The proposed tax legislation sponsored by the Republicans in Congress and the Trump Administration would repeal the individual mandate in Obamacare. This mandate, which requires all uninsured Americans to either buy health insurance or pay a penalty through their tax returns, is much detested by the political right. But it is based on a sound principle of insurance. Insurance works best when a large group of people work together to pool their risks. Mandatory insurance on all registered vehicles is a good example of how an intelligent insurance systems works. If the Republicans repeal the Obamacare individual mandate, then the private health insurance market for individual coverage will be severely distorted. The healthy won't buy coverage until they get sick or are injured. Since Obamacare forbids insurers from excluding prior medical conditions, people can game the system by not paying for insurance until they need a lot of health care. Then they buy coverage and pay premiums that total only a smidgen of the actual cost of their care, while shifting most of their costs onto others. Insurers would have to push up rates sharply and a lot more people would drop coverage--until they need a lot of healthcare, at which time they would game the system by buying health insurance. The market for private individual health insurance would die. Then, really large numbers of people would be uninsured.
Senator Susan Collins from Maine has tried to negotiate promises from Republican leaders in Congress and the Trump Administration for alternative funding for health insurance that would supposedly stabilize that market. But with all the secret, back-room, opaque maneuvering and sneaky, swampy pork barreling that has gone on into putting together the proposed tax bill, one wonders how Senator Collins can be so sure these promises will be kept. She has no meaningful recourse if they aren't. Given how the proposed legislation is primarily a monumental looting of the U.S. Treasure by the rich and by large corporations falsely depicted as tax "reform" for the middle class, how can Senator Collins believe there is any good faith at all on the part of the Republican leadership?
The Republican destruction of the market for private individual insurance will pave the way for the expansion of Medicare to cover uninsured individuals. Politically speaking, it is no longer acceptable to throw these people into the gutter. Even President Trump recognized this when he promised that there would be insurance for everybody notwithstanding his efforts to repeal Obamacare. But the underhanded tax law repeal of a health insurance measure--the individual mandate--vividly illustrates the difficulties of trying to use the private insurance market to provide universal health insurance coverage. The Republicans leave no alternative except an extension of Medicare to uninsured individuals of all ages.
Virtually all industrialized nations today provide some form of universal, single payer health insurance. Some allow supplemental private insurance for people willing and able to pay for premium level care. Americans today view health insurance as something all should have, and a government program like Medicare is the only realistic way universal coverage can be provided. Medicare isn't perfect. But it works well, and ensures near universal coverage for people age 65 and older. Its imperfections can be improved. It can and does work side-by-side with private insurance (such as Medicare D and supplemental policies). Americans today won't tolerate their fellow citizens being tossed in the gutter because of health problems, in order to fund a monumental tax cut for the rich and powerful. The Republicans will find this out in 2018 and 2020.
Sunday, December 17, 2017
Saturday, December 16, 2017
The Trump Administration's Seven Dirty Words
The Trump administration has decreed that the Centers for Disease Control and Prevention cannot use seven words: diversity, fetus, transgender, vulnerable, entitlement, science-based, and evidence-based. http://www.cnn.com/2017/12/16/health/cdc-banned-words/index.html.
Poor fetuses. They've been around since time immemorial, and they're terribly vulnerable. The best protection the modern world can offer them is science-based medicine. There may be a diversity of views as to how best to take care of fetuses. But evidence-based science provides the most knowledgeable foundation on which to have a dialogue about these issues. Centuries ago, the Earth didn't flatten itself just because a lot of people thought it was flat.
Using the word "transgender" forces one to confront the fact that transgender people exist. If the term isn't used, it's easier to pretend they aren't there. And if you can pretend they aren't there, then you don't have to think about what entitlements they should have. If you are religious, you don't have to consider the possibility that they, too, are God's children. Toddlers believe that if they close their eyes and can't see what's before them, it isn't there. Apparently, the Trump administration has some serious growing up to do.
One wonders if the Trump administration is thinking that ignorance is strength, that ignorance is bliss. Censorship is a tool of fascism and totalitarianism. A free nation and a free people have no need to censor words. Here are seven words that the Trump administration needs think about: truth, knowledge, intelligence, freedom, thoughtfulness, decency, and compassion.
Poor fetuses. They've been around since time immemorial, and they're terribly vulnerable. The best protection the modern world can offer them is science-based medicine. There may be a diversity of views as to how best to take care of fetuses. But evidence-based science provides the most knowledgeable foundation on which to have a dialogue about these issues. Centuries ago, the Earth didn't flatten itself just because a lot of people thought it was flat.
Using the word "transgender" forces one to confront the fact that transgender people exist. If the term isn't used, it's easier to pretend they aren't there. And if you can pretend they aren't there, then you don't have to think about what entitlements they should have. If you are religious, you don't have to consider the possibility that they, too, are God's children. Toddlers believe that if they close their eyes and can't see what's before them, it isn't there. Apparently, the Trump administration has some serious growing up to do.
One wonders if the Trump administration is thinking that ignorance is strength, that ignorance is bliss. Censorship is a tool of fascism and totalitarianism. A free nation and a free people have no need to censor words. Here are seven words that the Trump administration needs think about: truth, knowledge, intelligence, freedom, thoughtfulness, decency, and compassion.
Friday, December 8, 2017
Bitcoin Futures and the Growing Systemic Risks of Bitcoin
Yesterday, Bitcoin rose above $19,000, only two days after it reached $12,000. Then, it plunged some 20%. As we said before, Bitcoin is in a bubble. And things will get riskier soon.
Next week, on Dec. 10, 2017, Bitcoin futures contracts will begin trading on the Cboe. On Dec. 18, 2017, they will begin trading on the CME. Both the Cboe and CME are longstanding exchanges that trade many well-established financial products. The commencement of Bitcoin futures trading lends Bitcoin a legitimacy it doesn't yet have. Investors who may shy away from the little known, often foreign markets where Bitcoin is currently traded could be drawn to the Cboe and CME because they are well-known, located in America and regulated by the U.S. government. American investors may become far more exposed to Bitcoin than they are today. And that could be bad.
The underlying Bitcoin market is opaque, to say the least. Much of it is overseas, and reliable transactional data is scarce. Ownership information is, by design, unavailable. How does one price a futures contract when one doesn't have a good idea of what's happening in market for the underlying asset?
The Bitcoin futures market will also differ dramatically from Bitcoin in another aspect. There is a limit on the number of Bitcoins that can be created: 21 million. There is no limit on the number of Bitcoin futures contracts that can be created. People who don't want to pay or mine for Bitcoins can trade futures instead. Since futures contracts can be purchased on margin (i.e., with money borrowed from a brokerage firm, after putting some cash down as collateral), it may end up being cheaper and more potentially profitable to trade Bitcoin futures instead of Bitcoins. The volume of Bitcoin futures trading could end up dwarfing the volume of trading in the underlying Bitcoins. And there is no limit on how large the futures market could become.
If Bitcoin futures trading expands the way Bitcoin trading has ballooned, the amount of marketwide exposure to Bitcoin price movements could increase exponentially (or maybe even faster). The volatility of Bitcoin's price could wreak havoc with investors trading futures contracts, who generally buy futures contracts on margin. When the price of a futures contract purchased on margin drops, brokerage firms can ask for additional cash to be deposited as collateral (via a "margin call"). This cash has to be provided quickly or the brokerage firm may sell the futures contract to prevent further losses to itself. Investors sometimes fail to provide the additional cash demanded, either because they don't have it or can't get to it fast enough. Either way, the brokerage firm's sales then add to the downward pressure on the market. That can push the price of the futures contract lower and result in more margin calls. These in turn can produce even more selling, leading to a downward spiral. That's what happened to stocks in the great stock market crash of 1929, and it could happen to Bitcoin futures contracts.
None of this requires that the Bitcoin futures market be cornered or otherwise manipulated. It can happen from the daily craziness we already see in the Bitcoin market. If a lot of investors dive into Bitcoin futures, the aggregate risk created could be immense. Abrupt price drops such as we have recently seen (i.e., 20% a day) could be catastrophic for investors trading on margin. Widespread failures to meet margin calls can endanger the financial stability of brokerage firms and clearing houses. Some may collapse, something that happened after the 1929 stock market crash. That, in turn, could put the financial system at risk.
Of course, everyone thinks the Fed will bail us out. There seems to be an assumption in the market that the Fed has always bailed us out and always will, so risk is irrelevant. But this is no longer true, if it ever was. The Dodd-Frank Act, much detested by conservatives, limits the extent to which the federal government can underwrite financial market bailouts. There is no insurance covering market losses in futures accounts. So investors taking losses in this scenario, and their brokerage firms, are pretty much on their own.
Some might think that the way out of this dilemma is for investors and firms to hedge their exposure. That way, if the market goes bye-bye, the losses are passed to whoever gave them the hedge. But, from a systemic basis, hedges don't solve the problem. Financial risks, once created, don't go away by themselves. When they result in a loss, the loss lands somewhere. If not on the original investor, then on the person who provided the hedge (or if that person hedged the hedge, then on the person providing hedge for the hedge, and so on). No matter how long one extends the chain of hedges, the loss will land somewhere.
If those losses are concentrated into one or a few firms, the result could be seriously bad in a systemic way. That's what happened during the financial crisis of 2008, when very large amounts of derivatives market losses from mortgage-backed or mortgage-related investments were concentrated at a single large insurance company--AIG--which, had it collapsed, would have taken down the world's financial system. As things happened, U.S. taxpayers, in a ceremony M.C.'d by the Fed, bailed out AIG and the world financial system, which although gasping for breath, was able to limp along and muddle through.
Could Bitcoin futures losses end up concentrated in a way that would put the financial system at risk? That will be the challenge for financial regulators, in the U.S. and elsewhere. Since Bitcoin is traded around the world, regulators in the U.S., Europe, China, Japan and elsewhere need to be alert and communicate enthusiastically with each other. Given the astounding celerity at which Bitcoin trading has ballooned, and the jaw-dropping volatility of Bitcoin prices, there is every reason to believe that Bitcoin futures could provide a ride as wild as, or wilder than, the Bitcoin monster roller coaster. And the world may well not be prepared for what could happen.
Next week, on Dec. 10, 2017, Bitcoin futures contracts will begin trading on the Cboe. On Dec. 18, 2017, they will begin trading on the CME. Both the Cboe and CME are longstanding exchanges that trade many well-established financial products. The commencement of Bitcoin futures trading lends Bitcoin a legitimacy it doesn't yet have. Investors who may shy away from the little known, often foreign markets where Bitcoin is currently traded could be drawn to the Cboe and CME because they are well-known, located in America and regulated by the U.S. government. American investors may become far more exposed to Bitcoin than they are today. And that could be bad.
The underlying Bitcoin market is opaque, to say the least. Much of it is overseas, and reliable transactional data is scarce. Ownership information is, by design, unavailable. How does one price a futures contract when one doesn't have a good idea of what's happening in market for the underlying asset?
The Bitcoin futures market will also differ dramatically from Bitcoin in another aspect. There is a limit on the number of Bitcoins that can be created: 21 million. There is no limit on the number of Bitcoin futures contracts that can be created. People who don't want to pay or mine for Bitcoins can trade futures instead. Since futures contracts can be purchased on margin (i.e., with money borrowed from a brokerage firm, after putting some cash down as collateral), it may end up being cheaper and more potentially profitable to trade Bitcoin futures instead of Bitcoins. The volume of Bitcoin futures trading could end up dwarfing the volume of trading in the underlying Bitcoins. And there is no limit on how large the futures market could become.
If Bitcoin futures trading expands the way Bitcoin trading has ballooned, the amount of marketwide exposure to Bitcoin price movements could increase exponentially (or maybe even faster). The volatility of Bitcoin's price could wreak havoc with investors trading futures contracts, who generally buy futures contracts on margin. When the price of a futures contract purchased on margin drops, brokerage firms can ask for additional cash to be deposited as collateral (via a "margin call"). This cash has to be provided quickly or the brokerage firm may sell the futures contract to prevent further losses to itself. Investors sometimes fail to provide the additional cash demanded, either because they don't have it or can't get to it fast enough. Either way, the brokerage firm's sales then add to the downward pressure on the market. That can push the price of the futures contract lower and result in more margin calls. These in turn can produce even more selling, leading to a downward spiral. That's what happened to stocks in the great stock market crash of 1929, and it could happen to Bitcoin futures contracts.
None of this requires that the Bitcoin futures market be cornered or otherwise manipulated. It can happen from the daily craziness we already see in the Bitcoin market. If a lot of investors dive into Bitcoin futures, the aggregate risk created could be immense. Abrupt price drops such as we have recently seen (i.e., 20% a day) could be catastrophic for investors trading on margin. Widespread failures to meet margin calls can endanger the financial stability of brokerage firms and clearing houses. Some may collapse, something that happened after the 1929 stock market crash. That, in turn, could put the financial system at risk.
Of course, everyone thinks the Fed will bail us out. There seems to be an assumption in the market that the Fed has always bailed us out and always will, so risk is irrelevant. But this is no longer true, if it ever was. The Dodd-Frank Act, much detested by conservatives, limits the extent to which the federal government can underwrite financial market bailouts. There is no insurance covering market losses in futures accounts. So investors taking losses in this scenario, and their brokerage firms, are pretty much on their own.
Some might think that the way out of this dilemma is for investors and firms to hedge their exposure. That way, if the market goes bye-bye, the losses are passed to whoever gave them the hedge. But, from a systemic basis, hedges don't solve the problem. Financial risks, once created, don't go away by themselves. When they result in a loss, the loss lands somewhere. If not on the original investor, then on the person who provided the hedge (or if that person hedged the hedge, then on the person providing hedge for the hedge, and so on). No matter how long one extends the chain of hedges, the loss will land somewhere.
If those losses are concentrated into one or a few firms, the result could be seriously bad in a systemic way. That's what happened during the financial crisis of 2008, when very large amounts of derivatives market losses from mortgage-backed or mortgage-related investments were concentrated at a single large insurance company--AIG--which, had it collapsed, would have taken down the world's financial system. As things happened, U.S. taxpayers, in a ceremony M.C.'d by the Fed, bailed out AIG and the world financial system, which although gasping for breath, was able to limp along and muddle through.
Could Bitcoin futures losses end up concentrated in a way that would put the financial system at risk? That will be the challenge for financial regulators, in the U.S. and elsewhere. Since Bitcoin is traded around the world, regulators in the U.S., Europe, China, Japan and elsewhere need to be alert and communicate enthusiastically with each other. Given the astounding celerity at which Bitcoin trading has ballooned, and the jaw-dropping volatility of Bitcoin prices, there is every reason to believe that Bitcoin futures could provide a ride as wild as, or wilder than, the Bitcoin monster roller coaster. And the world may well not be prepared for what could happen.
Wednesday, November 29, 2017
How Much Damage Will the Bitcoin Bubble Do?
Bitcoin is a bubble. There's no doubt about that. Its value has risen 1,000% this year, and indeed by $1,000 (or about 10%) on each of the past two trading days. This morning, it popped over $11,000 before dropping about 18% (i.e., over $2,000), all in one trading day. That's volatile. That's a bubble if ever there was one. We once again have graphic evidence that there are a lot of stupid idiots in the financial markets. History teaches that market stupidity can have major, and indeed systemic, consequences. Those of us careful enough to avoid Bitcoin may nevertheless be adversely affected by the idiots. The question at this point is how much damage will this bubble do.
The investors who trade Bitcoin can be found all over the world. Their personal losses, although potentially large in the aggregate, may be spread out and therefore appear to have a relatively diffuse impact. A person who risked and lost most of their net worth on Bitcoin can now look forward to uncomfortable (to say the least) discussions with their spouse and children. But that personal loss won't affect the rest of us.
The potentially widespread and even systemic impact of Bitcoin losses could come from where and how Bitcoin was traded. Bitcoin is traded on exchanges and through brokerage firms. If investors were trading on margin (i.e., with borrowed money) and can't repay the loans, the brokerage firms will take the loss. If the customers were able to transact directly with a Bitcoin exchange, the exchange takes the loss. Or, if transactions went through a brokerage firm that sent them to an exchange and the firm can't pay the exchange what it owes for trades, the exchange takes the loss. There is no organized settlement and clearance process for Bitcoin. Unlike stocks and bonds, there is no clearing firm, with substantial amounts of capital, to protect against large scale defaults in payments. If a Bitcoin exchange collapses, the firms and individuals to whom it owes money may be S.O.L.
If a brokerage or proprietary trading firm takes Bitcoin losses, it still needs to pay its obligations. In order to do so, it may begin liquidating other assets it holds--stocks, bonds, commodities and currencies. If the firm's losses are big enough, its selling may affect the price of those other assets. If those other assets begin to sag, other investors (who may not be involved with Bitcoin at all) may begin to sell in order to limit their losses. This increases the downward pressure on those assets, which may lead in turn to yet more selling. The potential for a more widespread market crash may develop.
In order to reduce the potential for market contagion, financial regulators need to identify the firms and exchanges where the impact of Bitcoin losses may be concentrated and take steps to limit the damage. That would be pretty hard, since Bitcoin trading is, by and large, unregulated and there is no organized way to find out where the losses and risks may lurk. In other words, we may not find out how bad things are until the losses have landed in our laps.
When Bitcoin was trading for a few hundred dollars (in those ancient times as far back as a year ago), the potential for major or systemic loss was almost nonexistent. But when Bitcoin rises by 10% a day and drops 18% in a day, while trading around $10,000 or more, the losses may be much, much larger and the potential for major or systemic losses increases commensurately with the increases in transaction amounts. Even though they could have shrugged a year ago, regulators and creditors of Bitcoin exchanges and traders need to start paying serious attention. The volatility in Bitcoin could easily get worse before it gets better. Bitcoin may soon trade for $25,000, $50,000 or even more. The losses, when they inevitably come, could involve mucho dinero--and we mean mucho. Failure to give Bitcoin their full attention could be very costly and painful, not only for players in the Bitcoin markets but also for we innocent bystanders. The time for vigilance has arrived.
The investors who trade Bitcoin can be found all over the world. Their personal losses, although potentially large in the aggregate, may be spread out and therefore appear to have a relatively diffuse impact. A person who risked and lost most of their net worth on Bitcoin can now look forward to uncomfortable (to say the least) discussions with their spouse and children. But that personal loss won't affect the rest of us.
The potentially widespread and even systemic impact of Bitcoin losses could come from where and how Bitcoin was traded. Bitcoin is traded on exchanges and through brokerage firms. If investors were trading on margin (i.e., with borrowed money) and can't repay the loans, the brokerage firms will take the loss. If the customers were able to transact directly with a Bitcoin exchange, the exchange takes the loss. Or, if transactions went through a brokerage firm that sent them to an exchange and the firm can't pay the exchange what it owes for trades, the exchange takes the loss. There is no organized settlement and clearance process for Bitcoin. Unlike stocks and bonds, there is no clearing firm, with substantial amounts of capital, to protect against large scale defaults in payments. If a Bitcoin exchange collapses, the firms and individuals to whom it owes money may be S.O.L.
If a brokerage or proprietary trading firm takes Bitcoin losses, it still needs to pay its obligations. In order to do so, it may begin liquidating other assets it holds--stocks, bonds, commodities and currencies. If the firm's losses are big enough, its selling may affect the price of those other assets. If those other assets begin to sag, other investors (who may not be involved with Bitcoin at all) may begin to sell in order to limit their losses. This increases the downward pressure on those assets, which may lead in turn to yet more selling. The potential for a more widespread market crash may develop.
In order to reduce the potential for market contagion, financial regulators need to identify the firms and exchanges where the impact of Bitcoin losses may be concentrated and take steps to limit the damage. That would be pretty hard, since Bitcoin trading is, by and large, unregulated and there is no organized way to find out where the losses and risks may lurk. In other words, we may not find out how bad things are until the losses have landed in our laps.
When Bitcoin was trading for a few hundred dollars (in those ancient times as far back as a year ago), the potential for major or systemic loss was almost nonexistent. But when Bitcoin rises by 10% a day and drops 18% in a day, while trading around $10,000 or more, the losses may be much, much larger and the potential for major or systemic losses increases commensurately with the increases in transaction amounts. Even though they could have shrugged a year ago, regulators and creditors of Bitcoin exchanges and traders need to start paying serious attention. The volatility in Bitcoin could easily get worse before it gets better. Bitcoin may soon trade for $25,000, $50,000 or even more. The losses, when they inevitably come, could involve mucho dinero--and we mean mucho. Failure to give Bitcoin their full attention could be very costly and painful, not only for players in the Bitcoin markets but also for we innocent bystanders. The time for vigilance has arrived.
Tuesday, November 14, 2017
Is Inflation Hitting Bitcoin?
Bitcoin is supposed to be insulated from inflation. Because there is a predetermined limit to the number of Bitcoins that can be created (21 million), Bitcoin supposedly should not be subject to anything like the monetary actions of governments, which can inflate fiat currencies by printing more money. There was an operational problem in August 2010, when someone created 184 million Bitcoins in a single transaction. But this transaction was voided and the operational problem dealt with. Thus, the 21 million coin limit was preserved.
Nevertheless, Bitcoin is subject to inflation risk. Inflation results from increasing the amount of a currency. Although the number of Bitcoins is limited, the number of digital alternatives to Bitcoin is not. Other cryptocurrencies, such as Ethereum, can be created with relative ease. There are few barriers to entry. Some 1100 cryptocurrencies now exist. Among them is Bitcoin cash, created by the Bitcoin community with features that make it easier than Bitcoin to use for transactions. The Bitcoin community also created Bitcoin gold, a cryptocurrency created to facilitate decentralized mining (Bitcoin itself is now dominated by a small number of large miners). As these alternatives proliferate, the value of Bitcoin can fluctuate wildly.
So far, Bitcoin has recovered from its sharp drops, and continued an overall upward trend in value. But volatility attracts fast money, and cash seems to be flowing into the Bitcoin market for speculative purposes. This may not end well. Hot money never stays in one place for long. With all the alternatives to Bitcoin, and the low barriers to entry for more, numerous other venues for volatility and speculation are or will become available. Speculators will stampede to whatever market appears to offer larger and quicker profits. The effect on Bitcoin could be similar to inflation. As cash flows away from Bitcoin, its value will diminish. Pause and think before you buy Bitcoins.
Nevertheless, Bitcoin is subject to inflation risk. Inflation results from increasing the amount of a currency. Although the number of Bitcoins is limited, the number of digital alternatives to Bitcoin is not. Other cryptocurrencies, such as Ethereum, can be created with relative ease. There are few barriers to entry. Some 1100 cryptocurrencies now exist. Among them is Bitcoin cash, created by the Bitcoin community with features that make it easier than Bitcoin to use for transactions. The Bitcoin community also created Bitcoin gold, a cryptocurrency created to facilitate decentralized mining (Bitcoin itself is now dominated by a small number of large miners). As these alternatives proliferate, the value of Bitcoin can fluctuate wildly.
So far, Bitcoin has recovered from its sharp drops, and continued an overall upward trend in value. But volatility attracts fast money, and cash seems to be flowing into the Bitcoin market for speculative purposes. This may not end well. Hot money never stays in one place for long. With all the alternatives to Bitcoin, and the low barriers to entry for more, numerous other venues for volatility and speculation are or will become available. Speculators will stampede to whatever market appears to offer larger and quicker profits. The effect on Bitcoin could be similar to inflation. As cash flows away from Bitcoin, its value will diminish. Pause and think before you buy Bitcoins.
Thursday, October 26, 2017
Trump Should Be Unhappy that Mueller Is Investigating a Democrat
News services report that Special Counsel Robert Mueller is now investigating Democratic lobbyist Tony Podesta for possible failure to register as a foreign agent. (See https://www.nbcnews.com/news/us-news/mueller-now-investigating-democratic-lobbyist-tony-podesta-n812776.) This isn't good news for Donald Trump.
Democrats might be embarrassed or concerned by this new development, because Tony Podesta is the older brother of John Podesta, the manager of Hillary Clinton's recent presidential campaign. But it's also bad news for President Trump and other Republicans caught up in Mueller's investigation. By including a Democrat within his purview, Mueller undermines any contention that he is politically biased and demonstrates his neutrality. That strengthens his credibility, whether he eventually seeks charges against Republicans, Democrats or both. Republicans feeling any satisfaction from the news of Mueller's investigation of Tony Podesta need to rethink things.
Democrats might be embarrassed or concerned by this new development, because Tony Podesta is the older brother of John Podesta, the manager of Hillary Clinton's recent presidential campaign. But it's also bad news for President Trump and other Republicans caught up in Mueller's investigation. By including a Democrat within his purview, Mueller undermines any contention that he is politically biased and demonstrates his neutrality. That strengthens his credibility, whether he eventually seeks charges against Republicans, Democrats or both. Republicans feeling any satisfaction from the news of Mueller's investigation of Tony Podesta need to rethink things.
Tuesday, October 10, 2017
Pizza With Panache: A Tale of Crime on Wall Street
Rated 5 Stars on Amazon
Once upon a time, I was a lawyer at the U.S. Securities and Exchange Commission, doing stock market investigations. I'm still recovering. As one of the twelve steps, I wrote Pizza With Panache, a fast-paced, satirical novel of crime on Wall Street. Deceits swirl around duplicity as the rich try to get richer without doing any honest work. Fred Farquhar, a successful pizza franchise owner, doesn't think he's getting rich fast enough. He enlists Adam, a Wall Street analyst, to feed him inside information, which Fred uses to trade stocks in a secret foreign bank account. Greed abounds as Fred's foreign banker, Enrico, and Adam's buddy, Alain, join in the illicit insider trading.
These scoundrels garner filthy lucre so fast they attract the attention of law enforcement. Nick Papadakis, an SEC enforcement lawyer, is fed up with his job. He made the mistake of doing good work, and now is rewarded with more work: the investigation and the responsibility to train Ethan, a new guy. The last thing Nick wants is a high-pressure investigation where he needs to train a new guy. But the thievery is so appalling, Nick gets interested and investigates aggressively. He is obstructed by slippery defense lawyers and harassed by scheming supervisors hoping to steal the credit for his success. He desperately hopes to escape his job.
If you've ever wondered what a government stock market investigation looks and feels like from the inside, read Pizza With Panache. If you’ve ever thought that Wall Street is crooked, big law firms are ruthless sweatshops, bureaucrats poison the government, no good deed goes unpunished, and the only solution is to escape your job, this is the book for you. It's available at:
Apple:
Pizza With Panache by Leo Wang
|
Amazon:
Barnes and Noble:
Smashwords: Pizza With Panache, an Ebook by Leo Wang
Monday, October 9, 2017
Freeze Your Credit and Make 'Em Change
Of all the massive hacks of recent years, the Equifax hack may be the worst. Some 145 million persons had their personal information stolen. Even though other hacks may involve larger numbers (the Yahoo hack may have victimized 3 billion--yes, billion--accounts), Equifax had the crown jewels: Social Security numbers, birth dates, home addresses and phone numbers, and some credit card account numbers and drivers license numbers. Bad guys can use this information to open phony credit card and other loan accounts in your name, steal your tax refund, grab your Social Security check and get prescription drugs in your name (which could interfere with your ability to get medications and maybe even implicate you in police investigations).
What to do? The best thing is to freeze your credit accounts. These freezes, called security freezes, prevent new creditors and other persons from getting access to your credit information unless you specifically authorize it. It doesn't stop existing creditors and their collection agents, or the government from getting access. But it puts a substantial barrier in the way of fraudsters. It's not perfect--the bad guys might still try to use your stolen personal information to snare your tax refund or your Social Security benefits, or snag some opiods in your name. But a credit freeze is a lot better than the alternatives. Forget about credit monitoring and fraud alerts--they aren't great protection. And a credit lock isn't as good as a credit freeze. Credit freezes give you legal protection under state law, while a credit lock is just a contract with the credit reporting agency that may be difficult to enforce. Credit locks may also cost you more in fees (which is one reason the credit reporting agencies might want to sell you a credit lock).
Credit freezes can be a little inconvenient, because you have to lift them any time you want to apply for credit. But that is a lot less bother than the aggravation of cleaning up your credit after the bad guys have impersonated you (a process that can take months or years).
One more reason to freeze your credit is to make the idiots (the ones that got hacked) change things. The credit reporting agencies and banks and other lenders don't like freezes. They interfere with business and revenue flow. The credit reporting agencies and lenders have a harder time making money if a lot of people freeze their accounts. And that is the point. The current system using Social Security numbers as universal identification numbers has just been blown up by the Equifax hack. For all practical purposes, you have to assume that your Social Security number is publicly available. You have no privacy any more. You're not safe, and your finances are not safe. The SSN system of personal identification is now completely kaput.
Make 'em change. Freeze your credit and take profit opportunities away from the credit reporting agencies, and the banks and other lenders. Faced with a business downturn, these massive institutions will lead the way to change. With the potential loss of who knows how many millions of dollars of profit, they will implement posthaste new and improved systems of personal identification. Either that, or their senior executives' stock options will belly flop. And that they won't allow. So freeze your credit. It might be the best thing you can do right now for your financial privacy.
What to do? The best thing is to freeze your credit accounts. These freezes, called security freezes, prevent new creditors and other persons from getting access to your credit information unless you specifically authorize it. It doesn't stop existing creditors and their collection agents, or the government from getting access. But it puts a substantial barrier in the way of fraudsters. It's not perfect--the bad guys might still try to use your stolen personal information to snare your tax refund or your Social Security benefits, or snag some opiods in your name. But a credit freeze is a lot better than the alternatives. Forget about credit monitoring and fraud alerts--they aren't great protection. And a credit lock isn't as good as a credit freeze. Credit freezes give you legal protection under state law, while a credit lock is just a contract with the credit reporting agency that may be difficult to enforce. Credit locks may also cost you more in fees (which is one reason the credit reporting agencies might want to sell you a credit lock).
Credit freezes can be a little inconvenient, because you have to lift them any time you want to apply for credit. But that is a lot less bother than the aggravation of cleaning up your credit after the bad guys have impersonated you (a process that can take months or years).
One more reason to freeze your credit is to make the idiots (the ones that got hacked) change things. The credit reporting agencies and banks and other lenders don't like freezes. They interfere with business and revenue flow. The credit reporting agencies and lenders have a harder time making money if a lot of people freeze their accounts. And that is the point. The current system using Social Security numbers as universal identification numbers has just been blown up by the Equifax hack. For all practical purposes, you have to assume that your Social Security number is publicly available. You have no privacy any more. You're not safe, and your finances are not safe. The SSN system of personal identification is now completely kaput.
Make 'em change. Freeze your credit and take profit opportunities away from the credit reporting agencies, and the banks and other lenders. Faced with a business downturn, these massive institutions will lead the way to change. With the potential loss of who knows how many millions of dollars of profit, they will implement posthaste new and improved systems of personal identification. Either that, or their senior executives' stock options will belly flop. And that they won't allow. So freeze your credit. It might be the best thing you can do right now for your financial privacy.
Saturday, September 30, 2017
Donald Trump Needs To Stop Campaigning
Donald Trump was elected President by running an unconventional campaign featuring politically incorrectness, the bullying of people weaker than he (like the father of a veteran killed in action, a former beauty pageant winner, and so on), claims of business competence, and appeals to racial and ethnic prejudice. Since his inauguration, he's demonstrate scant ability to govern. He has accomplished essentially none of his campaign priorities. His most significant legislative achievement to date was achieved by striking a deal with Congressional Democrats. His administrative actions can be reversed by the next President. His Cabinet and White House staff consist of a kaleidoscope of people coming and going, while hundreds of lower level appointed positions remain unfilled (perhaps because many potential candidates shy away from the chaos and controversy of the Trump Presidency). His tax reform proposal, announced just a few days ago, already appears to be quietly losing the Congressional majorities it would need to be enacted. America's standing with its allies in Europe and Asia is weakening, while Russia and China have become emboldened to pursue their international ambitions more aggressively. Perhaps worst of all, Trump, who has reached an age where one might have expected he'd have some maturity and wisdom, has allowed himself to be drawn into a juvenile but nuclear confrontation with a fat kid in North Korea who can't even get a decent haircut. His poll ratings have set new lows for a first year President. His managerial ability is vanishingly thin, and he's needed to bring in a
former Marine Corp general as chief of staff to restore order.
Trump's response to his poor public standing has been to conduct campaign style rallies where he's fallen back on coarse pronouncements reminiscent of his campaign. He picked a fight with NFL players over their exercise of First Amendment rights, even though he seems content to let white supremacists and neo-Nazis speak their minds. And he Twitter-bullied the mayor of San Juan, who had the temerity to plead for more aid for her suffering constituents in hurricane-ravaged Puerto Rico. Oliver Twist had it better than she does.
Trump seems to be a one-trick pony. He can't do anything except campaign. His executive abilities are close to non-existent. He appears to be learning the hard way that, when you're President, there is no bankruptcy court you can duck into in order to relieve the pressure. The tactics of your business career won't work in government. The pressure will continue every day, relentlessly, and campaigning does nothing except foster a momentary illusion that things aren't quite as tough as they really are.
Trump's response to the Hurricane Irma's impact on Puerto Rico illustrates the problem. Anyone with a smidgen of managerial ability would have realized immediately that Puerto Rico and the U.S. Virgin Islands would be the most difficult relief challenges of this hurricane season. Even though Texas, Louisiana and Florida took really hard hits too, they are connected to the rest of the U.S. by highways, railroads, the interstate power grid, and Jones Act waivers for their ports (allowing much faster transit of aid by ship). Aid can reach them much more quickly and in much larger amounts. Isolated by the sea, Puerto Rico and the U.S. Virgin Islands would obviously present much greater logistical challenges, and major managerial attention to their relief would self-evidently be required. But Trump seemed almost inclined to benign neglect of the islands (a perception exacerbated by his blame-the-victim bullying of the mayor of San Juan), and his administration only very recently managed to cough and choke its way to a Jones Act waiver for the islands. Underneath all this, it's not hard to perceive yet another manifestation of Trump's bigotry against Hispanics, which first glaringly emerged with his "rapists" comment about Mexican immigrants early in his campaign. Trump's bigotry may score points with his base, but it also strengthens the perception among many, many others that he's just a bush-league poseur who managed, possibly with underhanded Russian help, to sneak his way into the White House.
At the age of 71, it's doubtful that Trump, with his ingrained stubbornness, will change and improve. But if there's any hope for the Trump Presidency, it would come from his aversion to failure. He's failing badly as President--really badly--and change is his only option. He's getting nowhere by repeating the same mistakes. Notwithstanding the unvarnished loathing of the legions of Trump-haters, the man has the potential for a somewhat and maybe even reasonably successful Presidency. He isn't bound by ideology, which gives him the flexibility to put together working, bipartisan coalitions. We saw this in his deal with Congressional Democrats over the debt ceiling and budget. He's sometimes open to persuasion--contrary to the isolationist leanings of his campaign, he's now authorized an increase of troop strength in Afghanistan. His tendency to conduct more rallies whenever the going gets tough is like children closing their eyes so that others can't see them. He has to figure out that this doesn't work, and that he needs to do what will work.
Trump's response to his poor public standing has been to conduct campaign style rallies where he's fallen back on coarse pronouncements reminiscent of his campaign. He picked a fight with NFL players over their exercise of First Amendment rights, even though he seems content to let white supremacists and neo-Nazis speak their minds. And he Twitter-bullied the mayor of San Juan, who had the temerity to plead for more aid for her suffering constituents in hurricane-ravaged Puerto Rico. Oliver Twist had it better than she does.
Trump seems to be a one-trick pony. He can't do anything except campaign. His executive abilities are close to non-existent. He appears to be learning the hard way that, when you're President, there is no bankruptcy court you can duck into in order to relieve the pressure. The tactics of your business career won't work in government. The pressure will continue every day, relentlessly, and campaigning does nothing except foster a momentary illusion that things aren't quite as tough as they really are.
Trump's response to the Hurricane Irma's impact on Puerto Rico illustrates the problem. Anyone with a smidgen of managerial ability would have realized immediately that Puerto Rico and the U.S. Virgin Islands would be the most difficult relief challenges of this hurricane season. Even though Texas, Louisiana and Florida took really hard hits too, they are connected to the rest of the U.S. by highways, railroads, the interstate power grid, and Jones Act waivers for their ports (allowing much faster transit of aid by ship). Aid can reach them much more quickly and in much larger amounts. Isolated by the sea, Puerto Rico and the U.S. Virgin Islands would obviously present much greater logistical challenges, and major managerial attention to their relief would self-evidently be required. But Trump seemed almost inclined to benign neglect of the islands (a perception exacerbated by his blame-the-victim bullying of the mayor of San Juan), and his administration only very recently managed to cough and choke its way to a Jones Act waiver for the islands. Underneath all this, it's not hard to perceive yet another manifestation of Trump's bigotry against Hispanics, which first glaringly emerged with his "rapists" comment about Mexican immigrants early in his campaign. Trump's bigotry may score points with his base, but it also strengthens the perception among many, many others that he's just a bush-league poseur who managed, possibly with underhanded Russian help, to sneak his way into the White House.
At the age of 71, it's doubtful that Trump, with his ingrained stubbornness, will change and improve. But if there's any hope for the Trump Presidency, it would come from his aversion to failure. He's failing badly as President--really badly--and change is his only option. He's getting nowhere by repeating the same mistakes. Notwithstanding the unvarnished loathing of the legions of Trump-haters, the man has the potential for a somewhat and maybe even reasonably successful Presidency. He isn't bound by ideology, which gives him the flexibility to put together working, bipartisan coalitions. We saw this in his deal with Congressional Democrats over the debt ceiling and budget. He's sometimes open to persuasion--contrary to the isolationist leanings of his campaign, he's now authorized an increase of troop strength in Afghanistan. His tendency to conduct more rallies whenever the going gets tough is like children closing their eyes so that others can't see them. He has to figure out that this doesn't work, and that he needs to do what will work.
Wednesday, September 20, 2017
Why North Korea Can't Afford to Nuke America
Despite all the noise Kim Jong Un is making about nuking America, he can't afford to do it. That's not simply because of the doctrine of mutually assured destruction and his inability to touch America's Trident submarines, any one of which could obliterate North Korea. It's also because he'd target North Korea if he tried to hit America.
Recent news reports indicate that North Korea has ballistic missiles that either can or soon will be able to reach Washington, D.C. The nation's capital would naturally be a primary target for Kim's missiles, and he'd no doubt put his most powerful nukes on the missiles headed for DC. Those missiles, if they actually succeeded in reaching their target, would likely cause a lot of damage in the northern Virginia suburbs of Washington. The damage could come either from explosive blast or from electromagnetic pulse (EMP), or both.
Somewhere around 70% of the world's Internet traffic flows through servers located in northern Virginia (https://www.washingtonpost.com/business/capitalbusiness/data-centers-boom-in-loudoun-county-but-jobs-arent-following/2014/01/17/b4a704c8-7f0e-11e3-93c1-0e888170b723_story.html?utm_term=.181c4b46bfa0). The effects of the blast and the EMP could knock out a large portion of those servers and the infrastructure in which they operate. The Internet could promptly become one gigantic, intractable traffic jam.
North Korea is about as isolated as any country in the world. One of its main connections to the outside world is through the Internet. The Internet is a crucial tool for North Korea, to steal money, do business (often illicit), to spy on other people, and to find out the truth (the problem with purveying fake news is that you still have to know the truth or the truth will sooner or later smack you up one side and down the other). Without the Internet, North Korea would have to rely largely on its own internal resources. And those aren't sufficient even to feed its own population a nutritionally adequate diet, let alone provide a decent standard of living.
So if North Korea nukes America, it loses its Internet connection. And these days, that's almost the worst thing that can happen.
Recent news reports indicate that North Korea has ballistic missiles that either can or soon will be able to reach Washington, D.C. The nation's capital would naturally be a primary target for Kim's missiles, and he'd no doubt put his most powerful nukes on the missiles headed for DC. Those missiles, if they actually succeeded in reaching their target, would likely cause a lot of damage in the northern Virginia suburbs of Washington. The damage could come either from explosive blast or from electromagnetic pulse (EMP), or both.
Somewhere around 70% of the world's Internet traffic flows through servers located in northern Virginia (https://www.washingtonpost.com/business/capitalbusiness/data-centers-boom-in-loudoun-county-but-jobs-arent-following/2014/01/17/b4a704c8-7f0e-11e3-93c1-0e888170b723_story.html?utm_term=.181c4b46bfa0). The effects of the blast and the EMP could knock out a large portion of those servers and the infrastructure in which they operate. The Internet could promptly become one gigantic, intractable traffic jam.
North Korea is about as isolated as any country in the world. One of its main connections to the outside world is through the Internet. The Internet is a crucial tool for North Korea, to steal money, do business (often illicit), to spy on other people, and to find out the truth (the problem with purveying fake news is that you still have to know the truth or the truth will sooner or later smack you up one side and down the other). Without the Internet, North Korea would have to rely largely on its own internal resources. And those aren't sufficient even to feed its own population a nutritionally adequate diet, let alone provide a decent standard of living.
So if North Korea nukes America, it loses its Internet connection. And these days, that's almost the worst thing that can happen.
Wednesday, August 30, 2017
Hurricane Harvey? North Korean Missiles? Stocks Shrug
So, okay, Hurricane Harvey may be the worst storm to hit America in a while. The damage is really bad, and getting worse. Projections for recovery time are lengthening by the minute as rainfall totals rise. The economic impact will clearly be big. Energy extraction and refining are being hit. The Gulf states have a number of petrochemical and plastics plants, but they aren't manufacturing much. The Gulf ports are major transshipment points for a lot of stuff, but not much transshipment is taking place. The cost of rebuilding may reach $100 billion or more.
Meanwhile, the fat kid in North Korea keeps firing off missiles, in one instance over northern Japan. He may think he's being clever, pushing the world to see how far he can go. But shooting missiles over another country is a way to start wars. The Japanese held their fire. But North Korea's missiles aren't the picture of reliability and sturdiness. If one flies in an unintended trajectory, or falls apart at the wrong time, physical impact on Japan or maybe South Korea is quite possible. Then what? Kim Jong Un has been on a path of escalation in recent months. He's announced that Guam--U.S. territory--is his next target. Since he seems intent on escalating, he will approach a flashpoint.
But do stocks care? Not one bit. Even though U.S. stock futures dropped sharply last night, all indexes closed up today. Mega hurricane--meh. Barrage of North Korean missiles--meh. Discord rife between and among the President, Congress and both political parties--meh. Merrily we roll along. Plus ca change, plus c'est la meme chose.
Why do we have such insouciant stocks? The likely explanation is the Fed. Market participants have gotten so used to Fed bailouts that no one believes stock indexes can fall more than about 3% at the most, and therefore don't panic sell portfolios. In some respects, this market stability may seem desirable.
But market stability based on government subsidies is ultimately chimerical. The Fed produced that stability by screwing over large numbers of people. By keeping interest rates extraordinarily low for almost a decade now, the Fed has decimated pension plans. A lot of middle class people who depended on their pensions are now lower middle class, or even poor. Retirees and others who relied in part on interest income from their savings have learned to like dog food in lieu of steak, or even hamburger. Holders of long term care insurance policies have faced extortionate rate increases, or possibly the prospect of spending old age in homeless shelters until they qualify for nursing homes that take Medicaid (which sometimes aren't exactly top class institutions). Those that still have some faith in the future and want to save for a rainy day need to tighten their belts and put aside more principal, rather than count on the compounding of interest income to make their golden years glow. That means reducing current consumption, which is a drag on the economy and may partially explain why economic growth remains tepid.
As long as the Fed supplies financial opioids for stocks to mainline, the market will be copacetic. But problems lurk. Stock valuations may not truly reflect investment values. Instead, they probably incorporate a large dose of government subsidy. That would mean people are paying too much for stocks. This story won't have a happy ending. Market forces can't stay suppressed indefinitely and government subsidies can't last forever. The failure of Communism in China and the Soviet Union prove that point. Things generally feel good when you're on narcotics. But you don't get good quality sleep on opioids--and investors shouldn't be sleeping too soundly now.
Meanwhile, the fat kid in North Korea keeps firing off missiles, in one instance over northern Japan. He may think he's being clever, pushing the world to see how far he can go. But shooting missiles over another country is a way to start wars. The Japanese held their fire. But North Korea's missiles aren't the picture of reliability and sturdiness. If one flies in an unintended trajectory, or falls apart at the wrong time, physical impact on Japan or maybe South Korea is quite possible. Then what? Kim Jong Un has been on a path of escalation in recent months. He's announced that Guam--U.S. territory--is his next target. Since he seems intent on escalating, he will approach a flashpoint.
But do stocks care? Not one bit. Even though U.S. stock futures dropped sharply last night, all indexes closed up today. Mega hurricane--meh. Barrage of North Korean missiles--meh. Discord rife between and among the President, Congress and both political parties--meh. Merrily we roll along. Plus ca change, plus c'est la meme chose.
Why do we have such insouciant stocks? The likely explanation is the Fed. Market participants have gotten so used to Fed bailouts that no one believes stock indexes can fall more than about 3% at the most, and therefore don't panic sell portfolios. In some respects, this market stability may seem desirable.
But market stability based on government subsidies is ultimately chimerical. The Fed produced that stability by screwing over large numbers of people. By keeping interest rates extraordinarily low for almost a decade now, the Fed has decimated pension plans. A lot of middle class people who depended on their pensions are now lower middle class, or even poor. Retirees and others who relied in part on interest income from their savings have learned to like dog food in lieu of steak, or even hamburger. Holders of long term care insurance policies have faced extortionate rate increases, or possibly the prospect of spending old age in homeless shelters until they qualify for nursing homes that take Medicaid (which sometimes aren't exactly top class institutions). Those that still have some faith in the future and want to save for a rainy day need to tighten their belts and put aside more principal, rather than count on the compounding of interest income to make their golden years glow. That means reducing current consumption, which is a drag on the economy and may partially explain why economic growth remains tepid.
As long as the Fed supplies financial opioids for stocks to mainline, the market will be copacetic. But problems lurk. Stock valuations may not truly reflect investment values. Instead, they probably incorporate a large dose of government subsidy. That would mean people are paying too much for stocks. This story won't have a happy ending. Market forces can't stay suppressed indefinitely and government subsidies can't last forever. The failure of Communism in China and the Soviet Union prove that point. Things generally feel good when you're on narcotics. But you don't get good quality sleep on opioids--and investors shouldn't be sleeping too soundly now.
Sunday, August 20, 2017
Any Questions About Crowd Size, Mr. President?
On August 19, 2017, a small group of white nationalist/supremacists and neo-Nazis held a rally on the Boston Commons. It was a very small group, around a few dozen. A vastly larger group of counterprotestors showed up--tens of thousands. A picture is worth a thousand words. Take a look: http://www.cnn.com/2017/08/19/us/boston-counterprotest-crowd-video-trnd/index.html.
Contrary to what President Trump suggested a few days ago, there is no moral equivalence between advocating open-mindedness and equal rights for all, on the one hand, and bigotry, hate, and facism on the other. The former is part of the bedrock of American democracy and the American Dream. The latter is what millions of Americans fought against in World War II. Got that, Mr. President? A lot of other people understand the point.
September 7, 2018 Update: it turns out that the photos of Trump's inauguration taken by the National Park Service were altered to make the crowd look larger than it actually was, after calls from Trump and his then press secretary, Sean Spicer. https://www.cnn.com/2018/09/07/politics/trump-inauguration-photos/index.html. Fake news?
Contrary to what President Trump suggested a few days ago, there is no moral equivalence between advocating open-mindedness and equal rights for all, on the one hand, and bigotry, hate, and facism on the other. The former is part of the bedrock of American democracy and the American Dream. The latter is what millions of Americans fought against in World War II. Got that, Mr. President? A lot of other people understand the point.
September 7, 2018 Update: it turns out that the photos of Trump's inauguration taken by the National Park Service were altered to make the crowd look larger than it actually was, after calls from Trump and his then press secretary, Sean Spicer. https://www.cnn.com/2018/09/07/politics/trump-inauguration-photos/index.html. Fake news?
Monday, July 31, 2017
Why You Should Worry About the Rising Stock Market
The stock market keeps rising, setting new records just about every week. The S&P 500 has risen over 15% since Election Day 2016, and shows no signs of slowing down. That's an annualized rate of over 20% a year, which is exceptionally good for an aged bull market as we have.
The election of Donald Trump as President was seen as a major reason for the rally. He promised infrastructure spending, tax reform and other measures that should stimulate the economy. But his Presidency has sunk into a quagmire of chaos, incoherence and unpredictability. These, coupled with the legal risks emanating from special counsel Robert Mueller's investigation, should have triggered market retrenchment. But stocks have hardly blinked before levitating some more. Whatever is driving the market, it doesn't have much to do with the Trump Presidency.
Accommodative monetary policy in Europe and Japan is also said to be a reason for the market's buoyancy. Foreign central banks have been printing money, and some of it supposedly has found its way into the U.S. markets. But the dollar has been falling recently, indicating liquidity is flowing out of our markets, not in. That's not a formula for a rally.
Corporate earnings, although pretty decent, aren't dramatically better than last fall. They don't explain the lighter-than-air quality of stocks today.
So what's going on? Let's consider that over half of all stock market transactions consist of computerized trading. Machines are trading with machines, using algorithms known to very few. These algorithms verge on alchemy. They rely on statistical correlations that may or may not hold true in the future. These correlations can be disrupted by unexpected government policy, political upheaval or conflict, economic change (such as the effective collapse of OPEC as a functional cartel), and technological change (such as the fracking that just blew up OPEC). They also utilize artificial intelligence, seeking to learn from their ongoing experiences in the market and modifying their algorithms as a result of what they learn. Thus, the humans may have difficulty anticipating what the programs will do tomorrow. And the programs may produce a positive or negative synergy or other interaction that humans have not foreseen.
Computerized trading is opaque. That is, in real time, no one knows for sure if a trade or a series of trades involved a machine or two machines or none. One should avoid anthropomorphism in today's stock markets. In other words, one should not ascribe human motives, intentions or characteristics to market activity. There may be no reason comprehensible to humans for today's stock prices. When computers use artificial intelligence to trade stocks, the valuation of financial assets may be fundamentally changed, and changed beyond human comprehension. You may think that stock prices are whacked out--and you could be correct from the human perspective.
Homilies like stocks are excellent long term investments and will protect against inflation were derived at a time when people dominated the financial markets and established the asset valuations on which these notions were based. If machines that function opaquely suddenly become dominant, how can humans understand the valuations determined by the machines? More succinctly, how can you tell what's a good price and what's a bad price anymore?
There are many more questions than answers in a machine-dominated market. When the market keeps setting new record highs in machine-dominated trading, be careful. We are bravely, or not, going where no investors have gone before. And no one really knows what's going to happen.
The election of Donald Trump as President was seen as a major reason for the rally. He promised infrastructure spending, tax reform and other measures that should stimulate the economy. But his Presidency has sunk into a quagmire of chaos, incoherence and unpredictability. These, coupled with the legal risks emanating from special counsel Robert Mueller's investigation, should have triggered market retrenchment. But stocks have hardly blinked before levitating some more. Whatever is driving the market, it doesn't have much to do with the Trump Presidency.
Accommodative monetary policy in Europe and Japan is also said to be a reason for the market's buoyancy. Foreign central banks have been printing money, and some of it supposedly has found its way into the U.S. markets. But the dollar has been falling recently, indicating liquidity is flowing out of our markets, not in. That's not a formula for a rally.
Corporate earnings, although pretty decent, aren't dramatically better than last fall. They don't explain the lighter-than-air quality of stocks today.
So what's going on? Let's consider that over half of all stock market transactions consist of computerized trading. Machines are trading with machines, using algorithms known to very few. These algorithms verge on alchemy. They rely on statistical correlations that may or may not hold true in the future. These correlations can be disrupted by unexpected government policy, political upheaval or conflict, economic change (such as the effective collapse of OPEC as a functional cartel), and technological change (such as the fracking that just blew up OPEC). They also utilize artificial intelligence, seeking to learn from their ongoing experiences in the market and modifying their algorithms as a result of what they learn. Thus, the humans may have difficulty anticipating what the programs will do tomorrow. And the programs may produce a positive or negative synergy or other interaction that humans have not foreseen.
Computerized trading is opaque. That is, in real time, no one knows for sure if a trade or a series of trades involved a machine or two machines or none. One should avoid anthropomorphism in today's stock markets. In other words, one should not ascribe human motives, intentions or characteristics to market activity. There may be no reason comprehensible to humans for today's stock prices. When computers use artificial intelligence to trade stocks, the valuation of financial assets may be fundamentally changed, and changed beyond human comprehension. You may think that stock prices are whacked out--and you could be correct from the human perspective.
Homilies like stocks are excellent long term investments and will protect against inflation were derived at a time when people dominated the financial markets and established the asset valuations on which these notions were based. If machines that function opaquely suddenly become dominant, how can humans understand the valuations determined by the machines? More succinctly, how can you tell what's a good price and what's a bad price anymore?
There are many more questions than answers in a machine-dominated market. When the market keeps setting new record highs in machine-dominated trading, be careful. We are bravely, or not, going where no investors have gone before. And no one really knows what's going to happen.
Monday, July 3, 2017
Buy Your Retirement
If you're having trouble saving for retirement, think of it this way: your retirement is a purchase, and the more you spend, the more luxurious it will be. Retirement is a purchase--you're buying rest, relaxation, entertainment and time to do whatever you want. You may have to buy a fair amount of health care and other services such as lawn care, housekeeping and so on. But whatever the case may be, the more money you have for retirement, the nicer it will be. No need to think of saving as a sacrifice. You aren't giving up things up. You're simply spending for a better retirement instead of a bigger TV.
So, if you can't save for retirement, then spend on your retirement. It will be one of the smartest purchases of your life. For more, see
http://blogger.uncleleosden.com/2009/11/techniques-for-retirement-saving.html,
http://blogger.uncleleosden.com/2010/11/how-much-do-you-need-for-retirement.html,
http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html,
and http://blogger.uncleleosden.com/2010/11/stress-test-your-retirement.html.
Saturday, June 24, 2017
The Only Health Insurance Option Left
Less than two days after being released publicly, it appears that Senate Majority Leader Mitch McConnell's health insurance bill, the Better Care Reconciliation Act, is d.o.a. Five senators have already announced their opposition to the bill as presently drafted. A half-dozen or more have expressed concerns. Since the doubters include both Tea Party types and moderates, McConnell is in a bind. If he offers compromises to win over the Tea Partiers, he will likely lose some moderates. If he offers compromises to satisfy the moderates, he will likely lose some Tea Partiers. It looks virtually impossible for him to get at least 50 votes.
The Senate will vote soon on this bill--which is basically tax legislation that cuts taxes for the rich and funds those cuts by taking away health insurance coverage for a lot of mostly poor people--and it will either pass (unlikely) or fail (likely). If it fails, what then? Obamacare is struggling, with insurers pulling out of exchanges and premiums rising sometimes dramatically. The Trump Administration and the Republican Congress have created so much uncertainty that health insurers apparently feel compelled to raise rates sharply. Whether or not any replacement for Obamacare is passed, this uncertainty will remain, and rising premiums may force many people to drop insurance coverage. Thus, the number of people losing health insurance will rise under the Trump Administration even if Obamacare survives.
Forcing people to go uninsured is political anathema in America today. Whether or not the Republicans like it, Obamacare established the baseline principle that all Americans are entitled to comprehensive health insurance coverage at an affordable cost. Both Republican and Democratic voters subscribe to this principle, and legislators who violate the principle do so at the peril of their re-election. But with Republican machinations making Obamacare increasingly unworkable, a replacement will have to be found.
Realistically, the only option left is a single payer system, with private insurance available as an optional supplement. Private health insurance doesn't work well, especially when it comes to covering the poor, the sick (i.e., those with prior medical conditions) and the elderly. That's why Obamacare is unwieldy and the Republican alternatives are worse. We've already figured out that single payer is needed for the elderly, and established Medicare. It works well. Medicare can be supplemented by private insurance coverage and often is. Sure, Medicare has long term funding issues. But have you noticed how premiums demanded by private health insurers are going through the roof? It's hard to believe that a government funded program would be more expensive.
Essentially all other advanced industrialized nations have single payer health insurance systems (or national health care, like the UK system), with per capita costs that are far lower than America's and better health outcomes overall. No other advanced industrial nation has the extremely expensive and increasingly dysfunctional mish-mash of private coverage that America has. Single payer systems are imperfect, and the availability of optional private supplements can ameliorate many of the imperfections. The current Republican White House and Congress won't adopt a single payer system. But their failure to do anything intelligent with health insurance coverage will push America toward the only realistic health insurance option remaining.
The Senate will vote soon on this bill--which is basically tax legislation that cuts taxes for the rich and funds those cuts by taking away health insurance coverage for a lot of mostly poor people--and it will either pass (unlikely) or fail (likely). If it fails, what then? Obamacare is struggling, with insurers pulling out of exchanges and premiums rising sometimes dramatically. The Trump Administration and the Republican Congress have created so much uncertainty that health insurers apparently feel compelled to raise rates sharply. Whether or not any replacement for Obamacare is passed, this uncertainty will remain, and rising premiums may force many people to drop insurance coverage. Thus, the number of people losing health insurance will rise under the Trump Administration even if Obamacare survives.
Forcing people to go uninsured is political anathema in America today. Whether or not the Republicans like it, Obamacare established the baseline principle that all Americans are entitled to comprehensive health insurance coverage at an affordable cost. Both Republican and Democratic voters subscribe to this principle, and legislators who violate the principle do so at the peril of their re-election. But with Republican machinations making Obamacare increasingly unworkable, a replacement will have to be found.
Realistically, the only option left is a single payer system, with private insurance available as an optional supplement. Private health insurance doesn't work well, especially when it comes to covering the poor, the sick (i.e., those with prior medical conditions) and the elderly. That's why Obamacare is unwieldy and the Republican alternatives are worse. We've already figured out that single payer is needed for the elderly, and established Medicare. It works well. Medicare can be supplemented by private insurance coverage and often is. Sure, Medicare has long term funding issues. But have you noticed how premiums demanded by private health insurers are going through the roof? It's hard to believe that a government funded program would be more expensive.
Essentially all other advanced industrialized nations have single payer health insurance systems (or national health care, like the UK system), with per capita costs that are far lower than America's and better health outcomes overall. No other advanced industrial nation has the extremely expensive and increasingly dysfunctional mish-mash of private coverage that America has. Single payer systems are imperfect, and the availability of optional private supplements can ameliorate many of the imperfections. The current Republican White House and Congress won't adopt a single payer system. But their failure to do anything intelligent with health insurance coverage will push America toward the only realistic health insurance option remaining.
Monday, June 12, 2017
How Comey is Winning the Credibility Battle With Trump
At first glance, you might think that President Trump and former FBI Director James Comey are at a standoff over who said what during their one-on-one meetings. It looks like a he said/he said situation. But Comey wrote memos about the conversations right afterwards. These tilt the balance in favor of Comey. While his critics might say his memos were self-serving, it's implausible to think he wove them from whole cloth. The President doesn't appear to have any memos.
But the crucial factor would appear to be the issue of tape recordings. The President alluded to recordings, saying "James Comey better hope there are no 'tapes' of our conversations before he starts leaking to the press!" Comey called Trump's hand by saying he hoped there were recordings. The Secret Service has now said it doesn't have any recordings--and the Secret Service would be the organization that would handle the recordation of conversations in the White House. See http://nypost.com/2017/06/12/secret-service-says-they-have-no-comey-tapes/. If there are no recordings, that would mean that Trump tried to bluff Comey into silence by hinting untruthfully about recordings that don't exist. Trump's bluff would only undermine his own credibility.
Of course, it's possible Trump recorded the conversation on a personal device, such as a smart phone. But if he has a recording that contradicts Comey, he surely would have released it by now. But he hasn't revealed any recording. Thus, Trump can only have a recording that supports Comey, or he's erased that recording (which would indicate the recording hurt Trump), or he doesn't have a personal recording (which means he lied about there being one). Whatever is the case, Comey's winning the credibility battle with Trump.
But the crucial factor would appear to be the issue of tape recordings. The President alluded to recordings, saying "James Comey better hope there are no 'tapes' of our conversations before he starts leaking to the press!" Comey called Trump's hand by saying he hoped there were recordings. The Secret Service has now said it doesn't have any recordings--and the Secret Service would be the organization that would handle the recordation of conversations in the White House. See http://nypost.com/2017/06/12/secret-service-says-they-have-no-comey-tapes/. If there are no recordings, that would mean that Trump tried to bluff Comey into silence by hinting untruthfully about recordings that don't exist. Trump's bluff would only undermine his own credibility.
Of course, it's possible Trump recorded the conversation on a personal device, such as a smart phone. But if he has a recording that contradicts Comey, he surely would have released it by now. But he hasn't revealed any recording. Thus, Trump can only have a recording that supports Comey, or he's erased that recording (which would indicate the recording hurt Trump), or he doesn't have a personal recording (which means he lied about there being one). Whatever is the case, Comey's winning the credibility battle with Trump.
Friday, June 9, 2017
The Big Question For Donald Trump and the Russia Investigation
After James Comey's testimony before the Senate yesterday about President Trump wanting Comey to shut down the FBI's Russia investigation, the most important question is whether the President recorded his conversations with Comey. If he did record one or more of those conversations, and the conversations tend to confirm Comey's testimony, the President will be in serious trouble. It is possible to conclude from Comey's testimony that the President wanted to quash the FBI's Russia investigation, something that could amount to obstruction of justice. Confirmation in recorded conversations could strengthen that conclusion, perhaps by a lot.
One thing's for dang sure: Special Counsel Robert Mueller will seek any recordings of those and other relevant conversations. We will find out sooner or later if the recordings exist. We may also find out whether they once existed but were deleted or destroyed. If the recordings exist and support Comey's testimony, the President will have a big problem. If the recordings once existed but have been erased or destroyed, the President will have a big problem. If recordings never existed in the first place, the President would appear to be a liar for having suggested that they did exist, perhaps a liar trying to bluff Comey into silence.
The only good scenario is if the recordings exist and contradict Comey. But if that were the case, President Trump would surely have released them already.
One thing's for dang sure: Special Counsel Robert Mueller will seek any recordings of those and other relevant conversations. We will find out sooner or later if the recordings exist. We may also find out whether they once existed but were deleted or destroyed. If the recordings exist and support Comey's testimony, the President will have a big problem. If the recordings once existed but have been erased or destroyed, the President will have a big problem. If recordings never existed in the first place, the President would appear to be a liar for having suggested that they did exist, perhaps a liar trying to bluff Comey into silence.
The only good scenario is if the recordings exist and contradict Comey. But if that were the case, President Trump would surely have released them already.
Thursday, May 4, 2017
The Truth About Housing Prices
Ten years ago, this blog predicted that housing prices, which had fallen sharply in the mortgage crisis of the mid-2000s, would not recover until 2024. http://blogger.uncleleosden.com/2007/09/when-will-housing-prices-recover.html. That prediction may have seemed preposterously negative to many. But real estate prices have meandered and stagnated since then. Although some markets have recently enjoyed brisk gains, many others remain sluggish and below their earlier peaks. Trulia, the real estate website, yesterday released a study that predicted real estate prices nationwide would not recover until 2025. https://www.trulia.com/blog/trends/home-value-recovery-2017/. Looks like my prediction of ten years ago was pretty accurate. While my analysis and Trulia's aren't directly comparable (I focused on nationwide average prices adjusted for inflation and Trulia used nominal prices unadjusted for inflation while measuring recovery in all housing markets nationwide), the basic conclusion is similar. It will take a shipload of time for housing prices to fully recover, and the mid-2020's may be when the housing market as a whole could once again start to accentuate the positive.
Housing historically has increased in value about 1% faster than inflation. Stocks have tended to average around 3% above inflation. Buy a house if you need shelter and can afford it. But pay off the mortgage, don't borrow against the equity, and save and invest in retirement and other accounts for your golden years. Some people who can't save money end up relying on their homes to finance retirement. But that's a much poorer choice (pun intended) than taking advantage of the greater potential of stocks and other financial investments. Your house is your castle. But it's not your best option for financing retirement.
Housing historically has increased in value about 1% faster than inflation. Stocks have tended to average around 3% above inflation. Buy a house if you need shelter and can afford it. But pay off the mortgage, don't borrow against the equity, and save and invest in retirement and other accounts for your golden years. Some people who can't save money end up relying on their homes to finance retirement. But that's a much poorer choice (pun intended) than taking advantage of the greater potential of stocks and other financial investments. Your house is your castle. But it's not your best option for financing retirement.
Thursday, April 27, 2017
The Truth About Getting Rich
Wealth is relative. That is, people tend to consider themselves wealthy by comparing themselves to those around them. The fact that most people today live healthier, longer and more comfortable lives than King Henry the Eighth is irrelevant to them. They care more about where they stand compared to the people next door or the colleague across the hall or the persons featured in today's news.
This means you can feel rich only if you have more wealth than others around you. That, in turn, means you have to be different from most people. You can't be just like everyone else and yet be wealthier than everyone else. But if you see yourself as just an ordinary, middle class person, does that mean you haven't got a chance to be wealthy?
No. You can be wealthy. While some wealthy people inherit their riches, most millionaires get there on their own by saving more. It helps if you earn more. You'll have more money to work with. But earning more helps only if you save more. If you spend all your above average earnings, expect to dine on dog food in your retirement.
You have to resist temptation to spend. An 856 inch big-screen TV and a 4,300 horsepower SUV won't make you wealthy. The same goes for $700 shoes and $1,200 handbags. You have to be comfortable with fewer European vacations and plenty of home cooking. When people laugh at your frugal ways, you have to focus on getting the last laugh.
Most people won't make it. They won't become wealthy. That's inherent in the definition of wealth as a relative concept, and it's also a result of the human tendency toward conformity and group think. But plenty of middle class people end up having comfortable retirements or better. In part, that's because of social welfare programs like Social Security and Medicare. But these programs alone don't provide a good retirement. You must be responsible and save.
What to do? It's not complicated. The main thing is save early, often and in significant amounts, like 15% to 20% of your income. Invest in a diversified portfolio to increase your chances for good long term returns. (See http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html.) There are a variety of ways to build up your wealth: http://blogger.uncleleosden.com/2009/11/techniques-for-retirement-saving.html. Look at each dollar you receive as a saving opportunity. Remember that no matter how much money you make, in the end you will have a finite income (we all do), and what you spend can't be retrieved. It's gone. So don't waste that opportunity to save (see http://blogger.uncleleosden.com/2010/07/how-to-think-about-saving.html). Avoid debt as much as possible (see http://blogger.uncleleosden.com/2010/07/why-you-should-avoid-debt.html). Don't give up, even if you have financial setbacks. Like so many other things in life, quitters aren't winners when it comes to building wealth.
You can have a somewhat decent retirement even if you don't save much, by building up your benefits and eliminating debt. (See http://blogger.uncleleosden.com/2011/01/hope-for-financially-lost.html). But if you want to climb into the ranks of the wealthy, be different.
This means you can feel rich only if you have more wealth than others around you. That, in turn, means you have to be different from most people. You can't be just like everyone else and yet be wealthier than everyone else. But if you see yourself as just an ordinary, middle class person, does that mean you haven't got a chance to be wealthy?
No. You can be wealthy. While some wealthy people inherit their riches, most millionaires get there on their own by saving more. It helps if you earn more. You'll have more money to work with. But earning more helps only if you save more. If you spend all your above average earnings, expect to dine on dog food in your retirement.
You have to resist temptation to spend. An 856 inch big-screen TV and a 4,300 horsepower SUV won't make you wealthy. The same goes for $700 shoes and $1,200 handbags. You have to be comfortable with fewer European vacations and plenty of home cooking. When people laugh at your frugal ways, you have to focus on getting the last laugh.
Most people won't make it. They won't become wealthy. That's inherent in the definition of wealth as a relative concept, and it's also a result of the human tendency toward conformity and group think. But plenty of middle class people end up having comfortable retirements or better. In part, that's because of social welfare programs like Social Security and Medicare. But these programs alone don't provide a good retirement. You must be responsible and save.
What to do? It's not complicated. The main thing is save early, often and in significant amounts, like 15% to 20% of your income. Invest in a diversified portfolio to increase your chances for good long term returns. (See http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html.) There are a variety of ways to build up your wealth: http://blogger.uncleleosden.com/2009/11/techniques-for-retirement-saving.html. Look at each dollar you receive as a saving opportunity. Remember that no matter how much money you make, in the end you will have a finite income (we all do), and what you spend can't be retrieved. It's gone. So don't waste that opportunity to save (see http://blogger.uncleleosden.com/2010/07/how-to-think-about-saving.html). Avoid debt as much as possible (see http://blogger.uncleleosden.com/2010/07/why-you-should-avoid-debt.html). Don't give up, even if you have financial setbacks. Like so many other things in life, quitters aren't winners when it comes to building wealth.
You can have a somewhat decent retirement even if you don't save much, by building up your benefits and eliminating debt. (See http://blogger.uncleleosden.com/2011/01/hope-for-financially-lost.html). But if you want to climb into the ranks of the wealthy, be different.
Tuesday, April 11, 2017
Fly the "Friendly" Skies of United? Maybe If You Feel Like a Cow.
As the entire world with Internet access knows, yesterday a passenger on a United Airlines flight from Chicago to Louisville was grabbed by security personnel and dragged down the aisle of a plane when he refused to get off in order to allow some United crew members fly to Louisville where they had to staff a flight the next day. http://wjla.com/news/nation-world/new-video-shows-bloodied-visibly-shaken-united-airlines-passenger. He ended up bleeding from a cut on his lip, and the plane had to be emptied of all passengers and his blood cleaned up before it could leave. So everyone departed late.
United evidently believes that some fine print on its tickets allows them to kick passengers off after being boarded, even when the passenger presents no threat to security or safety. There are reports that some sort of algorithm chose the passengers who were kicked off, although many people have noted that the dragged man was Asian. Would United have dragged a white female out of the plane like this? Why couldn't United have done the simple thing and rented a car (there are car rental agencies at airports, you know) and had the employees drive to Louisville? They'd have gotten there anyway in time to work the next day. But no. United needs to put its convenience ahead of its paying customers' convenience.
It hardly needs to be said that United's conduct was outrageous. A man who wanted nothing more than to be United's paying customer wound up being a poster child for the widespread discontent with airlines. Airlines are among the most intensely disliked industries and we now have yet another reason why. One wonders why United allowed the passengers to board before trying to bump them. And if United is so disorganized it has to board and then bump, perhaps it should think about the fact that it's in a service industry, and service should be provided promptly, courteously and with a smile. But, wait, we're talking about an airline--and that's different. It would seem that with airlines today, there's no distinction between people and cattle, and all should be treated like cattle.
United's CEO, Oscar Munoz, proved himself inept and tone deaf, initially criticizing the passenger for not acquiescing in being treated like a cow. In a second statement, he began to sound little less strident. After figuring out that he was the object of widespread international scorn and ridicule, he finally decided to apologize the day after the incident. But with his three varying statements, it hard not to wonder whether the third one was sincere or a business decision.
This gets to the larger point. This incident went viral and circumnavigated the globe in two nanoseconds. Probably tens of millions and maybe hundreds of millions of people worldwide have seen the video. The commentary on social media can be scored as zillions mad at United, zero pleased with United. United's reputation has gotten ugly fast and its stock price dropped today. Why was there such an international uproar over this incident?
Because it perfectly illustrates how people--at least ordinary people--don't matter any more. The airlines will take your money. But they'll treat you like a commodity and seat you or not, at their convenience. And if they seat you, they'll unseat you at their convenience. They'll claim that the fine print in their tickets allows them to treat you like a cow, even if that involves conduct amounting to a physical assault on you.
Legal processes are now underway to investigate this incident, and the passenger will no doubt retain legal counsel to press claims against United. If United were to play it smart, they'd settle this one fast with the customer, even if it means paying him a pretty penny, because they need to get this story out of the headlines. If this story stays in the news, the video of the passenger being dragged down the aisle will be played again and again and again, many millions of times over. But, given Mr. Munoz's initial defensiveness and seemingly slow apology, it's unclear that United will make the smart move here. Maybe United thinks passengers won't stay away over this incident. But some probably will, or at least demand the lowest fare on the route. Either way, it could cost United, and with the airlines being a low margin industry, losing just a modest amount of business could noticeably affect United's bottom line. ( This is why the airlines try so hard to fly full by overbooking and applying bootprints to paying customer's asses if they overdo the overbooking--because just a small change in revenue levels matters to them.)
The overarching lesson, especially for those in the 1% or in positions of authority, is that ordinary folks are well aware that they are viewed as being nothing more than cattle--and not just by airlines. In way too many contexts, way too many people are being told they are inconsequential. They don't like it and are fighting back. The people who elected Donald Trump were fighting back. The people who almost elevated Bernie Sanders over Hillary Clinton were fighting back. The vast majority of people don't want to be disputatious or quarrelsome. But if often enough you knock them down and kick them while they're down, they'll react with the speed of the Internet.
United evidently believes that some fine print on its tickets allows them to kick passengers off after being boarded, even when the passenger presents no threat to security or safety. There are reports that some sort of algorithm chose the passengers who were kicked off, although many people have noted that the dragged man was Asian. Would United have dragged a white female out of the plane like this? Why couldn't United have done the simple thing and rented a car (there are car rental agencies at airports, you know) and had the employees drive to Louisville? They'd have gotten there anyway in time to work the next day. But no. United needs to put its convenience ahead of its paying customers' convenience.
It hardly needs to be said that United's conduct was outrageous. A man who wanted nothing more than to be United's paying customer wound up being a poster child for the widespread discontent with airlines. Airlines are among the most intensely disliked industries and we now have yet another reason why. One wonders why United allowed the passengers to board before trying to bump them. And if United is so disorganized it has to board and then bump, perhaps it should think about the fact that it's in a service industry, and service should be provided promptly, courteously and with a smile. But, wait, we're talking about an airline--and that's different. It would seem that with airlines today, there's no distinction between people and cattle, and all should be treated like cattle.
United's CEO, Oscar Munoz, proved himself inept and tone deaf, initially criticizing the passenger for not acquiescing in being treated like a cow. In a second statement, he began to sound little less strident. After figuring out that he was the object of widespread international scorn and ridicule, he finally decided to apologize the day after the incident. But with his three varying statements, it hard not to wonder whether the third one was sincere or a business decision.
This gets to the larger point. This incident went viral and circumnavigated the globe in two nanoseconds. Probably tens of millions and maybe hundreds of millions of people worldwide have seen the video. The commentary on social media can be scored as zillions mad at United, zero pleased with United. United's reputation has gotten ugly fast and its stock price dropped today. Why was there such an international uproar over this incident?
Because it perfectly illustrates how people--at least ordinary people--don't matter any more. The airlines will take your money. But they'll treat you like a commodity and seat you or not, at their convenience. And if they seat you, they'll unseat you at their convenience. They'll claim that the fine print in their tickets allows them to treat you like a cow, even if that involves conduct amounting to a physical assault on you.
Legal processes are now underway to investigate this incident, and the passenger will no doubt retain legal counsel to press claims against United. If United were to play it smart, they'd settle this one fast with the customer, even if it means paying him a pretty penny, because they need to get this story out of the headlines. If this story stays in the news, the video of the passenger being dragged down the aisle will be played again and again and again, many millions of times over. But, given Mr. Munoz's initial defensiveness and seemingly slow apology, it's unclear that United will make the smart move here. Maybe United thinks passengers won't stay away over this incident. But some probably will, or at least demand the lowest fare on the route. Either way, it could cost United, and with the airlines being a low margin industry, losing just a modest amount of business could noticeably affect United's bottom line. ( This is why the airlines try so hard to fly full by overbooking and applying bootprints to paying customer's asses if they overdo the overbooking--because just a small change in revenue levels matters to them.)
The overarching lesson, especially for those in the 1% or in positions of authority, is that ordinary folks are well aware that they are viewed as being nothing more than cattle--and not just by airlines. In way too many contexts, way too many people are being told they are inconsequential. They don't like it and are fighting back. The people who elected Donald Trump were fighting back. The people who almost elevated Bernie Sanders over Hillary Clinton were fighting back. The vast majority of people don't want to be disputatious or quarrelsome. But if often enough you knock them down and kick them while they're down, they'll react with the speed of the Internet.
Friday, March 24, 2017
Can the Republicans Govern?
With the postponement of the House of Representatives' vote on repealing Obamacare twice in two days, one must ask whether the Republicans can govern. They control Congress and the White House, but they weren't able to fulfill one of their signature promises from last year's elections. Dissidents on the far right and in the moderate middle couldn't, for different reasons, sign up for the repeal measure. President Trump, drawing on his dealmaking experience in business, gave them a take it or leave it compromise--and they left it. In business, if you pass on a good deal and go for a great deal, you can blow the deal. But in politics, as Trump may be learning, you can often score points with your constituents by going for a great deal and losing the deal instead of compromising. Politicians get ahead by telling voters what they want to hear--indeed, that's how Donald Trump got himself elected President. But doing things that leave voters with mixed feelings--like compromising--places politicians at risk in the next round of primaries. It's better to look and sound good than doing anything that could leave you open to criticism.
Obamacare will now become a permanent part of the American landscape. Its essential features--universal access to coverage, subsidies or Medicaid for those unable to pay, no exclusion of pre-existing conditions, and substantial coverage of health problems--will form the foundation of American health insurance for the future. Surely, Obamacare will be modified over time. But Barack Obama's greatest legacy will live on.
For the Republicans, the Party of No, a more important question is whether they even understand what it takes to govern. It's necessary to compromise, and to take the heat from compromising. The Republican Party, like the Democratic Party, is a coalition. If coalition members don't work together, governance does not happen. The next great challenge for the Republicans will probably be the budget bill and tax reform, which will have to go hand-in-hand if the Republicans hope to accomplish everything they've promise. Their problem is they've made too many promises for the amount of tax revenues the federal government will collect. They can't boost defenses spending by $54 billion, build the Wall at the border with Mexico, cut corporate taxes, cut taxes for the wealthy (which is an unstated but obvious goal of theirs, given that the proposed repeal of Obamacare was more a bill to cut taxes on the wealthy than improve the health insurance system), and rebuild America's infrastructure, all at the same time. Something has to give. Either taxes are raised, federal deficit spending increases, and/or the Republicans give up on some of their goals. The Republicans will have to compromise to accomplish anything. But their failure to work out a compromise to repeal Obamacare does not portend well for their future.
Although virtually powerless right now, the Democrats must have gotten a lift today. Their fortunes have started to turn around. As devastating as their defeat in 2016 was, it's not the end of the world, or of their party.
Obamacare will now become a permanent part of the American landscape. Its essential features--universal access to coverage, subsidies or Medicaid for those unable to pay, no exclusion of pre-existing conditions, and substantial coverage of health problems--will form the foundation of American health insurance for the future. Surely, Obamacare will be modified over time. But Barack Obama's greatest legacy will live on.
For the Republicans, the Party of No, a more important question is whether they even understand what it takes to govern. It's necessary to compromise, and to take the heat from compromising. The Republican Party, like the Democratic Party, is a coalition. If coalition members don't work together, governance does not happen. The next great challenge for the Republicans will probably be the budget bill and tax reform, which will have to go hand-in-hand if the Republicans hope to accomplish everything they've promise. Their problem is they've made too many promises for the amount of tax revenues the federal government will collect. They can't boost defenses spending by $54 billion, build the Wall at the border with Mexico, cut corporate taxes, cut taxes for the wealthy (which is an unstated but obvious goal of theirs, given that the proposed repeal of Obamacare was more a bill to cut taxes on the wealthy than improve the health insurance system), and rebuild America's infrastructure, all at the same time. Something has to give. Either taxes are raised, federal deficit spending increases, and/or the Republicans give up on some of their goals. The Republicans will have to compromise to accomplish anything. But their failure to work out a compromise to repeal Obamacare does not portend well for their future.
Although virtually powerless right now, the Democrats must have gotten a lift today. Their fortunes have started to turn around. As devastating as their defeat in 2016 was, it's not the end of the world, or of their party.
Tuesday, February 28, 2017
Will Donald Trump Be a Traitor to His Class?
The most important legislative priorities of the Trump administration--tax and health insurance reform--will be enacted within a matter of months. Both of these measures will greatly impact the working class whites who propelled Trump to the White House--either for better or for worse.
Preliminary assessments of the proposed tax reform indicate that taxes for the middle class will drop about a couple hundred dollars. One percenters can look forward to many thousands in tax savings. This isn't exactly what folks in small town America were hoping for. To make up for the loss of income tax revenues from these cuts, the President may endorse a border adjustment tax (basically, a tariff on imports that would likely increase the prices of the inexpensive food and goods that low and moderate income Americans rely on). To many, this might feel like another kick in the teeth.
Health insurance reform is turning out to be a very tough nut to crack. President Trump has said he wants to preserve the protections that many low and moderate income Americans count on--guaranteed acceptance, coverage against pre-existing medical conditions, and subsidies for those unable to pay full freight. But these conditions are very expensive. How will the President cover the costs? There seems to be little consideration of progressive taxation of the wealthy or increasing the federal debt. Yet there's no free lunch. One possible "solution," so to speak, would be to offer low cost policies with skimpy coverage--prior medical conditions would be covered but total coverage might go only up to $25,000 or $50,000 a year. This would be expedient, but would effectively deprive people of coverage when they needed it the most.
On top of this, the President's desire to turn Medicaid into a program of block grants for the states has significant potential to reduce coverage for the low income. Many of these people voted for him. Where will they go for care without health insurance? Medicaid covers around 74 million Americans--almost 1 in 4. Cuts to this program could mean many millions of people mad at the President.
President Trump's problems are exacerbated by his proposal to increase military spending by $54 billion. Where will this money come from? The Republicans in Congress won't agree to more deficit spending. So the President can either raise taxes, or piss off many millions of voters by cutting other federal programs.
Donald Trump is President at a time when stark choices are necessary. He was elected as an insurgent. But he's stacked his cabinet with establishment Republican types, people who have no demonstrated concern or sympathy for his core constituents. The Republicans who control Congress gave him scant and faint-hearted support during his campaign. But today they stack the legislative agenda with bills that would make the rich richer and offer the working class hardly more than a crumb or two--and stale ones at that.
If the President really wants to help his constituents, he'll have to be a traitor to his class. He'll have to offer substantial improvements in life to the working class, and sorry to say, but wealthier people will have to pay for them. America got itself into its current mess by believing that somehow everyone can get more of everything all the time at no cost to anyone else. The last two large nations to subscribe to this notion--the Soviet Union and Communist China--had to abandon their illusions and now struggle with the consequences of the their wishful thinking.
Franklin Delano Roosevelt, the greatest President of the Twentieth Century, was labelled a traitor to his class. And he was. He endorsed legislation like Social Security and a strengthening of protections for workers and labor unions that uplifted many millions of ordinary Americans out of poverty and into the middle class. The cost was born to a large degree by a sharp increase in federal income taxes paid by the well-to-do. The rich grumbled and plotted against him. But he ushered in the prosperity of the 1950's and 1960's, now viewed as a golden age in America. America's perceived decline from those days also correspond with ever increasing inequality of wealth and income. If Donald Trump really wants to make America great again, he'll have to make it great for the working class. That isn't the direction he's been going in since his inauguration. The next few months, when his most consequential legislative initiatives will be enacted, will likely make him both a traitor--either to his core constituents or to his class--and a hero--to the wealthy, many of whom didn't support him but are glad to free-ride on his policies and program, or to the working class that vaulted him into office. The choice is his.
Preliminary assessments of the proposed tax reform indicate that taxes for the middle class will drop about a couple hundred dollars. One percenters can look forward to many thousands in tax savings. This isn't exactly what folks in small town America were hoping for. To make up for the loss of income tax revenues from these cuts, the President may endorse a border adjustment tax (basically, a tariff on imports that would likely increase the prices of the inexpensive food and goods that low and moderate income Americans rely on). To many, this might feel like another kick in the teeth.
Health insurance reform is turning out to be a very tough nut to crack. President Trump has said he wants to preserve the protections that many low and moderate income Americans count on--guaranteed acceptance, coverage against pre-existing medical conditions, and subsidies for those unable to pay full freight. But these conditions are very expensive. How will the President cover the costs? There seems to be little consideration of progressive taxation of the wealthy or increasing the federal debt. Yet there's no free lunch. One possible "solution," so to speak, would be to offer low cost policies with skimpy coverage--prior medical conditions would be covered but total coverage might go only up to $25,000 or $50,000 a year. This would be expedient, but would effectively deprive people of coverage when they needed it the most.
On top of this, the President's desire to turn Medicaid into a program of block grants for the states has significant potential to reduce coverage for the low income. Many of these people voted for him. Where will they go for care without health insurance? Medicaid covers around 74 million Americans--almost 1 in 4. Cuts to this program could mean many millions of people mad at the President.
President Trump's problems are exacerbated by his proposal to increase military spending by $54 billion. Where will this money come from? The Republicans in Congress won't agree to more deficit spending. So the President can either raise taxes, or piss off many millions of voters by cutting other federal programs.
Donald Trump is President at a time when stark choices are necessary. He was elected as an insurgent. But he's stacked his cabinet with establishment Republican types, people who have no demonstrated concern or sympathy for his core constituents. The Republicans who control Congress gave him scant and faint-hearted support during his campaign. But today they stack the legislative agenda with bills that would make the rich richer and offer the working class hardly more than a crumb or two--and stale ones at that.
If the President really wants to help his constituents, he'll have to be a traitor to his class. He'll have to offer substantial improvements in life to the working class, and sorry to say, but wealthier people will have to pay for them. America got itself into its current mess by believing that somehow everyone can get more of everything all the time at no cost to anyone else. The last two large nations to subscribe to this notion--the Soviet Union and Communist China--had to abandon their illusions and now struggle with the consequences of the their wishful thinking.
Franklin Delano Roosevelt, the greatest President of the Twentieth Century, was labelled a traitor to his class. And he was. He endorsed legislation like Social Security and a strengthening of protections for workers and labor unions that uplifted many millions of ordinary Americans out of poverty and into the middle class. The cost was born to a large degree by a sharp increase in federal income taxes paid by the well-to-do. The rich grumbled and plotted against him. But he ushered in the prosperity of the 1950's and 1960's, now viewed as a golden age in America. America's perceived decline from those days also correspond with ever increasing inequality of wealth and income. If Donald Trump really wants to make America great again, he'll have to make it great for the working class. That isn't the direction he's been going in since his inauguration. The next few months, when his most consequential legislative initiatives will be enacted, will likely make him both a traitor--either to his core constituents or to his class--and a hero--to the wealthy, many of whom didn't support him but are glad to free-ride on his policies and program, or to the working class that vaulted him into office. The choice is his.
Wednesday, February 22, 2017
Investing in a Time of Trump
If there's one notable feature of investing in the nascent Trump Presidency, it's uncertainty. Although macroeconomic statistics are generally good, we are startled every day by a spinning kaleidoscope of tweets, leaks, executive orders, allegations, innuendoes, news stories, fake news stories and occasional court rulings that splatter across our field of vision and further contort the cognitive dissonance in the political scene from the recent election. When all news and news-substitutes seem to be open to challenge, what can an investor rely on?
The ever-rising market only makes things worse. With such political confusion, it's far from clear that the economic and tax policies espoused by President Trump will be implemented any time soon. Why does the market persistently climb higher? One can only suspect that some market participants have conflated optimism with delusion. The background music to today's market may not be the Grand March from Aida (https://www.youtube.com/watch?v=TX0qN6QEvGg), but rather Jimi Hendrix's Purple Haze (https://www.youtube.com/watch?v=cJunCsrhJjg).
What can an investor make of all this? Bear in mind that you can't see a lot of what's going on in the market. There are major undercurrents, often computer driven, that cause daily market schizophrenia. Large investors can push the market one way or another in the course of making large purchases or unwinding large holdings. Mom and Pop investors won't see this or hear about, except maybe after the fact.
Computerized trading can be particularly scary. It no longer consists of following pre-determined algorithms. Much of today's computerized trading is dynamic, using artificial intelligence-type programs that try to figure out as the trading day progresses where prices are headed and buy or sell to take advantage of the anticipated market move. Since much of the trading these programs are observing is done by other computers, we have computers reacting to other computers. Price, which traditionally has been a judgment call made by intuitive and irrational humans, is now the product of chains of logic. That logic tends to respond to short term stimuli, such as price movements in the last few minutes, seconds and even milliseconds. It doesn't factor in the uncertainty in Washington.
People know the future is cloudy. But the computers don't. Computers don't feel fear, nor do they have to save for retirement or build up a cash reserve to guard against a layoff or a large unexpected expense. People may hold onto their cash, wondering if the market is too bubbling given the chaos in the White House. But a computer may boldly keep buying, egged on by the trades of the past 20 milliseconds.
If you're hesitant about the market, keep your powder dry and your cash in an FDIC guaranteed bank account. There's no computer program that can understand and explain Donald Trump. Today's stock market may be too heavily driven by short term inputs, without a full understanding of longer term risks. Remember the old computer adage: garbage in, garbage out. If today's computerized trading is pushing the market up based on an incomplete picture, prices will eventually rise too far, if they haven't already. Then, le deluge.
The ever-rising market only makes things worse. With such political confusion, it's far from clear that the economic and tax policies espoused by President Trump will be implemented any time soon. Why does the market persistently climb higher? One can only suspect that some market participants have conflated optimism with delusion. The background music to today's market may not be the Grand March from Aida (https://www.youtube.com/watch?v=TX0qN6QEvGg), but rather Jimi Hendrix's Purple Haze (https://www.youtube.com/watch?v=cJunCsrhJjg).
What can an investor make of all this? Bear in mind that you can't see a lot of what's going on in the market. There are major undercurrents, often computer driven, that cause daily market schizophrenia. Large investors can push the market one way or another in the course of making large purchases or unwinding large holdings. Mom and Pop investors won't see this or hear about, except maybe after the fact.
Computerized trading can be particularly scary. It no longer consists of following pre-determined algorithms. Much of today's computerized trading is dynamic, using artificial intelligence-type programs that try to figure out as the trading day progresses where prices are headed and buy or sell to take advantage of the anticipated market move. Since much of the trading these programs are observing is done by other computers, we have computers reacting to other computers. Price, which traditionally has been a judgment call made by intuitive and irrational humans, is now the product of chains of logic. That logic tends to respond to short term stimuli, such as price movements in the last few minutes, seconds and even milliseconds. It doesn't factor in the uncertainty in Washington.
People know the future is cloudy. But the computers don't. Computers don't feel fear, nor do they have to save for retirement or build up a cash reserve to guard against a layoff or a large unexpected expense. People may hold onto their cash, wondering if the market is too bubbling given the chaos in the White House. But a computer may boldly keep buying, egged on by the trades of the past 20 milliseconds.
If you're hesitant about the market, keep your powder dry and your cash in an FDIC guaranteed bank account. There's no computer program that can understand and explain Donald Trump. Today's stock market may be too heavily driven by short term inputs, without a full understanding of longer term risks. Remember the old computer adage: garbage in, garbage out. If today's computerized trading is pushing the market up based on an incomplete picture, prices will eventually rise too far, if they haven't already. Then, le deluge.
Sunday, January 29, 2017
President Trump Proving Too Much
Yesterday, President issued an executive order directing that refugees and other people from seven mostly Muslim countries be prevented from entering the United States. Since then, the President's order has been brought before at least four federal judges, who have constrained its implementation in one way or another. Within a day, the President is 0-4 in the federal courts.
The issuance of this order proves too much. President Trump apparently intended to demonstrate to his supporters that he would fulfill a campaign promise to prevent the entry of terrorists into the country. Perhaps they feel that he has been true to his word. But his detractors believe that prejudice and bigotry underlie his actions and that the order may not be lawful. The fact that at least four federal judges have seen fit to act heightens doubts about the President's order.
It also appears from news reports that the President may not have consulted all the knowledgeable departments and offices about this order before issuing it. Had he done so, he might have learned more about what could lawfully be done and how it could be lawfully accomplished.
In other words, the President has managed to prove that he's what people thought he was, whatever that was. This doesn't help. We just had a very divisive election. Continuing the contentiousness will only exacerbate the nation's problems. There is a great deal of concern among Trump's detractors that he will be a lawless President, hellbent on imposing nativistic and bigoted policies in a despotic way. He just managed to confirm those fears. There's little evidence that this order will improve national security. But by sowing chaos and instigating opposition and litigation, the President has managed to hinder his own ability to function. Certainly, his opponents will be pleased that he unwittingly aimed at his foot and pulled the trigger. But there have been innocent victims and collateral damage. The President has to do better.
The issuance of this order proves too much. President Trump apparently intended to demonstrate to his supporters that he would fulfill a campaign promise to prevent the entry of terrorists into the country. Perhaps they feel that he has been true to his word. But his detractors believe that prejudice and bigotry underlie his actions and that the order may not be lawful. The fact that at least four federal judges have seen fit to act heightens doubts about the President's order.
It also appears from news reports that the President may not have consulted all the knowledgeable departments and offices about this order before issuing it. Had he done so, he might have learned more about what could lawfully be done and how it could be lawfully accomplished.
In other words, the President has managed to prove that he's what people thought he was, whatever that was. This doesn't help. We just had a very divisive election. Continuing the contentiousness will only exacerbate the nation's problems. There is a great deal of concern among Trump's detractors that he will be a lawless President, hellbent on imposing nativistic and bigoted policies in a despotic way. He just managed to confirm those fears. There's little evidence that this order will improve national security. But by sowing chaos and instigating opposition and litigation, the President has managed to hinder his own ability to function. Certainly, his opponents will be pleased that he unwittingly aimed at his foot and pulled the trigger. But there have been innocent victims and collateral damage. The President has to do better.
Friday, January 13, 2017
How Putin Has Already Blown It
On election day in 2016, Vladimir Putin must have thought he was a pretty smart guy. The candidate for President of the U.S. that he favored, Donald Trump, had won. Putin, according to America's intelligence agencies, tried to help Trump out through various nefarious means to discredit Hillary Clinton. Although it's unclear how much Putin's underhanded tactics affected the actual vote, he probably wasn't averse to giving himself a pat on the back.
That was then. Things are different now, just two months later. U.S. intelligence agencies have revealed Putin's shenanigans. Important leaders in Congress, including Republicans as well as Democrats, are alarmed. Trump nominees for cabinet positions, when asked about Russia, have been very careful to distance themselves from Putin and Russia. Even Trump has had to admit that Russia tried to interfere in the election.
The uproar will limit Trump's options with Russia and Putin. Congress won't give him a free hand in dealing with them. It will be tough on the issue of sanctions. It will insist that the U.S. honor its pledge to defend NATO members. It will insist that human rights still exist and must be defended. It will insist that Russia's military aggression not be rewarded with friendship,
Putin has already blown it. He incorrectly assumed that his misdeeds would go undetected. But that didn't happen, and now he's been exposed. He's proven to be an embarrassment and a liability to his buddy, Trump. The bromance may have to cool off. Trump has been on the defensive about Putin and Russia, and his post-election sheen is a little tarnished. Trump has lost some power even before he took office, power he might have needed to cozy up to Russia and Putin. Too bad, Vlad. You may have outsmarted yourself.
That was then. Things are different now, just two months later. U.S. intelligence agencies have revealed Putin's shenanigans. Important leaders in Congress, including Republicans as well as Democrats, are alarmed. Trump nominees for cabinet positions, when asked about Russia, have been very careful to distance themselves from Putin and Russia. Even Trump has had to admit that Russia tried to interfere in the election.
The uproar will limit Trump's options with Russia and Putin. Congress won't give him a free hand in dealing with them. It will be tough on the issue of sanctions. It will insist that the U.S. honor its pledge to defend NATO members. It will insist that human rights still exist and must be defended. It will insist that Russia's military aggression not be rewarded with friendship,
Putin has already blown it. He incorrectly assumed that his misdeeds would go undetected. But that didn't happen, and now he's been exposed. He's proven to be an embarrassment and a liability to his buddy, Trump. The bromance may have to cool off. Trump has been on the defensive about Putin and Russia, and his post-election sheen is a little tarnished. Trump has lost some power even before he took office, power he might have needed to cozy up to Russia and Putin. Too bad, Vlad. You may have outsmarted yourself.
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