Sitting In My Office Watching a Thunderstorm

It is mid August.  My wife and I are preparing for a long weekend away.  We just downloaded the school supply list for our son, the eighth time we’ve done this.

The summer work has slowed, and the list of fall work is growing.  The market is troubled and troubling.  The first crickets are appearing in the basement.  The nights are cooler, and we are making the first plans for Thanksgiving and Christmas gatherings.

I am 43 now.  The family rituals are now my rituals.  The rhythm of the year has become familiar and comforting.  Daily life has become the center of my life.

The children are not small, and their problems can no longer be soothed with a popsicle and a viewing of "The Lion King.”

The challenges are bigger, and the near term less certain.  Our parents are older, and may soon require help.  My finances are not as robust as I would like. The house is always work and imperfect.

But the daliness of life seems as it should be.  Problems or triumphs are as they should be.  I was born to fix the printer so Ry could print out his seventh grade school list.  I was born to help clean the fridge, and to short S&P index funds into the close.  I was born to walk the dogs, and to sit in my office chair watching the rain as the sun went down. I was born to be myself on this one unremarkable August day. 

Unsent Responce to Family Email Chain.

I’m not sure what the downgrade means to the present or future generations.

I know Japanese 10yr bonds, rated AA- (one notch less than the new U.S. rating) yield something like 240bp less than treasuries.

Some differences of course, not reserve currency, higher savings rate, positive balance of trade, etc.

And I’m not sure how the math works here; lower rated stuff should trade at a higher yield than “risk free.”  But what if the old risk free rate is what is being downgraded?

Do Luxemburg or Liechtenstien or the Isle of Man, each with no military power, less diversified economies, and much greater liquidity risk, carry the new risk-free rate on which we must base all valuations?

Bullshit, says I.

Risk-Free doesn’t exist.  Never did.

US debt is still the reserve currency of the world and the “risk-free” benchmark, regardless of the opinion of a few arithmetically challenged analysts at Standards and Poors  who only a few years ago awarded tranches of 580fico based CDO-cubed the same ratings as US sovereign debt.

Not sure I believe the outrage and panic of CNN.

There probably will be effects, but any dislocations caused by the re-jiggering of instruments whose management’s didn’t see this coming, is opportunity for someone else.

 

(And if it offers any solace, the Canadian stock market climbed 15% after they lost their AAA in 1993; Japan went up 25% when they lost theirs in 1998.)

(Disclosure:  Short U.S. treasuries.)

Hope all are well,

J.

First Political Post

Despite the first post, I’ve mostly stayed away from politics.

But since the debt debacle and market crash, I’ve become increasingly poorer and increasingly angry at the administration.

I voted for the President, mostly out of a sense of optimism and the belief that the pendulum had swung too far right.  I thought the President would be in a unique position to do the hard work of government: To reform entitlements, reduce healthcare costs, reduce crony capitalism, reduce military adventurism, and institute a rebuilding of infrastructure similar to FDR’s new deal.   I was a bit on the fence and worried about an undivided government, but after sitting at a Redskins game, listening to people talk so hopefully of Obama’s election, I chose to ignore my worries and vote for hope.

It turned out to be a bad decision.

Rather than institute decisions to benefit the entire county, the President instead rewarded his supporters with a stimulus package which spent more on unions than roads.

Rather than immediately work on employment measures, the administration’s priority became a healthcare package which did very little to truly reduce costs (means testing, tort reform, insurance shopping, test cost reductions, etc).  It instead increased costs, created impediments to hiring and raised taxes.  The CBO scoring (8 years of revenue versus 4 years of full spending) was ridiculous, and the package further divided the country and increased a call by the public for government austerity.

And though he ran as a “free market guy,” through executive agencies, he increased regulation and compliance barriers for the broader market while continuing to allow loopholes and advantages for supporters.  (Unions, Wall Street.)

Nearly every speech admonished millionaires and billionaires (any household making over 250k) and insisted that they needed to pay “their fair share.”  The speeches ignored the fact that the top bracket would be paying nearly 50% of all income taxes, and nearly 30% of all total taxes.  He cut effective rates on lower income payers though refundable tax cuts, so that more than half of the population paid no income taxes, and nearly 40% of filers paid negative tax rates.

For the first 18 months of the administration, any discussion of economic problems laid the blame entirely on the Bush administration and wall street, and ignored all the damage caused by democratic policies or bad decisions made by the general public.  He took no responsibility for the righting of the ship, and chose to campaign instead.

Speaking is his strength.  The President gives wonderful speeches, and is at his best when he is optimistic.  But like a candidate rather than a president, he has chosen to blame rather than fix.  His policies have been disastrous; the quiet decisions enacted through the agencies are troubling, and his inept lack of leadership is frightening.  He positions himself as the lead opposition to the Republicans rather than chief executive of the entire country.  He is perpetually running for a second term while ignore the duties of his first.

Rather than risk votes by addressing real problems in entitlements, he allowed vicious cuts in real, necessary, social programs.  Rather than face political damage by having to face another debt extension prior to the election, he chose to surrender even more funding to core programs and further hurt job creation.

Philosophically, he naively appears to truly believe that a government can (or should) make things “more fair” and can do so without damaging the overall economy.  He appears to believe that private industry should answer entirely to government, and that “excessive” wealth on the part of individuals is a serious problem for a society.  Worst of all, he believes that citizens must fund the needs of their government, rather than government must exist on what its citizens are willing to pay.

He seems to have forgotten Churchill’s advice that although capitalism unequally shares the benefits, socialism shares the misery.  If history is a guide, “Shared sacrifice,” does not mean eventual equality, it means that your Government will eventually take something from you personally. 

And we have all sacrificed.  What Mr. Obama has taken from us, was the promise of a sense of optimism without blame.   The greatest tragedy was the lost opportunity to remind us we one great country, rather than two flawed parties.  My vote was a mistake I will not repeat.  There was no real Change, and my Hope was misplaced.