.
Now mine is only a theory, and I sincerely hope that I’m as wrong as a panty raid at a Vatican convent. If I’m right, however, you’ll want to own gold (to preserve your capital) and several cases of bourbon (to preserve your sanity). No stocks. No bonds.
It might take awhile-- and considerable anesthesia-- to get through, but we will. One day, ten years from now, on a boardwalk by the sea, as you’re blissfully licking a twenty-dollar ice cream cone, you’ll have forgotten all about it.
The Moose continues to hold cash. Bill runs one of the best mid term models with Decision Moose. His humor is as funny as his analysis is insightful. Thank you Bill for all that you do!
JUNE 27— Nobody ever wants to jump in front of a dump truck, or for that matter, a central bank announcement, so the markets stay to the curb and wander aimlessly until the Fed’s midweek press release. Then they go nuts the last couple of days trying to figure out what it all meant. Fed meeting weeks are always a bit schitzo, and this one was no exception.
The Fed’s Wednesday message turned out to be the same one the Moose has been pushing for several months: stagflation. Moreover, the Fed appeared to reassert its emphasis on the “stag”, as in stagnant. Observers figured the bank’s governors (with one dissent) still feel that the weak economy and the fragile banking system must take precedence over a growing inflation threat.
After sleeping on it for a night, investors, fearing slower growth and weaker profits, dumped stocks on Thursday, knocking the Dow down 358 points to a two-year low. Money fled into bonds for safety, driving down yields, which in turn weakened the Dollar, spiking commodity prices and gold.
The Fed’s apparent notion is that our economy, beset by high energy prices and beholden to a financial system that is too strapped to make new loans, even if it wanted to, will ultimately weaken enough to curb inflation on its own. Needless to say, that is hardly a comforting thought for stock investors.
Remember that scene from “Butch Cassidy and the Sundance Kid” when the two realize that they have to jump off a humongous cliff into a raging river to escape a posse? Sundance refuses to jump, confiding finally that he can’t swim. Butch replies incredulously, “Are you crazy? The FALL will probably kill ya!”
Inflation? Hell, the ECONOMY will probably kill ya. Thanks, Ben. Very reassuring.
After jumping off the cliff Thursday, stock investors went down a small waterfall Friday (-104 Dow points) but then managed to dog-paddle to shore. It wasn’t a pretty two days, but better than expected consumption and personal income data for May on Friday morning blunted previous fears of imminent depression. (Can you say “tax rebate checks”. How about “one time shot”?)
For now, technical indications are that stocks are temporarily oversold and ready to bounce-- although volume and volatility measures are not entirely conclusive. End-of-quarter-new-quarter follies on Monday and Tuesday can be expected, however, and don’t forget the ECB.
As noted earlier, no one wants to jump in front of a central bank announcement, and the European Central Bank is up next week. Moreover, the ECB decision has become more problematic. They have been the toughest talker on inflation, practically promising a rate hike next week, but lately European economies, led by powerhouse Germany, have begun to show signs of cracking. Stagflation is creeping into the global consciousness.
Whether the ECB will choose to maintain credibility and raise rates as expected, risking recession, or reverse itself and hold steady awhile longer has suddenly become an open question. The ECB only has one mandate—- to fight inflation. It does not have to concern itself with growth and financial stability as the Fed does, although it would be foolish not to consider those things. Whatever the decision, it could have a bigger impact on the investment markets than the Fed’s decision did.
Thinking is if the ECB raises rates, increasing European bond yields’ attractiveness relative to Treasury yields, the Dollar could slide further short term. That would push commodity prices (which are denominated globally in Dollars) higher for U.S. consumers and those in nations whose currencies are tied to the Dollar (China, Saudi Arabia, etc.) U.S. stocks would be vulnerable to more on the downside.
How much of this week’s action is anticipating just such a development is unclear. We won’t know until after the announcement. That’s why folks step back from dump trucks and central banks.
Higher Dollar denominated commodities do not necessarily mean higher euro-equivalent commodity prices, however, and an ECB rate hike would dampen European demand, lessening inflation pressures there. Eventually, that might lead to a slowdown and a weaker euro, provided of course the U.S. is not in a death spiral itself at the time. Since we’ve been six to nine months ahead of Europe for awhile now, nothing is a lock in that regard.
The problem for both the U.S. and Europe is that the excess demand generating the current round of inflation is originating in the emerging markets. The Fed or the ECB playing with interest rates in quarter point increments will not have a direct impact on that demand anytime soon. We have to go through our own demand first to get at theirs, and that can be painful. It can be done, but only if there is enough political will.
The emerging market boom, after all, was born of Greenspan’s 1% Fed Funds Rate, a rate that was lower and kept in place much longer than commodity and bond prices indicated was necessary. Lower U.S. rates essentially make more Dollars available, and since commodities are traded in Dollars, more Dollars chasing a finite amount of goods raises prices. Commodity inflation was born. More accurately, at one percent interest, it was shot out of a cannon.
Since the current Fed has basically ignored market prices from day one, it comes as no surprise that imbalances have developed over time. (Note to Congress: the Fed has done more to spike oil prices of late than any commodities speculator.) In fairness to Bernanke, his predecessor left him with some truly impressive time bombs (like the emerging markets boom, sub-prime and the housing bust, and incipient global commodity inflation). His choices have been difficult. I am thankful that they were not mine. (See ya. Wouldn’t wanna be ya.)
Unless there is a global economic collapse, I’m afraid that the Fed, by ignoring the markets’ inflation signals for almost a year, may have brought us to the brink of the worst inflation we’ve seen in this country in thirty years.
Now mine is only a theory, and I sincerely hope that I’m as wrong as a panty raid at a Vatican convent. If I’m right, however, you’ll want to own gold (to preserve your capital) and several cases of bourbon (to preserve your sanity). No stocks. No bonds.
It might take awhile-- and considerable anesthesia-- to get through, but we will. One day, ten years from now, on a boardwalk by the sea, as you’re blissfully licking a twenty-dollar ice cream cone, you’ll have forgotten all about it.
The Moose continues to hold cash. Bill runs one of the best mid term models with Decision Moose. His humor is as funny as his analysis is insightful. Thank you Bill for all that you do!
Monday, June 30, 2008
Stock Markets around the world get clobbered
from www.nytimes.com
June 30, 2008
Falling Prices Grip Major Stock Markets Around the World
By CARTER DOUGHERTY
FRANKFURT — As the United States markets edge toward bear territory, losing nearly 20 percent of their value from last fall’s peak, investors might wonder where they can turn for relief.
The gloomy answer: nowhere.
Many of the major markets in Europe and around the world have already entered a bear market. Germany and France are among the markets suffering the most, and once high-flying emerging markets in countries like China and India have collapsed even more drastically.
Higher inflation, exploding energy costs, troubled credit markets and worries about an inflationary psychology, it turns out, are global concerns. And fixing these problems — and bringing optimism back to stock markets worldwide — is proving to be difficult for central bankers, who are trying to contain inflation without risking even slower growth.
“The recent downturn in equities is essentially about investors worrying that central banks are going to be tougher than anyone had expected,” said Erik F. Nielsen, chief Europe economist at Goldman Sachs.
The market numbers are uniformly grim.
In Europe’s largest economy, Germany, the benchmark DAX index is off slightly more than 20 percent this year, and the CAC-40 in France is down almost 22 percent. The Euro Stoxx 50, a gauge for the 15-nation euro zone, has declined by about 24 percent. The nearly 15 percent decline in the FTSE 100 in Britain looks tame by comparison.
Emerging market indexes have fared even worse. The Hang Seng in Hong Kong has plunged nearly 21 percent, the Shanghai Composite has lost nearly half its value this year. The Bombay 500 in India lost about 38 percent.
The declines at major stock markets worldwide suggest that the same economic concerns are in play: rising inflation, which has been caused for the most part by record oil prices. Oil hit a new high of $140.21 a barrel on Friday.
And central banks around the world, including the United States, are indeed moving to head off resurgent inflation by raising interest rates. While such a move can contain inflation, it can also squelch growth. Indeed, the likelihood of higher interest rates has already been fueling the market sell-offs as investors around the world try to digest all manner of bad economic news.
In Australia, inflation is running near its highest level in 16 years, and in March the central bank raised the benchmark lending rate to a 12-year high. The People’s Bank, China’s central bank, tightened credit again this month by raising banks’ reserve requirements for a second time. China is struggling to control inflation without hurting its fast-growing economy; the same story is playing out in Indonesia and India.
On Sunday, the world’s top central bankers began a two-day meeting in Basel, Switzerland, where they were considering approaches to calm nerves about inflation while avoiding a shock to economic growth. The United States is near or in recession, while growth is fading in Europe.
On Thursday, the European Central Bank may take matters into its own hands. In all likelihood it will raise its benchmark interest rate by a quarter percentage point, to 4.25 percent, hoping to curb inflation of both food and energy prices. Prices in the 15-nation euro area rose by 3.7 percent in the year through May, nearly double the bank’s informal goal of just below 2 percent.
The Federal Reserve appears poised to follow suit. Last week the central bank voted to hold the short-term federal funds rate steady at 2 percent, ending a series of rate cuts. But it also hinted strongly that worries about inflation might compel it to raise the rate later this year. The rate affects what consumers pay for mortgages, car loans and other credit.
“Europe tends to paint this in black and white,” said Ethan S. Harris, chief United States economist at Lehman Brothers in New York. “In the U.S., the balancing act is going on.”
The absence of a unified global strategy for calming inflation has not been lost on investors who are searching for an anchor of stability, and coming up short.
“When you have central banks around the world doing different things — following a different road map — that can be problematic,” said Quincy Krosby, chief investment strategist at The Hartford, a financial services firm.
Then there is the politics.
The European Central Bank’s decision to get out in front is being debated in Europe, where growth is cooling under the pressure of oil prices, the strong euro, and fading demand in the United States. The bank’s primary mandate is to keep inflation low, but that does not stop European politicians from worrying about growth.
Oil prices, while an enormous factor in the decision-making that will go on this week in Europe, are only part of the calculation. A more generalized inflation, feeding through to consumer prices and influencing demands for higher paychecks, also deprives businesses of the confidence that they had until recently about how to make decisions on building factories, hiring employees or developing products.
“The longer inflation remains high, the more damaging it will be for longer-term economic growth prospects,” Morgan Stanley wrote in a report about inflation creeping upwards worldwide. “High inflation rates usually go hand-in-hand with a higher variability of inflation, which raises uncertainty and can thus reduce investment spending.”
Stock market volatility caused by inflation worries has also complicated the pressing task of recapitalizing banking systems, above all in the United States but also in Europe.
As equity markets crumble, much-needed recapitalizations “become more and more difficult” because investor appetite for new sales of shares declines, Mario Draghi, the Italian central bank chief, who heads global efforts to reform financial regulation, said last week. Efforts to overcome the credit squeeze, in other words, have become hostage to the economic slowdown that the squeeze helped create.
Charles Duhigg and Michael Grynbaum contributed reporting from New York.
When I was in India for my brothers wedding around Dec 3rd 2007 (seems like ages ago), I advised my uncle Shirish (who is a stock broker) to treat the Indian stock market which then was rising 500 points each day with extreme suspicion. Looking back, it seems like I was right. With the Indian market down 38% - your average investment of 100 dollars in India is now worth 62 dollars from the start of 2008! If I had more guts, I would have gone short (the opposite of going long or buying) the Indian ETF. I have been short the Russell 2000 index in the US since the end of May by investing in TWM. The good news is that India like China will eventually turn around and create a buying opportunity of a life time.
June 30, 2008
Falling Prices Grip Major Stock Markets Around the World
By CARTER DOUGHERTY
FRANKFURT — As the United States markets edge toward bear territory, losing nearly 20 percent of their value from last fall’s peak, investors might wonder where they can turn for relief.
The gloomy answer: nowhere.
Many of the major markets in Europe and around the world have already entered a bear market. Germany and France are among the markets suffering the most, and once high-flying emerging markets in countries like China and India have collapsed even more drastically.
Higher inflation, exploding energy costs, troubled credit markets and worries about an inflationary psychology, it turns out, are global concerns. And fixing these problems — and bringing optimism back to stock markets worldwide — is proving to be difficult for central bankers, who are trying to contain inflation without risking even slower growth.
“The recent downturn in equities is essentially about investors worrying that central banks are going to be tougher than anyone had expected,” said Erik F. Nielsen, chief Europe economist at Goldman Sachs.
The market numbers are uniformly grim.
In Europe’s largest economy, Germany, the benchmark DAX index is off slightly more than 20 percent this year, and the CAC-40 in France is down almost 22 percent. The Euro Stoxx 50, a gauge for the 15-nation euro zone, has declined by about 24 percent. The nearly 15 percent decline in the FTSE 100 in Britain looks tame by comparison.
Emerging market indexes have fared even worse. The Hang Seng in Hong Kong has plunged nearly 21 percent, the Shanghai Composite has lost nearly half its value this year. The Bombay 500 in India lost about 38 percent.
The declines at major stock markets worldwide suggest that the same economic concerns are in play: rising inflation, which has been caused for the most part by record oil prices. Oil hit a new high of $140.21 a barrel on Friday.
And central banks around the world, including the United States, are indeed moving to head off resurgent inflation by raising interest rates. While such a move can contain inflation, it can also squelch growth. Indeed, the likelihood of higher interest rates has already been fueling the market sell-offs as investors around the world try to digest all manner of bad economic news.
In Australia, inflation is running near its highest level in 16 years, and in March the central bank raised the benchmark lending rate to a 12-year high. The People’s Bank, China’s central bank, tightened credit again this month by raising banks’ reserve requirements for a second time. China is struggling to control inflation without hurting its fast-growing economy; the same story is playing out in Indonesia and India.
On Sunday, the world’s top central bankers began a two-day meeting in Basel, Switzerland, where they were considering approaches to calm nerves about inflation while avoiding a shock to economic growth. The United States is near or in recession, while growth is fading in Europe.
On Thursday, the European Central Bank may take matters into its own hands. In all likelihood it will raise its benchmark interest rate by a quarter percentage point, to 4.25 percent, hoping to curb inflation of both food and energy prices. Prices in the 15-nation euro area rose by 3.7 percent in the year through May, nearly double the bank’s informal goal of just below 2 percent.
The Federal Reserve appears poised to follow suit. Last week the central bank voted to hold the short-term federal funds rate steady at 2 percent, ending a series of rate cuts. But it also hinted strongly that worries about inflation might compel it to raise the rate later this year. The rate affects what consumers pay for mortgages, car loans and other credit.
“Europe tends to paint this in black and white,” said Ethan S. Harris, chief United States economist at Lehman Brothers in New York. “In the U.S., the balancing act is going on.”
The absence of a unified global strategy for calming inflation has not been lost on investors who are searching for an anchor of stability, and coming up short.
“When you have central banks around the world doing different things — following a different road map — that can be problematic,” said Quincy Krosby, chief investment strategist at The Hartford, a financial services firm.
Then there is the politics.
The European Central Bank’s decision to get out in front is being debated in Europe, where growth is cooling under the pressure of oil prices, the strong euro, and fading demand in the United States. The bank’s primary mandate is to keep inflation low, but that does not stop European politicians from worrying about growth.
Oil prices, while an enormous factor in the decision-making that will go on this week in Europe, are only part of the calculation. A more generalized inflation, feeding through to consumer prices and influencing demands for higher paychecks, also deprives businesses of the confidence that they had until recently about how to make decisions on building factories, hiring employees or developing products.
“The longer inflation remains high, the more damaging it will be for longer-term economic growth prospects,” Morgan Stanley wrote in a report about inflation creeping upwards worldwide. “High inflation rates usually go hand-in-hand with a higher variability of inflation, which raises uncertainty and can thus reduce investment spending.”
Stock market volatility caused by inflation worries has also complicated the pressing task of recapitalizing banking systems, above all in the United States but also in Europe.
As equity markets crumble, much-needed recapitalizations “become more and more difficult” because investor appetite for new sales of shares declines, Mario Draghi, the Italian central bank chief, who heads global efforts to reform financial regulation, said last week. Efforts to overcome the credit squeeze, in other words, have become hostage to the economic slowdown that the squeeze helped create.
Charles Duhigg and Michael Grynbaum contributed reporting from New York.
When I was in India for my brothers wedding around Dec 3rd 2007 (seems like ages ago), I advised my uncle Shirish (who is a stock broker) to treat the Indian stock market which then was rising 500 points each day with extreme suspicion. Looking back, it seems like I was right. With the Indian market down 38% - your average investment of 100 dollars in India is now worth 62 dollars from the start of 2008! If I had more guts, I would have gone short (the opposite of going long or buying) the Indian ETF. I have been short the Russell 2000 index in the US since the end of May by investing in TWM. The good news is that India like China will eventually turn around and create a buying opportunity of a life time.
Liberals and Conservatives - Social and Economic breakdown
courtesy Andrew Gelman, David Cook of Columbia University and Samantha "Sam" Cook now of Google
http://www.stat.columbia.edu/~cook/movabletype/archives/2008/06/ranking_states.html
http://www.stat.columbia.edu/~cook/
shows the "average economic and social ideology of adults within each state ... scaled so that negative numbers are liberal and positive are conservative""
In the graph below, each state is shown twice: the avg social and economic ideologies of Democrats in the state are shown in blue, the avgs for Republicans in red.
Democrats are much more liberal than Republicans on the economic dimension: Democrats in the most conservative states are still much more liberal than Republicans in even the most liberal states. On social issues in any given state, the average Republican is more conservative than the average Democrat.
http://www.stat.columbia.edu/~cook/movabletype/archives/2008/06/ranking_states.html
http://www.stat.columbia.edu/~cook/
shows the "average economic and social ideology of adults within each state ... scaled so that negative numbers are liberal and positive are conservative""
In the graph below, each state is shown twice: the avg social and economic ideologies of Democrats in the state are shown in blue, the avgs for Republicans in red.
Democrats are much more liberal than Republicans on the economic dimension: Democrats in the most conservative states are still much more liberal than Republicans in even the most liberal states. On social issues in any given state, the average Republican is more conservative than the average Democrat.
Got Milk?
pic courtesy of nytimes.com
New Milk jugs are optimized in shape for better transportation economics. Environmentally friendly etc. The secondary effects of higher gas prices are here. The ongoing debate in the markets is if the rise in price of crude related to supply (Peak Oil) or to speculation. This current oil price shock has its genesis in several things: Bush / Cheney, 911, Saudi Arabia, OPEC, Speculation, The Federal Reserve, The US dollar, Chindia to name a few of the actors. Higher energy prices are fine with liberals as it forces a secular environmentally friendly change. And ofcourse commodities are the only area on Wall Street currently in a bull market.
New Milk jugs are optimized in shape for better transportation economics. Environmentally friendly etc. The secondary effects of higher gas prices are here. The ongoing debate in the markets is if the rise in price of crude related to supply (Peak Oil) or to speculation. This current oil price shock has its genesis in several things: Bush / Cheney, 911, Saudi Arabia, OPEC, Speculation, The Federal Reserve, The US dollar, Chindia to name a few of the actors. Higher energy prices are fine with liberals as it forces a secular environmentally friendly change. And ofcourse commodities are the only area on Wall Street currently in a bull market.
Friday, June 27, 2008
Funny stuff!
from www.nytimes.com
June 27, 2008
Op-Ed Columnist
The Sam’s Club Agenda
By DAVID BROOKS
Among the many dark tidings for American conservatism, there is one genuine bright spot. Over the past five years, a group of young and unpredictable rightward-leaning writers has emerged on the scene.
These writers came of age as official conservatism slipped into decrepitude. Most of them were dismayed by what the Republican Party had become under Tom DeLay and seemed put off by the shock-jock rhetorical style of Ann Coulter. As a result, most have the conviction — which was rare in earlier generations — that something is fundamentally wrong with the right, and it needs to be fixed.
Moreover, most of these writers did not rise through the official channels of the conservative or libertarian establishments. By and large, they didn’t do the internships or take part in the young leader programs that were designed to replenish “the movement.” Instead, they found their voices while blogging. The new technology allowed them to create a new sort of career path and test out opinions without much adult supervision.
As a consequence, they are heterodox and hard to label. These writers grew up reading conservative classics — Burke, Hayek, Smith, C.S. Lewis — but have now splayed off in all sorts of quirky ideological directions.
There are dozens of writers I could put in this group, but I’d certainly mention Yuval Levin, Daniel Larison, Will Wilkinson, Julian Sanchez, James Poulos, Megan McArdle, Matt Continetti and, though he’s a tad older, Ramesh Ponnuru.
Ross Douthat and my former assistant, Reihan Salam, are two of the most promising. This pair has just come out with a book called “Grand New Party: How Republicans Can Win the Working Class and Save the American Dream.”
There have been other outstanding books on how the G.O.P. can rediscover its soul (like “Comeback” by David Frum), but if I could put one book on the desk of every Republican officeholder, “Grand New Party” would be it. You can discount my praise because of my friendship with the authors, but this is the best single roadmap of where the party should and is likely to head.
Several years ago, Tim Pawlenty, the Minnesota governor, said the Republicans should be the party of Sam’s Club, not the country club. This line is the animating spirit of “Grand New Party.” Douthat and Salam argue that the Republicans rode to the majority because of support from the Reagan Democrats, and if the party has a future, it will be because it understands the dreams and tribulations of working-class Americans.
They open the book with a working-class view of recent American history. Douthat and Salam write admiringly about the New Deal. They mention Roosevelt’s economic policies, but they also emphasize the New Deal’s intense social conservatism. Self-conscious maternalists like Eleanor Roosevelt and Frances Perkins ensured that New Deal programs were biased in favor of traditional two-parent families.
Liberals write about economic inequality and conservatives about social disruption, but Douthat and Salam write about the interplay between values and economics and the way virtue and economic security can reinforce each other.
In the 1950s, divorce rates were low and jobs were plentiful, but over the next few decades that broke down. The social revolutions of the 1960s and the economic revolution of the information age have emancipated the well-educated but left the Sam’s Club voters feeling insecure.
Gaps are opening between the educated and less educated. Working-class divorce rates remain high, while the mostly upper-middle-class parents of Ivy Leaguers have divorce rates of only 10 percent. Working-class kids are unlikely to complete college, affluent kids usually do.
Liberals have a way to address these inequalities — the creation of a Denmark-style welfare state. Conservatives have offered almost nothing. The G.O.P. has lost contact with its own working-class base. This is the intellectual vacuum that “Grand New Party” seeks to fill.
The heart of the book is the last third, where Douthat and Salam lay out a series of policy ideas to help working-class families cope with economic, health care, neighborhood and family insecurity.
“What all these ideas, from the sober to the speculative, have in common is a vision of working-class independence — from bosses, from bureaucracy, from entrenched interests of all kinds,” Douthat and Salam write. This is not compassionate conservatism (which flattered the mind of the compassionate donor), it’s hard-work conservatism, which uses government to increase the odds that self-discipline and effort will pay off.
I’m not sure how quickly the G.O.P. can swing behind this working-class focus and this vision of government-enhanced social mobility. But the McCain campaign really needs to. So far, McCain’s platform is like an omnibus spending bill — lots of decent ideas thrown together with no larger social vision.
It may take a few defeats for the G.O.P. to embrace a Sam’s Club agenda, but sooner or later, it will happen. Trust me.
bwahahahahahahahahahahahahahahahahahahahahahahahahaha!!!!!!!!!!!!!!!!!!!!!!!
June 27, 2008
Op-Ed Columnist
The Sam’s Club Agenda
By DAVID BROOKS
Among the many dark tidings for American conservatism, there is one genuine bright spot. Over the past five years, a group of young and unpredictable rightward-leaning writers has emerged on the scene.
These writers came of age as official conservatism slipped into decrepitude. Most of them were dismayed by what the Republican Party had become under Tom DeLay and seemed put off by the shock-jock rhetorical style of Ann Coulter. As a result, most have the conviction — which was rare in earlier generations — that something is fundamentally wrong with the right, and it needs to be fixed.
Moreover, most of these writers did not rise through the official channels of the conservative or libertarian establishments. By and large, they didn’t do the internships or take part in the young leader programs that were designed to replenish “the movement.” Instead, they found their voices while blogging. The new technology allowed them to create a new sort of career path and test out opinions without much adult supervision.
As a consequence, they are heterodox and hard to label. These writers grew up reading conservative classics — Burke, Hayek, Smith, C.S. Lewis — but have now splayed off in all sorts of quirky ideological directions.
There are dozens of writers I could put in this group, but I’d certainly mention Yuval Levin, Daniel Larison, Will Wilkinson, Julian Sanchez, James Poulos, Megan McArdle, Matt Continetti and, though he’s a tad older, Ramesh Ponnuru.
Ross Douthat and my former assistant, Reihan Salam, are two of the most promising. This pair has just come out with a book called “Grand New Party: How Republicans Can Win the Working Class and Save the American Dream.”
There have been other outstanding books on how the G.O.P. can rediscover its soul (like “Comeback” by David Frum), but if I could put one book on the desk of every Republican officeholder, “Grand New Party” would be it. You can discount my praise because of my friendship with the authors, but this is the best single roadmap of where the party should and is likely to head.
Several years ago, Tim Pawlenty, the Minnesota governor, said the Republicans should be the party of Sam’s Club, not the country club. This line is the animating spirit of “Grand New Party.” Douthat and Salam argue that the Republicans rode to the majority because of support from the Reagan Democrats, and if the party has a future, it will be because it understands the dreams and tribulations of working-class Americans.
They open the book with a working-class view of recent American history. Douthat and Salam write admiringly about the New Deal. They mention Roosevelt’s economic policies, but they also emphasize the New Deal’s intense social conservatism. Self-conscious maternalists like Eleanor Roosevelt and Frances Perkins ensured that New Deal programs were biased in favor of traditional two-parent families.
Liberals write about economic inequality and conservatives about social disruption, but Douthat and Salam write about the interplay between values and economics and the way virtue and economic security can reinforce each other.
In the 1950s, divorce rates were low and jobs were plentiful, but over the next few decades that broke down. The social revolutions of the 1960s and the economic revolution of the information age have emancipated the well-educated but left the Sam’s Club voters feeling insecure.
Gaps are opening between the educated and less educated. Working-class divorce rates remain high, while the mostly upper-middle-class parents of Ivy Leaguers have divorce rates of only 10 percent. Working-class kids are unlikely to complete college, affluent kids usually do.
Liberals have a way to address these inequalities — the creation of a Denmark-style welfare state. Conservatives have offered almost nothing. The G.O.P. has lost contact with its own working-class base. This is the intellectual vacuum that “Grand New Party” seeks to fill.
The heart of the book is the last third, where Douthat and Salam lay out a series of policy ideas to help working-class families cope with economic, health care, neighborhood and family insecurity.
“What all these ideas, from the sober to the speculative, have in common is a vision of working-class independence — from bosses, from bureaucracy, from entrenched interests of all kinds,” Douthat and Salam write. This is not compassionate conservatism (which flattered the mind of the compassionate donor), it’s hard-work conservatism, which uses government to increase the odds that self-discipline and effort will pay off.
I’m not sure how quickly the G.O.P. can swing behind this working-class focus and this vision of government-enhanced social mobility. But the McCain campaign really needs to. So far, McCain’s platform is like an omnibus spending bill — lots of decent ideas thrown together with no larger social vision.
It may take a few defeats for the G.O.P. to embrace a Sam’s Club agenda, but sooner or later, it will happen. Trust me.
bwahahahahahahahahahahahahahahahahahahahahahahahahaha!!!!!!!!!!!!!!!!!!!!!!!
Consumer sentiment is ugly
from www.reuters.com
Consumer sentiment at lowest level since 1980
By Burton Frierson
NEW YORK (Reuters) - Consumer confidence fell more than expected in June, hitting another 28-year low as surging prices and mounting job losses contributed to a bleak outlook, according to a survey released on Friday.
The Reuters/University of Michigan Surveys of Consumers said five-year inflation expectations remained steady at the peak of 3.4 percent reached in May, which was the highest in 13 years.
Federal Reserve officials have focused on long-term inflation expectations and the persistence of such pressures heightens their dilemma -- whether to fight price growth or support a weak economy in the grips of the worst housing slump since the Depression of the 1930s.
The Surveys of Consumers said the final June reading for its index of confidence fell to 56.4 from May's 59.8. The report said the pace of consumer spending is likely to sink at least through the start of 2009.
"Moreover, gas prices have risen to an all-time peak, food prices posted the largest increases in decades, home prices have fallen faster than any time since the Great Depression, and there has been widespread distress associated with foreclosures," the report added.
Also weighing on consumers, data earlier this month showed U.S. employers shed jobs for a fifth straight month in May and the unemployment rate jumped to 5.5 percent, its highest in more than 3-1/2 years.
Economists had expected a reading of 57.0, according to a Reuters poll. Their forecasts ranged from 55.9 to 60.0. The final June result is slightly below the preliminary figure of 56.7 released on June 13.
"Overall, no new information, only confirmation of prevailing weak sentiment," analysts at RBS Greenwich Capital said in a note to clients about the report.
Financial markets showed little immediate reaction to the report. Stocks were flat and the dollar was down against the yen. Government bonds were higher on the day.
The June reading is the lowest since 51.7 in May 1980, which was also the lowest reading ever. The index dates back to 1952, though the survey has been conducted since 1946.
One-year inflation expectations declined to a still-elevated 5.1 percent from May's 5.2 percent. May's one-year inflation expectations reading was the highest since 5.2 percent in February 1982.
The index of consumer expectations fell to 49.2 in June -- its lowest since May 1980. This was down from May's 51.1. Meanwhile, the index of current personal finances fell to 69 in June -- the lowest on record -- from 80 in May.
(Editing by Jonathan Oatis)
As expected, it is getting uglier - FAST. This is a consumer led recession. Expect consumer spending to drop dramatically once the short term bounce from government refund checks runs out. All consumer discretionary items are going to get hit at the median to upper consumer levels. Restaurants, Retail, Autos, Electronics, Housing (but we knew that!), Vacations, Road Trips - all of it! Once full fledged layoffs start - I expect targeted education industries to do well. I expect collection and repo agencies, bankruptcy lawyers and consultancies (on both consumer and business levels) to do booming business.
Consumer sentiment at lowest level since 1980
By Burton Frierson
NEW YORK (Reuters) - Consumer confidence fell more than expected in June, hitting another 28-year low as surging prices and mounting job losses contributed to a bleak outlook, according to a survey released on Friday.
The Reuters/University of Michigan Surveys of Consumers said five-year inflation expectations remained steady at the peak of 3.4 percent reached in May, which was the highest in 13 years.
Federal Reserve officials have focused on long-term inflation expectations and the persistence of such pressures heightens their dilemma -- whether to fight price growth or support a weak economy in the grips of the worst housing slump since the Depression of the 1930s.
The Surveys of Consumers said the final June reading for its index of confidence fell to 56.4 from May's 59.8. The report said the pace of consumer spending is likely to sink at least through the start of 2009.
"Moreover, gas prices have risen to an all-time peak, food prices posted the largest increases in decades, home prices have fallen faster than any time since the Great Depression, and there has been widespread distress associated with foreclosures," the report added.
Also weighing on consumers, data earlier this month showed U.S. employers shed jobs for a fifth straight month in May and the unemployment rate jumped to 5.5 percent, its highest in more than 3-1/2 years.
Economists had expected a reading of 57.0, according to a Reuters poll. Their forecasts ranged from 55.9 to 60.0. The final June result is slightly below the preliminary figure of 56.7 released on June 13.
"Overall, no new information, only confirmation of prevailing weak sentiment," analysts at RBS Greenwich Capital said in a note to clients about the report.
Financial markets showed little immediate reaction to the report. Stocks were flat and the dollar was down against the yen. Government bonds were higher on the day.
The June reading is the lowest since 51.7 in May 1980, which was also the lowest reading ever. The index dates back to 1952, though the survey has been conducted since 1946.
One-year inflation expectations declined to a still-elevated 5.1 percent from May's 5.2 percent. May's one-year inflation expectations reading was the highest since 5.2 percent in February 1982.
The index of consumer expectations fell to 49.2 in June -- its lowest since May 1980. This was down from May's 51.1. Meanwhile, the index of current personal finances fell to 69 in June -- the lowest on record -- from 80 in May.
(Editing by Jonathan Oatis)
As expected, it is getting uglier - FAST. This is a consumer led recession. Expect consumer spending to drop dramatically once the short term bounce from government refund checks runs out. All consumer discretionary items are going to get hit at the median to upper consumer levels. Restaurants, Retail, Autos, Electronics, Housing (but we knew that!), Vacations, Road Trips - all of it! Once full fledged layoffs start - I expect targeted education industries to do well. I expect collection and repo agencies, bankruptcy lawyers and consultancies (on both consumer and business levels) to do booming business.
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