November 2008 Archives

Brad DeLong, economist at the University of California, Berkeley and former assistant U.S. Treasury secretary during the Clinton Administration, makes a strong case for owning equities. He notes that stocks have been a terrible investment over the past decade, and that the recent 40% or so decline may not be the end of the bad news. A few highlights:

So investors are wondering: Will future decades be like the past decade? If so, shouldn't investments in equities be shunned?

All these arguments apply only to long-term investors who can afford to wait out another 40 percent decline in values and keep their money invested until perceived risk drops. (And if perceived risk never drops than you have worse things to worry about than the performance of your portfolio.)....

The Iowa electronic futures market gives Obama a 91% chance of winning the presidency tomorrow. Intrade is at 90.5%.

Since I live in Minnesota I've been following the futures market in the Sen. Coleman/ Al Franken Senate race. It has really tightened up. Iowa gives a slight nod to Franken at 53%. Intrade gives him a 57% chance.

Coleman had domianted in the betting until October when Franken made a dramatic leap all the way up to 80% odds of winning. But the odds drew even, however, especially last week.

That's the name of a public policy series sponsiored by Minnesota Public Radio's alternative music service and the Citizens League. At a recent "Policy and a Pint:The Economic Meltdown" at the Varsity Theater in Minneapolis I took questions about the financial crisis from the audience, along with Jonathan Guyton, a certified financial planner with Cornerstone Wealth Advisors. It was fun, and the audience was terrific.

You can listen to it here

Kara Mcguire, personal finance columnist at the Star Tribune (and good friend) has nice column about the evening.

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I voted. The line was long, and it seemed that everyone was having a good time. I certainly was enjoying myself. And then I got a cup of coffee.

I'm doing some research, reading Warren Buffet's 2005 letter to Berkshire Hathaway shareholders. I cam across the delicious paragraph:

Getting fired can produce a particularly bountiful payday for a CEO. Indeed, he can "earn" more in that single day, while cleaning out his desk, than an American worker earns in a lifetime of cleaning toilets. Forget the old maxim about nothing succeeding like success: Today, in the executive suite, the all-too-prevalent rule is that nothing succeeds like failure

Remember, this was in 2005, long before disgraced CEOs like Stan O'Neill of Merrll and Charles Price of Citigroup were pushed out--with multi-million packages.

Warren Buffet for Treasury Secretary in the new administration? My favored picks are either Buffett or former Federal reserve Board chairman Paul Volcker. Both are tough, smart, and either could deal with the bailout and then move on.

Another pearl of wisdom from Warren Buffett, this one courtesy of the economists at the Angry Bear blog:

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

The pressure for falling prices is gathering momentum. The producer price index plunged by a record 2.8% in October. That follows on an 0.4% drop in September. Still, the slight rise in the core producer price index--a number that excludes fuel and food--was up a fraction.

High on the list of things the monetary authorities need to worry about is deflation, or an overall fall in the price level. A few years ago, I wrote a book Deflation: What Happens When Prices Fall?

It's a timely read.

Here's the headline from the Washington post:

Consumer Prices Fall by Record 1% in October

Consumer prices plunged by the largest amount in the past 61 years last month as gasoline pump prices dropped by a record amount.

Normally, we would welcome easing inflation numbers. But giving all the deflationary forces unleashed in the global economy, this is a worrisome number.

Forget the stock market. (Okay, that's hard to do.) But Paul Krugman at the New York Times has a truly scary chart. It's rising real rates--the cost of borrowing is surging.

Krugman has been spot on in his articles. The Fed and the federal government have got to take the rise in real rates seriously.

How sereiously? Under normal circumstances, GM should be allowed to go under. But these are not normal times. The government may want to push GM into bankruptcy, for instance, but then it needs to provide a lot of back-up financing. The private sector certainly won't.

It's time to boost fiscal spending even more.

Here's the book cover:

The Wall Street Journal has a good story about credit card companies hiking rates and raising fees. The credit card business is ripe for reform.

The industry argues against new regulations by saying the impact will be to raise rates and make cards more expensive. So what? It's happening anyway. At least consumers would get better information and transparency when it comes to credit cards with reform. This way consumers can easily shop around for the best card. Transparency makes markets work better. The reason why credit card companies don't like reform is that it would make the market more competitive, not less.

And can someone explain to me why cancelling a credit card because the issuer has raised the interest rate, fees and penalties should slice into your credit score? Why does FICO penalize consumers for being savvy with their credit?

The Wall Street Journal in the article has a nice chart summarizing the changes:

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Here's part of nthe press release from the Iowa electronic prediction market:

Democratic Contract Never Trailed on IEM's Winner Take All Prediction Market
Traders on the University of Iowa's Iowa Electronic Markets (IEM) predicted from the start that the Democratic nominee for president would be the likely winner of the 2008 popular vote.

The Democratic contract paid off $1 on all three congressional markets. The volume traded on the Congressional Control markets that opened in August was a combined 38,815 shares, for a value of $14,525.