Reading a NY Times story from Frank Rich titled After the Massachusetts Massacre in which Mr. Rich claims It was not a referendum on Barack Obama and  It was not a rejection of universal health care.   Umm, what rock has Mr. Rich been hiding under?

For days heading into the election, we heard over and over how Brown was campaigning as the 41st vote against health care and Coakley was campaigning as the 60th vote for health care.  I even heard Brown has a nickname “41″ because he claimed to be the 41st vote against everything Obama wanted.

I’m not sure what fantasy world Mr. Rich is living in, but it’s hard to trust the analysis and opinions of anyone who is able to make up their own view of reality so easily.

gk

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I mentioned this a few weeks ago, but it seems to be getting more and more likely that the Dems may be in for a replay of 1994.

In general, Americans don’t like politicians who go to extremes, and when any one party is in control, they ALWAYS go to extremes.  Clinton tried pushing through health care and it was a disaster for the Dems.  Bush got it in 2002 and pushed through the Iraq fiasco – which led to the current Dem majority.   Now it appears that Obama is heading down the same path.

You know things are bad for Democrats when the NY Times opinion page has 3 stories – and they are all complaining about Democrats.  Check them out.

The Lady and the Arlen – Gail Collins

They Still Don’t Get It – Bob Herbert

Mobs Rule – Charles Blow

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Ran across this story in the NY Times tonight suggesting that the Dems  are going to have a hard time “defending their large Congressional majorities”  in the 2010 elections.  Interesting….  That’s the first I’ve heard one that subject, and it got me to thinking about the over reaching in Clinton’s first term, which led to the Contract with America and the Republican domination of congress for the next decade.

Could health care (and the resulting loss of individual and states rights) prove to be Obama’s defining moment as it was with Hillary care?  Stay tuned….

gk

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This is what it’s come down to…  An 11 year old asking President Obama “Would you like to become my homeboy?”

That’s what USA Today says in their article about it.

WEAVER: When I interviewed Vice President Joe Biden, he became my homeboy. Would you like to become my homeboy?

OBAMA: Absolutely, thank you man. Great job.

You can watch the “interview” on YouTube here.   Here’s a story from the Miami Herald about it.  And a couple more quotes.

Damon, 11, sat with the nation’s chief executive in the White House Diplomatic Room, asking 11 questions mostly concerning education, according to Brian Zimmerman, Damon’s teacher.

“It was a great experience,” Zimmerman said. “Damon even got to meet the dog.” (He met Hillary too?) 

He also asked whether Obama would play basketball against NBA star Dwyane Wade, who promised him a match if he got the interview: “He’s not sure if he’d let you score,” the youngster said.

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Here’s a bumper sticker someone needs to make – “Honk if I bought your clunker”, or “Honk if I bought your new car”.

Just like the “Honk if I’m paying your mortgage” stickers last year, cash for clunkers is simply a way for politicians to take money from one group and give it to another who hasn’t earned it.  It’s a redistribution of wealth, just like the bread and circuses of Rome.  Keep the plebes happy so they continue to vote for the incumbent – and so they don’t revolt.

When are Americans going to say “Enough”?  I don’t think enough of us will ever get to that point, and I think we can look forward to a fairly rapid decline of this country.

gk

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Cash for clunkers seems to be all the rage this week.  Hundreds of news stories and blog posts are telling everyone how successful it is, how it RAN OUT OF MONEY IN ONE WEEK when it was supposed to last until November, and how this will boost the economy.

Bullshit.

Here’s an excerpt from the Daily Reckoning.com explaining why it’s bullshit.

And as Bill has been pointing out, this is just another example of the government promoting the idea that the future doesn’t matter – just spend for today. He wrote in Friday’s essay: “Instead of letting the consumer buy a new car when he is ready, the feds give them money to buy now. So, he buys in 2009 and not in 2010. What good is accomplished? It is as if they didn’t expect 2010 to ever arrive…”

The Wall Street Journal backs us up here: “The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.”

This is what’s known as the “broken window fallacy” that I posted about in February 2008.  It’s a classic story and you can read all about it on the link, but here’s the main part as told by Henry Hazlitt’s classic “Economics in One Lesson” (Which I urge you to read.) It’s copied from my earlier post -which was copied from Lew Rockwell’s post on Mises.org.

A kid throws a rock at a window and breaks it, and everyone standing around regrets the unfortunate state of affairs. But then up walks a man who purports to be wise and all knowing. He points out that this is not a bad thing after all. The man fixing the window will get money for doing so. This will then be spent on a new suit, and the tailor too will get money. The tailor will spend money on other items, and the circle of rising prosperity will expand without end.

What’s wrong with this scenario? As Bastiat put it, “It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.”

You can see the absurdity of the position of the wise commentator when you take it to absurd extremes. If the broken window really produces wealth, why not break all windows up and down the whole city block? Indeed, why not break doors and walls? Why not tear down all houses so that they can be rebuilt? Why not bomb whole cities so construction firms can get busy rebuilding?

It is not a good thing to destroy wealth. Bastiat puts it this way: “Society loses the value of things which are uselessly destroyed.”

It sounds like an unexceptional claim. But herein rests the core case against everything the government does. Perhaps, then, we can see why the allegory is not better known. If we took it seriously, we would dismantle the whole apparatus of American economic intervention.

If you are with me to this point, perhaps you have a hard time believing that anyone really believes that wealth destruction is actually a good thing. Let me try to show that the fallacy is as pervasive as ever.

After every natural disaster, we at the Mises Institute start what we call the “Broken Window Watch.”

After hurricane Katrina, the Labor Secretary said, “[W]hat will happen — and I have seen this in previous catastrophes and hurricanes — there is a bright spot in that new jobs do get created.”

And The Economist said, “While big hurricanes like Katrina destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins.”

And the New York Times said, “Economists point out that although Katrina has destroyed a lot of accumulated wealth, it ultimately will probably have a positive effect on growth data over the next few months as resources are channeled into rebuilding.”

That’s what we’re doing with Cash for Clunkers.  We’re diverting capital from where it would naturally go into a program to destroy valuable assets and replace them.

Why not apply the concept elsewhere? How about cash for houses? Cash for liquor? Cash for newspapers? Cash for trips to Europe?

Yes, there will be a temporary boost to the economy, but it comes at the expense of next year, and the next year, and the next year.  WHO IS PAYING FOR IT?  We all are, and all we’re actually doing is postponing the day of reckoning.  You cannot borrow your way out of debt, and that’s what this program is trying to do.

gk

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I don’t know how I missed this last week, but according to the Boston Herald here, Joe Biden actually said this.

“We’re going to go bankrupt as a nation.”

“People, when I say that, look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?” he said. “The answer is yes.”

“We have to go spend money to keep from going bankrupt” should become as famous as the “It became necessary to destroy the town to save it” quote from the Vietnam War.  It’s “Ben Tre logic.“  And it’s just as stupid.

There’s no way to say this politely, so I won’t try.  Joe Biden is an incompetent idiot who doesn’t have a clue.  And we elected him.

gk

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This is from an old (sometime in the 1980’s) Dave Barry column, but I ran across it today and I still find it funny.  It’s about the difference between Democrats and Republicans.  Unfortunately for our country, it’s pretty close to the truth….

“The Democrats seem to be basically nicer people, but they have demonstrated time and again that they have the management skills of celery. They’re the kind of people who’d stop to help you change a flat, but would somehow manage to set your car on fire. I would be reluctant to entrust them with a Cuisinart, let alone the economy. The Republicans, on the other hand, would know how to fix your tire, but they wouldn’t bother to stop because they’d want to be on time for Ugly Pants Night at the country club.”

Republicans spend too much on defense, bailouts of inept corporations, and in new programs designed to show people that they’re really good guys, like the prescription drug bill.  Democrats spend too much on everything.  Neither is willing to raise taxes enough to pay for their spending.  The only time in the last 50 years that spending has been kept somewhat in check is when we had a Republican congress and a Democrat as president.

For 6 years – from January 1995 through January 2001 – Republicans controlled congress and Clinton was president.  Spending was kept in check and we almost had a balanced budget.  I know Clinton claimed surpluses, but he lied.  The “surplus” came from Social Security payments and the total federal debt increased each and every year, so there wasn’t actually a surplus – but it was as close as we’re ever likely to see from here on.

Obama is making Bush’s budget busting spending look like child’s play.  This year alone, we’re spending twice as much as we’re collecting in taxes.  We’re effectively borrowing money from the Chinese to make interest payments to the Chinese.  It’s the same as using your Visa card to make minimum payments on your MasterCard.  How long do the idiots on Capital Hill think they can continue this Ponzi scheme?

gk

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The S&P 500, DJIA, and NASDAQ are all up about 40% from their lows on March 9th.  Why?  Has the economy (and earnings) rebounded that sharply?  Or were the March lows an aberration?  It’s been a while since I talked about the stock market or the larger economic picture, so it’s time to revisit those themes.

First, the economy.  From the data to date, it appears that the broad US economy is shrinking less rapidly than it was just a few months ago – but it’s still shrinking.  The GDP shrank at a 6.3% rate in the 4th quarter of 2008, and it shrank at a 6.1% rate in the 1st quarter of 2009.  These are the revised (as of May 29th) numbers straight from the BEA here.

Passenger: “The GDP is better than it was before Captain – can we start the party?”

Captain: “Ummm, let me think….  The ship is still sinking….  But it’s sinking at a slightly slower rate.  Re-arrange the deck chairs again, maybe that will help.  Party on dude!”

Ok, so the economy isn’t growing – what’s behind the 40% rise in stocks?  Could it be earnings?  Maybe companies have laid off enough workers, and streamlined operations enough so that their profits are 40% higher than last quarter?  Let’s look at the numbers….

With 99.43% of the Q1 2009 earnings reported, the total earnings of the S&P 500 adds up to $7.61.  That’s certainly a lot better than the negative $23.25 the S&P 500 earned during Q4 2008!  Keep in mind that Q4 was the first time ever for “negative earnings” for the S&P 500.   And another word for “negative earnings” is “losses”.  Or “deficit”.  As in “the US Government has $1.85 trillion in negative earnings for fiscal year 2009.”

Anyway, $7.61 in earnings must be a good thing if that has caused the stock market to surge about 40% in the past 3 months right?  According to Standard and Poors latest spreadsheet, no.   Except for last quarter’s losses, As Reported earnings haven’t been this low since Q4 of 2002.  And the Operating Earnings (currently $10.15) haven’t been this low since Q4 of 2001.

Ok, so actual earnings aren’t driving the market higher – what if the earnings are low, but beating the estimated earnings?  In other words, what if company earnings suck, but they suck less than investors expected them to suck?  Sorry Charlie, according to Howard Silverblatt, S&P Senior Index Analyst, “actuals are -24.3% off estimates, and -43.5% behind last year”.

Of course, Howard goes on to say that the “Operating vs As Reported (top down vs bottom up) varriance enormus; out of the woods or the Island has moved.”  I’m not sure what it means when the Senior Index Analyst at Standard and Poors can’t spell “variance” or “enormous”, but it can’t be A Good Thing.

In the same note, Howard also says “189 issues beat est, but only 87 beat last years earnings; 290 missed with 72 beating last years EPS” which translates (seriously) to “189 out of the 500 companies in the S&P 500 beat their earnings estimates.”  189 out of 500 is about 38% – that means that 62% of the S&P 500 MISSED their earnings estimates.  And yet the stock market is 40% higher.

Ok, so maybe the forward PE ratio is finally coming down to reasonable levels?  It was at a record 60 to 1 at the end of Q4, it must be better now….  Or at least when we look at the estimates for the rest of the year….  Right?

Wrong.  The current PE ratio for the S&P 500 is 114.77, another record high.  And it gets even worse when you look ahead.  Here are the current estimated PE ratios for the S&P 500 for the rest of 2009.

• Q1 – 132.22
• Q2 – 3513.31 !
• Q3 – Negative 301.52 (first negative annual PE in history)
• Q4 – 33.46

To sum it up, I see no reason for the current level of stocks.  Zero.  The S&P 500 index (currently at 944.74) is too high relative to earnings – and in the long run, stock prices are based on earnings.  This minibull may continue for awhile, but prices WILL eventually adjust to the low earnings.  And from where I sit, that means stocks will drop back down to at least the March low sometime this year.

The only possible way I can see stocks continue to rise is inflation.  Specifically, inflation caused by the enormous amount of money the Fed is printing out of thin air and injecting into the money supply.  In that case, stocks can – and will – go higher.  But the actual price increase will be close to zero when adjusted for inflation.  And if you want to maintain your purchasing power, gold and silver (in your physical possession, not an ETF!) are, in my humble opinion, much better inflation hedges than stocks.

I could go on and on about how Geithner, Helicopter Ben Bernanke, a willing Congress anxious to be seen as “doing something”, and Obama are making the mess worse – just as Greenspan, Bernanke, Bush, and a willing Congress created the problem – but that’s another story for another day.

gk

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Timothy Geithner is either really stupid or he’s simply lying to buy time.  I left work early today and I heard this quote from Rush Limbaugh on the way home (I used to listen to him regularly, but his shtick is getting old – how long can he blame everything on the Democrats and Clinton?  Bush had power for 8 years, and borrowed as much money as ALL previous presidents combined – I didn’t hear Rush bitching about spending then.)  so I had to look it up.

Rush is right on this one – here’s a quote from a Bloomberg news story: “It will be helpful if Geithner can show us some arithmetic,” he said.

“He” is Yu Yongding, a senior researcher at the government-backed Chinese Academy of Social Sciences and a former central bank adviser. “The Chinese public is worried about the safety of its foreign- exchange reserves,” Yu said in an e-mail.

Yup, that would sure be “helpful”.  I’m still trying to figure out how we (the US) can borrow as much as we collect in taxes this year and next year and still Geithner can state “No one is going to be more concerned about future deficits than we are”. I’d like to see the math on that.

To put it bluntly, Geithner is either really, really dumb, or he’s simply lying. I think he’s lying.

According to a Reuters story about the visit A major goal of Geithner’s maiden visit to China as Treasury chief is to allay concerns that Washington’s bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds.

That sounds good – I too would like to be reassured that my savings aren’t going to be worthless because of the incredible amount of money being printed.  But guess what?  Words mean nothing – it’s what they actually do that counts.  And what the Obama administration is doing is driving the final nails into the coffin that is the US economy.  Bush dug the hole, and Obama is pushing us into it.

The really sad part of Geithner’s statements is that even the Chinese know that he’s lying.  According to the same Reuters story when Geithner said “Chinese assets are very safe,” it  drew loud laughter from his student audience, reflecting skepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

Towards the end of the Bloomberg story, it says “I will, of course, make it clear that we are committed to a strong dollar, that we are committed to bringing our fiscal deficits down over the medium term to a sustainable place, to a sustainable level,” Geithner said in the briefing May 27. “We believe in a strong dollar. A strong dollar is in the U.S. interest.”

That’s pure bullshit and I think Geithner knows it.  He can’t really be that stupid.  No deficit is “sustainable” over the long run – every year simply puts you further and further behind.  At some point you must pay the debt off.  And in order to pay ANY debt off you must have a surplus.  That’s simply not in the cards for the US.  Medicare and Social Security are soon to run huge deficits – and where will we get the money to pay that?

gk

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