Monday, March 31, 2008

Just A Thought About Mortgages

The present credit crisis has many facets to it. One of those facets is the mortgage market. The sub-prime mortgages and the variable rate mortgages have caused a great deal of dislocation for many involved as either borrower or lender. The conventional 30-year mortgage is an old standard, but there is nothing magical about the term of 30 years. Just as some people take a 15-year mortgage, there could just as easily be a 40-year mortgage.

A mortgage, like a bond, has two pieces of its arithmetic that can be adjusted. The interest rate can be adjusted upward or downward, and the length of the life of the mortgage can be adjusted in years. A simple way to keep people in their homes where practical is for the interest rate and length, the maturity of the mortgage to be extended. These two adjustments can keep millions of people in their homes. When the credit crisis is over, or when real estate prices come back up, there will be a natural paying off mortgages and the selling of real-estate. Then, these special situation mortgages will eventually disappear from the system. Such a program will calm the fears of many families and bring some rational behavior to the real estate and mortgage markets.

It is time for the Fed to step in and encourage banks to take an active lead in bringing about the recovery. The big guys have seen their industry avert a disaster for everyone, now is the time for them to be firmly encouraged to do the same for the rest of the population that is hurting. Stay tuned.

Opening Day In Cincinnati 2008

Today is Opening Day in Cincinnati. Opening Day in Cincinnati in the old days was the first day of the Major League Baseball season. This honor of opening the new season with the first game was given to the Cincinnati Reds because they were the first professional baseball team. When I was a kid, I loved baseball as many other young boys did and collected baseball cards, read the sports pages, learned the players and their statistics and occasionally went to a game. When I was 10 years old the Reds played their games at Crosley Field in an area of the city known as the West End. My father’s hardware store was on Central Avenue in the West End, and I discovered that on a nice summer day, I could easily walk to Crosley field and spend the afternoon watching a game. In the early 1950’s, Major League Baseball played most of their games during the day, not at night. The first night game was played at Crosley Field. Again an honor given to the Cincinnati Reds as the first professional baseball team. On one particular day in the summer of 1953, I decided to get to the ball park really early and see if I could get a few autographs. I bought a program for 15 cents and they gave you a little sharpen pencil too. Then I went over to where the Reds came out of their club house and waited to ask for autographs. I knew many of the players by sight having seen their picture in the newspaper. As they came out I asked each one for his autograph, but not one Reds’ player would take a second to sign my program. After a while I decided that I was not going to waste this opportunity. In that I got to the field plenty early, I decided to see if I could get any Brooklyn Dodgers’ autographs. I knew many of the players on the Dodgers as they unlike the Reds where a good team and at the top of the National League standings. Back then there were only 8 teams in each league. Autographs came much easier from the Dodgers for me. I got Duke Snyder, Pee Wee Reese and some old coach with a big head of white hair. Then I spotted Jackie Robinson walking close to where I was standing and called out to him. The great Jackie Robinson walked over and I asked him for his autograph. He took my program and signed it and handed it back to me, but then started to ask me questions about myself. Like most 10 year old boys, I was anxious to get on with collecting more autographs, but I politely answered his questions. The interview just kept going on and I wanted to get some more autographs. At the end of the interview Jackie had one of the coaches toss him a ball and he gave it to me. I took that ball home and played with it on the street as it was pretty rough when I got it. I remember asking Roy Campanello for his autograph, but Roy turned and said they had to get off the field because the Reds were going to take infield. I knew what he meant and just waved good-bye. In the 1970’s, Jackie Robinson was honored in Cincinnati at a World Series Game. He died a short time later. I was at that World Series Game and as I looked down from my seat, I remembered that day back in the early 1950’s when I was 10 years old and I was interviewed by the great Jackie Robinson. After that day at Crosley Field, I followed the fortunes of the Dodgers more closely. In October 1955, the Brooklyn Dodgers put it all together and beat their arch rivals the New York Yankees to win the 1955 World Series. A few years later, 1958, they moved to Los Angeles. In 1955, a young left hander from Brooklyn joined the Dodgers. He had been playing basketball and baseball at the University of Cincinnati before signing with the Dodgers. The Reds did not want this left hander anymore than they wanted to give me an autograph. Maybe the Reds did not like the way either of us looked. That young left hander went on to win some big games for the Dodgers and was inducted into the Baseball Hall of Fame. Like me, he was left handed and Jewish, and his name was Sandy Koufax. Last summer I painted an envelope and created a tribute to the 60th anniversary of Jackie Robinson breaking into Major league Baseball on April 15, 1947. As it is Opening Day in Cincinnati today, I am posting that painting in honor of Jackie Robinson, the first African-American to break the color line and enter Major League Baseball in the modern era. The title of the painting is Leveling The Playing Field 1947-2007.

Normally on a Monday, I would post a piece about the markets. The Treasury Secretary Henry Paulson is giving a speech about the "nonexistent" new regulatory plan of the Bush administration. Since Paul Krugman of the New York Times has already expressed my feelings and my opinion on the matter, I will simply say ditto. Read Paul’s piece in the NY Times. If I feel the need to comment later, I will, but for now let’s let today be about baseball, a better officiated game than Wall Street.

Saturday, March 29, 2008

Saturday Is For Art

It is Saturday morning and the markets are closed. For some people that doesn't mean anything, life is all about making money. You know, the person with the most and most expensive toys wins! But for many of us that work to live and not live to work, Saturday is a day for art.

Today, I am going to post some drawings I did back in the early to mid 1990s. At that time, I was a member of the Cincinnati Art Club. Every Thursday evening I would drive over to the club in Mt. Adams for the sketch group. Drawing the human body is not easy for many of us mortals. There have been people born with a gift to be able to put on paper with a pencil what they see with little or no training. I am not one of those people. For me, drawing the human figure was the hardest work I did on Thursdays. I went faithfully every Thursday and worked on my ability to observe, to draw what was there before me, not what I thought was there before me. Those of you who have drawn the human figure will understand what I mean. Even in drawing, we enter with certain preconceived ideas about what we are seeing. Here are three pencil drawings from my days with the sketch group. It was good training for the eye-mind-hand relationship, and helped me with other drawings much less difficult. These are female nude figures.

Friday, March 28, 2008

Friday, Take A Step Back

Today is Friday and I want to take a step back from all the numbers, graphs, charts and trading talk and say something about the big picture as it relates to our economy and the role government plays, specifically with regards to laws and regulations as they relate to the securities industry. I am not going to talk about specific laws and regulations because that is not the point of this discussion.

The politicians in Washington are going to have to step up to the plate and get up to speed about our economy in the 21st century. Specifically, the politicians need to address the new world of finance and the creation of new financial instruments that eventually led to the present financial crisis.

As our economy changes, as the economies of the world change, investment bankers, in a free and open society, will create and develop financial instruments to meet the needs of business and commerce. This a good thing. As computers enabled creative thinkers to produce financial products that met a need, new markets grew. Unfortunately, these new markets were a head of the creation of adequate regulation and safe guards. The securitization of assets such as mortgages, manufactured housing, auto loans, credit card debt and whatever else out there that could be bundled and made into a debt instrument, a security, and sold to investors, is a marked change from the Wall Street of the 1960’s.

I am not interested in pointing fingers or establishing blame, both political parties need to educate themselves and address the issues and needs that our economy demands. This is not just about Wall Street and the investment bankers that create and sell the new financial products. This is about the whole country. In every state of the union there are state employee pension funds, teacher and school employee pension funds, police and fire pension funds and insurance companies and mutual funds and foundations that invest in asset-backed securities as well as other debt instruments. This is about all of us, not just the people on Wall Street that create, package and sell the securities. We need to get away from the notion that this is us against them, Democrats against Republicans, Liberals against Conservatives, capitalists against socialists. Our economy is too complex to assign simple labels and think we have made a enlightening statement of fact.

I hate to over use the sports analogies, but since professional sports is such a big piece of our culture, and even our economy, here goes. What would a major league baseball game look like with one umpire behind the plate and none on the bases? Could one official referee an NFL game? What would happen? Could we reasonable expect the rules to be followed and enforced with such inadequate oversight? Wall Street is not a game. These pension funds represent peoples lives. A serious melt down means millions of our fellow citizens are affected. This is not a time to be greedy or foolish. This is the time for the people that are elected to represent us and that take an oath to protect our lives from foreign and domestic enemies wake up to the fact that the enemy in this case may very well be our own ignorance or lack of fortitude to bring about the necessary legislation to ensure the well being of us all as it relates to the securities industry.

It is my opinion, that if steps are not taken to shore up the need for better regulation and oversight, that it will not be an enemy from across the pond that will do this great nation in, but it will do itself in because of its inability to act when the opportunity was at hand. It is now time to take a serious look at the events of the recent past, the financial system is not completely broken, but it certainly needs to be repaired. Stay tuned.

Thursday, March 27, 2008

So, You Want To Be A Player

Yesterday I talked a little about stocks, but more about buying a mutual fund. Buying a mutual fund requires a certain amount of self education, but that is no different than educating oneself about any major purchase. You go out to buy a car, you do a little research. You know the price, that is the easy part. Now you need to know how the car performs and how much is it going to cost you every year in expenses. The same is true for a mutual fund. The price per unit is posted, but you need to do a little digging to find out what is in the fund, what the expense ratio is and most importantly, how well does the fund perform? There are funds that perform better in a “down” market and there are funds that perform better in an ‘up” market. When you have done all your research, and you should look at several mutual fund families to compare, then you are ready to pick a couple or more funds to invest your money.

Now if that is too simple for you, or you want more out of life, then you can go the route of picking your own stocks. Remember the scene from The Graduate that I mentioned yesterday? Well, imagine you run into me at a cocktail party and you start asking me about picking individual stocks, and I say one word and then walk away. What do you think that one word might be besides “fool”? I would tell you one word, “CATALYST!” You are looking for a catalyst that will cause that stock price to go up. What is a catalyst? When it comes to stocks a catalyst can be several things. For example, a new CEO can be a catalyst as it was for IBM a few years back. A catalyst can be a new product or a block buster drug. The ipod for Apple, or Viagra or Lipitor from a drug company. These can all be a catalyst that will move the earnings of a corporation.

But know this from the get-go, a stock’s price and its earnings don’t always move in tandem. For the most part, if a corporation’s earnings appear to be headed for the toilet, the price of the stock will go down, but picking stocks can get so much more complicated than knowing the direction of future earnings. For the most part, if you pick stocks where the earnings are going up, you will do fine. But understand the stock market does not always act rationally. The market's irrational behavior you can use to your benefit if you have the stomach and the mind to go against the grain. Buying a stock on its way down is a tricky business. You don’t want to be catching a “falling knife.” What the corporation does in running its business sometimes has little or no relationship to the way the stock is being valued by investors on any given day. Knowing when to buy and when to sell will keep you busy. Against that put up a background of changing technology, changing laws and regulations, and changing world wide competition. Add to this equation a currency that goes up and down, commodity prices that rise and fall, and for good measure, let’s throw in the weather. Now, you can play god with your money. Expect, if you are really good at this game to get 6 out of 10 right. That’s right, I said if you screw up on 4 out of 10 stock picks you are a head of the game. Don’t think in an up market, when everyone is riding the wave, that you are a genius. That is a big mistake. Develop a process to analyze stocks and improve on it. With computers you can set up screens to shake out the kind of stocks you are looking for. Computers are a great tool, but they are not the only tool. If computers were all you needed, Bill Gates would write a computer program and then everyone could be a winner. Stock picking takes research, analysis, insight and a little luck. Be humble. Be a quiet winner. You will lose some, no one bats a thousand. Even Sandy Koufax lost a game now and then. And remember, it took him six seasons before he really started to rock. Before you start investing your money, read a few books about stock picking and the market. Do a dry run for a few months to see how well you would have done had you had your money on the table. If you have an interest or a knowledge about an industry, start there and then work your way into industries you are less familiar. “Playing the market” is work. If you become a serious player and you are good, people will find you. Good luck and be humble.

Tomorrow is Friday, and I have no idea what I am going to write about. I am not going to write about politics or sex. I know, some days, they seem one in the same. If anyone out there in cyberspace has an idea for a topic, send me a comment. I do not promise I will address that subject, but I will certainly consider it. Stay tuned.

Wednesday, March 26, 2008

Stocks & Mutual Funds

Remember in the movie The Graduate, where the older man comes up to Dustin Hoffman, who plays the graduate, and says one word of advice to him. He says plastics, and everyone in the audience laughs because they thought that was very funny. Well, it might have been a funny line in the movie, but in real life if you had bought chemical companies that made plastics in the late 1960's and held them, you would have done very well. So, what’s the point? Picking stocks is in good part analyzing companies and their future earnings. Now stop and think about that for a second. Picking stocks requires analysis of companies, plural. Reading up on one company in an industry and not looking at its competition here in the USA and around the world may not be enough to be a successful stock picker.

For the great majority of us out there, there is an alternative to being a stock picker. That alternative is being a mutual fund picker. Picking the right mutual fund for yourself is a job in and of itself because there are thousands of mutual funds out there to pick from. So, what can you do? You can go to the library and do some research in a publication put out by Morningstar that will give you information about thousands of mutual funds. You can check on a mutual fund over its 3-year, 5-year and even 10-year performance record. You can look at what kind of stocks the mutual fund buys. There are funds that buy large cap, mid-cap and small cap stocks. That simply means they buy either large companies with a capitalization of $10 billion or more, or mid-cap with a capitalization of $2 to $8 billion, or small cap with a capitalization of under $2 billion. Once you decide on a mutual fund or two, then you can just monitor the performance of the fund and not worry about the performance of each individual stock.

For those that want to live more dangerously and buy individual stocks, you better be prepared to learn something about analyzing companies and understanding the stock market. Stocks and their movement sometimes have little or no relationship to what the fortunes of the company are. There are markets where a company can be doing everything right and yet because of market psychology, the price of the stock goes nowhere. In fact, there were companies during the dot com mania that were ignored completely despite that fact that they were growing their business and were becoming stronger companies by every measure. As I stated at the beginning, knowing one company in an industry is not enough.

A portfolio of stocks should have around 12 to 15 stocks to obtain diversification, but then you should follow about 50 companies so that you can have replacements for stocks that do not perform well. People buy stocks for many reasons, but one reason is to see the price of that stock go up. Not only do you need to follow 50 companies, they should range over several different industries so you don’t put all your eggs in one industry. Now if you think you want to play the stock market, have a go at it. As long as you do not do any short selling, you can not lose more than you put in.

Personally, for the average individual that wants to be in the stock market, mutual funds are the way to go. Find a couple of good performing mutual funds, whose expense ratio is not too high and whose performance is good over at least a 3 to 5 year time frame and then put the same amount of money into the fund every month or quarter. Over several years, you will have achieved what some refer to as dollar-cost-averaging. And, if you set the fund up to reinvest the dividends and capital gains, you will have an opportunity to watch the value of your portfolio grow. This is not for the short term. Investing is a long term strategy to beat inflation. If we could all just stick our money in the bank and our money would have the same purchasing power in 5, 10, 20 or 30 years, then we would not need to invest our money. Maybe. But, it does not take an Einstein to figure out that our money loses purchasing power every year. Take a look at the price of gasoline over my lifetime. When I was a teenager, you could “fill up” a tank for the weekend for 50 cents and go out and have a good time. Today the price of a gallon of gas is approaching $4.00, and in some places in the country gas is selling for more than $4 a gallon. What will food, clothing, shelter and health care cost in 5, 10, 20 or 30 years? Because inflation reduces the purchasing power of your dollar, you need to invest. It is just that simple. Stay tuned.

Tuesday, March 25, 2008

Finger Paint Anyone?

Today is a day I wish I was writing a blog about finger painting. Last night, I thought I would write a nice simple piece about the stock market and the valuation of stocks. This morning I got around to reading the Sunday Business section of The New York Times and read both articles on the front page of this section. The top article “What Created This Monster?” by Nelson D. Schwartz and Julie Creswell deals with what is at the core of the problems facing this country as it works its way through the present financial crisis. If what they wrote was about military hardware, I think the Pentagon would classify it as TOP SECRET. Let me try and explain.

In the "financial shadows", there are financial products that are unregulated and because of their mathematical complexity, out there on the fringe. Add to this that these financial products are not really even understood by the people that buy and sell them, and one more thing, they have a high degree of difficulty in accessing their worth, their market value. Why financial shadows? Because they are so unregulated and under the radar.

Hedge Funds. Do we all know what a hedge fund is? Simply put, a hedge is an unregulated fund, unlike a mutual fund, that can buy just about anything its portfolio managers want to buy and think they can make money from either buying or selling. Mutual funds buy investment securities for their portfolio. A hedge fund can either buy or “go short” an investment security for the portfolio. Some of you might know this as short selling.

Hedge funds can buy derivatives. Derivatives can limit the damage from financial mistakes. Derivatives can become very complex as they attempt to hedge a portfolio with a variety of investment securities from several angles at the same time. Let us say I sold you a life insurance policy, a home owners’ policy, a health insurance policy and an auto, boat, ski mobile policy. I could take the premiums from those policies and invest them, or I could create a derivative that would calculate the risk of each policy as one, and then put a value on that combined risk and sell it. I would then have created a derivative to off set that risk.

Another product that lurks in the financial shadows is what are called credit default swaps. Credit default swaps are unregulated and do not trade on an exchange. They are just out there. The size of this market is estimated at over $45 trillion dollars. What is a credit default swap? They are described as acting like an insurance policy designed to cover losses to banks and bondholders when companies fail to pay their debts. They are also largely untested.

What does all this mean? How did all this take place? Where were the people charged with oversight? Let me start with the last question and work my way backwards.

The regulators were in place, but there was a climate of “hands-off.” Regulators can for the most part only go after what they are authorized to deal with. If the Chairman of the Fed is governed by a personal philosophy of let the markets do what they need to do, then “hands-off” becomes the mantra of the Street.

As the underwriting spreads in the bond business narrowed and the investment banks looked for areas with the potential for greater profits, new and more complex financial instruments were developed. Unfortunately for many, these new financial instruments and the trading of them, fell outside the regulatory authority of the existing system.

What does all this mean? It means that Congress has a big job ahead of itself. As I mentioned yesterday, the lines against and for new regulation are already being drawn. There will be a big fight with lots of threats about how new regulation and oversight/auditing will drive business from our shores. Congress will have to ferret out the truth of these accusations and use their best judgment, and hopefully they will consider the advice of experts from both sides of the battle, in drawing up a system of regulation and oversight that will be a match for the brains on Wall Street working 24/7 to go around what they put together.

I have not even begun to give this subject justice. I do not know if it is even possible that one man can know the countless facets of what is taking place in the financial markets today and be able to address every concern and weak link effectively. But, one thing is certain. The Street and the regulators and the Congress better apply themselves to the task, for in the balance rests the freedom, liberty and economic welfare of this nation. Stay tuned.

Monday, March 24, 2008

Our Slip Is Showing

It was only last weekend that the Fed stepped in and averted a huge train wreck with the sale of Bear Stearns to JP Morgan. Beyond that, the Fed added new tools to its tool bag in permitting investment houses to shore up their liquidity like commercial banks. The Fed arranged for bond swaps for the investment houses that before the present credit crisis was unheard of.

Yet with all this going on, on the front page of Sunday’s New York Times, column six features an article titled Split Is Forming Over Regulation Of Wall Street, New Powers Proposed, Such Steps Could Stall Economy’s Recovery Opponents Say.

The meat-eaters of Wall Street are worried that new regulations might restrict or eliminate their ability to run down fresh game. On the plains of Africa, the big cats kill only what they need to feed themselves and their pride, but on Wall Street, there is no such thing as too much dead meat. The old, the weak and the young are all fair game for these big cats. Wall Street does not need Washington's politicians and regulators interfering with their food chain. However, when they get into trouble, then it is fine for Washington and the Fed to throw them a life line. Should not privilege be accompanied by responsibility?

I knew this debate was coming weeks ago. This is not the first time Wall Street has killed more than it can eat. Yet every time there is a crisis the lines are drawn and the debate begins, more or less regulation, new or better oversight. If investment banks are going to be treated to the privileges of the commercial banks, then common sense would follow that they would have to adhere to the same responsibilities as commercial banks with regards to reserve requirements and reporting. But this does not answer the question with regards to the rating agencies, who I see as one of the weakest links in the system. The securitization of asset-backed credits, like sub prime mortgages, needs a rating system that works and can not be compromised.

A bureau of weights and measures is a good thing, without it, commerce could not function. Aside from the fact that a two-by-four stud is no longer two inches by four inches, weights and measures are a very necessary thing for commerce to work effectively. Somehow or someway, the present system of placing ratings on bonds by private companies engaged in this craft needs to be reviewed. If the present system remains in place, Wall Street and the nation will be revisiting this problem again in the future. Bond ratings must stand for something! If the credit work done behind the scenes is suspect, the whole rating system is worthless. The present credit crisis is not the first time that the ratings on bond issues have been in part the cause of a crisis of confidence. The rating function is too important to have its inherit problems of weakness be swept under the carpet. Washington needs to take a look at giving this function its attention too.

New and more comprehensive regulation is imperative to the success of our whole financial system. As a major player in the world of financial instruments, the United States should take the lead and set the gold standard for oversight. New financial products will be crafted to meet the needs for credit and risk management as our economy evolves. This should not be thwarted, but common sense would dictate that the present patchwork system of regulation is not up to the task that confronts us all. As a nation that is dependent upon investors and countries around the world as buyers of our debt, it would seem to me that a high level of confidence in our system of regulation would be axiomatic. Stay tuned.

Sunday, March 23, 2008

Easter Sunday 2008

These two paintings were taken down a little while ago. Today is a good day to put them back up. I created, painted, constructed and exhibited these two pieces in 1992. Here they are.

Top: Mother & Child: An American Icon

Bottom: Unfinished Flag

Saturday, March 22, 2008

Saturday Is For Art

Well it is Saturday again. The week goes too fast when you are retired. I had lunch with a gentleman I worked with over 30 years ago on Thursday. It was nice to see him again and catch up. Now I need to look into my portfolio of pictures and see what I can find to post this morning. The top painting is oil on board, and the title is Mother and Child: Level Playing Field Out The Window. I donated the painting, as I donated many other paintings, for the silent auction for the Clifton Senior Center Progressive Dinner in 1995. It sold, but they never asked for another painting from me. I guess it was too political for the ladies on the Art Committee. The bottom painting is oil on paper, and is from my Stamp Collection of paintings. The title is Strict Constructionist. Those of you who are familiar with mechanical drawing from school will remember that you drew three views of an object. There is the front view, side view and top view. Here I am taking a jab at those who want to take to a very narrow view when reading the Constitution. I will admit I do not agree with every decision the Supreme Court hands down. Some cause me to wonder what are they thinking. It's Saturday, go to an art museum or gallery near you and see some art.

Friday, March 21, 2008

Good Friday 2008

As the stock market is closed for Good Friday, I thought I would give it a rest and instead of writing about the economy or the financial markets, I would post a painting. The painting is acrylic on a paper envelope 12" x 9" and is from The Envelope Collection. The painting is titled Popular Messiah, and was painted in 2007.

Thursday, March 20, 2008

Our Feet To The Fire

Nearly everyone that has paid the slightest bit of attention to the talk in the press or on the TV is aware of the fact that the Federal Reserve Bank has been bring the interest rate down on a key interest rate known as the fed funds rate. That interest rate now stands at 2.25%. This is a good thing, but interest rates in a global market place can cut both ways.

The fed funds rate is the overnight interest rate that banks charge each other for lending funds overnight. From this rate, the entire yield curve of U.S. Treasury rates can be constructed. Let me explain. The interest rate on the 2-year US Treasury Note is now 1.55%. Going out another 3 years is the 5-Year US Treasury Note with an interest rate of 2.39%. Taking the maturity of the US Treasury Note out another 5 years to 10 years takes the interest rate up to 3.36%. And, now the 30-year US Treasury Bond’s interest rate is 4.22%. If you plot these points on a piece of graph paper with interest rates running up the vertical axis and the years to maturity running left to right across the lateral axis, you have what is known as a positive sloping yield curve. When you consider where U.S. interest rates have been over the last 30 years, interest rates today are in the bottom of the historical range.

This gives the Fed some room to work, while at the same time the Fed must consider what lower interest rates and a falling US dollar means to the movement of money into and out of the US currency, and thus, being invested or not invested into US Treasury Notes and Bonds.

If US Treasury interest rates fall to a level where the decline in the value of the dollar as measured against other major world currencies, leaves the foreign investor with a negative rate of return, after investing in US Treasuries for a given period of time, then foreign buyers of US Treasuries will stop buying US Treasuries and look for other government’s debt to invest their cash. Keep in mind that foreign investors hold US dollars in their currency portfolio by choice, not by necessity.

The Fed and the US Treasury knows this only too well. U.S. Interest rates can only be reduced so far before foreign buyers of U.S. Treasuries decide to buy notes and bonds not denominated in US Dollars. Add to this the reality of the billions of dollars of oil and foreign goods that are being imported everyday into the United States, and the economic equation, in my mind, takes on the appearance of a perfect circle. As long as the US dollar is attractive enough to foreign buyers to hold US dollars in their portfolios and in turn invest in US dollar denominated securities, things will be fine. However, if inflation should accelerate in our domestic economy and foreign holders of US denominated securities conclude that given the low rate of interest they are receiving, and the decline in the value of the US dollar, that the total rate of return is a negative number or that it will be very shortly a negative number, then foreign investors will start selling US Treasuries on the market in large quantities and push our domestic interest rates up. And, the last thing our slowing domestic economy needs now is rising interest rates.

This is what I mean when I say low interest rates can cut both ways. Inflation destroys purchasing power. When the dollar falls in value against other major world currencies and foreign investors can calculate that the return on their fixed income investment is now a negative return after it is converted into another major world currency, the rationale for holding US dollar denominated securities has no point.

In a global market place the policies of the United States, both monetary and fiscal, hold our collective feet to the fire. We can not do as we please because there are consequences for our actions or our inaction. Stay tuned.

Wednesday, March 19, 2008

We Can Not BS Open Free Markets Around The World

Over the last month, I have discussed many facets of the economy, and like the old tale about a group of blind people touching different parts of an elephant and all having a very different description of the same animal, so too, many of the economists, near economists, market watchers, talking heads and commentators have different opinions of the economy. What and where they see the problems is also a matter of opinion. Let me give you mine.

My approach is to start with energy, and more specifically oil which is refined into gasoline and diesel fuel. I listened this morning as a group discussed how gas prices are low relative to what people are paying around the world in other advanced economies such as England and Europe. This is true. The problem is not just the price of oil, gasoline and diesel, but the direction and speed of the price increases. Couple to that, that while we import such vast quantities of oil, and we import so many products from China, and we are spending billions of dollars in Iraq on the war, and we, the US Treasury, is borrowing heavily in the international debt markets, that with all these factors coming together with a sub prime mortgage crisis, a crisis of confidence in the valuation of securities that are asset-backed, a falling real estate market, and finally a dollar that is falling in value against other major world currencies, and now you have real economic trouble.

Politics and national economic policy are man made items. They have little if anything to do with the forces that are purely economic such as supply and demand and yield curves. Unfortunately, not all policies promote what is best for all the people, or even the country as a whole. And here comes the rub, the politics of money unfortunately has taken this nation down the wrong path. Welcome to the reality the United States of America finds itself in March 2008.

Take oil out of the equation, and by this I mean reduce substantially the amount of oil we import or reduce it by an amount that would make the number of dollars leaving the economy for oil to be negligible, and a major part of the economic equation would see relief. We could continue to import products from China, even though from a national economic policy angle, that is, in my opinion, a bad idea, but because we would not be importing oil, the US dollar would not be under the selling pressure that it is now in the world currency markets.

If we had had a comprehensive, (I heard this morning the word holistic used), energy policy as a nation, I seriously doubt we would be in Iraq today. Even Alan Greenspan says that the war in Iraq is about oil. But, there were those people that did not want the United States to be independent of foreign oil, and so we are now paying the price for a lack of a comprehensive energy policy.

Even a strong and dynamic country such as the United States has its limits. Those economic limits have been reached, and the rest of the world is telling us in their buying and selling of commodities that we have reached them. Gold rose to $1,000 an ounce in US dollars, not 1,000 Euro. Oil is selling over a 100 US dollars a barrel, not over a 100 Euros. The world economies vote on the success of the job we are doing running our economy with their money. And, the vote is not going our way. If our own leaders will not do the right thing for this nation economically, others by the movement of their money will. The bottom line is we can not BS our way out of mismanaging our economy to the rest of the world. We talk a lot about free open and competitive markets, and now we are seeing them in action on a global scale. Stay tuned.

Tuesday, March 18, 2008

You Make The Call

When you read and listen to much of what is being said about the current financial crisis by the so-called experts in and out of office and on the Street, and you realize that much of what is being said is being covered up in words like “melt down” and other colorful descriptions that do not quite get to the nitty gritty of the issues, then Moneythoughts gets a little disgusted.

We are now reading that the former chairman of the Fed, Alan Greenspan, is speaking out about the current crisis to The Times of London. On Monday March 17, 2008, the following quotes were given.

Let Moneythoughts quote a few lines from “Chance” Greenspan.

“Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress.”

Failed under stress? What stress? A bridge fails under stress, a risk-valuation system does not fail under stress, it fails because it is poorly crafted and because it was intimidated by the brokerage houses that pay their fees. Let us call it for what it is. Stress? There was no stress. Greed! It failed because of greed, that is the bottom line. “Chance” you will have to do better than that. The system needs to be changed because if it is not changed another fresh set of eyes will be dealing with the same exact problem several years from now. Because you did not have the guts or the intelligence to deal with the problem of the rating agencies and no one else did either, does not mean an attempt to correct the weakest link in the financial market system should not be looked at and reinforced with some steel bars. The present crisis is not even nearly over and the experts are warning of too much regulation. You have got to love it.

“Chance” Greenspan is quoted again.

“Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.”

Why throw structure of markets and regulation together? No one wants to destroy market structure, or as you put it “structure of markets”. That is not the problem. Regulations or the lack there of is the problem. The hands off approach does not work, regardless of what they write in nice little books. In the real world we need umpires, referees and official oversight. Even with all that, those committed to breaking the rules will find a way. The problem becomes acute when the rules are broken for a sustained period of time, then you have hell to pay as the financial markets are now paying today. No one is saying a word about restricting open competition or flexibility. This is more of the same BS we hear every time the markets have a crisis. Do not regulate, do not legislate, because if you do, all hell will break lose. Well, tell Moneythoughts what we have now if not all hell breaking lose. Bernanke is already being criticized for crafting the bond swap of non-marketable mortgage bonds from the banks and investment houses. Thank goodness we have a Fed chairman that has a brain and not a bunch of outdated ideology to guide him. Moneythoughts gives Chairman Ben Bernanke high marks for crafting a rescue package that is sorely needed.

Many people and institutions were sand bagged by the pitiful job done by the rating agencies. This was not the only problem out there, but it was the most crucial, in Moneythought's opinion, because had the charade stopped there, the crisis of confidence would have been averted. If the bond issues had been given the correct rating grade in the beginning, much of the present disaster may have never happen. The credit crisis extends to all asset-backed bonds, and there are many kinds. To name a few besides the mortgage-backed, there are manufactured housing, auto loans, credit card debt and the list goes on. Now, perhaps you can understand why the word melt down is being used so often. Stay tuned.

Monday, March 17, 2008

Being There, Not The Movie

Being There, the 1979 film starring Peter Sellers that takes place in Washington, D.C., is one of my favorite movies. Sellers plays the character Chance, an elderly gentleman that lives in a nursing home and is somewhat retarded, but who, through a series of accidents, comes to advise the President of the United States on the economy. Peter Sellers died in 1980, but his character Chance lives on in the Washington, D.C. of today. In fact, his character appears on TV news shows quite often, and only the discerning eye can catch a glimpse when he is reciting his words of wisdom.

The economy and the financial markets did not get into the position they are in today over night or in a few weeks or even a few months. This big of a mess was a long time in the making. It is now almost 10 years since Long Term Capital was bailed out by Wall Street. Now 10 years later, it is Bear Stearns that is the recipient of a bail out. The interesting thing about this is that Bear Stearns, often referred to in the newspapers as a brass knuckles outfit of Wall Street, chose not to participate in the bail out of Long Term Capital in 1998. As they say on the street, “what goes around, comes around.” At least there is a JP Morgan around that can now bail them out, and they did that this weekend for $2 a share.

The Fed and its Chairman Ben Bernanke have done some extraordinary things of late. Luckily Mr. Greenspan, the former Fed chairman is retired. His calcified mind set, which has some responsibility for the present situation, would be no match for the flexibility of thought that has produced the new set of tools that the Fed recently put into place. Ideology will only take you so far when a crisis of truly monumental proportions occurs, thinking creatively is the resource most cherished. This financial market mess will take months if not years to clean up. Do not worry who is going to pay for the clean up because you know it has the taxpayer already written across the top!

The next big question is: What is going to be done to try and prevent another crisis of confidence from happening again? No doubt as soon as the present situation is on the mend, lobbyists will be telling our legislators that more oversight and legislation is not needed. And so the lines will be drawn. Will no measures be taken to strengthen the system against abuse? Can anyone say that the present situation that the financial markets find themselves in today is not the result of several years of abuse and lack of sufficient oversight? Just like the automobile manufacturers years ago were reluctant to add seat belts and air bags, so too will the investment banks push against the specter of new measures of accountability and tighter controls. The question will be does the Congress have the guts to do the right thing by the people, as it is the people who are picking up the cost of this bail out. Stay tuned.

Last Wednesday, March 12, Moneythoughts wrote about the new actions being taken by the Fed to bring liquidity to the banks and investment houses. Today, Moneythoughts is watching the pretty talking heads of CNBC and they are talking about exactly what you read in Moneythoughts almost a week before. Now Moneythoughts is not very good looking, Moneythoughts will grant you that, but Moneythoughts is much more than a pretty talking head. Moneythoughts gave you the information five days ago and explained it in everyday English. So, when you want more than picture and a pretty face, tune in to Moneythoughts.

Saturday, March 15, 2008

Saturday Is For Art

I have not decided what pieces I will post today, so I will just reach into my bag and pull out a couple. I hope everyone had a good week. We all know one Gov. that did not. The nice thing about the weekend is the markets are closed, so we can give it a rest. I love to visit art museums and I visited mine, the Cincinnati Art Museum this week and saw a show (3 self-portraits) of Rembrandt's work. Take some time and visit an art museum near you, I bet you will enjoy it.

These two paintings are from The Envelope Collection, as they are painted on 12" by 9" black envelopes. The top painting is titled Level Playing Field Out The Window. The painting below is another level playing field piece that I used in a collage which I will show later.

Friday, March 14, 2008

Economic & Political Decisions = The Future

A politico-economic interpretation of the United States on March 14, 2008 is too long a title for a blog, but it is what I am thinking.

Gold, the commodity, is selling for $1,000 an ounce. Oil has now traded at over $110 a barrel. There is a huge credit crisis and a crisis of confidence in the bond markets. Gas is now selling at $4 a gallon in a couple of states and the price continues to move higher across the country. The Federal Reserve Bank has come to the rescue of the credit markets with new initiatives to bring liquidity to the major banks and investment houses. The US Government continues to borrow large sums from lenders around the world. The US dollar is falling in value against the Euro and other major world currencies. And, the core CPI, Consumer Price Index, for February and announced today, is unchanged, but that does not include food and energy prices which continue to go up. So what do we have?

All of the above adds up to one thing. The United States has mismanaged its resources and made poor decisions and investors around the world know it. The bottom line is we are going to have to change our priorities or watch as our economic future continues to go down hill. This November the people of the United States will have an opportunity to vote on what they think those priorities should be.

Given what we have come through and the direction we are going, I think, we have to change the things we can change. The first thing, in my opinion, that needs to be changed is the spending in Iraq. Given all the economic factors that are working against the U.S., the United States needs to disengage itself financially from Iraq. In my opinion, the United States can not afford to be spending $12 billion a month to do whatever it says it is doing in Iraq. That spending decision can be changed and should be changed. As a economic decision, it is not big, but it says something about the direction the United States is taking to address the problems of its economy. It may well be time for the United States to address other spending issues overseas and reexamine the cost/benefit of such expenditures.

The United States is being graded every day by investors and countries around the world. Gold is selling at $1,000 an ounce for a reason and the reason is not that people are wearing more gold jewelry. The price of gold is a barometer of the confidence or lack of confidence in the future value of the US dollar. Investors have bought gold as a hedge against the declining purchasing power of the dollar.

At some point, when enough people are feeling the pinch of higher energy and food prices, at that point survival takes the front seat, and other issues that I will not mention, but we all know are not associated with economic survival, will move to the back of our list of priorities. The position of the United States as a world leader is not written in stone anywhere in the world. As a nation we must earn that rank everyday. Unless the United States responds to the economic challenges facing it today, with a new direction in leadership, the United States will not be a world leader by the middle of this century.

Thank goodness Saturday is for art, we can all use a rest. Stay tuned.

Thursday, March 13, 2008

New Financial Products Presents New Challenges

People working outside of Wall Street and the investment banking world might ask, “isn’t there some kind of regulations that would prevent the latest financial crisis?” There are regulations. I am going to list a few of them with their dates, but because there are new products being created all the time, often regulation is two steps behind.

After the Stock Market Crash of 1929, the Federal government passed two important pieces of legislation. The first was the Securities Act of 1933. That was followed by the Securities Exchange Act of 1934. Then later there was the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Then in more recent times the Federal government passed the Sarbanes-Oxley Act of 2002. So, it isn’t like the government hasn’t tried to protect the investor from fraud, not full disclosure, not full transparency and not x-ray vision. Efforts have been made to instill confidence in the system and level playing field.

But, just as in sports, some people want an edge and will do almost anything to get that edge, so too in business people want an edge as well. In the 1980’s there was the insider trading scandal that rocked Wall Street. In the late ‘90’s there was Long Term Capital and its blunders. Not everyone plays by the rules. We see that everyday, even in the filming of football practices to get an edge. There is nothing wrong with wanting to be successful in business or in investing. The problems occur when people cross the line and commit a serious violation. Unfortunately, when this behavior becomes the norm, crisis ensues.

The corporate system as it is practiced today, in my opinion, lends itself to abuse. The market will not tolerate poor performance, and it should not, but the system needs better controls and even more transparency. Without them, there will be repeats of past mistakes. Boards hold CEOs accountable for their performance and the CEOs hold their division heads accountable to them. Pressure to grow the earnings is always there and Wall Street and the investors watch earnings and earnings projections closely. Some times financial products are created that have a greater elements of risk than others, but with greater risk comes bigger profits. At least that is the way it is suppose to work. Unfortunately, if due diligence is not done properly, as in the case of the sub prime mortgage bonds, catastrophe is not very far away. People every where want to do well, and they especially want to do well in the investment banking business because the stakes are so high. Bonuses play a role in motivating players and the rest, as they say, is history.

More regulation is necessary. The question is always, how much is too much. Unless steps are taken for regulators to get a better handle on the new products being created on Wall Street to meet the needs for capital and risk management, then we are going to have more of the same. The people overseeing all of this can not believe that without making some changes with regards to better controls and auditing that the results in the future will be different. Wall Street will fight against additional regulations and that is to be expected. When your pitching new financial products you want to pitch from a higher pitching mound. It is so much easier to throw downhill at the batters. Government needs to step in and level the playing field otherwise we will be covering the same ground again.

Not all financial products are created equal. Some products have a real function, while others are questionable at best. Computers have enabled investment bankers to create products, that without computers, would not be possible or feasible. This process will not stop and it should not stop. As the economy changes, new products are created to meet the new needs for capital and risk management. But, government has a responsibility to the people that buy these new products, and I think this chairman of the Fed has earned the right to be heard about the need for better regulation. Stay tuned.

Wednesday, March 12, 2008

Olive Tree Planters Wanted

How is a successful civilization like a good golfer? By its ability to come out of the rough and land on the green. If it was only that simple. The golfer is playing against himself. A nation, a country, a civilization is so much more complicated.

Are we all rowing in the same direction? Yesterday the Federal Reserve Bank, our central bank, in collaboration with other central banks around the world injected our banking system with an additional $200 billion. The nitty gritty of what and how they did this is not important. The important thing to know is that they are trying to create new ways to relieve the liquidity crisis that is running through the country. But, what I think I am reading between the lines of the articles about their efforts is disappointing.

The Fed is giving the large commercial banks and investment banks an opportunity to put up bonds that there is no market for as collateral and receive Government bonds in there place. The Fed thinking behind this move is that the commercial banks will then be able to continue to lend money and help us out of the current credit crisis. But, I have read that this may not work because the banks want to shore up their balance sheets. Now there is nothing wrong with banks shoring up their balance sheets except that is not the purpose the Fed made the bond swaps available.

It is not nice to think bad thoughts especially if there is no proof of wrong doing, but I am wondering why the banks are not using the liquidity being given to them to help those businesses and borrowers that need help. After all the Fed is doing to get us through this crisis of confidence, and that is exactly what it is, a crisis of confidence, these bankers are thinking more about their bonuses than they are about what is good for the country?

Yesterday the stock market greeted the efforts by the Fed with a big rally. The news reports said it was the biggest one-day point gain since July 29, 2002. The Dow Jones industrials jumped 416.66 points. What changed? Nothing changed, it is all in their collective little heads. But, that’s important because it is the collective little heads on Wall Street that make markets. If markets do not function they are not markets. The Fed stepped in with a big shot of adrenaline so the markets would function. Chairman Bernanke and his staff are coming up with creative ways to repair the damage to the confidence of the market makers, but why are some banks not using this added liquidity to bridge the crisis?

Time for a story. There once was this Roman soldier who came across an old man planting an olive tree. The Roman soldier said to the old man, “why are you planting an olive tree old man, you are so old surely will never see this tree bear fruit?” The old man answered the Roman soldier, "men planted olive trees generations ago so I would have olives and olive oil, and like the previous generations, I am planting olive trees for the following generations.”

Now contrast that story with politicians today whose time horizon is the next election or executives today whose time horizon is the next corporate quarterly report. Unfortunately, there are not enough people planting olive trees out there. A civilization, a nation, a country will survive or fall on the character of its leaders, and the unselfishness of its people that have the power to effect change. Stay tuned.

Tuesday, March 11, 2008

Market Forces Come In To Play

We have asked for help. We have asked for leadership. But for all our asking, the asking has fallen on deaf ears. Now the forces of the market will take over. Many people and families will suffer, but seeing Americans suffer on TV is something we have gotten used to. From Katrina to the forest fires out west, from the droughts in the South to the floods in the west, Americans have seen and some have felt the pain of disaster. These are not man made, but as we say, acts of god.

The economy and the way we run it is no act of god. People and families will suffer from the lack of leadership in Washington over the last 35 years. The energy crisis will now effect us all. With the price of oil pushing $110 a barrel and the price of gas on its way to $4 a gallon, market forces will now step in. Over a year ago I wrote to a friend in the investment business, that I wrote to about the economy, that the price of oil and gas was going to bring this economy to its knees. That because there was no leadership with regards to our energy policy, many people and families were going to suffer. Many will survive, but many will be lost to tragedy. Man made disasters take lives too.

The mortgage loan crisis is a whole book all by itself. True people made some unwise decisions about the size and expense of their home. Add to that a variable rate mortgage, and you have enough fuel for a disaster. I have had people ask me, " why would anyone take a variable rate mortgage?" There are some good reasons to do so, but they involve some very defined set of circumstances. Those people that were gambling with the movement of mortgage interest rates, thinking they could pick the bottom, may have missed their opportunity waiting for the last basis point. Greed takes its toll. There is an old expression on Wall Street, and it goes like this, “the bulls make it and the bears make it, but the pigs get slaughtered."

Necessity is the mother of invention. An old saying, but true. I look for Americans to start coming up with clever and not so clever ways to save on using gas. Perhaps this will be a blessing in disguise. Perhaps this crisis will force people to come together as a community, the way communities were years ago, and start working together to help each other out. When I was a teenager, in the 1950’s, I would drive my Dad home from the hardware store on I-75. He would point to all the cars with just one person and say, “ someday America will be sorry for such waste.” He knew that some day we would suffer from our wasteful practices at a time when his ideas seemed crazy. They seemed crazy even to me at the time.

Everyone can read the comments from the pros about the change over from winter to summer gas and the margins that are not there for the refineries, and the lack of incentive to produce more gas, but the bottom line as far as I am concerned is the lack of leadership in Washington, D.C. So, I will mention my favorite book about the situation we all find ourselves in today about oil. Go the the library or buy a copy on Amazon dot com, but please read Sleeping With The Devil: How Washington Sold Our Soul For Saudi Crude by Robert Baer, 2003. Perhaps if enough people know the score, we can get some real change in the game. Stay tuned.

Monday, March 10, 2008

A Cleaner Game

I do not think any sane person would suggest that we do not need air traffic controllers for commercial air travel. No one would argue that we should just let airlines fly around where ever, and land and take off where ever and when ever they want. How long does anyone think such a condition could exist before there would be disaster?

Financial markets need controls as well. Unfortunately, the last man to head the Fed did not believe in regulation because he was a disciple of a woman that wrote books and believed in a philosophy of laissez-faire capitalism. But, the head of the Fed was not the only one in Washington that championed this philosophy for business. Oh, it sounds real smart when you say it, but in practice it is a disaster.

Much of what we are experiencing in the financial markets today is the result of letting some very large markets fly around with little or no controls. Abuse is to financial markets, what dung is to livestock, a by-product. Unless people are hired to police the situation and make sure abuses are not being perpetrated on the soon to be victims, the field will become unsightly and start to cease functioning.

Words like melt down do not really describe what is taking place with financial markets. Markets are made up of people. Traders are the first piece of the equation. Their confidence in what they see, hear and feel is what determines what that firm is willing to pay for a security, like a bond. When traders back away from bidding for bonds you have a problem. Securities are not suppose to be unmarketable. Prices normally fluctuate up and down, but when no one is making a market for a piece of paper, you have a crisis. When no one wants to bid on a whole class of assets because they do not know what is in them, you have a melt down.

All of this financial mess and bailout could have been averted. People in Washington and New York must start thinking and step away from the stupid ideologies that they cling to. The simple truth is, we do not have enough financial “air controllers” on the ground and they do not have the authority to police the markets and the rating agencies the way the job needs to be done. And, the few that are on the ground do not have the numbers of shoes on the ground to do the job right. Couple that with the lobbying for less regulation and you have the present situation of our financial markets. And no, the Fed is not Superman. The Fed can not fix confidence overnight. The problem is not high interest rates. They have fixed that. We used to say, you can not push on a string when I was a portfolio manager of fixed income funds.

Much if not all of the present situation could have been avoided had the proper amount of regulation been put in place and the proper number of people hired to enforce the regulations. Now that the system has been badly abused, the responsibility to clean the mess up will fall on every taxpayer. So much for books with too simple an ideology on how a free society should function. A nation with as much debt as we have better start running a cleaner game, investors do not have to play in our markets. I know Chairman Ben Bernanke will be polite enough, but will he be bold enough to tell the Congress what they need to hear? Stay tuned.

Friday, March 7, 2008

LBCC: Life Before Credit Cards

TGIF, Casual Friday, let me digress it’s Friday, I guess that dates me from another era. This is true. I walked the face of the earth before credit cards.

A few days back, I received a request to write a few words about credit cards. The most intelligent thing I can do in this case is to refer anyone and everyone to I took a look at this web site and from what I could tell, it seems to be very comprehensive. I really think it has a world of information for the credit card user.

Last month Ben Bernanke appeared before Congress and answered questions about a whole range of topics. I remember him commenting that subprime mortgages were a good thing if done correctly. The key words were done correctly. Almost all financial products if done correctly or used correctly are a good thing. The problem is, some people abuse these products, and the abuse can come from both sides. I am not going to go into the questionable business practices of credit card issuers or the fine print on their credit card applications/contracts. I know Congress is aware of these shameful practices and they have it in their power to put a halt to it.

Credit cards are a tremendous convenience. In 1978, we took our children to Chicago to see the King Tut exhibit at the Fields Museum. We did not use credit cards back then. We either wrote a check or paid with cash. I remember the hassle I had when we were checking into the Holiday Inn City Center that day. The first thing the lady asked for was a credit card. In those days the closest thing I had to a credit card was a charge card for Shillito’s, now Macy's, in downtown Cincinnati. Luckily, with a little fast talking and flashing my driver’s license around I was able to convince the check-in lady that I was a solid citizen and I would pay the bill with traveler’s checks when we checked out. That’s right, I did not own a credit card in 1978 and I worked at one of the larger banks in downtown Cincinnati as a Bond Investment Officer.

Now I am going to get up on my little soap box, yes, it’s a P&G soap box of course, and say a few things about using a credit card. Don’t use a credit card for everyday living expenses unless you pay off the balance every month. Using credit takes discipline or lots of money, and if you don’t have either, stay away from credit cards for the most part. Using a credit card for what I would call a necessary improvement or repair, like a set of new tires, new work clothes, etc. things that will permit you to get a job or continue to hold a job and work, I think are proper uses of credit. You say I’m conservative. I like to think that I am fiscally conservative, but a liberal at heart.

The best thing to do is pay off the balance of your credit card every month. If you own a house and have equity in it, get a home equity line of credit. A Home Equity Line is handy to have should you suddenly need to replace a furnace or other major repairs. The interest rate may likely be lower than credit card interest rates and the interest is tax deductible. The important thing now with the economy turning south is to take stock of what you need to survive and what you don’t. If you are driving a car, your gas expense has double in the last two years. Unless your income has gone up in the last two years, your disposable income is down as a result of the increases in the gas price.

Tomorrow is Saturday and Saturdays are a good day for art. Stay tuned.

Thursday, March 6, 2008

Over $105 A Barrel

Today the price of a barrel of oil went over $105 a barrel. OPEC, the Organization of Petroleum Exporting Countries, has recently stated that it has no plans to increase oil production. On an inflation adjusted basis, this is a new all-time high passing the previous record set back in 1980 during the tensions with Iran.

Now the good news: as a commodity, oil will react like other commodity prices and probably back off as oil traders over shoot its worth. Just as stocks and bonds trade up and down in price, so too can oil get a head of itself and start to back down.

I think everyone would agree that oil is a damn important commodity for countries all over the globe. Countries that we refer to as emerging have seen their consumption of oil increase with the growth of their economies and the growing wealth of their people. India and China are two prime examples of economic growth and the accompanied growth in the demand for oil. Several years ago I read in The Wall Street Journal that when China gets to the point where it is using as much oil per capita as Mexico, that the world would see an increased demand that would put pressure on the price of oil. I must have read that over 10 years ago, at least.

Oil can be used as a weapon as well as a commodity. The first oil embargo of 1973 was a clear warning to the leadership of the United States that oil could and would be used as a weapon to influence our policies towards countries around the world. Unfortunately, in a democracy, subtle warnings are not usually heeded. Henry VIII of England would have acted differently in 1973 than the government in Washington acted. While I did not know Henry VIII, I have this feeling that he would have taken the first oil embargo of 1973 more seriously than the administration in office at that time. Henry VIII would not have been pulled over a barrel.

In life there are trade-offs. We all know that had we, as a nation, taken the first oil embargo seriously and pulled together to formulate an energy policy that would have diminished OPEC’s ability to use oil as a weapon to manipulate our foreign policies, we would not be in the situation we are in today.

Who knows what kind of agreements were made with a hand shake and a wink that put us in the situation we find ourselves in today. We say we are the most powerful nation in the world. Some refer to the United States of America as a Super Power. What kind of Super Power would let itself become so dependent on a commodity that is so important to its economy and survival, that it could be held hostage by its own lack of a comprehensive energy policy? Certainly, the energy policy of the United States of American is not super.

Unless you have been off the planet for a while, you know we are in an election year. In November 2008, the people of the United States will elect a new President and House of Representatives. There is always a lot of talk about how one candidate of one political party is good at crossing the aisle and working with members of the other political party to get things done for the good of the people. Even Presidential candidates claim this quality. So, my question is: why haven’t we formulate an energy policy that would reduce or eliminate our dependency on foreign oil? If everyone is looking out for the good of the people of this great nation, why hasn’t it happened? The reason it hasn’t happened is money. Take a few moments and read a little book titled Sleeping With The Devil: How Washington Sold Our Soul For Saudi Crude by Robert Baer, 2003. This book does not tell everything, but it is a good start. I am sure there are other books out there as well. The first step towards energy independence is for the American people to know what has gone down, and who the players are. Given the facts, I believe the American people can make the right decision. Stay tuned.

Wednesday, March 5, 2008

Give It Our Best Shot

The day after the March 4 primaries is as good as day as any to write about what is a liberal. Most people do not know that the original liberals were opposed to the divine right of kings and the church’s, (with a small “c”) support of this doctrine. There was a time not too long ago when people were ruled by kings and queens and their right to rule over the lives of their people they believed came from god, and so the doctrine was called the divine right of kings. The church placed itself next to the king and queen just like the bishop’s position on the chess board and supported them and the concept of divine right. It was only many years later that the church decided that democracy was not such a bad idea. But as men discussed and questioned why kings and queens ruled by divine right, a movement developed that came to the conclusion that god had given every man certain inalienable rights. These discussions continued and evolved. First there was Life, Liberty and Property. Later came Life, Liberty and the pursuit of Happiness. When this country started out on its great experiment in democracy, everyone did not have the right to vote, nor were all offices directly elected by the people. With time, voting rights were extended to all males, black and white, and then to women. The direct election of Senators came about too. So, the liberal as some of us are called had a hand in shaping the democracy that we all enjoy today. I personally do not care for divine right or a theocracy, but I do believe in markets of the economic kind.

Now let’s talk about economics. The economy is divided into three sectors. There is the private sector or the individual households. There is the corporate sector made up of the major businesses that actually are part of the private sector. Finally, there is the government sector. The government sector hires a lot of people from the private sector and gives them jobs. The government also buys products and services from the private sector to make government run. But somewhere along the way, things got more complicated and involved. The corporate sector wanted to sell products and services to the government even if the government did not need them. So, the corporate sector hired people called lobbyists, they hung out in the lobby, to influence and make a case for their products and services. Later, having sold their product or services, corporate wanted the level playing field tilted in their direction. Let’s raise the pitcher’s mound so we have an bigger edge over the batter. Because technology plays a role, TV became a friend to those running for office, but TV cost money to buy commercials. So now we have politicians raising huge sums of money to get their image on the TV. Where does the huge sums of money come from has become an issue in and of itself. But just as it seemed TV and money were going to determine elections forever, technology, like once the printing press and movable type, brought forth another invention. The personal computer and the laptop have brought a new dimension to the discussion. While money for TV will still dominate, ideas can be transmitted over the Internet and large pools of money can not stop this transmission of ideas.

Now all we need is an electorate smart enough to know when someone is blow smoke, or as we say in the vernacular, trying to blow smoke up your ass. The human spirit to survive is a strong one. People will if given a chance will ferret out the best solutions. That does not mean that countries have not made mistakes. Every country makes its share of mistakes. The important thing is that we remain free to work out our problems as a nation for ourselves. That’s what elections are all about. A democracy is a new experiment every day. There are no guarantees how things will come out. But, we can give it our best shot.
Stay tuned.

Tuesday, March 4, 2008

Today Is Primary Day In Ohio

Yesterday I was the unsuccessful bidder on eBay for a pair of jeans. Now this was not just any pair of blue jeans, this was an unworn (new) pair of Lucky Brand jeans that were made in the U.S.A. about 10 years ago, and are no longer being made. Yes, they were in my size, 36/30. They were #91's, just one number away from my worn out pair of #92's. The model #91, came with a button fly. I set a price that I was willing to pay and I bid it. You might ask, why would a 65 year old man be willing to pay $85, plus another six bucks shipping for a pair of blue jeans? Well, that’s a good question. I live in jeans and a t-shirt. It’s the way I dress. I like my Lucky Brand jeans, but they do not make them the way they used to any more. First, they are not made in the original style or color. Second, they are made outside the U.S.A. You see, the guy, Gene Montesano, that created Lucky Brand became successful, and then sold out to a bigger clothing manufacturer and they then changed what was once a good thing. It is the American disease. Make a great product, become successful, and then sell-out. The new owners take the quality product, move the manufacturing to Mexico and never look back. Profits rule the day.

Unfortunately, this is the story of manufacturing in so much of our country today. Here in Ohio, there are stories of workers unbolting their machinery so that it could be shipped, with their job, overseas. The culture of the United States is make a buck, screw any responsibility to the worker who has worked for your company.

When I studied history, there were a number of different angles you could approach learning about a country. I was always more interested in pursuing a process that involved examining the culture for clues about the true nature of a people, and thus have an understanding of the actions or inaction taken at critical points in time. The culture in the U.S.A. is the culture of the Almighty Dollar. Money rules. We see it in our economy and we see it in our government. Money buys access and money buys influence and money moves people to act, and to vote.

Today is primary day in Ohio, Texas, Vermont and Rhode Island. Many people are going to the polls to vote for change. That has been the word of the season. But, to the old man that has studied and read a lot of history, change occurs slowly and over time. There is one technological factor that has changed the political equation and that is the Internet. Just as electronics added a faster dimension to the trading of securities and the movement of financial markets around the world, so can the Internet change the political landscape of the United States. Change can and does occur, but it is brought on the wings of hope for a better tomorrow.

I have had my say today, now it is time for me to go vote. We can change the way business is done in Washington. The Internet just might be the catalyst that makes that change possible. Stay tuned.

Monday, March 3, 2008

History Revisited and History's Lessons

Historiography is something that has interested me for some time. I will not give the formal definition here, if you are interested, you can look it up. When historians write a history, regardless of how narrow a time period or subject, they must of necessity pick and choose what information to include in their writings. The writing of what I will call serious or scholarly history is supposed to be objective. Facts and documents are to be weighed and considered carefully before their inclusion into the final paper. What is objectivity? Can people approaching the same subject from two different perspectives and not give objective yet different interpretations to the same set of facts or events?

When I was an undergraduate in the early 1960’s, I took a course titled something like The Economic History of the United States. We had to do a paper, so I wrote about the Louisiana Purchase of 1803. I titled my paper, A Politico-Economic Interpretation of the Louisiana Purchase. I think I got a B on the paper. Unfortunately, one day while cleaning up the third floor of our old house, I finally pitched it with my other old papers I had written over the years. A bad mistake that I realize now.

I remember my research took me downtown to the main public library. I needed to read old newspapers about the attitudes and talk back at the time just prior to the purchase. For this I needed a note from my professor to have access to these old newspapers. What I found after reading several newspapers, was that the people in the interior were talking about leaving the Union if the government in Washington did not do something about securing the rights of Americans to get their products down the Mississippi River and to the ports in the north east. The land west of the Mississippi River was not the issue I found out, moving and selling produce and products from Kentucky and Tennessee was what the people were concerned about. France controlled the Mississippi River at the business end and the people up north where not happy with the way the French were running things. As we all know President Jefferson bought the Louisiana lands and more importantly control of the Mississippi River from France for a reported $15 million in 1803.

As we look back on the Louisiana Purchase, our perspective changes with each generation, and with that change, the significance of that purchase changes. I can not help but wonder how our country’s lack of a national energy policy after the oil embargo of 1973, and the impact that that event has had on the economy of the United States, will be interpreted in the coming generations by historians. It would be interesting to imagine how the official historian of OPEC might write that same history, or for that matter how Saudi historians will interpret and write that history. Events present themselves and actions or inaction is taken and they all have consequences. Perhaps it is time for some one to start thinking about writing A Politico-Economic Interpretation of Saudi Arabia? The sand is running out of the hour glass.

Saturday, March 1, 2008

The first two paintings that I have posted for today are among my first paintings. I started painting in 1988 and have over the years continued to put out a few pieces every so often. These two paintings are painted on Masonite board in oil and enamel paint. I don’t remember exactly what I was trying for, except to say, I wanted the flags in both paintings to come off the canvas so to speak. They are the result of sketches I made probably on the back of some business envelope during some meeting or while I was talking on the phone. The first piece is four foot square, 48”x 48”, and titled American Flag Makes The Scene, 1988-89. The second painting measures three feet by four feet, 36”x 48”, and is named Untitled For Now, 1991.

The last two paintings are painted on 13”x 10” black envelopes. When I was working for the State of Ohio, I received investment reports every month. One company in NYC, Daruma Asset Management sent their reports in a black envelope with a nice texture. I liked them and started saving them, and then later I would draw on them and even paint on them with acrylics. Each has its title at the top of the piece. One is TARGET, and the other CHECKERED.

These four paintings represent early work, 1988 to 1991, and work I painted last year in 2007.