I am free of all prejudices.
I hate every one equally.
W. C. Fields
My Favorite Comment on the Potential Government Shutdown
OMG - a government shutdown. No more predation and killing by the biggest government on the face of the earth? We should be so lucky. - Lew Rockwell on FacebookOne Way That the Fed is Feeding the Stock Market Boom
My retirement savings hit new highs today, although I have to admit it's getting harder to find good buys that meet my criteria. There are some cheap plays out there (to name a few: fertilizer stocks, mining stocks (hurt by slowing Chinese imports and recent corrections in gold and silver), and emerging markets), but I don't see these gaining momentum in the short term. However, shipping stocks have had a recent run (SEA is up 7% over the past month, which seems to suggest a stronger global economy). (This is not an investment blog: invest at your own risk.) But the point is whatever moderate success I've experienced over the past year benefits from cheaper money, as other traders bid up stocks, not unlike easy money pumped up the Nasdaq bubble, housing bubble and/or credit bubble over the past generation. It's also likely some investors have reallocated funds from low-performing bond funds. (There's some evidence that bonds are peaking; recall that dumping bonds lowers prices: there's an inverse relationship between prices and yields. If longer-term bonds increase in yield, the Fed may be forced to raise short-term rates to attract/retain investors.)
Since business interest rates are an offset of "safer" Treasury debt, the Fed as a Treasury buyer of last resort artificially lowers federal interest expenses (and even then it returns interest income back to the Treasury). Artificially low interest rates allow buyers to bid up the underlying security (as described above). By some valuation metrics, the P/E ratio is lower than peaks in past stock market bubbles, so there may be room to run; there's no hint that the mom and pop investors are all in and chasing up, say, emerging markets.
But make no mistake: there is a cost to the Fed's manipulation of interest rates (see the second chart below via ZeroHedge).
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| Courtesy of NYXData and Daily Reckoning |
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| Via ZeroHedge |
No need to explain necessary; here is an excerpt from Business Insider:
White House senior adviser Dan Pfeiffer used three vivid analogies to attack House Republicans' laundry list of demands for raising the debt ceiling, comparing Republicans to arsonists, hostage-takers and suicide bombers.On the Pseudo-Scientific Climate Alarmists
However morally repulsive self-absorbed public employee unions are, libertarians do believe that the principle of voluntary contracts should be upheld. Indeed, as Volokh implies, it would be morally hazardous for us to save politicians and voters from the consequences of agreeing to unsustainable terms with the unions. Elected leadership has a fiduciary responsibility to set aside sufficient funding; it is unconscionable to shift burdens to subsequent administrations; consider, for instance, Detroit, where higher-income households had fled to the suburbs for decades and the city was not diversified from its auto industry: a shrinking tax base, inefficient programs, bill juggling, and accelerating expenses from a retired workforce inevitably led to bankruptcy.
Incidentally Pension Tsunami linked to a Gray Lady story talking about Detroit having spent billions in unadvertised pension benefits:
The payments, which were not publicly disclosed, included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died before becoming eligible to collect a pension, according to reports by an outside actuary and other people with knowledge of the matter.I leave it to the reader to review Volokh's comprehensive overview; I'm not happy about courts finding implied vs. real contracts. He doesn't really address things like union obligations being given preferential treatment, a violation of the concept of the rule of law. He does suggest that cities and states have some flexibility to change terms not including vested benefits to date and that courts will prioritize funding for essential services.
I may write a bigger blurb on this in tomorrow's post, but I was listening to an Econtalk with Robert Frank on the issue of Darwinian competition. I think at one point Frank complains about the financial industry outbidding for the best and brightest out of college. The reason I mention this is that there's an even worse rent-seeking profession: lawyers. You would think in the so-called "land of the free", we wouldn't need so many people trying to enforce an unsustainable regulatory regime, have to fend off nuisance suits, etc. Even if I would have made for a great lawyer and/or judge, what a waste of a good mind! I could feel my impatience growing as I read Volokh's well-written piece....
Musical Interlude: Motown
The Commodores, "Three Times a Lady"
