Sunday Morning in the Queen City

It is 17 degrees this morning in the Queen City. On a morning like today, I ask myself why would anyone settle a village on the Ohio River rather than continue going south to a warmer climate? The early settlers of the Queen City must have enjoyed cold weather a hell of a lot more than me. Sometimes we get a pass for December, but it sure doesn't look that way this year.

Well the University of Cincinnati football team got to travel to Hawaii to play a little football. I'll bet they are happy the game wasn't here. The No. 13 ranked Bearcats beat Hawaii 29-24. I don't even want to know what the temperature was at game time.

There was some good football on the tube yesterday. I painted and listened and watched the Army-Navy game. It wasn't much of a game for Navy as they rolled over the scoreless Black Knights of West Point. It is quite clear that Navy has a football program and Army does not. When you get knocked off that many years in a row, you need to make some changes. Any good military mind would see that.

But the real bright military mind goes to our leader here in the Queen City, Mike Brown. The Bengals, our own professional football team travels up I-74 today to "play" the Colts in Indy's enclosed stadium. With temperatures right now below freezing, the Bengals don't need another obstacle to winning.

I enjoyed watching the Florida-Alabama game too. These two schools have excellent football programs and could teach our Bengals a thing or two about winning programs. But then again they don't have Harvard educated Mike Brown running their programs. That honor is left for us in the Queen City. Aren't we lucky.

Saturday is For Art: 9 Paintings, THE ENVELOPE COLLECTION

The above 9 pieces are paintings that I call THE ENVELOPE COLLECTION. The original paintings were done in acrylics on the back of a 12" by 9" black envelopes that I received reports in at my job from 1996 to 2005. The prints are enlarged slightly and are printed with an Epson printer on Epson Professional Paper that measures 19" by 13".Prints of these works are available to be purchased from me directly. I can even have them framed for you and sent to you directly from the professional frame shop I use in Cincinnati. Anyone interested in any one of thses prints can contact me at fdzigler@yahoo.com. Prints purchased unframed are mailed in a tube. One more thing, I will sign each print just under the image on the right corner in black ink or pencil, which ever you prefer.

This Was Not A Natural Disaster

There are natural disasters and then there are man-made disasters, and then there are natural disasters made worse by an inadequate response to a natural disaster. The latter one is called Katrinia, like in hurricane Katrinia.

The latest chapter of the Economic Crisis of 2008 involves the question of whether the Federal Government should loan the three American Auto makers money so they can stay in business without having to go through bankruptcy. Almost everyone who has commented on this chapter has brought up the fact that much more money was loaned to the banking and investment banking sector commonly known in the jargon as “Wall Street”.

Money and the movement of money has an essential role to play in an economy as complex as ours. Cut off the flow of cash and credit in this economy and it would amount to cutting off the flow of blood to the heart and the brain at the same time. Such an action would produce the death of our economy as we know it. To rebuild would take years and the pain and suffering would be almost unimaginable. But what about cars and trucks?

For a whole lot less money, the Federal Government can keep millions of workers working and all the related industries working as well. But, there is a difference, it is not the brain and the heart, it is only both arms or a leg and an arm of our economy. Either way, in my opinion, not to give the three auto makers the loan is just plain stupid. Actually, it is worse than stupid. If any American thinks that letting the three auto makers go under will not affect their house, they are not thinking clearly, or, more importantly, like a macroeconomist with a world view. Why a world view?

Does anyone on this planet believe if this same thing happened in Japan, that the Japanese Government would hesitate for one second to come to the aid of their auto industry? I rest my case.

It is time to get real in America. The policies that our Federal Government pursued since the end of World War II hold the key to our present economic situation. Not to look at the big picture and just beat on the heads of the auto worker of today is, in my opinion, just plain stupid and mean. How can I expect our Congress to understand what history, our own making of history, has done to the position of the auto industry in American today, when all they know how to read is polls? Foreign competition has pushed Detroit to build a better car, I will agree with that. But, the whole foreign policy, (the Containment Policy), of the United States coming out of W.W.II and the start of the Cold War with the Soviet Union, was predicated on the belief that the way to fight communism was to have strong economic healthy democracies surrounding the Soviet Union. This is where our foreign policy intersects with domestic economic policy and results in the trade agreements with the Germans and the Japanese. These trade agreements helped to make their economies develop and grow strong. In no small part, again in my opinion, was this part of what lead to the fall of the Soviet Union. Germany and Japan, not the United States, had rebuilt themselves from the end of W.W.II, and their defeat, and now had surpassed the Soviet Union’s economy.

A thick book could be written as to why we should not let the three American car makers go into bankruptcy, but that should not be needed. All that is needed is a little understanding of why the present situation was created. We produced first the financial crisis that lead to the present economic crisis by our own hands America, this was not a natural disaster.

Stay tuned.

The Rest of The Story

The present economic crisis is man made, just like the Great Depression was man made. The big difference this time around, I hope, is mass communication. In the early 1930’s, radio was in its infancy, and TV was yet to be invented. The movement of ideas traveled at a much slower pace or perhaps not at all. This time there are any number of ideas out there about how to fix the present economic crisis. Economists appear on TV, in print in the newspapers and even on their blog or web site. I also feel good about the fact that many of the people being assembled for the new Obama administration are bright and capable people. And, President-elect Obama states that there will be strong debate within his administration and hopefully this will bring out the best ideas for the measures to be taken for the economic recovery.

One aspect of all this is: what happens to our money? I am not talking about the new designs the U.S. Treasury seems to be coming up with each week. I understand that new technology can be used to safeguard our currency. The last thing we need is for another country to flood the world with bogus one hundred dollar bills, we will be printing enough of those babies ourselves.

Knowing Paul Volcker will be hanging around, and, I hope, have the president’s ear, makes me feel better about our chances for a sound recovery. But, that said, there are still some very basic things about monetary policy that I would like to address.

Whether the federal government borrows the money or just prints it, the specter of inflation is out there. Those that hang in there for the most part, I think will be fine. The stock market will go back up as earnings turn around for corporations. The idea that stocks will no longer sell at a price earnings ratio will never happen. When earnings projections start back up, the stock market will begin its recovery. Like the stock market, the real estate market will come back as well. Unless someone can make a case for a huge wave of deflation, housing prices will come back much like the stock market. But, what about those people that hold cash?

Those individuals that know they do not understand the stock market or trust a broker to put them in the right mutual fund, are left with their savings account at their bank, or, their box of money under the bed. If they were smart enough to make that gold coins in the box under the bed, then even if the house burns down, they still have their gold coins.

The amounts of money that our government is going to spend and print will cause a new round of inflation. This may not appear for a while, but it is coming. Those that know something about hedging for inflation may want to revisit their plans again. Those who will invest will see their investments move up in value over time. The prices we pay today for goods and services will go up, and while it is hard to believe this now as prices are going down today, believe me, this phase of the economic cycle will happen. My question is: what is the federal government going to do to protect all those people who will be left with much reduced purchasing power for the money they saved. The argument that Americans do not save, to me is a joke. Why save money that will buy you less goods and services the following year even if you saved it? If the government keeps interest rates low, two things will happen. The first one is that people will not save. In the 1970’s and 1980’s money market funds were all the rage because people were being compensated for giving up the use of their money for an attractive interest rate. Second, low interest rates are good for developers of real estate and other expensive or capital intensive projects. But when interest rates are held down for political reasons, like to keep the party in power and the party going, it causes investors to reach for yield, and, now do you see where I am going? Yes, reaching for yield can be spelled investing in asset-backed bonds, and, now you know the rest of the story.

Stay tuned.

Time To Paint

More Richard Nixon tapes have been released and George W. Bush’s interview with Charlie Gibson playing on TV, how could life in America get any better? For a few moments there, it is like a deeply moving religious experience for me, getting to listen to these two Republican presidents from different times, all speaking now to us in the present. The inspiration that their words fill my body and mind are so powerful that I can not waste my time writing about our economy, or bonds, or for that matter anything else. This kind of inspiration calls for me to paint. The call to create political art plays in my head. Enough said, it is time to paint.

Stay tuned.

Less Than 50 Days And Counting

I listen to too much TV news, and I know it, but at least I am painting while I am listening, so it is not entirely a waste of my time. As I have commented before, the TV news programs on cable do not employ economists to host these shows and therefore we hear a lot of nonsense. It is nonsense in my opinion anyway. So, lets talk about the market and monetary policy for a moment.

The stock market took a big hit yesterday losing its most points in a single day. But the question to ask, is it the largest percentage drop in history? It really does not make any difference. The people that make a market in a given stock, means that they are offering stock and buying stock of those companies that they are making a market in. As sellers enter the market, the market maker lowers the bid price that they will pay for the stock. If there are more sellers than buyers the bid price at which the market maker will pay for your stock will continue to drop. When buyers enter the market in large numbers or more stock of a particular company is being bought than sold, the price of that stock goes back up. There are also investors selling short stock they do not have a position in. That means that the stock market rules permit an investor to sell shares of a company that they believe is priced too high and believe is going to go down in price. This aspect of selling short adds volatility to the market. When it appears that the market is going to go back up, the short sellers have to sell their short position, also known as covering their short position. All of this activity adds volatility to the stock market. The important thing to remember is that good companies get battered in the stock market during turbulent times, but they are still well run companies. There are a number of these companies out there. They do business around the world and provide excellent products and services the world over. When the economy gets back on track, these good companies will improve their share of their markets and return even better earnings than before the economic crisis which we now can officially call a recession. This blog is not for giving out advice about what to do with your money or investments. It is to discuss, through my 66 year old left-handed Jewish brain, what I see and make of things after a few years working with this stuff. Years ago, an older gentleman I knew said that during periods of stock market volatility, that you ride it out like a ping pong ball in a storm. There is a lot of bouncing around, but when the storm is over the ping pong ball is still there. There are good reasons to believe this is true.

Money and monetary policy. The U.S. dollar is still a very stable currency. Why? As a history student, I had this idea that to really understand an historical event, it was necessary to look at more than just the event itself. Let me try an example: Woodstock, the music event of the 1960’s. To just look at what took place on the few days at Woodstock without understanding the culture of the whole ‘60’s movement would not make much sense. The events leading up to Woodstock are as important in understanding Woodstock as Woodstock itself.

Now look at immigration to the United States and what do you see? People are still coming to this country and trying to get in any way they can. What does this all mean? Quite simply, the United States is still the place to be. When the flow of people starts the other way, then I think it is time to be worried. The political and military strength of the United States is what is ultimately behind the value of the U.S. dollar. Yes, the dollar goes up and down in value on the currency exchange markets, but these are fine tunings to current monetary conditions. No one is getting out of the U.S. dollar in any big way. The wealth of this country, both physical and intellectual is enough to cover the value of our currency. When you add in our political stability and our military strength, this country is a long long ways from being valued correctly in the markets. A lot a nonsense passes for knowledge, but do not be fooled, this country is coming out of this recession and help is less than 50 days away.

Stay tuned.

This Christmas Buy An Extra Gift

Help is on the way, but it is going to be another 50 days, 30 plus 20, before the new administration takes office. Until then little if anything is going to be done to help our economy get back to full employment.

There are a couple of ways to look at this. First, there are those that want an imbalance between jobs to be filled and the number of laborers to fill them. This is classical supply and demand economics. The more laborers available the lower the salary or hourly wage the employer needs to pay. It is a buyer’s market if you are in the market for labor. This may have a tendency to push down wages and thus have a deflationary effect on the economy.

On the other hand, any stimulus coming from the Federal Government, though inflationary, is not likely to take place until after the new administration takes office. Even helping out the states so they do not have to lay off workers this Holiday Season could go a long way in keeping the unemployment lines shorter. However, I do not see the present administration doing anything like that. Obama is not yet president and the present president is not there either, so, as far as the economy is concerned we have no president.

Basically, the American economy is going to have to hang on until January 20, 2009. One good thing in our favor with regards to the poor state of the economy is Christmas. Thank God for Christmas. The spending that will hopefully take place during the Holiday Season, may get us over the hump until the new administration can take office. Those of you who do not believe in Christmas are certainly entitled to your beliefs, as we live in a free country, and people can believe as they wish. But this year, it is not just a matter of religious beliefs, it is a matter of economic survival.

This Christmas, buy an extra gift for someone who has done something special, but who is not expecting to receive a Christmas gift. It does not have to be a big or expensive gift for it to work. We all need to buy a little extra gift for someone who has touched our lives, perhaps during the past year, this Christmas. Our economy needs for people to have confidence in our ability to turn our economy around, but also for us as a nation to show to one another that we have heart.

Stay tuned.