Thursday, 2 July 2009 by bbbeard.

On the heels of today’s dismal unemployment report, the Wall Street Journal has an article out today:

Republicans Blame Obama Policies for Job Losses

Republicans are using today’s report on further U.S. job losses and the highest unemployment rate, 9.5%, in 25 years to criticize President Barack Obama’s administration on its fiscal policies.

While I certainly concur that Mr. Obama’s economic policies are worthy of severe criticism, I think this particular grandstanding is  unwarranted. The reason is that unemployment is a lagging indicator of the economy’s performance. In layman’s terms, that means that unemployment peaks sometime after the trough of an economic downturn, not at the trough, or before. A rule of thumb is that unemployment lags about six months, although sometimes the lag can be longer. So June’s unemployment is largely due to factors in place before Mr. Obama’s inauguration.

Now, arguably, Mr. Obama’s party gets the lion’s share of the blame in setting up the mortgage crisis that triggered the current downturn. But I understand that reasonable people can differ on the causal factors that brought us to our current juncture.

And there are those who point to Mr. Obama’s election as being a turning point in economic expectations. After the election of the most leftist President in our history,  this argument goes, money started to flow out of investments and into various safehavens (like mattresses and gold). The main datum supporting this theory is the continued lackluster performance of the stock markets. The DJIA, for instance, is still down 13% from election day, including a 200-ish point drop today (the NASDAQ Composite, though, is up 1.2% since election day). By this theory, we should set the line of scrimmage not on inauguration day, but on election day plus one, when Mr. Obama set up his Office of the President-Elect. And again by this theory, the six-month lag was struck in early May 2009.

But I’m not arguing that right now. Maybe I believe it, maybe I don’t — I’m still on the fence. In the long run I don’t think it will matter much, because in the long run I think we are in for a Japanese-style “Lost Decade“, due fully to the incompetence of the Obama administration. But only time will tell.

However, one thing is clear at this early juncture — Mr. Obama’s economic team thought they were immune from the normal operations of the national economy, including the lagging indicators. The blog Innocent Bystanders has been standing by, holding their feet to the fire, as it were. Back before the memory of most Obama voters, when the administration was arguing for its trillionish “stimulus” bill, they put out a claim that without the stimulus bill, unemployment would peak at around 9% in the third quarter of 2010. With the stimulus bill, they claimed, unemployment would peak at 7.5% in the third quarter of 2009. Here’s is IB’s graphical summary of their prognosticatory skills:

One might be tempted to judge the Obama team’s economic competence by this yardstick. I am.

Now, it is a hopeful sign that the rate of increase of unemployment slowed. I hope this is a harbinger of moderation in our economic situation. I think the next couple of months will tell us a great deal about the future.  If unemployment continues to climb — and in particular, if it resumes its previous rate of increase, watch out. On the other hand, if June really was the peak month, if unemployment drops back to 9% by the fall, the markets may stabilize, money may begin to flow back into investments, and no one will remember how badly the Obama team blew their economic predictions.

But I am not hopeful. The Democrat-controlled House  of Representatives just passed H.R. 2454, the ACES Act, which will raise the cost of energy — which is to say, the cost of just about everything — by a hefty amount (the discussion over at Transterrestrial Musings suggests about 25%). Recent reports also suggest an unwillingness of international lenders to fund the Obama deficit. Democrats are determined to take action on the health insurance situation, and many bystanders fear the worst. None of these leading indicators bode well.

Now the official LEI put out by the Conference Board shows three consecutive months of increases in the leading index. But it doesn’t take into account the political environment. We shall have to see if economics can trump politics. If the recklessness of Congress can be restrained — if ACESA is held up or stripped in the Senate, if “health care reform” can be stopped — then maybe we’ll get through this, even with the massive deficits that Mr. Obama has created. By the way, here’s a reminder:

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Thursday, 11 June 2009 by bbbeard.

Now the Obama administration wants to limit ‘executive’ pay across the private sector, not just for companies receiving TARP funds. People were warned this is the next step. This is crazy. The people in government who think this is an appropriate function of government skipped a few classes somewhere along the line — maybe they should google ‘enumerated powers’. They have no wisdom or insight, only power. Corruption empowers, and absolute corruption empowers absolutely. Hayek warned us.

Do we really want some idiot in Washington deciding how much we earn, whether we get promoted, and ultimately who we work for? The ostensible  principle here is that companies, and by extension, people, are not competent  to decide how to allocate their resources, so people with guns helpful government bureaucrats must step in. The reality is that government, far from being competent to run our lives, is corrupt and incompetent.

Some folks said the TARP limits were justified because those companies came to the government “hat in hand” for help, and other folks nodded their heads. Now the excuse for the power grab is that companies do not act in their own “long-term” interest. When the limits are extended to lower and lower level employees, they will stop referring to “executives” and claim the government must control all salaries out of “fairness” — after all, why should my secretary earn more than the secretary next door? They, the leftist/statist/socialist/communist/progressive/fascists — call them what you will — believe there is no room for freedom in this country, and that “society”, by which they mean themselves, must decide what is fair. They have no idea how the economy operates, and they don’t care, because they cling to some mistaken concept of how it “should” run. They have no idea how wealth is created, and they don’t care, because they think no one should be wealthy. They have a word for such a society: Utopia. (It means ‘nowhere’, but they think that’s ironic, not prophetic).

Michael Moore, famed left-wing economist, now wants to turn GM into a railroad and windmill company. Moore once formulated a principle upon which he thought the economy should be based: no one should make anything they can’t afford to buy. So, no yachts. No luxury cars. Oh, and by the way, no buildings larger than the minimum construction worker can afford to buy. No airplanes larger than a kit plane. No railroads (I guess he’ll make an exception for high-speed rail). No factories. No oil wells. No power plants. No shipping containers and no ships. No MRI machines. No radio telescopes and no space stations.

The problem — apart from the simple fact that in this Utopia, life will be poor, nasty, brutish, and short –  is that decapitating the economy starts a cascade. If no one is allowed to own a yacht or a Cadillac, then no one will be hired to make them, and those people will be thrown out of work. If no one is allowed to make a power plant, no one will have electricity. If there are no airplanes or railroads or ships, all your goods will have to be produced within walking distance. This is not some weird fevered right-wing chimera — this is social policy as formulated by Michael Moore and left-wing idols like Mahatma Gandhi. Another description of Gandhi’s Utopia is “crushing poverty”. Think Calcutta, not Knightsbridge.

Hope and change, indeed. More like envy and disaster.

UPDATE: The Yahoo link to the original story is broken (as happens a lot with time-limited news stories), so I replaced it with a screen shot of the story. Sorry for the inconvenience.

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Wednesday, 3 June 2009 by bbbeard.

For those of you who don’t read French, the title says, “One of the biggest Muslim countries on the planet”. That’s Barack Obama, talking about the United States. At least, that is what is being reported in Le Monde. Bet you didn’t know that fun fact about America, did you?

Just for the record, the Wikipedia entry on Islam indicates that the Muslim population of the United States is between 1.8 and 3 million. And the only countries with larger Muslim populations are Afghanistan, Albania, Algeria, Azerbaijan, Bangladesh, Burkina Faso, Cameroon, Chad, China, Democratic Republic of the Congo, the Ivory Coast, Egypt, Ethiopia, France, Germany, Ghana, Guinea, India, Indonesia, Iran, Iraq, Jordan, Kazakhstan, Kyrgyzstan, Libya, Malaysia, Mali, Mauritania, Morocco, Mozambique, Niger, Nigeria, Pakistan, the Philippines, Russia, Saudi Arabia, Senegal, Sierra Leone, Somalia, Sudan, Syria, Tajikstan, Tanzania, Tunisia, Turkey, Turkmenistan, Uganda, Uzbekistan, and Yemen, not to mention the West Bank and Gaza, which are not a country, and so are necessarily exempted from the President’s sweeping proclamation. But I suspect that if you are not a totally off-the-wall Obamaphile, you already knew that the Muslim population in the U.S. is tiny.

What on Earth was he thinking? Does he really believe that the U.S. is one of the biggest Muslim countries in the world? What Kool-Aid has been drinking? This is the kind of weird, insular, eccentric comment that gets Republicans — or Dennis Kucinich — branded as oddballs for life. Do any of you Obama supporters out there have an explanation for this? Is this supposed to be some kind of wacky-Jedi-mind-trick that Obama is trying to pull on the Islamic world? Does he really think that Muslims — especially rulers of Muslim countries — are that ignorant? My theory is that he really believes it because (a) he has known a lot of Muslims, and (b) he is not good with numbers.

Number One Son says: “It’s too bad we can’t impeach him just for being an idiot.”

h/t Belmont Club

UPDATE: Jeff Zeleny of the New York Times Caucus Blog reports on Obama’s Big Muslim Gaffe with the deeply dishonest title, “Obama Says U.S. Could Be Seen As  Muslim Country, Too.” No, Jeff, as you admit in the second paragraph, he said the U.S. is one of the biggest Muslim countries on the planet. (Again: why would anyone defend this worldview?) And Zeleny reports — without irony! — that Obama also said “the United States and other parts of the Western world ‘have to educate ourselves more effectively on Islam.’ ” So — not only does our President live in a fantasy world where the U.S. is chock full of Muslims, he blames Americans for being uneducated about Islam. Unbelievable.

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Thursday, 30 April 2009 by bbbeard.

Snippets from the infocean:

Cliff May took on Jon Stewart on the Daily Show: or was it vice versa?  Among other things, they talked about WWII and lessons we might have learned about torture from that epic, traumatic conflict. Backed into a corner, Stewart averred that he believed that Harry Truman was a war criminal. Setting aside the fact that I have been known to make virtually identical statements, this notion raises the amusing prospect of a parallel universe in which Dwight Eisenhower prosecuted Harry Truman for war crimes.

Coincidentally, Mr. Obama cited Winston Churchill (reportedly by way of the London Times — or was it Andrew Sullivan?) as an authority on winning wars without creating indelicate situations: “We don’t torture”. It seems to me that Mr. Bush made virtually identical statements. I suspect neither man was being quite so virtuous as to meet the current standards of the radical left.

And the Times story by Ben Mcintyre isn’t quite as elevating as one might hope. Mcintyre tells us about Churchill’s spy-breaker Robin Stephens. Mcintyre tells us that Stephens eschewed physical violence. However, the plain reading of the account tells us that Stephens was more than willing to use sleep deprivation, threats of violence, drugs, and alcohol to try to break down his prisoners. (Why did he think a drugged, sleep-deprived prisoner was more likely to produce truthful intelligence than one who has been slapped or “walled”?) None of these techniques are allowed under the Geneva Convention — which, by the way, just as in the current situation with Al Qaeda, is not applicable to spies and other non-uniformed combatants. The use of drugs or alcohol to “disrupt profoundly the sense or the personality” is explicitly illegal under Title XVIII, as is the threat of imminent death. So Stephens would have been liable for sanctions under current U.S. law. It is not even clear whether Stephens’ bag of psychological techniques would pass muster under current U.S. law, either.

But the amusing part of all this for me is that the advocates for Zubaydah et al. seem only recently to have discovered World War II as a precedent. When it was important to understand why we went to Iraq, why the war was taking so long, why there were reverses as well as advances and pointless as well as necessary deaths, the left would not hear of it.

Stewart  raised a point I have made myself, though he takes the wrong lesson from it, I think. He noted that the Japanese, who were atom-bombed at the end of the war, would seem to have thereby earned the perfect right by the “ticking time bomb argument” to torture Allied prisoners in the hopes of gaining actionable intelligence. But then he asks stupidly if that means we should apologize to the Japanese for prosecuting their soldiers. Of course not — Harry Truman is dead, and Stewart’s absurdity is just another specimen of the pernicious practice of blaming and apologizing for previous generations.

What it does mean is that we should be careful about assuming that it was noble to prosecute Japanese soldiers for mistreatment of their prisoners. Are we sure that the Allies never thought of those prosecutions as punishment for Pearl Harbor? Was there a failure of imagination, an inability to see how the deaths of 500,000 Japanese civilians in the 1945 firebombing of Tokyo and 66 other cities could lead to more brutality, not less? Granted, the now-famous prosecution of Yukio Asano did not hinge on the gathering of intelligence. By all accounts Asano was merely a sadist, more like a serious version of the Abu Ghraib Nine than the interrogators of Khalid Sheik Mohammed. But what if the Japanese had hints of the development of an atomic bomb? What if they had captured a pilot who they believed knew the whereabouts of the base from which the atomic bombings were to be launched? A partisan interested only in sullying the reputation of the Bush administration might not admit it, but there is certainly a case to be made that the Japanese would have been justified in using “enhanced interrogation” to coerce this information from their captive. From our perspective a generation later, it might have been better that the 220,000 civilians who were vaporized in the atomic bombings had not died. And from our perspective on this scenario, there would have been more than a little component of retributive justice in prosecuting persons associated with those interrogations.

Of course, in the case of the WWII prosecutions, the accusers were the victors. In the current case, the accusers are… Democrats. Who do they think the enemy is?

UPDATE:

Well, of course, in hindsight I should have predicted that Churchill’s hands were most probably not as clean as Andrew Sullivan and Ben Mcintyre would have us believe (in their vicious quest to paint Mr. Bush as the new Hitler). The ever-obliging gents at the Guardian pass along the story of the Cage, where on a posh street in Kensington Palace Gardens, captured Nazis — including civilians — were tortured throughout the war and for several years after. [h/t Michael Tomasky]

UPDATE 2:

As usual, Frank J. explains it all with his scintillating moral clarity.

UPDATE 3:

The Churchill scholars are coming out of the woodwork on this one. Richard Langworth tells us that there are precisely 156 instances where the word “torture” appears in the 50 million words written by (15M) and about (35M) Sir Winston.  None of the uses are consistent in meaning with Mr. Obama’s quote. [h/t Powerline]

UPDATE 4:

This story keeps sprouting new legs. The lovable-but-wooden Bill Whittle, PJTV guy, takes Jon Stewart apart with surgical precision in a video that is deservedly gaining wide viewership. (Shouldn’t this spawn a new gerund, “Whittling”?) Stewart apologized, sort of, saying, gee, well, WWII was, you know, complicated. As Allahpundit remarked,

The moral calculus about how far to go in roughing up jihadis to save how many lives is difficult, as was the calculus about how many lives would be saved in the long run by incinerating Japanese kids in Hiroshima and Nagasaki to end the war. The fact that Stewart is a hard no on the former yet considers the latter iffy suggests a mentality I simply can’t fathom.

Me neither.

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Tuesday, 21 April 2009 by bbbeard.

Obama’s latest ploy is to dress his imperial majesty in budget-cutter clothing, demanding sacrifice around the Cabinet table. One Hundred Million Dollars! Sure sounds like a lot of money. But even the AP isn’t fooled, having borrowed a calculator with scientific notation from the geeky guy in IT and concluded that 100 million dollars per annum to the federal government is like a large latte and a scone to a middle class family. Per year, that is. My colleague Rand Simberg calls it “100 MicroBaracks” which does not quite roll off the tongue like Brian Riedl’s acute observation that $100M is the amount the federal government spends every 13 minutes.

None of which means anything to Obama’s target audience, which is the vast shallow sea of government-educated folks who are fuzzy on the difference between a million and a trillion, who don’t order scones, who couldn’t quite explain the difference between $6 a day and $6 a year, or for that matter, the difference between 13 minutes a day and 13 minutes a year.

The ideal target audience, in other words, for the desperate ploy by some conservatives to downbrand the Democratic Party as the Democratic Fascist Party. Jonah Goldberg wrote the illuminating text “Liberal Fascism: The Secret History of the American Left, From Mussolini to the Politics of Change“, which drew jeers and cheers from the usual suspects but which went largely unnoticed by Mr. and Mrs. Everywhere. Now Jim Lindgren reports that the liberal=fascist meme is starting to break out into the general conversation, to the extent that liberal commentators are girding their defenses.

What does it all mean? It means that the political class believes that a non-negligible percentage of the voting population is composed of idiots. To some non-negligible extent, they may be right.

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Sunday, 22 March 2009 by CVM.

I’m still trying to figure out what the point of blogging is, but maybe a blog can serve as a kind of historical record, tracking perspective in real time, before those recollections can be contemplated in tranquility.  I have often wished I had kept such a journal while on the track of a discovery. Although I can probably remember roughly what it felt like not to know something, it’s impossible to completely capture that exquisite state of ignorance.

In that spirit, I plan to blog my progress in a course I’m taking on Buddhism.  I hope that my sensei, the detailed blogger, will correct my misunderstandings before they do too much damage.

First I should say that the audio course is from the Teaching Company, which has been the source of much top-notch education for me over the years — I listen to the courses on my commute through Central Park. The course is taught by Malcolm David Eckel, who got his Ph.D. in comparative religion from Harvard and has written several books on Buddhism.  It’s difficult to tell exactly how much he himself is a Buddhist, but he clearly has a tremendous amount of respect for Buddhism.

In introductory lectures, Eckel discusses the Hindu background into which the Buddha (I will call him this though technically he wasn’t the Buddha until his enlightenment, or possibly his death) was born.  To the extent that Buddhism arises from and is a response to Hindu religious beliefs, the key influences are the Vedas (composed around 1500 to 500 BCE and written down beginning around 800 BCE) and the explications of the Vedas in the Upanishads, composed around 700 BCE (the Buddha, of course, was famously contemporaneous with Socrates, and like Socrates died around 400 BC).

Although no doubt the modern Buddhist might disagree, Eckel presents the Buddha’s insight as a response to the Hindu view of death (the comparisons to other religions are my own).  Apparently the early Vedas presented a view of death fairly similar to that found in The Epic of Gilgamesh (probably composed around 2300 BCE and written down around 2100 BCE)) and the early Hebrew Bible (probably composed around 1500-800 BCE and written down around beginning around 800 BCE), and probably characteristic of most known civilizations at that time. That view is that after death the soul becomes a shade and transmigrates to a Hades-like place (thus the early Greeks shared this view, though described it in more detail), which is not particularly interesting but not particularly horrible either (though not a place you’d want to go if you had a choice). A few heroes and kings maybe go to a better place where the gods live, and the gods are similar to other religions completely distinct from humans. The very late Vedas developed the notion of reincarnation (in Sanskrit, the word means “wandering”), in which the soul is reincarnated “millions” of times (according to a late Veda) and this notion is the basis of subsequent Hindu views of the afterlife, including the Upanishads. Since gods are also subject to reincarnation, the distinction between gods and humans has begun to dissolve in the Upanishads.  By the time of the  Buddha, the Hindu concept of reincarnation had developed into a decidedly pessimistic view, since it would seem that on the whole one is most likely to be reincarnated as a fairly miserable creature (the ant is commonly used as an example in the Vedas).

Thus, as Eckel conveys it, the Buddha’s big insight was that the trap of infinite reincarnation could be stopped by proper understanding of the nature of the self and reality, achieving Nirvana (Sanskrit for “extinguishing”).  The Buddha came to this understanding, and thus achieved Nirvana, and was kind enough to spend the next 40 or so years of his life conveying this understanding to his followers.

I can describe some initial concepts now.  The fundamental basis of Buddhism can apparently be understood within the context of the 4 Noble Truths: 1. All is suffering; 2. Where suffering comes from; 3. How suffering can be stopped; 4. The method leading to the cessation of suffering.

I won’t get much into this now, but to make a few preliminary comments. First, it would appear that the Buddha paves the way to the four Noble Truths with a metaphysical insight: that all is impermanent, and that the self is a delusion, and, in particular, “all is one”. My first response to this metaphysical maneuver is that it is deep and compelling.  Some of the most difficult problems in contemporary Western philosophy (the nature of identity and the nature of consciousness) can be dropped as distractions if one makes these basic metaphysical assumptions. Of course it doesn’t feel that way (one does have a sense of one’s self, of course, and if the self is a delusion, who or what is suffering that delusion?). On the other hand, from a purely scientific point of view, it certainly is true that “all is one”, and the explanatory gap in the hard problem of consciousness seems just about impossible to overcome.  A pure materialist — and aren’t we all? — would seem to be better off embracing Buddhism than trying to hold on to Cartesian dualism. More on this later.

A second point I would make is that they don’t call it the axial age for nothin’. While the Buddha was putting the kibosh on the Hindu view of the afterlife, Plato (presumably following Socrates, who claimed to be following the oracular hymns) was doing about the same to the Greek view of the afterlife.  As I indicated above, until the time of Socrates the prevalent view of the afterlife was that shades migrated to a fairly unappetizing Hades. In his meditations just before he died (in the Phaedo) he describes a view of the afterlife completely at odds with Greek (and contemporaneous Hebrew) views, and virtually identical to the one now held by Christians, Jews, and Muslims, at least those following the literal exoteric forms of their religions. The Hellenized Jewish authors of the New Testament clearly lifted their entire view of Heaven and Hell from the Hellenic strain, probably from the Phaedo, and Jews were changing their views at about the same time, probably for the same reason.  The Muslims of course took their views from the by that time well-developed dogmas of the Jews and Christians. From the modern perspective, the bracingly mechanistic and atheistic metaphysics of the Buddha is obviously more appealing, though the question of the metaphysical nature of reincarnation, which Buddhist thought was originally developed to address, does not appeal to the modern.  Nevertheless, stripped of those metaphysical assumptions, Buddhist thought does develop a bracing and fascinating set of philosophies.

In the past I have been guilty of oversimplifying Buddhism as simply an exercise in lowered expectations.  I am beginning to see much beyond that, though I still see Buddhism (which, I gather, advocates extinction [”extinguishing”? — Ed.]) on a collision course with existentialism (which, in my version at least, advocates the opposite, though Sartre might disagree). More on this later.

CVM

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Tuesday, 3 March 2009 by bbbeard.

“What you’re now seeing is a profit and earnings ratios get to the point that buying stocks is a good thing if you have a long-term perspective on it.”

Do you think He knows what “P/E ratio” stands for? I’ve listened to the video a couple of times and, even allowing for off-the-cuffiness of the exchange, it’s not clear to me that he does.

UPDATE (10 March 09):

Delta Foxtrot says I’m being cryptic. So here are some deeper observations that flesh out this particular complaint:

Well, the superficial observation is that at first and second listening Obama apparently refers to the “profit and earning ratios” of publicly traded companies. The problem with that is that the meaning of “P/E ratio” is “price / earnings ratio”, not “profit / earnings ratio”. To a market already badly shaken in its faith in our 44th President, to confuse “profit” with “price” is a faux pas that would only send the market down further. He should consider bringing a TelePrompTer before he says anything at all about the markets.

But this is a quibble. Perhaps he meant to say, “corporate profit [COMMA] and [IMPLICTLY: price / ] earnings ratios”. However, this reflects a deeper confusion about the meaning of the P/E ratio.

The “price” in “P/E ratio” means the per-share stock price times the number of shares outstanding. What determines the price? Conventionally, a company is ‘worth’ its net present value (NPV). The NPV is the total present value of all anticipated future net profit streams, discounted using the usual formula for time value of money. In quant form, the present value is discounted from the future value by a factor that depends geometrically on time, that is, PV(t) = FV(t)*exp(-k*t), where k is an interest rate.

Now, for a company working in a ’static’ (slow-growth) industry, like, say, a paper company, next year’s earnings are likely similar to this year’s earnings. So if you compute the NPV of a static income stream, the NPV is just (this year’s earnings) divided by (the discount interest rate k), e.g. if k=8%, the P/E should be about 12.5. So ceteris paribus, the companies in a given sector should all be priced with similar P/E ratios. This tells an analyst whether a stock is overpriced or underpriced. Small changes in a company’s prospects can shift the actual P/E up or down. If a company is in a high-growth sector (like computers 10 years ago), the P/E ratio can be very high, because the anticipated growth of the company’s revenue can exceed the discount rate(!). So many tech stocks were trading at P/E’s over 100 (until the bubble burst)….

So, here’s the rub — if a company, or an entire sector, has P/E’s lower than historical averages, it means that investors believe that profit streams are likely on a downward trend. It doesn’t necessarily mean that the company is a great buy. And when an entire market has low P/E, it means that the assessment is that the economy is in a long-term downward spiral. It doesn’t mean the market is a good buy at the low P/E. It just means that investors have taken into account all the currently available information and have concluded that the net present value of each and every stock that has a low P/E, is low.

So, when Mr. Obama gets up in front of international film crew and says, “Hey! Buy now! P/E ratios are really low!” that’s well, kind of ass-backwards, not to mention a little scary. The P/E ratios are low because he has convinced the market he is out to ruin the market system, or at least, he really doesn’t care enough about capital markets to learn the first thing about them.

More thoughts about the P/E ratio: stocks in general behave a bit like “martingales” (link to a book here), that is, a “martingale” is a random variable that changes erratically as time passes, in a way that the expectation of a future value is equal to its current value. Stocks are a bit different than pure martingales because of the time value of money (”TVM”), but the martingale concept can still be applied with some adjustment. What that means, in short, is that there really isn’t anything like a time when “stocks are a great buy” or when “stocks are overpriced”. Unless you know something about the future that the market doesn’t know. For example, you might “know” that Obama is about to repudiate all the economy-hostile measures he has promoted (like the trillion-dollar deficit). In that case, the market assessment of values (tied to the projection of the future profit stream) for nearly all stocks would increase. And before the repudiation, stocks would be a great buy. Or you might “know” that Obama is going to announce the forced merger of GM, Ford, and Chrysler into a single government-run “American Motor Company” — prior to the announcement would be a good time to sell your stocks (or buy “puts”).

Nonetheless, one of the ways in which stocks do not simply behave like TVM martingales is that their price includes an implicit risk deflator. That is, the projection for the expected value of GM stock might be that profits will start to grow year-on-year at say, 5%, leading to a per-share price of, say, $100. But there might be considerable uncertainty about the projection — some analysts might predict a 3% yearly growth, others, 7%. The effect of the uncertainty will be to depress the stock price. Even though the expected value of the net present value of the future profit stream is $100 per share, the uncertainty might drive the stock price to, say, $90 per share. The difference is called a “risk premium” by analysts. If the uncertainty grows, the stock price declines even further.

Now, it is quite apparent that a huge risk premium is attached to stock prices right now, in addition to the penalty exacted for the impacts of massive deficits, the impending cap-and-trade tax, and massive tax increases on the productive class. Not all of this is Obama’s fault, of course — we live in interesting times! But inasmuch as the market incorporates all available information, including, e.g. North Korea’s pronouncement that shooting down their missile will spark a wider conflict, Obama’s incompetence in foreign relations also exacts a toll on the markets.

Now, the thing is, as time passes, projected risk diminishes — a year from now we will know what GM’s profit in 2009 will have been. So, a year from now, we will have a better, albeit still incomplete, idea of how Obama’s policies will play out. By March 2010, we will know if he got his trillion-dollar deficit passed, we will know if foreign investors abandoned Treasury securities or stuck with us, we will have a better idea how the November 2010 elections will turn out. Thing is — even if the news is bad, removing the uncertainty can drive the market up. The catch is, as time passes, uncertainty can also increase. If Obama’s actions in the domestic and foreign policy arenas become increasingly erratic, it may keep the markets depressed even as the economy recovers.

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Friday, 6 February 2009 by bbbeard.

“So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is?”

The Kennedy tax cut was stimulative. The Reagan tax cut was stimulative. The Bush tax cut was stimulative. Is He really unaware of these basic economic facts?

The Japanese experience with huge public works programs in place of stimulus is unimpressive. So why is He trying to emulate it?

Oh, wait, I forgot — He’s an “intellectual”.

People like Him give intellectuals a bad name.

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Friday, 6 February 2009 by bbbeard.

“There will be time for them to make profits, and there will be time for them to get bonuses — now is not that time. And that’s a message that I intend to send directly to them.”

Gee, I would have thought an economic downturn would be a great time for companies to start making profits.

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Friday, 6 February 2009 by bbbeard.

First, win.

Then, decide which laws you don’t like. And just stop enforcing them.

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