Tony Petroski

Did the Stimulus Do Its Job?

Well-reasoned argument by Mr. Picerno.

"Let's recognize that any stimulus plan worthy of the name should focus on raising consumption, which arguably leads to an expansion in the labor market."

That's a reasonable definition, but a time element needs to be added. The political justification for the February 2008 stimulus was that it would fund "shovel-ready" projects and it would cap the rise in unemployment at 8%.

Since we're already north of 10% in unemployment and as Mr. Picerno points out, only a fraction of the funding has been spent, we must conclude that the latest stimulative attempt has been a spectacular flop.

Taking this from a Keynesian perspective, if, as Mr. Picerno points out, consumption was rebounding in early 2009, then how are we to judge the current effort?

The Keynesians imagine themselves at the control panel of 14-trillion-dollar economy (give or take a few trillion) with their fingers on the dials and levers that, with a cut in interest here or a fiscal stimulus there, will shave the peaks and fill in the valleys of the cyclical swings in the economy. But it proves to be a mirage. The readings on the dials are far too inexact and the fingers moving the dials are always too far behind the action on the ground to be able to fine-tune anything.

As late as July, 2008 the European Central Bank had rates at 4.25% and expressed thoughts of raising that rate still further to guard against inflation. Granted the Americans were perhaps a year ahead of the Europeans, but in hindsight we now know that all the central banks were behind the curve. The folks at the control panel tighten as we head into recession and then create stimuli that kick in long after we're coming out of recession. They end up doing exactly the opposite that "Keynesianism" is supposed to do.

I do know this: Consumption and employment is up among the political classes populating the government at the federal level. Perhaps some of that will trickle down to those in the private sector soon enough to fuel the next boom.

Good article Mr. Picerno.

Counterintuitive? A pair (I, II) of recent studies shows high CEO pay may correlate with unusually low shareholder returns in both the near- and long-term.

No. I think it's tuitive.

When Will We Learn? Apparently, No Time Soon

Mr. Brown: "I have been in a state of disbelief for some time and have not felt like speaking out."

Well you are now and keep it up, you're on the right track.

"You do not need a doctorate in economics or finance to understand that when you have too much debt the answer is to cut back, spend less and pay down the debt. Not fun, but necessary. Yet the Administration has been hell bent on getting us to spend and do so while increasing debt. I have no idea why..."

Right again. But the answer isn't all that elusive. It's the dead end of Keynsianism. The economists (with doctorates) plot their charts of aggregate demand and liquidity traps and such-like, and it all looks good on paper: deficit spending to goose demand during recessions and then draining liquidity and dampening demand during booms. But experience has shown that those following Keynes have promoted deficit spending at all times, boom or bust.

If the economists (who support him) don't want to blame Keynes for this, so be it. But people of common sense can see that our government (both parties) promoted deficit spending during the last boom and now that we need to deleverage they've dusted off their General Theories and are promoting: deficit spending to goose the economy.

The practical effect of "Keynesism" as actually practiced by politicians around the world is pedal to the metal all the time. Sooner or later the tank is empty.

Case of the Missing Tax Receipts

I can't argue with Mr. Clark, he made his point and he's callin' 'em like he sees 'em.

Happy New Year to you Mr. Clark.

Futures up a drop ahead of the year's final session, with astonishing stock market gains for 2009 more-or-less locked in, while the economy's still teetering on one foot. Dow +0.1% to 10500. S&P +0.2% to 1124. Nasdaq +0.2%.

"...while the economy's still teetering on one foot."

...like a drunk walking the straight line for the cops on New Years Eve.

Initial Jobless Claims: -22K to 432K vs. 455K expected - the lowest since July 2008. Continuing claims -57K to 4,981,000.

I hope you're right.

New rules that take effect Friday will require mortgage lenders and brokers to give consumers clearer estimates of the costs of home loans, helping them to understand fees, prepayment penalties, and rate fluctuations. The changes, while helpful, come far too late to help the millions of Americans who made poor loan choices during the housing boom.

Anyone who has ever been to a closing knows that adding the 75th and 76th pages of paper will have no effect.

Initial Jobless Claims: -22K to 432K vs. 455K expected - the lowest since July 2008. Continuing claims -57K to 4,981,000.

Bbro: "We definitely have headwinds....and job growth will probably be modest by other recovery standards but there should ( with a little Luck) be enough to prevent a double dip....."

The stimulus was timed to promote government employment in 2010. The double-dip comes in 2011.

What Use Short Selling?

By the way,

Mr. Salmon describes short selling:

"I then approach one of those large, long-term investors, and ask them to lend me their shares for a short while. I’ll pay them a modest interest rate for the privilege, and they’ll end up with just as many shares as they started with, so they agree. The next thing I do is to immediately sell those shares on the open market, to someone else who believes in the future of Kodak. I then sit back and wait, as Kodak shares fall in price. Eventually, I buy them back cheap, return them to the original long-term investor, and pocket my profits."

That is a good explanation of how short-selling should work and we need no regulations to prevent it.

Here's how the short-selling actually works: I put together a short-selling fund of 2 billion dollars, admitedly more a job of salesmanship than stockpicking, but maybe my friend Bernie wants in on the deal and knows some folks. I have a wink-wink agreement with my contact at Lehman Bros. that they'll clear my trades whether I have any stock or not. I sell 1 million shares that I don't have of Washington Mutual. I announce that my fund is short WAMU because Washington Mutual is insolvent. Customers pull their money out of Washington Mutual and now they are insolvent. My fund is worth 4 billion dollars, I clear the 1 million shares with Lehman, and now, with more cash, I turn my sights on BAC because "they are insolvent."

I think the short sellers of Salmon's description should be allowed to operate. I think the short sellers of my description should take their place next to Bernie. I think all of them should take their places next to the Gitmo immigrants heading to Illinois rather than playing golf on the prison course, and I think Lehman Bros. should go out of business.

What Use Short Selling?

Mr. Salmon:

"Now I don’t think that this exercise is particularly harmful on a societal level, and at the margin it can help to make markets more liquid and efficient. But I can’t help but think of the opportunity cost of having all these intelligent and perspicacious people playing around on stock markets, rather than going out and putting that intelligence and perspicacity to more socially-beneficial use."

If more liberals start to think like this, without embracing their usual preferences for control like "industrial policy" (if the short sellers couldn't figure out how to make money from the rise of digital photography, imagine Janet Napolitano identifying the businesses where capital should flow to in her job as "Digital Tsar"), we may have a chance to right the ship.

Zero Interest Rates Don't Promote Saving

I've been trying to teach my children to save but I face an uphill battle. My grandmother taught my brother and me to save with two phrases: "Don't forget to save for a rainy day," and "Don't spend all of that on bubblegum." We did save, and I earned a real interest rate of about 2-3%, not much but enough to see it grow in the passbook and giving us hope for the future.

Unfortunately those same lessons are lost on my two boys. I insisted they open savings accounts and they get monthly statements from Wells Fargo with interest earned of less than one penny (granted, small accounts but why waste 54 cents on an envelope and postage to tell us that?). Needless to say, they don't see the value of their savings account.

I did have a brainstorm: If the manufacturers in China can figure out how to make and ship a toaster for $2.95 or less, perhaps the bank could give the toaster away when a customer opens a savings account, pay no interest, and only send letters about the account once a year.

In the meantime, my boys have put their money into equities and are playing BKC, MCD and Yum Brands as they feel they are experts on these businesses. There are days when they see a good-sized return, but they get discouraged at drops of 5% or more within one day.

Obama vs. Reagan After One Year

I agree with Yellowhoard. This is a silly article.

In fairness to Obama, he did virtually nothing in his first year and it's not a fair comparison. The stimulus bill he signed ("I want to sign the bill within an hour of being inaugurated") was Pelosi's baby with Obama's signature on it. The TARP was not Obama's although he promoted it and voted yes. The things that are Obama's haven't gone anywhere yet, particularly Cap and Tax, the health-care takeover and his much-vaunted exits from Iraq and Afghanistan.

The acid test will be if Obama can be re-elected for a second term as Reagan was.

Until then, we'll have to suffer through endless puff pieces, perhaps another Peace Prize, a Pulitzer for his next book, a Grammy, an Oscar, perhaps a Tony if he can learn a few dance steps and the crowning achievement, the Nobel Prize for Economics awarded in the fall of 2010.

Intuit (INTU) has altered TurboTax so that people like Tim Geithner are prompted to declare self-employment tax when they work for multilaterals like the IMF. (via)

And you guys bought the "Turbo Tax" defense?

Russia, one of 2008's most despised markets, topped the list of emerging-market stocks in 2009, even after a 126% rally prompted Finance Minister Alexei Kudrin to say shares are too expensive. Templeton's Mark Mobius is one of the Russia bulls: "People are waking up to the fact that here's a place you can't overlook... it's not overpriced. There are still opportunities there." (ETF: RSX)

"...Finance Minister Alexei Kudrin to say shares are too expensive. Templeton's Mark Mobius agrees: "People are waking up to the fact that here's a place you can't overlook... it's not overpriced."

(?)

Stocks recover from premarket losses after stronger than expected manufacturing data. Dow flat at 10545. S&P flat at 1126. Nasdaq +0.1% to 2292.Treasurys are still flat ahead of today's 7-year note auction.

Let's see if I follow. The taxpayer provides funds to an agency to do a study that says that lobbyists are working to get preferential treatment from another government agency? And now we want these agencies to control 55% of the U.S. economy? Have we lost our minds?