D’Souza vs Obama: What We’re Thinking

In the first half of this decade, I found Forbes magazine helpful in generating investment insights and ideas. However, I eventually let my subscription lapse, as the ideas became increasingly plain vanilla, generated by a fairly predictable stable of columnists, while more interesting and diverse ideas were becoming available on the web (while an annoying barrage of emails has been urging me to subscribe to Forbes investment newsletters). Perhaps we weren’t the only ones to let our subscription lapse. Judging by Forbes’ latest cover story by Dinesh D’Souza, entitled “How Obama Thinks,” they are hurting for some publicity and notoriety.

A distressing yet fascinating aspect to this story is that, while we usually think of muggers as working dark streets and back alleys, aiming for the wallets, purses, and jewelry of innocent passers by, there’s another class of mugger, better paid but operating within the law, some with degrees from prestigious institutions, whose words aim to damage the character and careers of their targets (note that I dropped “innocent”). We shouldn’t fret too badly, as this kind of mugger has been around as long as the other kind. It’s just frustrating that many will make a good living at it as our intense political division continues to unfold in the coming decade. And they’ll do it without creating or providing any real economic value (tellingly, to D’Souza, it seems as though no profit is ever misbegotten, and there’s no such thing as economic rents, abuse, or waste in the private sector). 

I understand that Obama fans are a minority among our friends and clients, but I’m really not trying to assert a partisan defense here (I didn’t vote for the guy either). It’s obvious that President Bush was journalistically mugged far more often and frequently than Obama has been, and the media and blogosphere are already mounting a vigorous counter attack against D’Souza and Forbes. My concern is that we face serious challenges in the years ahead, and people need sober, well-reasoned analysis, not increasingly shrill partisan claptrap, in order to make sound decisions.

First off, despite what some of Obama’s defenders will say, D’Souza is not a dumb guy (and he’s a skilled writer too). Some of the issues he touches on are legitimate areas of complaint, such as the auto bailouts, or a schizophrenic energy policy that has gone from earlier Congressional overreach with unintended consequences like international food riots, to incoherent/nonexistent. Many of Obama’s staunchest supporters share his disappointment, albeit for opposing reasons.

But much of the rest of it is incoherent babble, designed to support a bizarre thesis that is more becoming of a camp counselor than a college president:

…our President is trapped in his father’s time machine. Incredibly, the U.S. is being ruled according to the dreams of a Luo tribesman of the 1950s. This philandering, inebriated African socialist, who raged against the world for denying him the realization of his anticolonial ambitions, is now setting the nation’s agenda through the reincarnation of his dreams in his son.

Probably not, Dinesh, unless all of his cabinet, staff, and Congressional leadership have also been possessed by Obama Sr’s ghost (where’s Peter Venkman when you need him?). But there’s nothing like firing up the base. And conspiracy theories offer a quick route to the best sellers list.

One particular nugget of BS:

[The founders] believed the nation was a “new order for the ages.” A half-century later Alexis de Tocqueville wrote of America as creating “a distinct species of mankind.” This is known as American exceptionalism. But when asked at a 2009 press conference whether he believed in this ideal, Obama said no. America, he suggested, is no more unique or exceptional than Britain or Greece or any other country.

Why no direct quote? Perhaps it’s because this is what Obama actually said:

I believe in American exceptionalism, just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism. I’m enormously proud of my country and its role and history in the world.

D’Souza takes the fact that Obama equated exceptionalism with patriotism (a perfectly logical construct) and runs with it. But the word “no” is not there, and it’s questionable whether Obama was suggesting that the U.S. is no more exceptional than the U.K. or Greece. You have to remember the context to make a sound interpretation. In the 2006 and 2008 elections, voters were trying to bring American exceptionalism to heel (as opposed to the Dems’ interpretation that it was a mandate to jack up taxes and regulations), because it had morphed into a go-it-alone mentality with significant human and financial costs. Obama was trying to repair frayed alliances when he said this.  But now anyone who reads D’Souza’s piece or hears about it without checking the facts will repeat the faulty meme he’s created – that our president does not believe in American exceptionalism. Nothing like manipulating the mob (though curiously, he says nothing about the birth certificate). 

If there’s a valuable lesson in the article, it’s always check the facts. People make stuff up all the time. It’s something we’re very good at. And remember, the hardest facts to check are the ones that support what you already believe. But every time we repeat faulty information, we impose a cost on others. Though we don’t normally think of it this way, the Golden Rule applies to information too. D’Souza, a professed Christian, ought to keep that in mind.

The rest of the article follows the same script. Content and context are conveniently thrown out the window so that D’Souza can spin his scary camp fire story (his economic arguments are just as weak).

In a way, I wish that Dinesh had pushed the envelope of his tale of horror even further, something like:

One day soon, we’ll all be living under sharia law, thanks to the ghost of a broken man from Kenya who died at a young age so that he could possess the body of a son that he saw only once between abandoning him in 1961 and dying in 1982, somehow knowing from his 1971 visit that ten year old Barry would become President of the United States. 

If that should happen, my suggested version of sharia would involve only one diktat — that all extreme political partisans, whether on the left and the right, have to dress up as cheerleaders. And some would be required to dress even more provocatively, as a way of communicating to the rest of us that their intellectual “services” were available to the highest bidder.

Just picture Dinesh D’Souza and Paul Krugman living out their careers in drag. Sharia might not be so bad after all!

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (“SCM”) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results.  This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you.  You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein.  The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such.  SCM is a participant in the Amazon.com Associates program, and earns a revenue sharing fee for qualified click through purchases from the Amazon.com website.  Neither the firm, nor its principals, nor its clients own securities issued by Amazon.com.

HR Tips: Mentoring

Judith Ritter has written a timely article on mentoring for www.fins.com:

…good mentoring helps a company attract and retain its brightest young talent while preparing them for future leadership positions. In return for sharing their wisdom, the mentors themselves often gain valuable insights from fresh, eager young colleagues. 

She offers some good advice on identifying and engaging with potential mentors, though she doesn’t fully flesh out the process for formalizing a mentoring relationship. Our two cents? Get expectations on paper, and agree to a specific trial period before both sides commit to a long term or open ended relationship. Agree in advance that there will be no hard feelings if either party declines to continue. Come to some basic agreement around exit plans beyond the trial period, even if the relationship will be open ended. Ideally, a skilled and experienced mentor will already know to do this stuff. But if your mentor is a novice at mentoring, it might make sense to obtain some outside guidance.

The most important aspect of the article is Ritter’s claim that “Young finance professionals need all the help they can get to meet the challenges of a volatile financial environment.” While the website’s audience is financial professionals, her idea can be applied more broadly: All young adults, regardless of their occupation, will need plenty of help in what’s likely to be a volatile and subpar economy over the next decade. On an individual level, solid mentoring can offer competitive advantages over the course of a career. If pursued by enough people, perhaps it could make a small dent in some of the expected negative consequences of persistent underemployment. 

Young adults are going to learn the importance of practices like networking and mentoring in the years ahead, and the lessons will be more painful than they were for people my age and older. The sooner they start learning them, the better off they should be.

Review of Joel Kotkin’s The Next Hundred Million

Advisor Perspectives has published my review of Joel Kotkin’s book, The Next Hundred Million:

http://www.advisorperspectives.com/newsletters10/Americas_Demographic_Advantages.php

They run interesting feature articles, interviews, and a diverse range of market commentaries – definitely worth book marking: http://www.advisorperspectives.com/index.php

The New Anti-Obama?

President Obama took a presidential sized flail at a great question from Velma Hart, an audience member at his townhall meeting on CNBC yesterday: http://buzz.yahoo.com/buzzlog/94017?fp=1.

As she put it:

I’m exhausted of defending you, defending your administration, defending the mantel of change that I voted for, and deeply disappointed with where we are right now…We thought we were well beyond the hot dogs and beans era of our lives, but quite frankly it’s starting to knock on our door. Is this our new reality?

Obama committed a leadership gaffe by laughing as Hart first said “I’m exhausted of defending you”, but became more sympathetic to her mood when (I assume) he realized that she was not making a joke about his critics on the right, but rather a plaintive declaration about her own personal situation and falling expectations.  But in response, he launched into a policy riff (as he is wont to do) that was like a shot of aural novocaine — just enough to dull the faculties temporarily. The specific policies he described were largely irrelevant, and as she said later, didn’t do anything to change her outlook.

The specific measures the president cited were changes to student loan practices and new constraints on credit card and mortgage lenders. Clearly, it’s not always easy to think on your feet, especially when the questions are not canned in advance. But Hart’s exasperation was over her household income, budget, and future. And all he could point to were a raft of new regulations! New business regulations, however necessary, do not create new jobs on net, and are likely to lead to lower employment within the regulated industry. They are also extremely unlikely to raise incomes in the aggregate (though they can sometimes raise the income of incumbent firms if they benefit from higher barriers to entry).

What Obama could have said was that the massive budget deficits of the past two years helped mitigate an even worse outcome, and that the even larger stimulus measures recommended by his departed CEA chair Christina Romer should have been pursued (if he really wanted to make a splash, he could have said that Larry Summers would be summarily fired for not bringing all of her proposals to his attention).  But he can’t say this, as he has been busily indulging the widespread fallacy (which he also appears to be a victim of) that federal budget deficits are an evil to be avoided, for example, with his clever quip about the prior administration leaving him a multi-trillion dollar deficit “wrapped in a bow”.

He could have promised to take a closer look at direct support measures for household incomes and employment. A long payroll tax holiday, not just for employers as some of our well-heeled masters in the Senate recently proposed, but for employers and employees, would provide an immediate boost to household incomes and additional support to the economy.  Other forms of tax cuts would help too. So would a promise to simplify our federal tax code. If he were even remotely as audacious as FDR, he could mention the possibility of a jobs program like those enacted under the New Deal. As we continue to point out, these are eminently bipartisan ideas. David Frum has cited a payroll tax holiday as something for the GOP to rally around. Conservative Nobel economist Ned Phelps has written about a federal employer of last resort program in Rewarding Work. And yet he can’t say either of these things, because: (1) on economic and fiscal policy he has cast his lot with the New Democrat gang that, as a result of mostly luck, believes that the 1990s prove that federal budget austerity and marginal tax rates pushing 40% provide the keys to economic nirvana; and (2) he’s listening to austerity sirens like Alan Simpson and Erskine Bowles who proclaim that future entitlement obligations have already “bankrupted” the U.S., despite the fact that it’s impossible for the U.S. to go bankrupt. 

In her later interview Hart said, “I think I bought into the belief that he had something special to move the needle faster and more deliberately and…benefically for the middle class.” That doesn’t bode well for the Dems in 2010 or Obama in 2012. It may not bode well for incumbents generally. But apparently, “outside” or “grass roots” forces like the Tea Party ($100K speaking fees and $500+ per plate engagements are hardly the stuff of outside or grass roots activism) will need to do a better job of vetting their candidates.

—

There was another interesting and disconcerting question from an audience member who pointed out that anxiety and pessimism about his economic future was causing him to question whether it marriage and child rearing would be feasible. This is the kind of trend that, if unchecked by innovations in the public or private sphere, could lead to “lost decades” and even a disappointing century. If our country’s demographic outlook starts to more closely resemble that of Japan and western Europe, dull and unimaginative policy making will deserve much of the blame.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (“SCM”) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results.  This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you.  You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein.  The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. 

Those Liberal Socialists Are At It Again. Not!

We recently argued that “Despite all of the rhetoric from the right, this is emphatically not a ‘liberal socialist’ administration. It fits squarely into the conservative New Democrat tradition.”

And how! From Politico (emphasis added):

The Obama administration is mulling a raft of emergency fixes to stimulate the economy before the midterms…according to several people familiar with the situation.

Administration officials have been huddling almost continuously during the past week, brainstorming for ideas that would boost employment without hiking the massive federal deficit.

The White House press office on Thursday refused to say how much a financial package might be, other than to say it won’t be a “second stimulus.”

Right, heaven forbid there be additional stimulus. The economy’s doing so well, after all! (The thrust of our argument is that stimulus measures have been too wimpy, but as many critics on the right assert, tax and regulatory uncertainty can’t be helping either.)
Liberal socialists they’re not, but their continued wimpiness is bearing out arguments made in 2009 that stimulus measures were too limited in the aggregate and poorly designed. Frightened Democrat incumbents may be bitching up a storm behind closed doors, and their targets in the private sector feeling confused and harassed, but let’s be up front about it: the real costs of policymakers’ stupidity and timidity are being borne by the unemployed and the newly destitute.

More from the Politico article:

The meetings, which had Obama huddling with his economic advisers twice in the past seven days, have yielded no specific proposals. But he’s given the team a priority: find ways to pay for as many of the ideas, mostly tax breaks, as possible without a deficit increase…

Apparently the administration has decided that wimpy is not enough. Now they’re going for stupid as well. (Could that help to explain Romer and Orszag’s departures?)

All of America, not just the Obama administration, needs to get this right:

• There is no ‘stimulus’, be it tax breaks or spending hikes, that does not expand federal budget deficits in the short to intermediate run.
• The only economic danger posed by federal deficits — and this is especially true under current conditions — is inflation.

The idea of boosting employment without incurring additional deficits is utterly incoherent. That the administration would waste time, energy, and resources “brainstorming” such an impossibility is astonishing. Wimpy too. And stupid. Team Obama wouldn’t do any worse trying to conjure unicorns out of magic pixie dust (it might be more “stimulating”).

Very few people understand the nature and implications of federal deficits today (that can’t really be deemed a failure of our educational system, as orthodox economics hasn’t exactly figured it out either). While voters seem pretty clear on the fact that past “stimulus” measures have been the equivalent of five star vacations for the politically powerful and life support for the rest of us, too many are deeming deficits “bad” by association. And politicians and other public figures, motivated by their own misunderstanding or perhaps ulterior motives, are exploiting those fears.

However, deficits of the federal government are not like deficits for you, or me, or anyone else. Rather, they are to our modern economy what gold mining was to the 19th century economy. They are the very source of the money that we use to save, invest, transact with each other, and pay taxes.

In other words, every dollar taken from the private sector by the federal government owes its existence to a prior budget deficit. Anyone who argues for balancing the federal budget (or worse, paying down or paying off the federal debt) must get their head around this.

Here’s one way to think about it. In the 19th century, the analogue to balancing today’s federal budget would have been the cessation of all gold mining. And there’s not a sane economist, alive or dead, who would argue that cessation of gold mining would have had any positive economic effects in that era!

Quite the opposite, in fact. For example, it was massive gold discoveries in South Africa that finally broke the back of the Long Depression (not to mention William Jennings Bryan’s bimetallist and presidential aspirations). Once gold mines were able to run large enough “deficits” of new money, the (nearly global) depression ended. Likewise, massive federal budget deficits have helped dampen the trajectory of the recent recession.

And yet otherwise sane economists are essentially arguing that we must “shut down the gold mine”, if not now, then a few years from now. It makes no sense.

“Stimulus” has become something of a four letter word, but the different approaches to it are quite varied. It can involve tax breaks, tax cuts, direct government spending or investment, public-private partnerships, etc. The only common element is that stimulus measures will, all else equal, create a budget deficit of some magnitude.

By back pedalling from any possibility of enlarged deficits, President Obama is behaving as though the status quo of high unemployment, stagnant incomes, and rising welfare rolls is acceptable. If that’s true — or worse, if he’s just pandering to wimpiness and stupidity of his party’s members, or to widespread misunderstanding among the electorate — then he’s not the man or the leader I once thought he was.

To repeat, there is almost nothing particularly liberal, socialist, or radical about this administration, even though a lot of people have been convinced otherwise. Just keep in mind that most of the people peddling that view either make their living from advertisers, or in some right wing version of the modern bordello–the “think tank”.

Mosler: “A Precarious Brew”

Some interesting thoughts from Warren Mosler last week (emphasis added):

…Europe and the rest of the world would like nothing more than to increase net exports to the US.

It’s all a golden opportunity for a decade or more of unparalleled US prosperity if we knew enough to again become the ‘engine of growth’ and implement the likes of a full payroll tax (FICA) holiday to provide Americans working for a living enough spending power to buy both everything we could produce at full employment and all the rest of the world wants to net sell us.

Unfortunately the deficit myths continue to cast a wet blanket over domestic demand as our leaders continue to let us down.

And with maybe 100 new Congressmen on the way, with most supporting a balanced budget and a balanced budget amendment which already has maybe 125 votes, there’s more than enough fiscal responsibility looming to create a true depression.

Hopefully their tax cutting agenda outweighs their balanced budget agenda.

And hopefully we get some kind of energy policy to decouple GDP growth from a spike in energy consumption.

“Precarious brew” is a great way to put it.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (“SCM”) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results.  This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you.  You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein.  The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. 

The Only Review of Wall Street II You’ll Need

Jessica Pressler and Bess Levin, proprietors of Dealbreaker.com, have posted a review of Oliver Stone’s Gordon Gecko revival:

It was super long, which was hilarious since the main theme of the movie, the line they kept repeating, was that: “Time is our most important commodity.”

It seems to have gotten the classic Siskel-Ebert push, one thumb up and one thumb down, though it’s not entirely clear, and the thumb up is based on the so-bad-it’s-good point of view.

If you’re not a regular user of instant messaging, you might need to skim it a few times to get comfortable…

Hat tip to marketfolly.

Stranger than Fiction: IRA to target British bankers?

This is fascinating — the Real IRA, a splinter of the Irish Republican Army, has claimed that they may start targeting bankers for a helping of “rough justice”:

Banks and bankers are now potential targets for the Real IRA, leaders of the dissident republican terror group have warned in an exclusive interview with the Guardian. Despite having only 100 activists they also said that targets in England remained a high priority…

“Let’s not forget that the bankers are the next-door neighbours of the politicians. Most people can see the picture: the bankers grease the politicians’ palms, the politicians bail out the bankers with public funds, the bankers pay themselves fat bonuses and loan the money back to the public with interest. It’s essentially a crime spree that benefits a social elite at the expense of many millions of victims.”

Wow. Hat tip to Dealbreaker.com.

HR Jedi Mind Tricks: Three Interview Questions

HR Jedi Penelope Trunk has posted some helpful advice at BNET on three common interview questions and how to approach them:

• Tell me about yourself. [Best not to point out to an interviewer that technically, that isn't a question.]
• How much money do you need to make?
• Do you have any questions for me?

You’ll encounter these in almost every interview, and she offers advice on how to respond in a way that differentiates you.

http://www.bnet.com/blog/penelope-trunk/common-interview-questions-and-how-to-answer-them/194?tag=content;drawer-container

Investment Advisor Fee Gluttony

Richard Ferri has written a powerful article for Forbes entitled “High-Fee Passive Advisor Hypocrisy”:

There are probably 20,000 or so registered fee-only advisors who manage portfolios for individual investors. Perhaps 3,000 advisors in the group follow a passive low-cost index fund strategy. These advisors preach the virtues of index investing such as low fees…

Unfortunately, many passive advisors talk the talk but don’t walk the walk. They preach low-cost, but it doesn’t apply to their own advisor fee. Many passive advisors will berate the brokerage industry and the fund companies for charging high fees, and then stick their clients with the same high fees for investment advice and portfolio management…

John Bogle spent his life advocating low mutual fund fees and better ethics in the fund industry and is an icon for that reason. Now it’s the advisor industry’s turn to face the music. High-fee advisors are the last bastion of gluttony in the investment industry. My peers can kick me out of their club for pointing out that their Emperor has no clothes, but that just gives me more motivation to expose the truth.

Ferri did some sleuthing to try to figure out why certain advisors who preach the virtues of low expense investment vehicles would charge a premium for fairly basic investing advice. He boiled down advisors’ motivations to (1) charging what the market would bear and (2) (basically) delusion over the nature and value of their services.

There’s something at work in many transactions that economists refer to as ”asymmetry”. In a world where labor and knowledge are highly (and increasingly) specialized, it’s easier for a better informed party to enrich themselves at the expense of a less informed person. It happens in sales transactions all the time, such as car sales, home purchases, securities purchases, etc. It’s disheartening. It’s also deeply wired in us. That’s why as consumers we need to do our homework and take appropriate precautions.

But advisors are supposed to act as fiduciaries — they should at all time place their clients’ financial well being above their own. They need to be honest, critical, and objective about the impact that any fee has on a client’s long term well being, and be reasonably assured that it’s in line with the value they’re providing. Ferri argues that some advisors don’t do this, and in my experience, he’s absolutely right. The financial services industry has been extracting rents for decades, probably far more than the value it has provided. Articles like this one are an important attempt to bring things into better balance.

It’s an uphill battle, but it’s definitely the good fight.