The Naked Truth

                                        

In the old black-and-white days of television there was a hugely popular crime drama set in New York City about detectives in the 65^th precinct.

The show focused on real-life crime and ended each episode with perhaps one of the most famous lines in the history of television: “There are eight million stories in the Naked City. This has been one of them.”

Well, here in the Golden Bear State, we got around 34 million people; that’s the ones we know about. We don’t know how many of them know about this next story, but since next year is an election year, this is one they might want to know about.

California is the worst-run state in the nation.

50. California
> State debt per capita: $3,660 (21st highest)
> Pct. without health insurance: 18.5% (8th highest)
> Pct. below poverty line: 14.5% (tied for 21st highest)
> Unemployment: 11.9% (2nd highest)

California has moved down one slot on from last year to earn the title of the worst-run state in the country. In the fiscal year 2009, the state spent $430 billion, roughly 14% of all the money spent by states in that year. Compared to its revenue, the state spent too much — California had the 10th lowest revenue per person, and spent the 15th most per person. California is the only state in the country to be rated A-, the lowest rating ever given to a state by S&P. Despite the huge amount the state spends each year, conditions remain poor. California has the second-lowest percentage of adults with a high school diploma in the country, the second-highest foreclosure rate and is tied for the second highest unemployment rate in the U.S.

Read more: Best and Worst Run States in America — An Analysis Of All 50 - 24/7 Wall St. http://247wallst.com/2011/11/28/best-and-worst-run-states-in-america-an-analysis-of-all-50/#ixzz1fJiB0G6t

If you’d like to know more about the naked truth keep reading financialspuds.blogspot.com.

Credibility: Does It Matter?

RL Ellison

With the credibility of politicians around the world at record lows and that of bureaucrats and the media not far behind, pundits everywhere cough up all sorts of explanations when best-laid plans go south, pointing the fickle finger of certainty in every which direction.

Perhaps nowhere is this more apparent than in the debate whether the European Central Bank should suddenly become the monetary cavalry of last resort riding their trusty printing press to the rescue and forever clean up the critical, pitiful fiscal mess the European Union now finds itself wallowing in.

 The division is clear-cut. Hardliners say no, enablers, yes.

For the enablers it’s not so much: “Help us now and we won’t do it again.” It’s: “Help us now and we won’t ever have to do it again.” For the hardliners the problem with that is it relies to a certain extent on predicting the future, something no one can accurately accomplish.

Grabbing the headlines on the Internet recently was a story entitled: “Half of Hollywood Is Broke.” The article focuses on several celebrities who, for various reasons, have bitten the bankruptcy bullet. For many it’s an attention getter. A closer look reveals that several of them surprisingly have gone BK more than once. After the first time, like a lot of things in life, it apparently gets easier.

Buried somewhere in this debate is the valid question: Why make laws if you’re only going to break them when it’s to your convenience? And buried in that question is another, more important one: What about credibility?

That seems to be the message of Otto Issing, a former member of the Executive Board of the European Central Bank. Issing, a German, in a Financial Times article, “Bond Buying by the ECB Would Result in Moral Hazard,” writes: “…the situation in the euro area is fundamentally different from the US or the UK. No one would argue that the Fed should guarantee the debt of individual states. No need because there are strict limits for debt financing by US states. (Someone apparently forgot to inform our legislators here in California!) This is also a fundamental principle of the European Union…”

Issing goes on to point out that it was precisely this principle that every EU member signed, according to the provision in the Maastrictcht treaty, to ensure a stable currency. Simply put, you agreed, should the need ever arrive, to have your feet held to the furnace. Now that the need is here, you want others who have honored that pledge to hold their feet to the flame. We hate to digress, but this sounds eerily like some left-wing-Barney Frank hatched screen play for an upcoming left wing Hollywood movie starring Sean Penn and Susan Sarandon.

Issing goes on: “Pressing the ECB into the role of buying public debt of individual member states would create the biggest conceivable moral hazard.”

“On top of these alarming and monetary consequences,” Issing continues, “providing monetary financing would break the law—a constitution ratified by all governments and parliaments…..How credible is an announcement of ‘strict future rules’ if at present violation of law is so widely, not only accepted, but requested?  

In case you may not recognize it, Issing is posing the famous unintended-consequences question here:

“If the ECB goes in the direction of becoming the ultimate buyer of the public debt of member states detailed consequences are hard to predict. However, one thing seems to be certain. It would be a daunting challenge to restore credibility,” he concludes.

We don’t know if Issing would ever consider renouncing his German citizenship and running for Congress here, but we believe someone who truly understands the danger of creating moral hazards, i.e. credibility, would win by a landslide.

Congressional Insider Trading and the Media

RL Ellison

Someone once remarked Hollywood is all about money and Washington all about power.

Money and power, however, strangely enough, are five-letter words; and when it comes to Washington completely fungible. Money is power. Power is money.

Count the number of lobbyists slurping and slinking around our Capitol. Question: How do you spell money? Answer: Lobbyists. It’s a local joke with non-local consequences.

There is another joke about the golden rule: Whoever has the gold makes the rules. In Washington whoever makes the law has the power. Whoever has the power makes the lucre. Enter from stage crooked trading on insider information.

If you’re Martha Stewart about now you should be not only pissed off but outraged. If memory serves, mostly Martha went to jail for insider trading.  Now Martha is hardly alone, just more profile, more example prone. For those fortunate, elected chosen few who occasionally ambulate through the hallowed halls of our nation’s Capitol, claiming to do some of the public's bidding, insider trading is legal. Wonder how that happened? (Notice we purposely left out ethical. One of the things one learns early on is never bring up ethical and Congress in the same sentence.)

We’ll spare you all those sticky little, boring details, plowing back through decades to the 1950s when legislation defining what constituted insider trading violations somehow omitted Congress. It was, as they say, an accident I’m sure, a brief oversight or cerebral lacunae in attention. That brief oversight, lacunae in attention recently somehow celebrated its well-over-50th birthday. 

As exclusive as this exclusive club is, it’s hardly one of those things that doesn’t get passed around. Just ask the current and the former speakers of the House. What brought all this sleeping-dogs-should-hopefully-stay-left-alone-stuff up is a recent book by Stanford professor Peter Schweiger, Throw Them All Out.

Now the watchdog of the world, our illustrious media, has apparently treated this unseemly subject like a hot potato, taking their cue from a line in a famous Willy Nelson song, “Don’t hold on to nothing too long. Just take what you need and leave….”

Here’s how the Security and Exchange Commission defines insider trading:

Illegal insider trading refers generally to buying or selling a security in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include ‘tipping’ such information, securities traded by the person ‘tipped’ and securities traded by those who misappropriate such information.

Now we'll leave it up to you to decide if any of that at all is applicable to our august officials in Washington. We'd leave it up to the media, but they've already done what they do best, move on.

You Gotta Love It

November 27,2011

                                                

European lawmakers recently rejected Ireland’s nominee to the European Court of Auditors, according to an Associated Press report.

Reason:  He made a small miscalculation when he helped calculate Ireland’s national debt—3.6 billion Euros or $5 billion. The candidate, Kevin Cardiff, a senior servant in Ireland’s Finance Department, was endorsed by the Irish government for the $370,000 a year position. The Luxembourg-based court audits EU finances.

It seems Cardiff was deeply associated with Ireland’s ill-fated bank guarantee program that ended up costing 70 billion Euros to bail out six troubled Irish banks. The Budgetary Control Committee of the European Parliament in Brussels rejected Cardiff in a 12-11 vote, the first time a candidate has been turned away since the Court’s formation in 1975. Several lawmakers apparently informed Cardiff that they had received numerous emails from Ireland requesting that his nomination be blocked.

Switch quickly to the Obama administration. Though now, given the fallout from the MF Global meltdown, they will most probably try to deny it, the administration was highly considering appointing Jon Corzine as the next Treasury secretary of the US. But Corzine it appears will be spending at least part of his pre-Christmas holidays testifying before a senate subcommittee investigating MF Global’s sudden demise, Corzine’s abrupt resignation and what happened to $1.2 billion in customer funds.

tm hatter

Open Letter to Super-Duper Committee

LET THE CUTTING BEGIN

There is an old saying in medicine whenever one is dealing with an open wound or a contaminated laceration: "The solution to pollution is dilution."

In some cases the more dilution the better. And when it comes to pollution, you can forget about carbon dioxide and ozone layers. What we're talking about here is government pollution.

From the silly legislation that prevents start-up businesses from starting up to burdensome, complicated tax codes more mysterious than the Da Vinci Code to wasteful government spending that would make every drunken sailor who ever lived blush, it's as obvious as Barney Frank's sexual preference: Too many chits out, too many IOUs, the sum and substance of politics everywhere.

Now before all you epithet-hurlers get worked too tight, Mr. Frank has publicaly awowed his preference; that makes it a statement of fact, one of public record. If beauty is in the eye of the beholder, so too must be malice. No malice intended here, just fact.

Irrigating a wound helps remove the unwanted bacteria and debris. The wrong bacteria in the wrong place is just another name for debris. And that's what government waste has become, just so much debilitated, dead debris that will soon include, if something sensible isn't done, the U.S. dollar, DOA. And the answer sure isn't setting up a bunch of trade barriers, hello Chuck Schumer.

As is sometimes the case with wounds, irrigation often isn't enough. Unwanted waste must be excised. That usually means taking a scalpel and some scissors to cut away the unwanted so the remaining healthy tissue can florish. That's just about where we are today as a nation.

So forget all that political nonsense about bipartisanship; it never was and never will be. Just send your elected official a scalpel and a pair of scissors.

Drug Screens and Inventories

Inventories matter.

High inventories equal low demand or a bottleneck, meaning you can't get the stuff out faster than demand is building up or coming in. Think bathtub here. Low inventories are usually just the opposite, very little demand or can't keep up with what demand there is. If housing or energy, as in oil or natural gas, come to mind, you're onto to something. But you could just as easily toss in things like credit, money and jobs. Or Drug screening.

Drug screening is a huge part of employment these days. Companies routinely require it for many new hires. They also do random drug screening. Back when the economy was riping and roaring, a friend of mine who owns several industrial medical clinics used his own private economic indicator, pre-employment physicals. When the economy is good and firms are hiring, his daily numbers soared.

One day he called me, somewhat exasperated: "Man, I'm going to have to hire more staff.  It's so tight out there, a lot of firms are even hiring people whose tests are coming back positive. They don't care." They needed bodies. Supply wasn't keeping up. Anyone who really wanted a job back then could've had it. So much for the cry-babying-full employment crowd. They never get it. Not everyone wants a job.


A funny thing happened in late 2007. His numbers started to change. Like many things at first it was just a trickle. The rest of the story we already now know. With unemployment much higher than the government wants us to believe, an over-built housing market and a horde of tapped out consumers, an administration and a Congress that apparently haven't got a clue, the Ben Bernanke Printing Company, one could ask oneself: what's the nation's inventory?

Just for kicks, toss in the fact that the EU has a severe case of fiscal ptomaine poisoning and is looking for a place to conveniently upchuck; and you may get some idea that, as one of America's great metaphysical philosophers, Yogi Berra, said: "It ain't over until it's over."

How long is it going to take? As long as it takes. In the meantime, keep your eye on those inventories, especially your own.