As you can see, the most important thing that happened this past month was that Elizabeth got a scooter. Not that Jeremy was willing to be left out, as you’ve noticed. The second picture is with my mum in Miami over Passover. The pretty picture of Jeremy with the flowers was at the garden behind the Smithsonian Castle in Washington DC, where we spent a few days enjoying the city with the kids at a time when Washington is at its most pleasant. Highlights were the particularly colorful aquarium on the second floor of the Museum of Natural History along with the dinosaurs and the carousel next to the Smithsonian castle, and the pandas at the National Zoo. The kids stared at the fish for 20 minutes till we dragged them away and Elizabeth said they were the “prettiest fish in the whole wide world” (and we didn’t know that she knew about the whole wide world quite yet. The Aquarium below the Department of Commerce building is a very good choice for kids. See the Zoo’s lions at 4pm; when they get called back for their dinner, they move their butts and in 15 seconds race down from the top of the hill to their cage doors after pretty much doing nothing all day. Biggest disappointment was the Air and Space Museum which is over the heads of little kids. The Mandarian Oriental hotel is within 15 minutes walking distance of the Mall and an excellent choice with a little interior garden where kids can also run around.
Elizabeth has taken to negotiating with her mum, since her mum is in the business of negotiating things. One evening Karen got quite frustrated and told Elizabeth “I negotiate with Germans and I don’t want to negotiate with you.” So Elizabeth said, “I negotiate with Germans too.” Can’t get one past her.
One reason Apple is doing so fabulously bucking the recession is that Karen wanted an iPod last month for her birthday. A 4 year old these days could probably have got it to work easier than we managed to do. They don’t come with instructions. They just assume you will go online to apple.com or something and figure it all out yourself. I also bought one for my niece who celebrated her 12th birthday and wanted one. Clearly, Apple has a product people want. One interesting thing I’ve found is that having an iPod encourages people to work out better than many other incentives such as free sessions with a personal trainer; maybe the government should give everyone an iPod and get them to go to the gym more; it might increase the national health and thus reduce healthcare costs.
The most important reason it has been hard to get a handle on what is going on in terms of the economy is that it takes a while with a new president to figure out how much BS you have to get past in order to figure out what is going on. The sad fact is that Obama is playing games with the facts as much as anyone else did before him and we are beginning to figure this out. We are also seeing the government try to do things the old fashioned way as opposed to the fundamental change which was promised. I’m not saying that nothing is happening; the question is whether or not it represents a return to the Democratic world we had before Bush or something different. We are beginning to see patterns emerge. So let’s discuss.
Here are a few examples of smoke and mirrors.
Remember Blackwater in Iraq? Scandal-ridden and then they lost their contract? So now there’s a new company that’s gotten a new government contract. Problem? Most of the people working for this new company are the same people who worked for Blackwater. Anybody notice? Not really.
Government gave TARP money to the banks on condition that banks not hire anyone with H1B visas. It was a totally stupid rule but it was the rule. So what happened? Banks started transferring H1B holders to their foreign offices where the rule doesn’t apply. Banks were told to stop giving out bonuses in excess of $500,000; so instead they went around and gave raises in salary to just under $500,000. The NY Times estimates today that at current rates bonuses this year will wind up being roughly the same as the year before the market crashed. Lending by banks continues to decrease despite the additional bailouts precisely for the reasons I outlined last month. Obama came out with a budget that was full of BS — took credit for “saving” money in Iraq that won’t be spent in future years. There are other articles out there that will tell you all the phony stuff in there but suffice it to say that the Washington Post editorial a week ago wrote about his “phony budget.” And they are among his biggest backers.
At the G20 meeting, nothing was really accomplished but Obama, Sarkozy, Meckel and Brown all smiled for the cameras. Obama realized he couldn’t get the Europeans to agree and decided it wasn’t worth his while to criticize them for trying to freeload on America’s stimulus package. Instead, he went to Turkey and is trying to get them to align more with America’s interests viz. Russia, Iran, Syria, Af-Pak and Central Asia. His diplomacy is more subtle and there is good evidence that his message is being carefully tailored to take account of the internal cleavages that exist in Turkey. What will come out of it is too early to tell.
But there is a pattern with the G20, Turkey, and what we’ve seen with the Congress (remember last month where I mentioned that he has been subcontracting out his legislation to the committee heads). He goes out and makes nice speeches, but avoids fights he doesn’t think he can win. If he doesn’t think he can win, he just walks away and declares victory. The other side is happy to smile with him because after all the other side won. So I think that’s why you see the Europeans, Russians and Congress all saying nice things about him. He’s not prepared to take on his party’s liberal wing or demand anything of the Europeans. The Europeans managed not to give him anything beyond a token few troops in Afghanistan and wouldn’t spend money to match the stimulus efforts being undertaken in the US. They need to act over there; as bad as the US is, it’s worse in Europe.
My take on the Obamanomics is that they realize they can’t get the Congress to spend all that they think needs to be spent on stimulus and the capital that the banks will need. So instead they created this plan where the government basically takes the risk on investments and puts up most of the money and the private sector gets a very cheap ride on the matter. It is actually crafty considering the realities but it is total BS and very risky if it doesn’t work because then there will be no credibility left for the government to demand the money it should have spent in the first place. I’ve already stated why I don’t think the foreclosure prevention plan will work, and it is pretty clear that nothing is going to happen in the health insurance area because they just don’t have the money to spend (so they’ve created this phony reserve fund). The clean coal stuff he keeps inserting into every speech and reference to the environment is a joke — the Economist says there has never been a successful prototype created and that government will likely waste billions of dollars chasing and subsidizing an unproven technology which could be more efficiently dealt with by private sector innovation. So basically they are shooting a thousand little darts which represent the bare minimum to get the job done, staving off the worst possible scenarios and hoping that enough will stick to create some amount of recovery without having to waste a diminishing supply of political capital to ask for more.
This will probably work to the extent necessary but no more and that might be enough. If equities go up, banks will therefore carry more assets. The mark to market rules will create fewer liabilities for the banks. The stress tests are being conducted by the banks and therefore it is expected that most will pass them. The fact that the 1st quarter profits of the banks are illusory and based on accounting gimmicks and temporary market dysfunctions is realized by some but not enough to yet throw off the markets from hoping things will come back. Markets are a herd and just like markets overshoot the bottom, they also hide their heads in the sand together when it is convenient.
There was a lot of media earlier this month about indicators such as the market volatility index and the Baltic shipping index that made things appear to be stabilizing, but people haven’t noticed that those indicators have slipped back quite a bit over the past few weeks. That might change a month from now when people realize that things are really not as good as they seem when more realistic bank and other numbers come in. But basically I expect that over the rest of the year we will plod along and there will be a gradual recovery; had the government did a better job of things, the recovery would be faster. It is also important to realize that share and real property prices remain higher than they should be even though people think they are cheap.
Assume for a minute that you became president. The presidency is a bully pulpit; all you can really do is make speeches and suggestions. If you stay friendly to everyone and avoid really bad happenings, you will be basically popular among business interests and they will take care of you and your family once you leave office with all sorts of speeches and consultancies. Piss them off and (a) you won’t accomplish anything while you are in office and (b) won’t get much from them afterward. So why buck the reality and fight wars you can’t win anyway? I think that our mid-40 year old president has probably figured this out and has realized he has a life ahead of him once he leaves office. The minute he has ever reached a plateau, he has started running for the next one. He has never actually fought any battles in the legislature in his past. He has already started running for life after the presidency and basically this means keeping your hands clean, always smile and say the right things, and making as few enemies as possible. Have the Republicans over for dinner; hold Passover seders at the White House; bow down before the Saudi king when arriving in Saudi Arabia — nobody is going to be afraid of this guy but they will give him a bye now and take care of him later.
Here is another example about fundamental change which is needed and not happening. The Financial Times wrote a good editorial last week about the US tax code. I didn’t know that the income tax only brings in about 8% of the US budgetary revenues. We do know that soaking the rich at 100% of their income would do far less than a small increase in the income tax rates on the middle class. That’s just where the money is. But why drive people abroad, make them cheat and have a situation where people work a third to a half of the year simply to pay their taxes and make people spend so much time navigating an insanely complex tax code filled with social engineering tax incentives (completely negated by the Alternative Minimum Tax, by the way), when we could have a much simpler more efficient system that would let people live their lives much better? If income tax provided a much higher percentage of the national income it would make sense that so much of everyone’s life revolves around the income tax, but for this amount of the budget it is an insane waste. Government should move toward other areas of revenues; the Republicans probably do have a point that economic growth is a better engine of revenues to government than raising people’s income taxes. Right now in New York, for example, the loss of tax revenues is directly affected by the lack of business taxes much more so than the loss of income taxes. So if people can’t see the point when the business climate is healthy, they should be able to realize the lack of revenues when business is down. Obama is picking at the tax code because it is popular to talk about making the rich pay their share, avoiding the reality that the middle class funds the bulk of the income tax, and that the income tax system in place is unwieldly and ought to itself be fundamentally changed.
Here’s another whopper that makes no sense and looks like a terrible throwback to me. A brand new law meant to protect people who were laid off, also says that even if you get fired for cause, you are allowed to stay on your company’s health insurance for another 9 months by paying only 35% of the premium. The US Government picks up the rest of your tab, funded through the payroll taxes. The only “out” is if you are fired for gross misconduct. I’m sure people are going to love this if they ever knew about it; the only people likely to ever know about it are people running companies and the people themselves. Are we in Sweden now? We know what happened to their economy….
Moving to foreign policy, there is less than meets the eye to Obama’s changes in Cuba as well but anyway it was the least he had to do in order to show up at the OAS summit and find favor with the other participants. The CIA memos is also an area with an appearance of change but not really below the surface. Conservatives were outraged when he suggested he might be open to commissions of inquiries regarding Bush administration actions but he basically did nothing and is playing for time while Democrats on Capitol Hill start running in circles, he got a great reception when he met with employees of the CIA and if you look at what he is actually doing his administration has been keeping a lot of stuff secret and reserving the right to do plenty of things Bush did such as third country renditions. Notice in Israel that just a few weeks after Omar Suleiman of Egypt said that they wouldn’t deal with Israel’s foreign minister Lieberman, he met with him and invited him to Egypt. Bibi has also been invited to Egypt. Doesn’t matter that they don’t like him — the Egyptians are pragmatic and have to deal with the Israelis against the Hamasnicks and Iranians who are far more threatening to their interests. A friend of mine who has listened in on a good number of Livni’s phone calls says that as foreign minister she talked of sweet nothings and was a useless talking shop. Comports with earlier reports I’d heard and discussed on this site about her 70 meetings with her Palestinian counterpart that had no effect. She just doesn’t seem to command respect as someone who will get things done. Perhaps she was held in check by Olmert but it is clear that she doesn’t carry weight. By the way, this person also mentioned that Condi was ineffective as secretary of state and a lousy manager and was totally dissed by her Russian counterpart even though it was her main area of expertise; Powell was loved at the State department and was a great manager; that the infighting within Holbrooke’s team and elsewhere within the administration is crazy but that he is an asshole doing a terrific job; and that Hillary is likely to be a showcase secretary of state basically showing up to sign agreements that the various czars have negotiated and keeping her hands clean so that she can someday run for president and in the meantime not bother anybody.
So like I said, the word of the month this month is BS. Lotta talk but very little walk when you actually look at the substance of what’s going on in all areas, economic and foreign policywise.
This month I will be visiting Israel for a few days to see the people working in the company’s Jerusalem office and will be dropping by Amman to see friends who I haven’t seen since before Elizabeth was born. Bibi is still setting up shop and I suppose I will hear from people this month in the region what’s going on. Interestingly, Lieberman made a statement this week that Af-Pak is the #1 threat to Israel — not Iran. He also just stated to an Austrian newspaper that Israel would not attack Iran even if US sanctions failed. Hmm. I’ve been saying for several years that Af-Pak has been underrated viz. Iran as a threat to Israel. Af-Pak is getting on everyone’s radar — this business of trying to sort out the good Taliban from the bad Taliban is looking like a loser and the deal that Pakistan made with the jihadists in the Swat region is looking like it simply emboldened the jihadists to go more national in their demands. Pressure is building to get the Pakistanis to make a stand. I expect that Moussavi in Iran will win the presidential election and the world will make less of an issue of Iran once they don’t have Ahmadenijad to kick around anymore, even though the policy will be the same. One point about Lieberman — people inside Israel say that he is smart and pragmatic in his more private interactions and supports a 2 state solution. Barak and Bibi are going to get along in this government more so than either got along with Livni or with Olmert. Barak is letting his chief of staff have private one on ones with Bibi without him. That is a good indication of a high level of trust between the two. It may be a weird government of sorts but it may well be less dysfunctional than several that have come before it and expectations that this government will not last long may turn out to be wrong.
Right now is a great time to travel. You can get a suite in a top New York hotel overlooking Central Park for $500 a night and restaurant reservations pretty much on demand; a one-way business class ticket from Copenhagen to New York via Iceland is $1,200 on Iceland Air; a one-way business class ticket from New York to Paris on L’Avion is $650. I got a ticket from Paris to Milan for $6 on Air France (the ticket is really $105 but the rest is all tax — it seems that on any intra-Europe flight the tax is about $100). I even got Scandinavian Airlines to lower their business class ticket from Copenhagen to New York from $4,800 to $2,200 after I called them up and demanded a discount because Continental was flying that route for $2,400. Their New York sales office offered me a coach ticket with a guaranteed upgrade (“q-up”). There’s a good lesson here; it pays to call up the airline and demand a discount. Everyone had told me you couldn’t get a consolidator’s ticket with SAS and that they don’t discount.
Investment wise: My friend at Exxon remains bullish on the company. This is a great time to be a day trader; a month ago you had stocks such as Citibank at a buck a share and now they are $3.25; Ford was a buck and now it’s over $5 but it still doesn’t look like a healthy buy. Somebody is making money from all this volatility. Not me though; I am not a timing trader, I don’t believe in this phony recovery and wouldn’t want to be left holding the bag. Someone told me however that the real area of opportunity is not in the stock market but in all the debt and distressed assets that are now being bought and sold over online trading platforms. There was an article about this in today’s paper — a surefire indication that such an opportunity is almost past its prime. I do know that the Economist may not be perfect in its timing, but if it says the market is too high and should fall, that it most definitely will and right now they say that it is too high.
Here’s something nice to end with. Go to youtube.com and enter “Susan Boyle.” Watch the video of this 47 year old lady from Scotland wowing the audience of You’ve Got Talent Britain with her singing. When she came on, everybody thought she looked like she’d get gonged off but appearances were quite deceiving. For all of us who aren’t in the category of beautiful people, this video is quite heartening.