The Best American Poetry

The Greek Tragedy: It's Different This Time [by DL and friend]

A friend who plans to spend Christmas and New Year's in Greece files this report on that beleaguered and financially challenged nation, the ancient homeland of Periclean democracy, Sophoclean tragedy, Ariostophelian comedy, the Parthenon (left) and Doric architecture (the model of the neo-classical facades that the great capitalist financiers favored), Plato, Aristotle, Achilles, Odysseus, Penelope, Orestes, Electra, Oedipus, Antigone, Teiresias, and the goddess Athena. -- DL

<<<<
       There are at least two ways of looking at the presidential election in Greece on June 17. The most obvious is that the election of New Democracy's Antonis Samaras (30% of the vote) was a complete disaster in that it basically extends the policies that led to the current crisis, and this despite the fact that Samaras's platform was indistinguishable from the Pasok platform (13% of the vote) until it became obvious that the Syriza antibailout platform (27% of the vote) was too popular to simply dismiss. This in turn led to references from New Democracy about "amendments" to the current bailout program, which has done so little for Greece, the rest of Europe, and the world. However, to my knowledge, no specific amendments have been proposed. . . .
       Syriza and its candidate, Alexis Tsipras, have a more sanguine view, one exemplified by the parties in Athens on Sunday night when Syriza learned it had come in a fairly close second -- and articulated by Tsipras a few days later in an interview with Reuters (during which, incidentally, he made no reference whatever to the chortling heard from the G7 summit when those august heads of state learned that Samaras had won the election. That chortling was echoed, no doubt, by the EU finance ministers in Luxembourg last Friday). Tsipras and his party believe that the bailout program is doomed and that the new government doesn't have a chance of staying in power. Syriza is ready to take over and reject the bailout, and Tsipras expects this to happen soon rather than later. Anyone who thinks he's being overly optimistic would do well to study the map of Greece in the Wikipedia entry for the June 17th election in Greece, remembering always that capital Athens is more like New York than Washington and that no Greek feels any further from what is happening to his or her country than any other Greek. It's a result of living on 6,000 islands.
     Yes, it will take Greece a long time to recover, but — longer than it took to recover from the Venetian and Turkish occupations? From the savage civil war after World War II? I doubt it. These are tough people who know in their hearts that it's better to be a truly sovereign state than to be bullied and slandered by Angela Merkel, not to mention the European Central Bank and the IMF. That map of Greece in mind, it can only be a matter of time before Greece defaults on its debt, drops the euro, and starts printing and coining drachmas. Samaras might conceivably keep his job is if he were moving in that direction. But his backers (I almost wrote "his bankers") wouldn't like that, he wouldn't like that, and besides, Tsipras is already there.
>>>

Is a market top on tap? "Noodles" weighs in [by David Lehman]

Everyone knows that stocks these days, especially US stocks, are overvalued. But picking a market top is no easy matter. David Aronson, former professor at Baruch College,now president of a research firm that develops methods to enhance stock market trading systems, says, "the process of topping out can take a really long period of time, evolving over a year or more." Aronson demonstrated his credentials as a two-armed economist when he told Mark Hulbert of the Wall Street Journal.that only time will tell whether the coming top will precede a major bear market or something less dire, something of merely "intermediate-term significance." (See The Myth of Stock-Market Tops," September 5, 2017, p. . R1). 

Admirers of Sergio Leone's masterpiece Once Upon a Time in America know that the character named David Aaronson, played by Robert de Niro (top left), bears the nickname "Noodles" from the time he and his buddy Maxie were the most notable personalities of a gang of Jewish teenagers in New York's Lower East Side in the early decades of the twentieth century.

Noodles remains "overweight" on emerging-market equities. as well as overweight in the old-fashioned sense, as befits a man of his mature years who has done his share of losing, done what he had to do and now finds it all so amusing to think he did all that . "All that"  includes knifing a vicious rival, for which act he serves time. He has fallen hopelessly in love with Deborah (played by Jennifer Connelly as a youth [top center] and by Elizabeth McGovern as a grown up [top right]). She is his one true love, yet, alas,he date rapes her in the back of a rented limousine. He has also smoked his share of opium with the song "Amapola" in his brain, cried in his sleep, carried on with Tuesday Weld, a decoy during a jewel heist, and teamed up with "Uncle" Maxie (James Woods) and buddies to smuggle booze during prohibition and run a fabulous speakeasy,

Thirty years have gone by in some remote upstate burg after his gang buddies are shot in one fatal last caper. During this time, and prior to mysterious letters that lead him to return to New York City and learn that he had been deceived and betrayed, David Aaranson has had the opportunity to make an independent study of stock market trends. In the book that made his academic reputation, Aaranson writes that "bottoms are easier to identify, in real time, than tops." When asked whether he had in mind either Jennifer Connelly or Elizabeth McGovern, Noodles just winked. 

The take-away: Major bull market tops are a process, not an event. The long-term topping process may have begun without anyone taking note. Many people have shunned the market since the 2008-09 collapse. Only when they start buying stocks will we know for sure that the long-awaited end has come. Will there be a correction -- or a crash? How painful will it be? The jury is still out..Meanwhile when they ask me what the market will do tomorrow, I always say: it will fluctuate -- DL

The Wisdom of Warren Buffett

"How do you become a millionaire? You start out as a billionaire and you buy an airline." -- Warren Buffett

Financial Literacy: A Multiple-Choice Quiz [by David Lehman]

Have we taught a generation of college graduates to vilify capitalism without doing it the honor of knowing how it works? Spot checks at New York’s Penn Station reveal that a vast majority of college-educated commuters do not have a clue about the relation of the prime rate to the federal funds rate, for example, or the advantage of capital gains over wages, or the difference between a progressive income tax and a sales tax, or the reason bond prices go up when interests rates go down, or the best age at which to start taking Social Security benefits. In league with a team of professors from Columbia, Harvard, Stanford, and the Wharton School at the University of Pennsylvania, we devised this quiz to see who knows what and, as always with multiple-choice tests, to entertain with the wrong answers, proving, in this case, that the gloomy science can generate its share of yucks..  – DL

1) The Dow-Jones Industrial Average was created by

a) Charles H. Dow, either alone or with Edward Jones, two cofounders of the company that bears their names
b) Charles W. Dow in partnership with Samuel J. Jones, the Princeton-educated sheriff of Douglas County in the Kansas Territory portrayed by James Stewart in Anthony Mann's second feature film
c) Standard & Poor’s
d) Dow's stepdaughters Jane and Martha Bancroft, on instructions from Clarence Barron prior to his acquisition of the company in 1902
e) Meyer Wolfsheim

2) According to the Dow Theory, there are three phases to a primary bull market and three to a primary bear market. The theory was developed by which of the following, for which purpose:

a) Charles W. Dow and Alexander Hamilton, to develop a metric to gauge the wealth factor associated with the Louisiana Purchase
b) Charles H. Dow -- and refined and sustained after his death in 1903 by his understudy William Hamilton -- for the purpose of predicting stock fluctuations
c) Elmer Bernstein, Carolyn Leigh, and Max Shulman, the Tony Award-winning producers of the musical comedy How Now, Dow Jones? (1967), mainly for laughs and the sheer pleasure of it but also to entertain audiences, employ actors and musicians, and make a profit at the box office, all by poking fun at the academic study of risk, economics, and finance
d) John Maynard Keynes in a 1938 letter to President Roosevelt arguing that “the present recession is partly due to an ‘error of optimism’ which led to an overestimation of future demand” and that continuation of “public works and other investments aided by Government funds or guarantees” was essential going forward.
e) Herbert Henry Dow, a grandson of the founder of Dow Chemical, in 1969, as a way to divert public attention from protests against the use of napalm, which the company manufactured, during the war in Vietnam.

3) Mutual funds are

a) An attempt by rogue elements in the legal profession to monetize the value of a married couple’s community property
b) The amount on the paycheck that is left after all taxes, charges, and fees have been deducted
c) A way for individual investors to hold a basket of stocks and other securities
d) A recurring loophole that allows high-ranking corporate executives to rent hotel rooms at clients’ expense, entertain guests there, and not have to report the sum to the IRS
e) Often cited as proof that “buy low, sell dear” remains the first rule of investing ahead of “sell in May and go away” and “the market has to climb a wall of worry”

4) Standard & Poor’s is a financial firm that

a) traces its history to the 1941 merger of Poor's Publishing and Standard Statistics
b) has Poor in its name as a warning to over-zealous investors
c) is a credit rating agency that roiled markets in 2012 by lowering the credit rating of the US government
d) publishes an index of the stock market performance of the 500 largest corporations in the United States
e) all of the above except b

5) Which of these statement about Lehman Brothers is true?

a) The firm arranged the sale of Babe Ruth from the Boston Red Sox to the New York Yankees
b) The firm was, in the person of Meyer Wolfsheim, then executive vice president, behind the fixing of the 1919 World Series
c) The firm quintupled its assets by selling short the 30 Dow Jones Industrials in August 1929
d) The firm traces its origins to a dry goods store in Montgomery, Alabama, founded by German-Jewish immigrant Henry Lehman shortly after he came to the US from Bavaria in 1844.
e) The firm broke with Wall Street tradition when Peter Lehman, a war hero who had become the face of the firm, endorsed the economics of deficit spending as articulated by John Kenneth Galbraith.

6) When the Wall Street Journal published its first issue on July 8, 1889, it was priced at “two cents” and led off with a story about American “operators identified with the bear party [who] sent early orders to London” in preparation for the opening of the bear market there. Which of these statements is true?

a) From the fact that it was priced at two cents, we get the expression “I’ll put my two cents in.”
b) The “bear market” was a market in bearskins
c) The “bear market” in London introduced the idea of selling stocks short often on the basis of what we today would call “insider trading”
d) The Bull-Moose Party in the United States was formed, in part, because of the pressure of the “bulls,” or long-term investors, to counter the negativity of the bear marketers, on whom the New York Times blamed the panic and sell-off of 1893
e) In July 1889, the President of the United States was Benjamin Harrison and the vice president was Levi P. Morton, a Vermont-born banker and loyal supporter of Ulysses S. Grant, whose gracious good manners made him a natural to serve as chairman of the Republican National Committee.

7) On September 17, 2001, the Big Board eliminated the position of honorary chairman. The last to hold this post was

a) Frederick Usher (heir to the Rodney Usher real estate fortune)
b) Meyer Wolfsheim (who bore a remarkable resemblance to Bernie Sanders)
c) Mikhail Gorbachev
d) Muriel Siebert
e) None of the above
f) It's a trick question, because the "Big Board" had ceased to be the New York Stock Exchange's official nickname

8) What security analysts call a price-earnings ratio (“p/e”) is

a) the stock’s price divided by its underlying book value
b) the stock’s price divided by its annual dividend per share
c) the stock’s price divided by its net earnings per share
d) the compensation of the firm’s CEO divided by the number of employees in the company
e) the company’s revenues less expenses and taxes multiplied by pi divided by the square root of a number designated quarterly by the Federal Reserve Board

9) Experts tout the benefits of “dollar-cost averaging,” which basically means that

a) the dollar is the safest bet in foreign exchange markets
b) it is wise to invest a little at regular intervals
c) ever since President Nixon took the United States off the gold standard in 1971, the greenback derives its value from the average daily cost of production of bills and coins at the Department of the Mint (including operating expenses and liabilities)
d) the average of your expenses per month, which, when multiplied by twelve, may be used to predict your ability to take on significant new debt, such as the purchase of a house or the cost of four years at an elite college
e) reversion to the mean

10) Which two of the following are not associated with the Great Depression?

a) a national unemployment rate of 24.9 % in 1933 (whereas, after the financial markets collapses in 2008, the rate peaked at 10% in October 2009)
b) a bank holiday declared by President Roosevelt in 1933 to deter a run on the banks
c) the New Deal
d) the Iron Curtain
e) the Great Society

11) Which movie best illustrates the animating principles of capitalism?

a) The Godfather (Michael to Kay: "the Corleone family will be completely legitimate in five years")
b) Citizen Kane ("I think it would be fun to run a newspaper")
c) The Sting ("Win!? I said PLACE")
d) Chinatown ("Either you bring the water to L. A. or you bring L. A. to the water")
e) Wall Street ("Greed, for lack of a better word,is good")
f)  Double Indemnity ("We're both rotten." "Only you're a little more rotten")

What Really Happened When Lehman Brothers Fell [by David Lehman]

<<<
Fortunately for the family, my uncles and brothers had liquidated most of their holdings in the firm by the time of its collapse in September 2008. Nevertheless, whether out of nostalgia or pure forgetfulness, or perhaps just in order to keep getting annual reports and the like, a few of us kept some odd lots and attended shareholder meetings once in a while. And I maintained friendships with old friends, including the source of some scuttlebutt that I am now legally entitled to share.

One villain in the tale is the little known Peter Rubella, who headed the firm's missing documents department. The department comprised debentures, affidavits, flight manifests, stock certificates, and bills of lading, each one a surprising source of revenue for financial outfits wary of IPOs and LBOs but acutely conscious of the millions that go unclaimed each year in the form of lost lottery tickets, savings accounts of the deceased, uncanceled autopay, insurance reimbursements sent to defunct addresses, payments to remittance men, dead letters, the contents of grandma's safe deposit box, and the like. The department proved that working for an investment company is not just being a glorified broker or accountant but has elements of detection as in the dime novels you devour, though it has been decades since any book cost a dime. James M. Cain, author of Double Indemnity, would have been considered a classic if he had only taken the precaution of being born in France. But for the analogy to hold, you need an Edward G. Robinson in the driver’s seat -- not an unctuous snot like Rubella.

According to spokesperson Dana Goodrear of the YWC, an NGO whose turf is serious white-shoe wingtip investment-banker crime, Rubella engineered a complicated Ponzi scheme that cost an estimated 1.2 million investors upwards of $225 billion dollars. He put together a consortium of Indian companies that was thought to be running so-called "chit funds" in Delhi, Mumbai, Calcutta, and Eastern India. A partial list of the celebrities he defrauded includes Phyllis Dietrickson, Lucky Garnet, Julie Jordan, Ilse Lundt, Joel Cairo, Garance, Sam Malone, Fred Derry, Norma Desmond, Peter Joshua, Alicia Huberman, Noah Cullen, Melanie Wilkes, Pepe Le Moko, Schuyler Green, Privates Finch and Moss, Sergeant J. J. Sefton, Commander Shears, Mark Dixon, Waldo Lydecker, Carmen Sternwood, Khartoum, Roger Thornhill, Terry Malloy, Popeye Doyle, Sally Draper, Barbara Doll, Bunter, Sollozzo, Alice Kramden, Dianna Scott, Madelene Elster, Robert E. Lee Prewitt, Frankie Five Angels, and Addison DeWitt. The scheme had become so vast that it threatened to sink the whole company.

How did Rubella elude the scrutiny of investigators for so long? And how, even after the crisis of September 2008 broke and he duly went to jail, did he avoid the unfavorable publicity that lesser thieves, cheats, con artists, and other felons received?

While operating the scheme, the son of a bitch went unsuspected largely because he bribed the right officials and purported to be an advocate of liberal causes. He gave it out that he had put his family's German Measles fortune to philanthropic use. This was a fiction. He also enjoyed a reputation as a photographer who unknowingly witnesses a murder in Hyde Park, a tennis pro who plays a slow baseline game but turns on the motors because he needs to get to a certain merry-go-round a train ride away, an entry-level bachelor who lets senior execs use his pad for assignations, a producer of a rigged game show sponsored by Lever Brothers, and a fortune-hunter who courts a plain but principled heiress in Washington Square. He was generous with other people's money. His drug-free policy -- every employee under his supervision was guaranteed a free month's supply of percoset or cialis -- was good for office yucks and morale.

When finally confronted with his misdeeds -- by special investigator Bruno Anthony in December 2008 -- Rubella smirked unpleasantly and claimed that he had the approval of the firm's CEO as played by Jeremy Irons in the movie. The suspicious deaths of the three individuals who had filed harassment complaints had long constituted an effective deterrent to disclosure. Rubella's white marriage to socialite Miriam Hanes also lent him protection until her dead body was discovered at a missionary church an hour's ride from San Francisco. Rubella, an expert at misdirecting the public, released a statement asserting that "Obama uses your tax dollars to rebuild Muslim mosques around the world."

"It's painful to discover you've been a chump," said Hanes's brother, Guy, who released a statement to the press on the day Rubella was sentenced to share a cell in hell with the worst boss you ever had. Guy tried putting a good face on things, joking gamely: "What else is April first for?" His shares had lost eighty percent of their value, but he was determined to keep his cool. This endeared him to the press corps. Unfortunately his watch had picked this time to stop, or possibly he had simply forgotten to consult it. Fifteen days were about to go by unnoticed. Death and taxes wait for no man.
>>>

-- from "What Really Happened When Lehman Brothers Fell" by David Lehman. Reprinted with permission.

So You Think You're Financially Literate: A Quiz [by David Lehman]

Have we taught a generation of college graduates to vilify capitalism without doing it the honor of knowing how it works? Spot checks at New York’s Penn Station reveal that a vast majority of college-educated commuters do not have a clue about the relation of the prime rate to the federal funds rate, the tax advantage of capital gains over wages, the difference between a progressive income tax and a sales tax, the reason bond prices go up when interest rates go down, and the best age at which to start taking Social Security benefits. This test for advanced financial literary was devised by a team of professors at Columbia, Harvard, Stanford, and the University of Pennsylvania.  – DL

1) The Dow-Jones Industrial Average was created by
a) Charles H. Dow, either alone or with Edward Jones, two co-founders of the company that bears their names
b) Charles W. Dow in partnership with Ernest Jones, an economist who wrote Sigmund Freud's biography
c) Standard & Poor’s
d) Dow's stepdaughters Jane and Martha Bancroft, on instructions from Clarence Barron prior to his acquisition of the company in 1902
e) Charles X. Dow either alone or in partnership with the Jones of Jones & Laughlin

2) According to the Dow Theory, there are three phases to a primary bull market and three to a primary bear market. The theory was developed by which of the following, for which purpose:

a) Charles W. Dow and Alexander Hamilton, to develop a metric to gauge the wealth factor associated with the Louisiana Purchase
 b) Charles H. Dow, and refined and sustained after his death in 1903 by his understudy William Hamilton, for the purpose of predicting stock fluctuations
c) Elmer Bernstein, Carolyn Leigh, and Max Shulman, the Tony Award-winning producers of the musical comedy How Now, Dow Jones? (1967), mainly for laughs and the sheer pleasure of it but also to entertain audiences, employ actors and musicians, and make a profit at the box office, all by poking fun at the academic study of risk, economics, and finance
d) John Maynard Keynes in a 1938 letter to President Roosevelt arguing that “the present recession is partly due to an ‘error of optimism’ which led to an overestimation of future demand” and that continuation of “public works and other investments aided by Government funds or guarantees” was essential going forward.
e) Herbert Henry Dow, a grandson of the founder of Dow Chemical, in 1969, as a way to divert public attention from protests against the use of napalm, which the company manufactured, during the war in Vietnam.

3) Mutual funds are

a) An attempt by rogue elements in the legal profession to monetize the value of a married couple’s community property
b) The amount on the paycheck that is left after all taxes, charges, and fees have been deducted
c) A way for individual investors to hold a basket of stocks and other securities
d) A recurring loophole that allows high-ranking corporate executives to rent hotel rooms at clients’ expense, entertain guests there, and not have to report the sum to the IRS
e) Often cited as proof that “buy low, sell dear” remains the first rule of investing ahead of “sell in May and go away” and “the market has to climb a wall or worry”

4) Standard & Poor’s is a financial firm that

a) traces its history to the 1941 merger of Poor's Publishing and Standard Statistics
b) has Poor in its name as a warning to over-zealous investors
c) is a credit rating agency that roiled markets four summers ago by lowering the credit rating of the US government
d) publishes an index of the stock market performance of the 500 largest corporations in the United States
e) all of the above except b

5) Lehman Brothers

a) arranged the sale of Babe Ruth from the Boston Red Sox to the New York Yankees
b) was, in the person of Meyer Wolfsheim, then executive vice president, behind the fixing of the 1919 World Series
c) quintupled its assets by selling the Dow Jones Industrials short in August 1929
d) traces its origins to a dry goods store in Montgomery, Alabama, founded by German-Jewish immigrant Henry Lehman shortly after he came to the US from Bavaria in 1844.
e) broke with Wall Street tradition when Peter Lehman, a war hero who had become the face of the firm, endorsed the economics of deficit spending as articulated by John Kenneth Galbraith

6) When the Wall Street Journal published its first issue on July 8, 1889, it was priced at “two cents” and led off with a story about American “operators identified with the bear party [who] sent early orders to London” in preparation for the opening of the bear market there. Which of these statements is true?

a) From the fact that it was priced at two cents, we get the expression “I’ll put my two cents in.”
b) The “bear market” was a market in bearskins
c) The “bear market” in London introduced the idea of selling stocks short often on the basis of what we today would call “insider trading”
d) The Bull-Moose Party in the United States was formed, in part, because of the pressure of the “bulls,” or long-term investors, to counter the negativity of the bear marketers, on whom the New York Times blamed the panic and sell-off of 1893
e) In July 1889, the President of the United States was Benjamin Harrison and the vice president was Levi P. Morton, a Vermont-born banker and loyal supporter of Ulysses S. Grant, whose gracious good manners made him a natural to serve as chairman of the Republican National Committee.

7) On September 17, 2001, the Big Board eliminated the position of honorary chairman. The last to hold this post was

a) Frederick Usher (heir to the Rodney Usher real estate fortune)
b) Meyer Wolfsheim
c) Mikhail Gorbachev
d) Muriel Siebert
e) None of the above

8) What security analysts call a price-earnings ratio (“p/e”) is

a) the stock’s price divided by its underlying book value
b) the stock’s price divided by its annual dividend per share
c) the stock’s price divided by its net earnings per share
d) the compensation of the firm’s CEO divided by the number of employees in the company
e) the company’s revenues less expenses and taxes multiplied by pi divided by the square root of a number designated quarterly by the Federal Reserve Board

9) Experts tout the benefits of “dollar-cost averaging,” which means

a) the dollar is the safest bet in foreign exchange markets
b) invest a little at regular intervals
c) ever since President Nixon took the United States off the gold standard in 1971, the greenback derives its value from the average daily cost of production of bills and coins at the Department of the Mint (including operating expenses and liabilities)
d) the average of your expenses per month, which, when multiplied by twelve, may be used to predict your ability to take on significant new debt, such as the purchase of a house or the cost of four years at an elite college
e) reversion to the mean

10) Which two of the following are not associated with the Great Depression?

a) a national unemployment rate of 24.9 % in 1933 (whereas, during the Great Recession, the rate peaked at 10% in October 2009)
b) a bank holiday declared by President Roosevelt in 1933 to deter a run on the banks
c) the New Deal
d) the Iron Curtain
e) the Great Society

Extra credit: identify the painting, by title and by painter, that illustrates this quiz.

-- David Lehman

Major Imponderables Loom on the Investment Horizon [as told to David Lehman]

Starting today, our principle financial market reporter is, as he puts it, "on hiatus from the Street" for the next three weeks. Traveling with his wife, he will not be filing during this time. He emphasizes the temporary nature of his withdrawal and denies that it has anything to do with the scary condition of the market and the host of contributing factors -- including the Isis crisis (predicted by T. S. Eliot in "Prufrock"), the ebola scare, the dilemma of falling gasoline prices versus environmental concerns as fracking goes on, nasty race relations in the St Louis exurbs, the unpopularity and arrogance of the nation's chief executive, the slow economic recovery, the drag on morale, the specter of an aggressive Putin, etc -- that lead many to believe that a stock market correction is long past overdue.

In fact, says our intrepid correspondent (and I quote from his e-mail) there is "bullish sentiment regarding stocks and it is not confined to contrarians. New money is coming into the market, and as stocks are the only game in town, there is reason to suppose that new highs will be made in all major indices through spring 2015. If you have capital and can afford to be patient, you can still pick up one or two sound stocks at affordable prices: Deere, Caterpillar. And for safe money you can't beat JNJ. But you can depend on continued volatility. The only categorically correct prediction that I can make about the stock market is that it will fluctuate. Major imponderables loom on the investment horizon. Was there ever a time when that was not a suitable headline?"

Therefore we reprint this article at regular intervals. -- DL

Tommy Dorsey Endorses Indonesia Stocks [by David Lehman]

According to today's Wall Street Journal, page one (below the fold), veteran bandleader Tommy Dorsey has come out strongly in favor of the Indonesian stock market. His top pick: PT Perusahaan Perkebunan London Sumatra Indonesia Tbk. "I can't pronounce it, and I have no friggin' idea what they do. But I know it's number one -- do I need to know anything else?"

Dorsey explained his unconventional technique. "I'm not the guy who cared about love and I'm not the guy who cared about fortunes and such, never cared much," he admitted. But after listening to "Yes, Indeed" (as arranged by Sy Oliver) and "East of the Sun (and West of the Moon)," he had a change of heart.

The rationale for buying only the best-performing investments in any given sector is that of momentum investing on steroids. Has it worked? Dorsey's experience has emboldened him. He and associates have gone from $1.6 billion to $5.1 billion in the last three years. It should be noted that dart-throwing would have produced a similar return in blue chips, with a lot less risk than Indonesia, since 2011, but let's not be killljoys. Dorsey is enjoying his moment in the sun and he has, despite maninfold pressures, maintained eighteen instrumentalists, including Bunny Berigan on trumpet, plus vocalists such as Sinatra and Dick Haymes, always, come rain or come shine.

Should people be tempted to throw caution to the winds, the trombonist quickly reminded them that you should not make an important decision within twelve months of anything major happening in your life. He exemplified his legato approach with a sweet rendering of "I'm Getting Sentimental Over You." With the  bursting of the dot-com bubble in 2000 still a painful memory, he reminded people that prudence remains wise when the outlook is gloomy. "I'll never smile again," he remembered thinking. He would discourage anyone who might be tempted to go into hock to buy Asian shares on margin. "Fools rush in where angels fear to tread," Dorsey said.

Thank you, Tommy. I'll be seeing you.

-- David Lehman

"What Have We Learned from Lehman’s Collapse?" [by David Lehman]

It is hard to believe
that six years
have passed since
the day Lehman’s
employees emptied
their desks into
banker’s boxes and
triggered the Great
Recession the worst
threat to our banking
system since the runs
on banks in 1933,
the worst crisis
of credit and confidence
with bad debts, loans
irresponsibly made, credit
swaps, the use of derivatives
so complicated it makes
options trading look like
checkers in Fort Tryon Park,
and on this unhappy
anniversary you may wonder
whether mind-sets have
changed in risk management?
I look around and see a lot
of highly-leveraged
balance sheets, and as
a survivor of that grim day
when Lehman went under,
I ask myself and my brothers:
what have we learned
from Lehman’s collapse?

9 / 15/ 14

Your Financial IQ:P Part One [by David Lehman]

1) The Dow-Jones Industrial Average was created by
a) Charles H. Dow and Samuel T. Jones
b) Charles H. Dow alone
c) Charles H. Dow, Ronald Standard, and Lawrence Poor
d) Dow's stepdaughters Jane and Martha Bancroft, on instructions from Clarence Barron prior to his acquisition of the company in 1902
e) Meyer Wolfsheim

2) The Dow Theory, according to which there are three phases to a primary bull market and three to a primary bear market, was created by

a) Charles H. Dow and refined and sustained after his death in 1903 by his understudy William Hamilton
b) Charles H. Dow and Alexander Hamilton
c) Elmer Bernstein, Carolyn Leigh, and Max Shulman
d) Charles H. Dow and Henry Varnum Poor
e) all of the above

3) Charles H. Dow was

a) the founding editor of The Wall Street Journal
b) the Tony Award-winning producer of the musical comedy  "How Now, Dow Jones?"
c) the first husband of steel heiress Lorraine Jones
d) partners with two other reporters, Edward Jones and Charles Bergstresser
e) two of the above

4) Standard & Poor is a financial firm that

a) traces its history to the 1941 merger of Poor's Publishing and Standard Statistics
b) has Poor in its name as a warning to over-zealous investors
c) is a credit rating agency that made waves three summers ago by lowering the credit rating of the US government
d) publishes an index of the stock market performance of the 500 largest corporations in the United States
e) all of the above except b

5) Lehman Brothers

a) arranged the sale of Babe Ruth from the Boston Red Sox to the New York Yankees
b) was, in the person of Meyer Wolfsheim, then executive vice president, behind the fixing of the 1919 World Series
c) quintupled its assets by selling the Dow Jones Industrials short in August 1929
d) traces its origins to a dry goods store in Montgomery, Alabama, founded by German-Jewish immigrant Henry Lehman shortly after he came to the US from Bavaria in 1844.
e) none of the above

-- DL

"Lehman's ethos will survive as its disapora finds employment elsewhere. . . " [by David Lehman]

How lovely to wake up, read the paper, and see your adventures and follies writ large for the world to admire!

In yesterday's Wall Street Journal, zum beispiel, "Critics will see Lehman's fading legacy within Barclays as good riddance." Well, OK, but please know that on my end, at least, there are no hard feelings. I think fondly of the days when I learned to double-stripe my Barclay's checks, changed my dollars into pounds, and was able to fly from Paris to London though broke thanks to my Barclaycard, the first time I ever used a credit card. And then Nixon devalued the dollar by going off the gold standard and my pounds bought more than bucks on the continent.

The Journal's Francesco Guerrera goes on. "After all, Lehman's aggressive, risk-taking culture produced the reckless bets that destroyed the firm. And Lehman's brand of investment banking -- pugnacious, scrappy, and paranoid - is an anachronism in an era when the chief executive of Goldman Sachs grows a beard in an apparent bid to soften his and the firm's image." Now hold on. I please guilty to the charge of nourishing a "risk-taking culture" that has sometimes led to "reckless bets." On the other hand, I bet a sawbuck on California Chrome to cop the Derby, doubled my bet on the colt at the Preakness, and sat oiut the Belmont,because I don't believe we will have another Seattle Slew for another half a decade, and I invite anyone to review the recent performance of my so-called "aggressive" portfolio, which consists of American Express, Berkshire Hathaway, Caterpillar, Disney,  Exxon, Goggle, Johnson & Johnson, Monsanto, Pepsi and Wells Fargo. In any event, I intend to eschew facial hair whatever the heck they're doing at Goldman.

"And yet, Lehman brought a lot to Barclays." So don't trade all your Lehman green-and-white for Barclay blue just yet!

"It is possible that Lehman's ethos will survive as its disapora finds employment elsewhere." Possible? It's a sure thing, as fast as you can say Michael Milken, Drexel Burnham, or Jock Derrida.

"Wall Street [is] less risky, less indebted and (probably) much better regulated than preimplosion Lehman, but desperately less profitable."  May I point out that "desperately" delivers the knock-out punch in that graf, and that the parenthetical "probably" blunts the force of that first clause? I would quarrel with "preimplosion" but I do love the word, especially in its unhyphenated form.

The take-away: until its untimely demise in 2008, Lehman's long-term record at fixed-income investing, equities, and mergers-and-acquisitions advisory, remains a shining light in Times Square as on the downtown street that begins with a graveyard and terminates in a river.

-- DL

What Really Happened at Lehman Brothers [by David Lehman]

Fortunately for the family, my uncles and brothers had liquidated most of their holdings in the firm by the time of its collapse in September 2008. Nevertheless, whether out of nostalgia or pure forgetfulness, or perhaps just in order to keep getting annual reports and the like, a few of us kept some odd lots and attended shareholder meetings once in a while. And I maintained friendships with old friends, including the source of some scuttlebutt that I am now legally entitled to share.

One villain in the tale is the little known Phillip Rubella, who headed the firm's missing documents department (including debentures, affidavits, flight manifests, stock certificates, and bills of lading), a surprising source of revenue for financial outfits wary of IPOs and LBOs but acutely conscious of the millions that go unclaimed each year in the form of lost lottery tickets, savings accounts of the deceased, insurance remibursements sent to defunct addresses, payments to remitttance men, dead letters, the contents of grandma's safe deposit box, and the like. See, son, working for an investment company is not just being a glorified accountant but has elements of detection as in the dime novels you devour, though it has been decades since any book cost a dime.

According to spokesperson Dana Goodrear of the YWC (Yuppy Workers Constabulary), an NGO whose turf is serious white-collar investment-banker crime, Rubella polly-toed a complicated Ponzi scheme that cost an estimated 1.2 million investors upwards of $225 billion dollars. He put together a consortium of Indian companies that was thought to be running so-called "chit funds" in Delhi, Mumbai, Calcutta, and Eastern India. (Among the celebrities defrauded in the scheme were Phyllis Dietrickson, Lucky Garnet, Julie Jordan, Ilse Lundt, Joel Cairo, Garance, Sam Malone, Fred Derry, Laura Palmer, Norma Desmond, Peter Joshua, Mrs. Charles Lampert, Alicia Huberman, Noah Cullen, Melanie Hamilton Wilkes, Pepe Le Moko, Miss Lorelei Lee, Schuyler Green, Miles Archer, Molly Arden, Privates Finch and Moss, Sergeant J. J. Sefton, Commander Shears, Mark Dixon, Waldo Lydecker, Carmen Sternwood, Bess, Toto, George Bailey, Roger Thornhill, Miss Jean Brodie, Terry Malloy, Popeye Doyle, Jane Tennison, Brett Maverick, Sugar Ray Robinson, Sally Draper, Henry James Joyce, Barbara Doll, Bunter, Sollozzo, Alice Kramden, Dianna Scott, Biff Loman, Madelene Elster, Robert E. Lee Prewitt, Charles Foster Kane, Frankie Five Angels, and Addison DeWitt.) The scheme had become so vast that it threatened to sink the whole company.

How did Rubella elude the scrutiny of investigators for so long? And how, even after the crisis of September 2008 broke and he duly went to jail, did he avoid the unfavorable publicity that lesser thieves, cheats, con artists, and other felons received?

While operating the scheme, Rubella went unsuspected largely because of the respect he had won as an advocate of liberal causes -- it seems he had put his family's German Measles fortune to philanthropic use. He also enjoyed a reputation as a fun-loving card sharp, an ex-acrobat, a photographer who unknowingly witnesses a murder in Hyde Park, a tennis pro who plays a slow baseline game but turns on the motors because he needs to get to a certain mery-go-round a train ride away, a medical assistant who has an affair with his boss's wife, an indignant novelist exposing the anti-Semitism informing the Dreyfus Affair, an ordinary Joe who narowly escapes death walking past an accident at a construction site, an entry-level bachelor who lets senior execs use his pad for assignations, a producer of a rigged game show sponsored by Lever Brothers, a fortune-hunter who courts a plain but principled heiress in Washington Square, a cop who left the force because of a refusal to follow unreasonable orders, a veteran of the Korean War who switched identities with an unlucky lieutenant who bought the farm, a struggling Hollywood hack, a ne'er do well who hopped trains and got out where destiny took him, a Swedish industrialist educated at Cornell who is blackmailed into spying on the Nazis, the playboy younger brother of a serious bow-tied gentleman dying of lung cancer, the French figure skater who "settled for silver" at Lake Placid, a pickpocket in a Hudson River houseboat, a reporter in the Far East whose wife won't divorce him, and a flim-flam man in Paris. His drug-free policy -- every employee under his supervision was guaranteed a free month's supply of percoset or cialis -- was good for office yucks.

When finally confronted with his misdeeds -- by special investigator Bruno Anthony in December 2008 -- Rubella smirkingly claimed that he had the approval of the firm's CEO, played by Jeremy Irons in the movie. The suspicious deaths of the three individuals who had filed harassment complaints constituted an effective deterrent to disclosure. Rubella's white marriage to socialite Miriam Hanes also lent him protection until her dead body was discovered at a missionary church an hour's ride from San Francisco. Rubella, an expert at misdirecting the public, released a statement asserting that "Obama gives your tax dollars to rebuild Muslim mosques around the world."

"It's painful to discover you've been a chump," said Hanes's brother, Guy, who released a statement to the press on the day Rubella was sentenced to share a cell in hell with the worst boss you ever had. Guy tried putting a good face on things, joking gamely: "What else is April first for?" His shares had lost eighty percent of their value, but he was determined to keep his cool. This endeared him to the press corps. Unfortunately his watch had picked this time to stop, or possibly he had dimply (I mean simply, but with a dimple) forgotten to consult it. Fifteen days had gone by unnoticed. Death and taxes wait for no man. --  DL

Edgar Allan Poe endorses Return to the Gold Standard [by David Lehman]

Ed Poe, long a proponent of the Bretton Woods monetary system, has come out in favor of a new gold-exchange standard. Congressman Poe (Republican, Texas) has introduced legislation that would return the nation to a gold standard albeit in drastically revised form.

"For anyone living under a rock, the price of a troy ounce of gold is now officially in bear market territory," said Alice Elgar, who covers the sector for Cantor Fitzgerald. "What Ted Poe is proposing is a kind of bailout package in reverse for investors -- whether in bullion or in gold-mining stocks -- who are twisting in the wind." 

Under Poe’s plan, the dollar would be fixed to gold at a specified price. Say the peg is $1,300. If gold goes over that figure, the Fed sells bonds. Under that figure, the Fed would inject cash into the system by buying bonds. "An effective gold standard can be that simple," says Steve Forbes, the editor of Forbes, who has run for president on a business-friendly platform centered on a flat tax. (See "New, Poe-tent Gold Standard," Forbes, May 27, 2013, p. 15). "The Poe bill's basic operating gold-standard principle and its specifics provide plenty of grist for the mill, which is all to the good," says Forbes, which sounds like a lukewarm endorsement but he really likes the idea.

In his keynote speech at the Gold Bug convention in Jackson Hole in May, Poe said he wanted "to usher the US into a new era of fiscal propriety." He painted a grim picture of current uncertainties. "If you have ever witnessed a financial meltdown, like those afflicting Lehman in 2008 and Detroit this year, you don't need me to tell you how scary it is. I have seen a barely discernible fissure widen so rapidly that my brain reeled. I saw the mighty walls rushing asunder. There was a long tumultuous shouting sound like the voice of a thousand waters, and the deep and dark tarn at my feet closed sullenly and silently over the fragments of my life." Poe, who writes his own speeches, delivers them without notes.

The gold standard as the anchor of U. S. currency died on August 15, 1971. President Nixon issued the directive. He felt he had little choice. The cost of the Vietnam War and the persistent U. S. trade deficit forced his hand. The dollar could no longer realistically be backed by gold bullion on the basis of $35 per ounce. "The change was announced as a temporary measure but like most such it quickly became permanent," said Cantor Fitzgerald, who oversees the pension plan of the Mosaic Law and Tile Society, the nation's largest non-prophet. Fitzgerald, who quotes Keats and other greats, jokes a lot, and laughs so hard he sometimes seems on the verge of cracking up, usually makes this reporter feel like a sophomore who has wandered into a lecture for upperclassmen majoring in the dismal science. "Henceforth American money would be backed not by a metal but by the good faith of the United States government with the result that the value of the currency has fluctuated with the value of gold."

Little lamented at the time, the gold standard has lived on in the same way that a repressed memory takes uncanny forms in dreams or waking life. In a notorious TV commercial aired only once, Bunter (right) advises Lord Peter Wimsey (left) to get a smart city broker (played by Max Shylock) and allocate ten per cent of his assets to the commodity or to shares in mining concerns. "Even at a three-year low, an ounce of gold is worth more than eight hundred pounds, m'lrd, and you get a free smart phone plus ten thousand frequent flyer points if you play your cards right, close to the chest, what?"  

The metal’s decline in global markets has been attributed to the likelihood of reduced monetary stimulus by central bankers at the same time as you have a slowing of the growth rate in China. "The logic is not unassailable," said Eddie Cantor with a wry smile. "But, to paraphrase Gertrude Stein on roses, it is what it is."

-- David Lehman

Uh Oh: Small Investors Pile In [by David Lehman]

If there are two sure-fire warning signs for the stock market, they are

(1) the re-entry of the retail investor, the little guys and gals whose fingers and toes were so badly burned in the 2008-09 market meltdown, and

(2) the search for "alternative income plays," such as emerging market junk bonds.

According to our man in the Street that begins with a river and ends in a cemetery, the first of these warning signs is upon us in a big way, with Mr and Mrs Main Street shifting their 50-50 stock-bond portfolios into "all in" common stock mutual funds.

Does that mean we have reached a market top? "Not necessarily," said my source (who wishes to remain unnamed). "Momentum counts for a lot, and it is as unwise to buck the main market trends as it is to fight the Fed. By sheer momentum, the rising tide will continue to lift all the boats through 2014."

But then what? "Steer clear of overvalued equities, as judged by balooning p/e ratios. That means you should resist the temptation to buy Tesla or Twitter or even Netflix. They are hot for a reason, but their current valuations factor in best-case scenarios for future growth. When somehting happens to prick the bubble, and that something could be anything from a foreign crisis to a natural disaster, the stocks to hold are the ones that are bound to recover their luster at some point. In this category are blue chips on the order of American Express, Boeing, Chevron, Disney, DuPont, JPMorgan, Lilly, Pepsi, Procter and Gamble, Schlumberger. (This does not count as a recommendation list, merely an example of a diversified portfolio.) If you are employed and have a retirement plan, do not veer from your program -- you will enjoy the benefits of dollar-cost averaging and as a long-term investor you may make a bear market's depressed prices work for you."

Any tips? Our man in the street smiles. "When undecided between odd and even, I tend to go for the odd. Read Barron's, invest for the long term, and trust in god." -- DL

Mr. Bernanke: Could we have avoided Lehman?

Question: Could we have avoided Lehman?

Departing Federal Reserve Board chairman Ben Bernanke: Even with Lehman. . .[we almost didn't get the TARP]. One congressman told me he had heard from his constituency. 50% said "no" and the other 50% said "hell, no."

Reporter: How confident were you that Quantitative Easing would work? Theorists were skeptical.

Bernanke: The problem with QE is it works in practice but it doesn't work in theory.

Reporter: Can we go back to Lehman?

Bernanke: Watching Lehman was like trying to keep a car from going over a bridge after a collision.

Reporter: Did you have some sleepless nights?

Big Ben: I did. But after some time I looked back and said, "Oh my God."

Many people don't know that Bernanke -- born in Augusta, Georgia, in December 1953 -- grew up in Dillon, South Carolina, where his father worked as a pharmacist. The lad won a state spelling bee at the age of 11. According to The New York Times, Bernanke earned the highest SAT scores in South Carolina for the year he sought college admission. He was accepted at Harvard University where he earned a bachelor's degree in economics in 1975. He has served as chairman of the Federal Reserve since he replaced Alan Greenspan in January 2006 but is now stepping down. Janet Yellen has been tapped to succeed him.

The Fed is rumored to be considering a contest for the best jargon-free explanation of Quantitative Easing and how it works. There is a 500-word limit.

Meanwhile gold futures settled higher on Thursday.

-- DL

 

Julie Sheehan, Constituent Bartender: Can't Democrats Widow's Dream?

David Embury’s The Fine Art of Mixing Drinks, a 1948 recipe book and glimpse into privilege, has this to say about an after-dinner cordial called the Widow’s Dream:

            "This is a Benedictine Flip (see Flips), topped off in the glass with sweet cream. And may heaven help the poor widows if that is what their dreams are like!" 

Tee hee. But now, poor widows don’t need heaven. They have the GOP! A Republican minority is blocking resolution on a national budget unless they get their pet ideas, defeated in the last election, put into action. These include getting rid of reforms to a health care system that works for insurance companies, hospitals and certain pricey specialists, but not for sick people. There was a reason Obama ran on health care reform back in 2008. It was among the reasons he won.

Another wonderful idea brought to us by a Republican minority is to cut back on feeding hungry people. Why should all those old people and children get to cuddle up to their free cans of soup? They should cuddle up to our free market system instead. Same as the freeloaders in this photo, from 1939, when our nation started a food stamp program to feed its citizens:

 

See that kid in the used, doesn’t-fit-him jacket with what looks like a bandage on his head? Get a job! And stop looking to government to help you with your festering wound! Good grief, those liberals just don’t get it.

If we are heading to a shutdown, I’m thinking Democrats in the Senate should top off all those Iraq and Afghanistan war widows’ dreams with sweet cream and serve them up. To wit:

Sure, we’ll delay Obamacare for one year, provided that any citizen in the country regardless of age can sign up for Medicare. Just to tide them over while we work things out with your tiny but vocal group of Tea Party hostage takers. We’ll make it effective immediately, as if everyone has turned 65. Don’t worry, we’re sure that the free market will have no trouble luring them back off Medicare once that year is up. After all, the free market has done such an incredible, crackerjack job of delivering health care in the past! Who wouldn’t want to fall back into its soft embrace?

Oh, totally understand how we can’t afford the $78 billion it costs to feed our citizens for a year while they endure a jobless recovery caused by gazillionaires. Hey, I just found out the Defense budget spends $128 billion per year for weapons and $74 billion for research and development. How about we put our military in charge of Nation Building here at home? They use half that money—just half—to buy food for poor people instead of drones, and suddenly the hungry would get to eat on more than their average budget of $134/month. And given the $161 billion Defense spends on its employees, it must have a few extra folks who’d no longer be so busy weapon shopping. Send those personnel out across the country to deliver the food! Fresh direct for the hungry!

While we’re at it, let’s tack immigration reform onto our Continuing Resolution. And ban assault weapons and high-capacity clips. And require universal background checks on gun buyers.

And low-interest loans for college students, guaranteed, with their debt forgiven if they do something useful for the country with their education.

And low-interest loans to homeowners who are under water on their mortgages.

And an end to Guantanamo. And some sunshine in the NSA. And, and, and.

Those poor widows don’t lack for dreams.

Related articles

Senate Dems to reject House CR

Julie Sheehan, Constituent Bartender: Romney's Secret Jobs Potion

A bar survives as a small business because people come in and buy drinks. How does that happen? Well, it might be because people sense a hip vibe, it might be because the beer is cheap, it might be because all the Yankees fans in the neighborhood have decided to watch the tragic series against the Tigers together on one particular flat-screen TV, it might be because the bar gives out that terrific goat cheese thing at happy hour, it might be because everybody knows your name. Any of these and more might make a bar successful.

None of these have anything to do with tax policy. Or regulation. Instead, they have to do with the existence of customers—i.e., people.

So if you’re talking about “creating jobs” or “helping the middle class,” you ought to be thinking about people. Why did the rabbi and the priest walk into a bar? They both had enough money in their pockets to splurge on a cocktail or pitcher of beer or glass of Bordeaux or whatever it is clergy order when they’re in a joke. And that money came from a job, in their case, a job with an organization that pays no taxes.

The tattered idea that lowering tax rates for business will increase hiring is absurd. The Archdiocese of Philadelphia pays $0 in tax, and yet closed St. Mary of the Assumption, along with some smaller parishes and many schools, this past summer. That means not only an out-of-work pastor, but teachers, secretaries, janitors, clerks and administrators all losing their jobs. The Roman Catholic Church’s taxes couldn’t get any lower; what the enterprise lacked was parishioners—i.e., customers—i.e., people.

And regulation? Well, The Catholic Church, along with other religious institutions, is exempt from many regulations, particularly the ones that promote equality and fairness by forbidding discrimination. For example, in Iowa, a business is not allowed to hire or fire someone “on the basis of age, race, creed, color, sex, national origin, religion, or disability,” unless it is "[a]ny bona fide religious institution or its educational facility, association, corporation or society.”

But most regulation exists to keep people from harm, not from injustice. Rules against serving toxic food or dumping slag in the drinking water or selling cars that don’t have functional braking systems are good for people—i.e., customers—and, indirectly, for businesses, because they keep customers—i.e., people—alive. The reason bars have to get liquor licenses is to protect those customers—i.e., people—from a substance that can be very dangerous if not properly handled. A dead customer will not boost revenues. A dead customer won’t enhance that hip vibe. A dead customer won’t bring his friends in next April, when the Yankees’ chances look pretty good again.

O burdensome regulations! O burdensome taxes! In Mitt Romney’s Bar & Grill, he’s pouring a secret jobs potion that’s going to jump-start our economy without even a sideways glance at the actual human beings behind economic transactions like ordering a Fuzzy Navel. The only people in his post-Citizens United wo rldview are corporations, who will pay less tax and follow fewer rules. To make up for that generous gift, he’ll slash “wasteful” government spending on such whatchacallems as: 

• teachers
• inspectors
• auditors
• analysts
• secretaries
• scientists
• researchers

Prepare to get fired, bureaucratic slackers, at which point, you’ll cease to be a customer—i.e., person. But don’t worry, that small business called St. Mary’s, just down the block from your out-of-work ass is sure to use its windfall tax break and freedom from regulation to hire more priests and nuns, folks who don’t need the contraception not covered in their health insurance. Ask your parents to send you to Divinity School. You’ll clean up in that libertarian dreamscape, that model of trickle-down economics, that no-tax, low-regulation utopia where the secret jobs potion flows freely through every empty pew.

 

 

 

A Modest Proposal: A Congressional Day of Atonement

<<<
Yom Kippur, the Jewish day of atonement, generally falls around the end of the federal government's Oct. 1-Sept. 30 fiscal year, as Cato Institute fellow Chris Edwards reminds us. So Edwards, who is also the editor of www.DownsizingGovernment.org, mischievously proposes that to do penance for the sin of sipping—or in some cases, supping—at the government trough, we all try a fiscal fast.

"Let's see if we can go a day," he suggests, "in which we live without the federal government's welfare and services." More seriously, Edwards proposes that "Congress institute a day of atonement during which members go to the floor of the House and Senate and apologize to the American people for making no effort to the avert the fiscal train wreck that threatens the well-being of fuutre generations.

Blame it on heightened passions just before a presidential election. But my annual Yom Kippur poll of analysts on economic sins that should be atoned for has provoked an unusual degree of Old Testament-style anger at both the state of the economy and statements about the economy by the two main presidewntial candidates.
>>>

-- Gene Epstein, "Congress, Forecasters Have Much to Atone for" (Barron's, Septmber 24, 2012)

Julie Sheehan, Constituent Bartender: You Had Your Chance, Job Creators

The feast of the wealthy upon the little guy should long be over and we should have moved on to after-dinner drinks: tax hikes in gleaming snifters for the country club set; for the rest of us, a minimum-wage hike and jobless benefits, lifted to our lips and kissed like the whipped cream on an Irish coffee. Yet the little guy, despite his morsel size, is still being battered, fried up and served with a side of frozen fear to an already obese elite. That glob of fear on the plate is that the superrich, poor fragile creatures, won’t create our jobs if we ask them to contribute to the upkeep of our country.

The Bush tax cuts, a boondoggle for those that already gots, were first enacted in 2001, over a decade ago. These senseless giveaways have not only remained in place, but been fattened up for the fattest among us, wallet-wise, all in the hope that those grotesquely wealthy people will use their tax refunds to create jobs. Ten years later, our country had roughly 3 million fewer jobs. But the superrich keep getting richer.

The “job creators” theory has been tasted, re-tasted, tasted yet again—still no jobs.

It’s easy to see why. Imagine earning $22 Million in 365 days. (Almost half of all Americans make less than $25,000 per year.) That comes to $60,274.00 per day. How would you spend over $60,000 in one day, then wake up and do it again the next day, day after day, including holidays and weekends, for a whole year? Sure, you could buy some big ticket items, a Maserati here, a home in La Jolla there, but you’re probably not going to buy hundreds of Maseratis or resort get-aways. Nor will you necessarily create a lot of jobs if you do. For consumption to drive an economy—and ours is consumer-driven—you need masses of people buying masses of Fords and Chryslers, not the 1% buying a handful of fancy imports. At $16,000, the 2012 Dodge Dart, a modest compact, is out of reach for that 48.1% of Americans earning less than $25,000 per year.

“No,” say the defenders of the rich getting richer. Wealthy people create jobs by investing in new companies or in the expansion of old ones, not by consuming stuff themselves. Unfortunately, neither the behavior of so-called investors nor that of the businesses they allegedly invest in fits with this argument. Wealthy people spend less than 2% of their money investing in new companies. Moreover, companies themselves don’t want to expand, even though they already have the cash to do so, without any investors. The reason they are not hiring, if we are to believe them, is that there’s no one to buy the extra stuff they’d produce. Remember, almost half of us are making less than $25,000 per year. We can’t afford more stuff. We can’t afford the stuff we already have, which is why our standard of living has been going down.

So Job Creators, you had your chance. Yes, you. And who is this “you”?  This “you” who makes $22 Million? Gee, looks like Mitt Romney made that much in 2010, most of it from Bain Capital, which he “retired” from 10 years earlier. What if, instead of paying him, Bain Capital had hired two people every day of the year at a salary of $30,000? They’d have created 730 jobs. But they didn’t do that. Like our tax system, Bain gave the money to a rich guy, who promptly stashed it overseas in “blind” trusts that invested in his own kid’s start-up business, or in the hedge fund of one of his campaign supporters. True, 2 jobs were created, but they were hardly the kind of jobs that would fuel a national recovery.

Job Creators, you had your chance. Now give us the money, in the form of higher wages and a federally mandated jobs program, and we’ll give recovery a try. We’ll check back with you in 10 years, to make sure you, your son and your billionaire campaign contributor are still okay.

 

Kierkegaard weighs in on the Eurozone crisis [by DL]

The question on everyone's mind is, What is German Chancellor Angela Merkel going to do? She's reportedly still undecided. so I recommend that she listen to Ella singing this song with the Chick Webb band in the late 1930s.

On late night TV, I had the chance to interview Soren Kierkegaard on the Eurozone crisis on the day the yield on the ten-year Spanish bond surged to a euro-era high above 7%. "The German Chancellor seems to be lowering expectations and addressing a domestic audience, just as she has in advance of prior summits," noted Kierkegaard, a research fellow with the Oscar Peterson Institute for Internatinal Economics. "Refusing to dampen the growing panic may be strategic, a way to give European leaders more room to maneuver." I asked Kierkegaard to forecast a likely outcome. "Past summits failed to appease markets," he shrugged. "I think we can expect significant progress on a European bamking union and a long-term plan for eurobonds. But there's no quick fix in sight, especially if Merkel demands power transfers requiring new treaties as part of the quid pro quo. That would be a year-long process, and markets don't like to be kept waiting." 

Meanwhile, I said, unemployment in Greece remains over 25%, and the Greek people are pulling their cash out of the bank at the rate of a billion euros a day. Kierkegaard reflected before replying in his deadpan manner that "an awkward moment of silence" might best suit the occasion. The remark drew an appreciative laugh from the studio audience. We shook hands, and the segment ended with my guest standing up to leave. "Ladies and gentlemen," I said, "Soren Kierkegaard." -- DL

The Volatility Index ("volatility being the square root of variance") [by DL and friend]

We asked our friend on Wall Street to make a summer forecast and to explain a term we're hearing a lot on the news these days: the "volatility index," or the "VIX." Here's the report. -- DL

<<<
You asked about the stock market going into summer as shaky as it has been for, what, four years now? But the entire premise of the stock market is that there is no end in sight, and if there is, it's only because you're facing the wrong way. No matter how many times it's right, and so far it's always been right in the U.S., it only has to be wrong once and it's gone forever, or at least until the next stock market shows up. What happened to the ancient Greek and Roman stock markets? The Aztec and Inca stock markets? The U.S.S.R, East Germany, and hardcore Communist China? They all became mature markets of one kind or another, and top heavy, and toppled. We may be headed in the same direction, at least financially, which is why diehard investors, if they haven't given up on equities altogether, even the risk takers mired in biotech and IT, are so infatuated with emerging markets right now. No unions? No EPA? Heck, I might actually make money in those countries, and what I don't know about the poverty and the torture, well, let's drop that thought right there. And they're right, they might make money there, some foreigners do, but they shouldn't expect any investment protection that they don't provide themselves. The SEC stops at the same border so many people fleeing from emerging markets cross on their way into the States. Why do they think rich Brazilians and Mexicans have armed bodyguards?

No one knows what's going to happen next, anywhere, and at this point it seems like it's going to be this way for a while, with market volatility registering every swing up, down, and sideways in the national and international psyche. Fortunately, you can invest in this volatility, and when a friend's cousin told me how he was doing it, I realized at once that he was investing in the closest thing to a sure thing we've seen in a long time. The VIX, as you may know, is the CBOE's volatility index for the S&P 500—and you can take positions not only in the options of the index itself but also in other derivative products, including ETFs, depending on where you expect the index will be, or not be, in the next 30 days. When I asked Richard where he put his money during lulls, he said, "In my pocket"—that is, he was either making a specific time bound trade or he was out of the market altogether. No, he isn't contributing to the GDP, but he's not loafing in blue chips, either.

A couple of things worth thinking about before you call your broker. Wikipedia: "The VIX is the square root of the par variance swap rate for a 30 day term initiated today. Note that the VIX is the volatility of a variance swap and not that of a volatility swap (volatility being the square root of variance). A variance swap can be perfectly statically replicated through vanilla puts and calls whereas a volatility swap requires dynamic hedging. The VIX is the square root of the risk neutral expectation of the S&P 500 variance over the next 30 calendar days. The VIX is quoted as an annualized standard deviation." The second is from Rubashov's diary in Arthur Koestler's Darkness at Noon: "The capitalist system will collapse before the masses have understood it.
>>>