A LITTLE CULTURE

A little culture is our term. The comments  appear on daily speculations.com, one of the better sites about markets and, in our humble opinion, almost always an excellent read.

Here is Gordan Haave's Story: 

Some time ago my now ex-wife decided that my daughter's sleep away camp should be 11 hours away in Eastern Tennessee. How it got to be that way is a long and convoluted story, sort of like my first marriage. But in any event she has been going there for years now and loves it, and my daughters sheer desire to get me to leave the second I drop her off and her tears upon pickup has me convinced of it's merit as a character building month of her life that is worth the money and hassle. Plus in the many years of drop off and/or return we have developed our own ritual of spending the night at the Hilton in Memphis and walking across the street to Benihana for dinner.

This year was my son's first year for sleep away camp, and of course it was in Eastern Tennessee about 20 miles away from my daughters camp, only they didn't start or end on the same day.

So the end result was my having to drop my daughter off one week and then pick up my son a week later in Tenn. Since it is actually closer to Connecticut than it is to my starting point in Oklahoma I decided to drive on to Connecticut and spend a week with family and friends rather than go back to Oklahoma in between the drop-off and pickup.

One sign that I am getting older is of course that I can't do the drive like I used to. Back in the day I would do the Oklahoma to Connecticut drive with one stop in Indianapolis (half way). Once, when my mother had to go straight into surgery for her cancer I drove it straight through without stopping.

This time on the way out I did Oklahoma City –> Memphis –> Harrisonburg, VA–> to my dad's house in Stamford.

On the way back I did Stamford –> Harrisonburg –> Knoxville –> Memphis –> OKC

The podcast of course is the greatest friend to the long distance driver. This time around I listened to The History of Rome which was once a weekly podcast (but still available) that ran from 2007 to
2012. Here is the wiki page.

I highly recommend it.

It was from this podcast that I fist heard the term Vespasian Sponge.

According to the podcast when Vespasian became emperor he was still dealing with the horrible fiscal mess left by Nero. One of his solutions was to let the tax collectors run rampant. He looked the other way while the tax collectors robbed the citizenry. Then, when they wy, he would become the champion of the people and arrest the tax collectors and seize their ill-gotten gains, which he would of course deposit in the treasury.

As described by Suetonius in "The Twelve Ceasars": "They were, at any rate, nicknamed his sponges — he put them in to soak, only to squeeze them dry later. "

For some time now I (like any regular reader of Washington's blog) have viewed the banks and the government as essentially one and the same, and the two political parties as representing one pro-bank and pro-war party, that then squabbles over meaningless things in order to have us think they are in effect two different parties.

While I still feel the same way about the political parties, the recent fines and criminal inquires against JP Morgan have me wondering if perhaps I was wrong. Instead of the banks owning the government (or being one and the same) that in fact the banks are simply Vespasian Sponge's.

Having bankrupted the country in all manners of spending (particularly raining bombs down on people on the other side of the world) the politicians figured that it was easier to let the banks steal from the population, (and then to squeeze the money out of them) then it was to just take the money directly from taxpayers.

In any event, on a website with a wonderful history of nicknames for certain business figures, I propose that we start referring to certain eminent flexions and bank pres's as "The Sponge".
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YOU DECIDE

 

Mom and Pop investors over the years have become a stock market indicator, usually getting out when prices are low and back in when they're high.

 So what have they been doing lately and how good of an indicator are they?

http://www.marketwatch.com/story/when-mom-and-pop-buy-stocks-its-time-to-sell-2013-08-12?link=home_carousel

ENERGY EFFICIENCY

Charlie Munger, the outspoken octogenarian sidekick of Warren Buffett, recently called America's perceived obsession with energy independence silly, according to an article at Motley Fool.

Munger noted that the black gold "is absolutely certain to become incredibly short in supply and very high in price." Imported oil is not a villain. In fact, Munger claimed it's a friend. For more here's a link to Munger's comments. 

 http://www.fool.com/investing/general/2013/08/09/charlie-munger-on-our-crazy-obsession-with-energy.aspx
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DOCTOR DOOM SPEAKS

It's 1987 and the stock market's been on a tear throughout the summer.

October lazily rolls around and Ferderal Reserve Chairman Alan Greenspan boards a plane for Dallas where he's later scheduled to speak. But a urgent phone call from Washington disrupts everything as the stock market drops 565 points in one trading session, a record one-day decline.

Fasten your mind on that scenario and you'll get an idea of what Marc Faber, the noted equity world pessimist, is talking about in a recent interview.


http://blogs.marketwatch.com/thetell/2013/08/09/marc-wolf-faber-still-thinks-an-1987-style-crash-is-coming/

BONDS AWAY

Bond King Bill Gross of Pimco fame apparently has not thrown in his bond investing towel yet.

http://www.futuresmag.com/2013/08/08/pimcos-gross-vows-to-win-bond-war-after-investors?eNL=5203b585fc746fb7240000d4&ref=hp&utm_source=DailyMarketFocus&utm_medium=eNL&utm_campaign=FUT_eNL&_LID=287557
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QUASI TARGET FUNDS

 
Central banks should consider a name change.

Target fund would be an appropriate choice as more and more set specific goals to explain their policies making them quasi-target funds.

The latest example is the Bank of England under its new chief Mark Carney. Carney, the former head of Canada's central bank, unveiled the change in policy yesterday. The move from first glance is designed to allay investor fears about rising interest rates, something much in news since Bernanke raised the Spector a while back with his comment about putting theFed's QE policy to bed.

The move is not, however, without possible peril. It's like treating a lab number in medicine without considering the total patient. It can lead to mixing the big picture.

http://online.wsj.com/article/SB10001424127887323477604578653434040606850.html
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BABBLING TIMES

From time to time one comes across an article worth recommending. We have written before about debasing the language. The definition surely has different meaning to different folks. Babble is to debase in our view about as close as gray is to white and black.

So enjoy this read if you indulge an interest.

http://epsilontheory.com/wp-content/uploads/2013/07/7_14_13-The-Market-of-Babel.pdf

THE OTHER SIDE OF THE TAPER DEBATE

Longtime Wall Street denizen and now an adviser at Blackstone Advisory Partners, Byron Wien takes the other in the to-taper-or-not-to taper discussion.

Wien zeroed in on soft inflation and weak employment numbers, saying neither of the Fed's so-called targets had been hit.

http://www.cnbc.com/id/100942829
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GOVERNMENT DATA

Why would anyone trust  government data?

You shouldn't and here's a link to why. Revisions used to be minor adjustments. Now, however, despite so-called more sophisticated collecting means like computers and super computers, these revisions have become suspect if not indeed an outright joke.

But that's not the only problem. The data is often flawed even before it's collected. Few people want to look bad especially if it's going to affect their source of income.

We once knew a fellow who was responsible for tallying the number of lost man hours owing to injuries on the the job for the US Post Office. He said the local people routinely fudged the numbers to look better.

Our own investigation substantiated that claim. That was the good news. The bad news was by how much they routinely fudged.

http://www.marketwatch.com/story/government-pulls-rug-out-from-under-us-2013-08-06?dist=lbeforebell

ECONOMISTS

You'd have a hard time assembling a group who are wrong more often than economists.

The late Laurence J. Peter, most remembered for his book The Peter Principle, said: "An economist is an expert  who will know tomorrow why the things he predicted yesterday didn't happen today."

Never approach an economist without a model in your hand. In his recent tirade about David Stockman, Paul Krugman, the NYT's economic gofer, wrote, he was "...disappointed (in Stockman's) gee-whiz, context-and-model free numbers embedded in a rant..."

An economist without a model is like a severe ED sufferer without Viagra. They both can't get it on.

Harry S. Truman, the nation's 33rd president, spent a good part of his term looking for a "two-handed economist." It seemed every time he'd ask for an opinion his economic advisors would answer with "On the one hand..."  and then conclude with "on the other hand."

An acquaintance who worked at The Federal Reserve several years ago told me he once asked  a cute female economist there for her phone number and she quickly gave him an estimate.

In 1998 William A. Sherder's The Fortune Sellers: The Big Business of Buying and Selling Predictions landed in bookstores. A business consultant, Sherder spent years tracking the predictive accuracy of several important areas that impact our lives from meteorology to economics to investments to technology and futurology.

Back then it was a $10 billion a year business. You can guess what today's take is. But just how accurate are they and just how much are people getting for their money. Not very and not much.

Meteorology, Sherder acknowledged, has a scientific basis, but it's hardly reliable. Studies have shown the orange juice concentrate futures market more accurate at predicting Florida weather patterns than meteorologists. Sorry Dallas.

Then there is the University of Iowa presidential futures market. It's seldom wrong in predicting the eventual winner. But Sherder reserved some his most damning findings for members of the dismal science.

He cites a 1985 article from Economist magazine that compared the accuracy of the predictions from UK sanitation workers with the heads of several top-drawer UK economic firms about the country's future economic growth The result: they tied.

Closer to home Sherder tracked data from 1975-1995 about economic forecasts predicting major turning points in the US economy. Forty-six of the 48 he tracked were incorrect.

Economists, God bless their dismal souls, profess to love data. To put some further bite into Sherder's economic data bark, in July, 1982, with the prime rate at 16.5% the WSJ surveyed leading economists about their outlook for interests rates. Most claimed the prime rate would finish the year at 15%. Their take on equities no less gloomy.

One of the economists, a former clarinet player in a Benny Goodman-wanna-be band, then toiling away on Wall Street, Alan Greenspan, predicted rates would finish the year at 16%. By mid-October, however, the prime rate had been cut 7 times and wound up 1982 at 11.5%.

 The dramatic reversal pumped new juice into the stock market and the DJIA rallied 34% by year end.

Now for those who might argue these examples were then but what about now? Even a cursory search of the literature will show plenty more timely examples that the predictions of the dismal science are at best pretty much, well, dismal.

Greenspan for those who might not recall preceded Big Ben. Depending on one's point of view, some say it's indeed difficult to find two Fed chairman who have screwed things up more than these two.

Risk your personal portfolio on their calls at your peril.
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MONEY MANAGEMENT TIP

"People at the high end tend to use very little debt relative to their incomes, and the debt has accumulated in recent decades at the lower end."
             David Levy

                                        
                                  

Levy is a principal in the economic firm Jerome Levy Forecasting Center in New York. His comment occurred in an interview in the recent edition of Barron's. We cite it here not so much to focus on his outlook about the US economy (He's suggesting investors need to be aware another recession could be in the offing.) as it makes an important distinction about human behavior, something politicians never seem to get.

Debt, like most things in life, doesn't come into one's balance sheet uninvited. And the idea that people are either unable or incapable of saying no to all those credit card inducements is absurd. Much of the previous debt was accumulated at higher interests rates. 

Refinancing it at lower rates as many would discover in this last recession isn't always possible. They have a name for it on the Street, liquidity crunch.  
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