MW Investment Strategy Group: Martins View

A one-stop investment guide, from 1883

Quote of the Week

What we had was a government-prescribed course of amphetamines (to keep it up), antibiotics (to prevent infection) and antidepressants (to make it feel better). It endured regular steroid injections from both monetary and fiscal authorities. And it still has no real muscle.

Caroline Baum on Bloomberg

Some really encouraging news

Bill Gates and Warren Buffett have spearheaded a successful effort to get America's billionaires to commit to leaving at least 1/2 their fortunes to charitable ends at their deaths. 40 of 80 individuals they contacted, with a combined net worth of $230 billion, agreed. Michael Bloomberg, Larry Ellison, George Lucas and Ted Turner were among those who signed on.

Let's hope the persuasive Buffett & Gates duo are able to reel in the other 40 on their lists, and the estimated 320 more US billionaires with additional assets of some $1 trillion. They can certainly use the "Quote of the Day" posted just below.

Quote of the Day

It's a wise man who lives with money in the bank; it's a fool who dies that way.

French proverb

I rather like that. From The Big Picture.

It doesn't get much better than this

According to a report released last week by Alan Blinder and Mark Zandi, advisers to President Bill Clinton and Senator John McCain, respectively, the combined actions since the fall of 2007 of the Federal Reserve, the White House and Congress helped save 8.5 million jobs and increased gross domestic product by 6.5 percent relative to what would have happened had we done nothing. The study showed that government action delivered a powerful bang for the buck, and that the bank rescue on its own will turn a profit for taxpayers.

This from Timothy Geithner's NYT OpEd. For all the criticisms of the economic policies of President Obama and Treasury Secretary Geithner (and their predecessors who bear much more of the blame), I have always held that they were operating under an extreme economic emergency and with inadequate information. They took unbelievably bold actions, many of which were imperfect at best. But, per two very respected economists, the decisive actions by the folks in Washington seem to have successfully averted second Great Depression.

David Stockman looks today's GOP in the eye

And he is not pleased with what he sees. Stockman, former Director of the Office of Management and Budget under Ronald Reagan, decries what he deems as the wanton recklessness of the Republican Party's fiscal policies.

...But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance... This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy...
The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing ... it's a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach - balanced budgets, sound money and financial discipline - is needed more than ever.

From Stockman's OpEd in the Sunday NYT.

A billion here, a billion there...

Nice infographic from Information Is Beautiful.

Prosperity, for the few

...of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households.

This somewhat startling fact is from Raghuram Rajan's recent book, Fault Lines. Rajan is a former chief economist for the IMF and currently a professor of economics at the University of Chicago. In contrast to many of the commentators on the recent financial crisis, Rajan says it was politics, and not structural defect, that encouraged Americans to borrow their way to maintain a standard of living that we could no longer afford. Yves Smith (one of my favorite economics bloggers) comments and is not hopeful as to the resolution.

Not quite done yet

Ron Griess offers this chart of three long bear markets of the 20th century ('06, '29, '68) that had an average length of 16 years until the final bottom was reached. Our current market, arguably a fourth in the series, is just over 10 years in duration. Also, if this history is any guide, we will not see a new inflation-adjusted high in the US stock market averages until sometime in 2025...
From The Big Picture

Five Books

Five Books is a wonderful concept. Ask experts in a field - any field from cooking to terrorism with stops at atomic physics and Buddhism along the way - to provide "5 Best Books" in their subject. And then publish those lists with the list choser's narrative on each selection. Highly recommended.

A purely Keynesian argument

Fiscal consolidation should begin only after it is ascertained that funds NOT borrowed by the government will be borrowed and spent by the private sector.

That's Richard Koo, of Nomura Scurities, in a presentation to the Soros Institute reprinted here, arguing against government austerity measures until private sector credit demand resumes. Comparing our situation to that of Japan in the early 1990s, Koo states that with private savings increasing, the government must step in as the borrower of last resort in order to prevent a more debilitating drop in economic output. Koo concludes his convincing argument stating "it took 30 years to normalize interest rates after 1929." Of course, as with Japan, this would likely be accompanied by serious political repercussions.

Wall St. Pay - then and now

The old pay system (era of John Whitehead): you work at an investment bank for 30 years, have a reasonable draw and cash bonus, build up stock in the firm as most of your bonus, and when you decide to retire you request of the partners their permission to go limited. If they assent, you get to withdraw your money over five years, all the while continuing to expose the balance to the risks of the enterprise.
he new pay system post-Donald Lufkin Jenrette's original I.P.O.: you're a young 29-year-old punk playing with OPM (Other People's Money), taking huge risks for which you get huge bonuses, while the outsiders shoulder the losses on your bets. You make all the money you'll ever need in three years, stay around 15 years to pile up five times as much as you need, and then you retire with your cash hoard, buy a winery in Napa/Sonoma or a huge farm in Connecticut, living above the fray for the rest of your life.

Which system, do you think, makes people consider the downside of their actions?

NY Times business correspondent Floyd Norris pretty much nails the problem.

How banks make money off consumers

"A standard trick in the consumer-facing financial services industry is to appeal to people who are sure they're going to have no liquidity or cashflow problems in the future, and then make lots of money off them when the inevitable crunches happen. Free checking, for instance, becomes extremely expensive checking when you overdraw your account; and people regularly buy items on their credit card intending to pay the statement off in full, but then fail to do so, incurring substantial interest payments not only on that one item but on everything else they bought that month as well."

Another excellent observation by Reuters blogger Felix Salmon

Historical Quote of the Month

It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half of the wars of the world.

Thomas Jefferson

What goes up, must come down?

The United States currently incarcerates a higher percentage of its population than any other country in the world.

The next closest are Poland and Mexico with an incarceration rate less than 1/3 the US', according to this recent report by the Center for Economic and Policy Research. The astonishing increase in incarceration shown above has not been accompanied by a rise, or a decline, in violent crime in the US. The report concludes it is costing cash-strapped states at least $16 Billion per year in unnecessary expenditure.