Click HERE and HERE for the last two posts. Message of the second (more recent) one: Gold miners represent good relative value in what remains a generally overvalued financial marketplace. Message of the first one: financial stocks are pointing downward, and that has tended to be a poor portent for the economy.
I also want to comment politically. It is not clear what is motivating Barack Obama. He is maintaining a large military presence in Afghanistan. Do the polls tell him that a partial withdrawal, to a troop level that exceeds the level it was at when he took office, will win him votes?
Economically, not long ago the Senate rejected the Ryan plan with about 40 votes in favor. But it rejected the President's budget with no votes in favor.
It's not clear to me that this president is a leader. With FDR, it was clear that he (at least in posture and headline actions) favored the common man, who was a poor man in those days. With Mr. Obama, he favors the poor- but he also favors the rich, and he has turned out to be far more corporation-friendly than almost anyone expected. So he favors everyone. But he and the country are only what they are. And there are no tall aliens with the ability to serve man by making the deserts fertile. So, choices must be made. This business of trying to please all, which in my field of interest, finance, I correlate to pleasing both the stock and bond markets, simply is not working. It worked for Lula of Brazil, but that followed a prolonged period of hyperinflation. There was public and private support for conservative, growth-oriented policies. And who knows what Lula swept under the rug to get to 70+% approval ratings?
Unfortunately I am getting an LBJ-Carter feeling of a failed president. LBJ and BHO are both guns-and-butter-oriented. Both led the economy into big-time price inflation as the central bank obediently helped to monetize the resulting deficits. But no one would mistake LBJ for other than a leader. Mr. Carter, who may have been well-meaning, ended up looking unfocused and indecisive, and chose (was "forced" to) move to the right giving near-hyperinflation toward the end of his tenure. The world is not ending, and as I have noted recently, a number of headlines are overly histrionic. So what is "priced in" in the markets is impossible to know, especially given the vast amount of money the Fed has printed that has been seeping into the real economy. We do not need a QE3 for lots and lots of price inflation to occur.
Got gold? (And shares of gold miners?)
Showing posts with label Carter. Show all posts
Showing posts with label Carter. Show all posts
Wednesday, June 22, 2011
Wednesday, June 3, 2009
Food For Thought
From a mass Email today from David Kotok of Cumberland Advisors, traveling in Zimbabwe. Dr. Kotok appears to be a reasonable, middle-of-the-road sort of guy. Food for thought:
At dinner we discussed how regimes alter policy and how Zimbabwe is the extreme example of a sequence that was summarized by LSU professor Joe Mason as political change leading to socialization and industrial policy followed by inflation, as the government dominates or controls the financial engine. In Zim's case, Joe noted that the politics were those of “a "ruthless dictatorship.” The target of the industrial policy in Zim is agriculture, and property seizure, corrupted courts, and painfully inflicted police power have also been characteristics of this regime change.
That led us to a discussion of the present evolution underway in the United States. We do see major political change in the massive repudiation of the Bush Administration and with the now overwhelming majority in the House and the Senate of a single party that also includes the president. Add only one or two Democrat senators, and the US will be operating under a full one-party rule.
There is a trend toward growing socialization, which will accelerate when the proposed Obama tax structure becomes law. By then, less than half the wage earners in America will be paying income taxes; hence, the funding of government will fall on the minority.
We already see an industrial policy in banking. And we have one in housing finance now that most residential mortgage lending is done by government agencies. We are also evolving an industrial policy with autos. We've had one in agriculture for years; federally subsidized ethanol policy was one of the worst results.
Will this lead to inflation? Our central bank claims vigilance while expanding its balance sheet in ways without precedent. Clearly markets see an inflation risk and are raising interest rates. Foreigners worry about the US dollar and evidence their views in the foreign-exchange market. The jury is still out on an eventual large inflation while the US economy remains in recession, but one must certainly admit that the inflation risk is high. The political influence on the central bank by our Congress doesn’t lessen this longer-term inflation fear.
Some political history. The last three times the U. S. had this sort of one-party rule were first under FDR. Coming into the utter devastation of the end of the Great Crash, he brought some inflation and initially soaring stock prices, but ultimately unemployment never declined a lot or consistently. Carter had 4 years of one-party rule. The first two years had very poor stock markets and the second two years had soaring inflation and in year 4, a dollar crisis. Clinton, in a time of the strong Perot balanced-budget movement, had only two years of one-party rule, got none of his agenda through (think quasi-socialized medicine); when he and the Party were repudiated, the great Bull (-sh*t) market of the second half of the '90s got going. We are still enduring the hangover from that and the associated ascendancy of Big Finance that suited both Clinton's and Gingrich's purposes.
While the above data is necessarily of statistically poor power, I believe that it should be kept in mind in interpreting the markets.
Big Government is bigger than Big Finance.
Copyright (C) Long Lake LLC 2009
At dinner we discussed how regimes alter policy and how Zimbabwe is the extreme example of a sequence that was summarized by LSU professor Joe Mason as political change leading to socialization and industrial policy followed by inflation, as the government dominates or controls the financial engine. In Zim's case, Joe noted that the politics were those of “a "ruthless dictatorship.” The target of the industrial policy in Zim is agriculture, and property seizure, corrupted courts, and painfully inflicted police power have also been characteristics of this regime change.
That led us to a discussion of the present evolution underway in the United States. We do see major political change in the massive repudiation of the Bush Administration and with the now overwhelming majority in the House and the Senate of a single party that also includes the president. Add only one or two Democrat senators, and the US will be operating under a full one-party rule.
There is a trend toward growing socialization, which will accelerate when the proposed Obama tax structure becomes law. By then, less than half the wage earners in America will be paying income taxes; hence, the funding of government will fall on the minority.
We already see an industrial policy in banking. And we have one in housing finance now that most residential mortgage lending is done by government agencies. We are also evolving an industrial policy with autos. We've had one in agriculture for years; federally subsidized ethanol policy was one of the worst results.
Will this lead to inflation? Our central bank claims vigilance while expanding its balance sheet in ways without precedent. Clearly markets see an inflation risk and are raising interest rates. Foreigners worry about the US dollar and evidence their views in the foreign-exchange market. The jury is still out on an eventual large inflation while the US economy remains in recession, but one must certainly admit that the inflation risk is high. The political influence on the central bank by our Congress doesn’t lessen this longer-term inflation fear.
Some political history. The last three times the U. S. had this sort of one-party rule were first under FDR. Coming into the utter devastation of the end of the Great Crash, he brought some inflation and initially soaring stock prices, but ultimately unemployment never declined a lot or consistently. Carter had 4 years of one-party rule. The first two years had very poor stock markets and the second two years had soaring inflation and in year 4, a dollar crisis. Clinton, in a time of the strong Perot balanced-budget movement, had only two years of one-party rule, got none of his agenda through (think quasi-socialized medicine); when he and the Party were repudiated, the great Bull (-sh*t) market of the second half of the '90s got going. We are still enduring the hangover from that and the associated ascendancy of Big Finance that suited both Clinton's and Gingrich's purposes.
While the above data is necessarily of statistically poor power, I believe that it should be kept in mind in interpreting the markets.
Big Government is bigger than Big Finance.
Copyright (C) Long Lake LLC 2009
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