Yes, there really are noise traders. I took the following from the Yahoo!Finance discussion board for MSFT. Do we really want these people managing their own social security funds?
Why is MS down to 27+
by: fira9us
11/15/04 01:00 pm
Msg: 892456 of 892462
What happend to MS? It was closed to 30?
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Monday, November 15, 2004
MSFT and Bounded Rationality
Bounded rationality (I prefer bounded cognition) refers to the cognitive or information processing limits of participants in otherwise efficient markets. Specifically, traders or consumers who lack the time or ability to figure things out before transacting. (I will refrain from calling them monkeys or noise traders :-) I discussed this in an earlier post, noting that a lot of investors were confused about the consequences of the MSFT special dividend of $3.
It seemed a lot people were under the impression that they should buy the stock in order to get the dividend, not knowing that the price would drop after it was issued. (To be eligible for the dividend you had to own your shares by end of trading last Friday, so we are now ex-dividend.) You can judge for yourself from these graphs whether it looks like there was a runup in the stock due to the anticipated dividend. As of opening today the share price dropped $3 to just over $27, so the discontinuity was there as predicted - $27 looks suspiciously like the value before the runup!
It seemed a lot people were under the impression that they should buy the stock in order to get the dividend, not knowing that the price would drop after it was issued. (To be eligible for the dividend you had to own your shares by end of trading last Friday, so we are now ex-dividend.) You can judge for yourself from these graphs whether it looks like there was a runup in the stock due to the anticipated dividend. As of opening today the share price dropped $3 to just over $27, so the discontinuity was there as predicted - $27 looks suspiciously like the value before the runup!
Sunday, November 14, 2004
Quote of the Day
The most extravagant idea that can be born in the head of a political thinker is to believe that it suffices for people to enter, weapons in hand, among a foreign people and expect to have its laws and constitution embraced. It is in the nature of things that the progress of Reason is slow and no one loves armed missionaries; the first lesson of nature and prudence is to repulse them as enemies.
One can encourage freedom, never create it by an invading force.
- Maximilien Robespierre (1791)
The part I like best (and should keep in mind) is: It is in the nature of things that the progress of Reason is slow...
One can encourage freedom, never create it by an invading force.
- Maximilien Robespierre (1791)
The part I like best (and should keep in mind) is: It is in the nature of things that the progress of Reason is slow...
Genetic basis for race
[See more recent posts on this topic here.]
The essential tension between science and political correctness on this issue is discussed in the Sunday Times.
We were told long ago that there is no scientific basis for race. Yet, it would be surprising if the distribution of individual genes were the same in all ethnic groups, with their different evolutionary histories of the last tens of thousands of years. In fact, mtDNA tests can readily identify which of a few dozen matrilineal lines any modern human belongs to. Each of these lines can in turn be traced to certain geographical regions to which early humans migrated from Africa, and correspond reasonably well to conventional racial categories.
Researchers last week described a new drug, called BiDil, that sharply reduces death from heart disease among African-Americans. ...But not everyone is cheering unreservedly. Many people, including some African-Americans, have long been uneasy with the concept of race-based medicine, in part from fear that it may legitimize less benign ideas about race.
...The emergence of BiDil, described last week in The New England Journal of Medicine, is a sharp reality test for an academic debate about race and medicine that has long occupied the pages of medical journals. Is there a biological basis for race? If there is not, as many social scientists and others argue, how can a drug like BiDil work so well in one race?
...This month, in a special issue on race published by the journal Nature Genetics, several geneticists wrote that people can generally be assigned to their continent of origin on the basis of their DNA, and that these broad geographical regions correspond to self-identified racial categories, such as African, East Asian, European and Native American. Race, in other words, does have a genetic basis, in their view.
...Some African-Americans fear that if doctors start to make diagnoses by race, then some in the public may see that as a basis for imputing behavioral traits as well. ''If you think in terms of taxonomies of race, you will make the dangerous conclusion that race will explain violence,'' says Dr. Troy Duster, a sociologist at New York University.
The essential tension between science and political correctness on this issue is discussed in the Sunday Times.
We were told long ago that there is no scientific basis for race. Yet, it would be surprising if the distribution of individual genes were the same in all ethnic groups, with their different evolutionary histories of the last tens of thousands of years. In fact, mtDNA tests can readily identify which of a few dozen matrilineal lines any modern human belongs to. Each of these lines can in turn be traced to certain geographical regions to which early humans migrated from Africa, and correspond reasonably well to conventional racial categories.
Researchers last week described a new drug, called BiDil, that sharply reduces death from heart disease among African-Americans. ...But not everyone is cheering unreservedly. Many people, including some African-Americans, have long been uneasy with the concept of race-based medicine, in part from fear that it may legitimize less benign ideas about race.
...The emergence of BiDil, described last week in The New England Journal of Medicine, is a sharp reality test for an academic debate about race and medicine that has long occupied the pages of medical journals. Is there a biological basis for race? If there is not, as many social scientists and others argue, how can a drug like BiDil work so well in one race?
...This month, in a special issue on race published by the journal Nature Genetics, several geneticists wrote that people can generally be assigned to their continent of origin on the basis of their DNA, and that these broad geographical regions correspond to self-identified racial categories, such as African, East Asian, European and Native American. Race, in other words, does have a genetic basis, in their view.
...Some African-Americans fear that if doctors start to make diagnoses by race, then some in the public may see that as a basis for imputing behavioral traits as well. ''If you think in terms of taxonomies of race, you will make the dangerous conclusion that race will explain violence,'' says Dr. Troy Duster, a sociologist at New York University.
Saturday, November 13, 2004
Sink or Schwinn?
Bicycle maker Schwinn, unable to compete with Chinese imports, went bankrupt in 1993 and now exists only as a brand label affixed to bikes imported from Asia and sold in stores like Wal-Mart.
This Economist article discusses outsourcing's effects on European vs US firms. The rigid European labor market makes redeployment of surplus workers more difficult than in the US. The following graph, based on research from McKinsey, shows that while both Germany and the US benefit from cost savings from outsourcing, inefficiency in redeploying surplus labor keeps the overall benefit to Germany from being positive, whereas it is slightly so in the US. (Positive economic impact per dollar of outsourcing exceeds one dollar here, but not in Germany.)
This Economist article discusses outsourcing's effects on European vs US firms. The rigid European labor market makes redeployment of surplus workers more difficult than in the US. The following graph, based on research from McKinsey, shows that while both Germany and the US benefit from cost savings from outsourcing, inefficiency in redeploying surplus labor keeps the overall benefit to Germany from being positive, whereas it is slightly so in the US. (Positive economic impact per dollar of outsourcing exceeds one dollar here, but not in Germany.)
Economist on Outsourcing
This week's issue surveys the situation.
As Alan Greenspan, chairman of America's Federal Reserve Bank, has pointed out, there is always likely to be anxiety about the jobs of the future, because in the long run most of them will involve producing goods and services that have not yet been invented. William Nordhaus, an economist at Yale University, has calculated that under 30% of the goods and services consumed at the end of the 20th century were variants of the goods and services produced 100 years earlier. “We travel in vehicles that were not yet invented that are powered by fuels not yet produced, communicate through devices not yet manufactured, enjoy cool air on the hottest days, are entertained by electronic wizardry that was not dreamed of and receive medical treatments that were unheard of,” writes Mr Nordhaus.
...Indeed, the definition of the sort of work that Indian outsourcing firms are good at doing remotely—repetitive and bound tightly by rules—sounds just like the sort of work that could also be delegated to machines. If offshoring is to be blamed for this “lost” work, then mechanical diggers should be blamed for usurping the work of men with shovels. In reality, shedding such lower-value tasks enables economies to redeploy the workers concerned to jobs that create more value.
My main worry is that our system doesn't do a good job of redistributing benefits from winners to losers. It seems probable that the rather sudden addition of more than a billion workers to the world labor market will, for a time, lead to a surplus of labor in certain categories or at certain skill levels. Is America's educational system really preparing surplus workers to move to "jobs that create more value"?
As Alan Greenspan, chairman of America's Federal Reserve Bank, has pointed out, there is always likely to be anxiety about the jobs of the future, because in the long run most of them will involve producing goods and services that have not yet been invented. William Nordhaus, an economist at Yale University, has calculated that under 30% of the goods and services consumed at the end of the 20th century were variants of the goods and services produced 100 years earlier. “We travel in vehicles that were not yet invented that are powered by fuels not yet produced, communicate through devices not yet manufactured, enjoy cool air on the hottest days, are entertained by electronic wizardry that was not dreamed of and receive medical treatments that were unheard of,” writes Mr Nordhaus.
...Indeed, the definition of the sort of work that Indian outsourcing firms are good at doing remotely—repetitive and bound tightly by rules—sounds just like the sort of work that could also be delegated to machines. If offshoring is to be blamed for this “lost” work, then mechanical diggers should be blamed for usurping the work of men with shovels. In reality, shedding such lower-value tasks enables economies to redeploy the workers concerned to jobs that create more value.
My main worry is that our system doesn't do a good job of redistributing benefits from winners to losers. It seems probable that the rather sudden addition of more than a billion workers to the world labor market will, for a time, lead to a surplus of labor in certain categories or at certain skill levels. Is America's educational system really preparing surplus workers to move to "jobs that create more value"?
Bubble Trouble
Here is a nice article from the Asia Times about China's boom economy and its effect on interest rates and consumption in the US.
Why you might not want to buy property in China under current bubble conditions:
The total amount of property under construction is likely to reach 1.460 billion square meters, with a market value of about 30% of the gross domestic product (GDP) by year-end. All data suggest that the market is grossly overextended.
Why you might not want to buy property in China under current bubble conditions:
The total amount of property under construction is likely to reach 1.460 billion square meters, with a market value of about 30% of the gross domestic product (GDP) by year-end. All data suggest that the market is grossly overextended.
How deep is the pool of suicide bombers?
Judging by this account by journalist Robert X. Cringley of the Iran-Iraq war, there is no effective limit on the number of potential Al Qaeda recruits.
So I took a taxi to the front, introduced myself to the local commander, who had gone, as I recall, to Iowa State, and spent a couple days waiting for the impending human wave attack. That attack was to be conducted primarily with 11-and 12-year-old boys as troops, nearly all of them unarmed. There were several thousand kids and their job was to rise out of the trench, praising Allah, run across No Man’s Land, be killed by the Iraqi machine gunners, then go directly to Paradise, do not pass GO, do not collect 200 dinars. And that’s exactly what happened in a battle lasting less than 10 minutes. None of the kids fired a shot or made it all the way to the other side. And when I asked the purpose of this exercise, I was told it was to demoralize the cowardly Iraqi soldiers.
Now put this in a current context. What effective limit is there to the number of Islamic kids willing to blow themselves to bits? There is no limit, which means that a Bush Doctrine can’t really stand in that part of the world. But of course President Bush, who may think he pulled the switch on a couple hundred Death Row inmates in Texas, has probably never seen a combat death. He doesn’t get it and he’ll proudly NEVER get it.
Welcome to the New Morality.
So I took a taxi to the front, introduced myself to the local commander, who had gone, as I recall, to Iowa State, and spent a couple days waiting for the impending human wave attack. That attack was to be conducted primarily with 11-and 12-year-old boys as troops, nearly all of them unarmed. There were several thousand kids and their job was to rise out of the trench, praising Allah, run across No Man’s Land, be killed by the Iraqi machine gunners, then go directly to Paradise, do not pass GO, do not collect 200 dinars. And that’s exactly what happened in a battle lasting less than 10 minutes. None of the kids fired a shot or made it all the way to the other side. And when I asked the purpose of this exercise, I was told it was to demoralize the cowardly Iraqi soldiers.
Now put this in a current context. What effective limit is there to the number of Islamic kids willing to blow themselves to bits? There is no limit, which means that a Bush Doctrine can’t really stand in that part of the world. But of course President Bush, who may think he pulled the switch on a couple hundred Death Row inmates in Texas, has probably never seen a combat death. He doesn’t get it and he’ll proudly NEVER get it.
Welcome to the New Morality.
Friday, November 12, 2004
Where would we be without them?
The funny thing is, I often hear from Bush supporters that deficits don't matter - after all, look how low interest rates are!
From today's WSJ article on Asian central banks and Treasury markets:
Japan's and China's purchases of Treasurys in recent years are credited with helping keep interest rates in the U.S. at historic lows. To put their role in the U.S. debt markets into perspective, Japan and China own about a quarter of Treasurys outstanding, with respective holdings of $723 billion and $172 billion.
...Foreign central banks have been big buyers of Treasurys, especially since a robust October employment report last Friday sent yields soaring. Market participants said these institutions rushed into the market as the 10-year yield approached 4.25% and put a lid on the selloff by buying government securities in large amounts, with bids Friday estimated at around $1 billion.
Some in the market speculate that the People's Bank of China led the charge that day, seeing the weakness as an opportunity to park dollars accumulated through foreign direct investment and peg maintenance into Treasurys. By some estimates within the market, the Chinese authorities have $60 billion in short-term deposits offshore that need to find an investment home.
From today's WSJ article on Asian central banks and Treasury markets:
Japan's and China's purchases of Treasurys in recent years are credited with helping keep interest rates in the U.S. at historic lows. To put their role in the U.S. debt markets into perspective, Japan and China own about a quarter of Treasurys outstanding, with respective holdings of $723 billion and $172 billion.
...Foreign central banks have been big buyers of Treasurys, especially since a robust October employment report last Friday sent yields soaring. Market participants said these institutions rushed into the market as the 10-year yield approached 4.25% and put a lid on the selloff by buying government securities in large amounts, with bids Friday estimated at around $1 billion.
Some in the market speculate that the People's Bank of China led the charge that day, seeing the weakness as an opportunity to park dollars accumulated through foreign direct investment and peg maintenance into Treasurys. By some estimates within the market, the Chinese authorities have $60 billion in short-term deposits offshore that need to find an investment home.
Thursday, November 11, 2004
Phishing the next big problem?
Phishing attacks use SPAM which appears to originate from a legitimate source such as a bank or ecommerce site. The SPAM message alerts the recipient to a "problem" with their account, and links to a URL that lets them login to fix the problem. The URL is really on a Web server controlled by the phisher, who learns the victim's password and other personal information. The result might be identity theft or even direct theft of funds from the victim's account.
I don't see any easy way to defend against this attack (esp. in red states ;-), since the email and Web site can look very authentic. I have seen some very high quality EBay and Citibank phishing attacks - certainly good enough to fool most of the population.
Companies (especially banks) have been pushing consumers to use the Web to manage their accounts, as there is a tremendous cost savings. It appears that Web transactions and phishing are about to collide head on.
John Thompson, Symantec CEO, in WSJ:
The more threatening and challenging task, however, is phishing. And I don't mean fly-casting. I mean phishing for credit-card information, Social Security numbers, mothers' maiden names. Popular Web sites or popular brands are hijacked to divert unsuspecting consumers and even small businesses off to a spot where their identities can be stolen. Phishing is growing, by the latest estimates, at 110% a month -- a month.
You couple that growth rate with a 5% response rate [to e-mail sent by phishers], and you're going to see an enormous problem. It's relatively easy to do. I mean, you can cut and paste the Citigroup logo off their Web site without a whole lot of hard work. They're hijacking very, very important and powerful brands to catch your attention.
I don't see any easy way to defend against this attack (esp. in red states ;-), since the email and Web site can look very authentic. I have seen some very high quality EBay and Citibank phishing attacks - certainly good enough to fool most of the population.
Companies (especially banks) have been pushing consumers to use the Web to manage their accounts, as there is a tremendous cost savings. It appears that Web transactions and phishing are about to collide head on.
John Thompson, Symantec CEO, in WSJ:
The more threatening and challenging task, however, is phishing. And I don't mean fly-casting. I mean phishing for credit-card information, Social Security numbers, mothers' maiden names. Popular Web sites or popular brands are hijacked to divert unsuspecting consumers and even small businesses off to a spot where their identities can be stolen. Phishing is growing, by the latest estimates, at 110% a month -- a month.
You couple that growth rate with a 5% response rate [to e-mail sent by phishers], and you're going to see an enormous problem. It's relatively easy to do. I mean, you can cut and paste the Citigroup logo off their Web site without a whole lot of hard work. They're hijacking very, very important and powerful brands to catch your attention.
What is Google worth?
When Google was nearing its IPO the share offer price implied a valuation of about $30B for the company. Since then its market cap has skyrocketed to about $45B.
At the time I used to joke around that for $1B I could easily build a competitor to Google that had 80-90% of its capabilities. Now, with Microsoft about to launch its new search service, codenamed underdog, my assertion seems to be proved, as they spent a reported $100M and 20 months to build it.
So, does this shake your faith in Google's lofty valuation? Only time will tell.
What is clear is that online advertising has become a huge industry - about $4B per year in revenues, and growing rapidly. Interestingly, there is not a single strong competitor in the search industry outside the US (except perhaps in China, and those companies are focused primarily on Chinese-language search).
Say what you want about US competitiveness, but in this case a leading new technology is completely dominated by Americans.
At the time I used to joke around that for $1B I could easily build a competitor to Google that had 80-90% of its capabilities. Now, with Microsoft about to launch its new search service, codenamed underdog, my assertion seems to be proved, as they spent a reported $100M and 20 months to build it.
So, does this shake your faith in Google's lofty valuation? Only time will tell.
What is clear is that online advertising has become a huge industry - about $4B per year in revenues, and growing rapidly. Interestingly, there is not a single strong competitor in the search industry outside the US (except perhaps in China, and those companies are focused primarily on Chinese-language search).
Say what you want about US competitiveness, but in this case a leading new technology is completely dominated by Americans.
Wednesday, November 10, 2004
How can the average investor hedge against the declining dollar?
Here are some funds which invest in foreign bonds, and which should do well if the dollar crashes:
BEGBX (Euro bonds, currency risk mostly unhedged)
PFUCX (PIMCO fund, completely unhedged)
IHHX (Templeton fund, foreign money funds, unhedged)
There is also Everbank.com, which sells foreign-currency denominated CDs.
I think these are better than international equity funds, since many foreign company shares will fall if their currency appreciates too much against the dollar.
Note that if the Bretton Woods II hypothesis is correct (see previous post), we may soon see the European Central Bank intervene to support the dollar. So, although macro trends point toward a dollar correction, it may not happen for years.
BEGBX (Euro bonds, currency risk mostly unhedged)
PFUCX (PIMCO fund, completely unhedged)
IHHX (Templeton fund, foreign money funds, unhedged)
There is also Everbank.com, which sells foreign-currency denominated CDs.
I think these are better than international equity funds, since many foreign company shares will fall if their currency appreciates too much against the dollar.
Note that if the Bretton Woods II hypothesis is correct (see previous post), we may soon see the European Central Bank intervene to support the dollar. So, although macro trends point toward a dollar correction, it may not happen for years.
Bretton Woods II
My description of why Asian central banks are supporting a strong dollar and hence financing US budget and current account deficits is apparently referred to as the Bretton Woods II hypothesis in policy/econ circles. The current arrangement is reminiscent of the old Bretton Woods regime of fixed exchange rates that lasted from 1945 to 1973.
There are some important differences, though.
Europe, not being as export-driven as Japan/Korea/Taiwan, nor under the same pressure to develop (absorb excess labor) as China, is not as incentivized as Asia to support this system. Nevertheless, the European Central Bank (ECB) may soon be forced to intervene to preserve competitiveness if the Euro continues to rise, thereby joining the cartel supporting the dollar.
One event we should all be on the lookout for is the first defection of an Asian central bank from this cartel. Any one of the smaller economies could diversify its foreign reserves into Euros (hedging against a dollar crash) without driving up the dollar appreciably. However, if each of them do so, the crash would be realized. This is obviously an unstable situation - can it last?
Who are the winners and losers under this regime? The US can continue its deficit spending while keeping interest rates low, benefiting consumers and financial institutions engaged in the carry trade, but risking the creation of asset bubbles (housing). On the other hand, US manufacturing companies will be forced to move production to Asia in order to survive.
There are some important differences, though.
Europe, not being as export-driven as Japan/Korea/Taiwan, nor under the same pressure to develop (absorb excess labor) as China, is not as incentivized as Asia to support this system. Nevertheless, the European Central Bank (ECB) may soon be forced to intervene to preserve competitiveness if the Euro continues to rise, thereby joining the cartel supporting the dollar.
One event we should all be on the lookout for is the first defection of an Asian central bank from this cartel. Any one of the smaller economies could diversify its foreign reserves into Euros (hedging against a dollar crash) without driving up the dollar appreciably. However, if each of them do so, the crash would be realized. This is obviously an unstable situation - can it last?
Who are the winners and losers under this regime? The US can continue its deficit spending while keeping interest rates low, benefiting consumers and financial institutions engaged in the carry trade, but risking the creation of asset bubbles (housing). On the other hand, US manufacturing companies will be forced to move production to Asia in order to survive.
Tuesday, November 09, 2004
FT gloomy about Bush II economic policies
Executive Summary: expect a radical agenda which helps the GOP politically but may be disastrous for the dollar and deficits.
The economics of a second term
Financial Times, Tuesday, November 9, 2004, By Adam Posen
Ideological and partisan politicians know that elections are not about mandates or checking the people's will. They are about taking the reins of power and using them to realign the balance of interests in society in their favour - either by strengthening supporters' dependence on their programmes or by weakening the programmes of the opposition. The Bush administration understands this, and its radical economic agenda will move forward aggressively as a result. The "Bush II" agenda will not be constrained by bipartisanship, fiscal discipline or even economic reality, because the ultimate motivation is not economic but ideological - to shrink government and weaken Democratic opposition. The three big economic initiatives promised by Mr Bush should therefore be seen for the political thrusts they are.
First and most importantly will be the push for partial Social Security privatisation. This policy is at least as much to win over Wall Street - the one big business sector besides Hollywood that has continued contributing to Democrats as much as Republicans - by offering the fees that go with managing hundreds of billions of dollars in private accounts. For the Bush team, the political advantages of boosting asset markets temporarily and again giving those who manage money a direct stake in Republican programmes will outweigh any long-term fiscal costs (which limit government spending anyway).
On non-partisan Congressional Budget Office estimates, the transition costs of such a programme will present a budget shortfall of 1.5-2 per cent of gross domestic product a year for 10 years. Some will claim this just moves to the balance sheet an off-balance sheet liability that would be reneged on in future. Try telling that to bond markets, which will be asked to absorb another $200bn (£108bn) a year in government paper on top of today's deficits. Of course, as financial companies make money from trading volatility and sales fees and are not themselves the ultimate holders of the accumulating US government debt, the Bush strategy hopes they will be pleased at that end of the transaction too. Turning US debt into a new class of emerging market bonds may erode America's future, and its ability to fight terror, but it also offers profit opportunities to one-time political fence-sitters.
Second, the tax cuts of the Bush first term, set to be phased out in various years, will be made permanent. This result is already on course, given the Republican majorities in Congress and the Bush team's ability to claim there would be no impact on the current budget deficits. These "permanent" tax cuts will provide no short-term stimulus but will convince high-income voters that any shift away from Republican majorities will come at their expense. The cuts are also part of the multi-pronged "starve the beast" strategy to limit any future non-defence government programmes that might aid the Democrats or their voters.
The third initiative is the pursuit of tort reform that will limit medical malpractice claims, class-action suits, asbestos litigation and so on. Of all items on the Bush economic agenda, this has the most potential for some general benefit to economic efficiency and investment. Its political motivation, however, is the crassest: trial lawyers and their lobbies are the second largest contributors to the Democratic party after organised labour. Cut jury awards, and you cut funding for Democrats.
We should not, like Claude Rains' character in Casablanca, be "shocked" that politics is going on here. If Mr Bush's planned economic initiatives also promoted the general welfare, their dual use of locking in supporters would be welcome. However, the Bush administration is putting its political staying power ahead of economic responsibility - indeed it is weakening the independence of those very institutions on which Americans rely to check economic radicalism. For example, the current Republican congressional leadership is trying to override the constitutional design whereby the Senate acts as a brake on the executive branch and on the self-interest of "majority faction". Bill Frist, senate majority leader and George Allen, the Republican senate campaign committee chair, said their unprecedented direct campaign against Tom Daschle, the defeated Senate minority leader, should warn moderate Republican and Democratic senators not to be "obstructionist", even though that is precisely what the Founding Fathers intended the Senate to do.
The coming leadership change at the Federal Reserve is also being exploited to limit the Fed's room to criticise the inflationary implications of fiscal irresponsibility. The candidates to succeed Alan Greenspan as Fed chair are limited to those (Martin Feldstein and Glenn Hubbard, for example) who not only have ample qualifications, but also have explicitly supported the Bush team's Social Security and tax agenda. Even when central bankers don the Fed chairman's mantle of impartiality, these prior public statements will give the Bush team some protection from future Fed complaints.
Markets tend to assume that the US political system will prevent lasting extremist policies so, even now, observers discount the likelihood of the Bush administration fully pursuing - let alone passing - this economic agenda. If the thin blue line of Democrats and the responsible Republican moderates in the Senate bravely fulfil their constitutional role, perhaps the damage will be limited. If not, we can foresee the US economy following the path to extended decline of the British economy in the 1960s and 1970s and of Japan in the 1990s.
But, as Japan and the UK showed, once the political-economy dynamic is in motion, it takes years for the opposition to reverse it, even as its failures become obvious. That long-term preclusion of alternative policies is ultimately the goal of the Bush economic agenda.
The economics of a second term
Financial Times, Tuesday, November 9, 2004, By Adam Posen
Ideological and partisan politicians know that elections are not about mandates or checking the people's will. They are about taking the reins of power and using them to realign the balance of interests in society in their favour - either by strengthening supporters' dependence on their programmes or by weakening the programmes of the opposition. The Bush administration understands this, and its radical economic agenda will move forward aggressively as a result. The "Bush II" agenda will not be constrained by bipartisanship, fiscal discipline or even economic reality, because the ultimate motivation is not economic but ideological - to shrink government and weaken Democratic opposition. The three big economic initiatives promised by Mr Bush should therefore be seen for the political thrusts they are.
First and most importantly will be the push for partial Social Security privatisation. This policy is at least as much to win over Wall Street - the one big business sector besides Hollywood that has continued contributing to Democrats as much as Republicans - by offering the fees that go with managing hundreds of billions of dollars in private accounts. For the Bush team, the political advantages of boosting asset markets temporarily and again giving those who manage money a direct stake in Republican programmes will outweigh any long-term fiscal costs (which limit government spending anyway).
On non-partisan Congressional Budget Office estimates, the transition costs of such a programme will present a budget shortfall of 1.5-2 per cent of gross domestic product a year for 10 years. Some will claim this just moves to the balance sheet an off-balance sheet liability that would be reneged on in future. Try telling that to bond markets, which will be asked to absorb another $200bn (£108bn) a year in government paper on top of today's deficits. Of course, as financial companies make money from trading volatility and sales fees and are not themselves the ultimate holders of the accumulating US government debt, the Bush strategy hopes they will be pleased at that end of the transaction too. Turning US debt into a new class of emerging market bonds may erode America's future, and its ability to fight terror, but it also offers profit opportunities to one-time political fence-sitters.
Second, the tax cuts of the Bush first term, set to be phased out in various years, will be made permanent. This result is already on course, given the Republican majorities in Congress and the Bush team's ability to claim there would be no impact on the current budget deficits. These "permanent" tax cuts will provide no short-term stimulus but will convince high-income voters that any shift away from Republican majorities will come at their expense. The cuts are also part of the multi-pronged "starve the beast" strategy to limit any future non-defence government programmes that might aid the Democrats or their voters.
The third initiative is the pursuit of tort reform that will limit medical malpractice claims, class-action suits, asbestos litigation and so on. Of all items on the Bush economic agenda, this has the most potential for some general benefit to economic efficiency and investment. Its political motivation, however, is the crassest: trial lawyers and their lobbies are the second largest contributors to the Democratic party after organised labour. Cut jury awards, and you cut funding for Democrats.
We should not, like Claude Rains' character in Casablanca, be "shocked" that politics is going on here. If Mr Bush's planned economic initiatives also promoted the general welfare, their dual use of locking in supporters would be welcome. However, the Bush administration is putting its political staying power ahead of economic responsibility - indeed it is weakening the independence of those very institutions on which Americans rely to check economic radicalism. For example, the current Republican congressional leadership is trying to override the constitutional design whereby the Senate acts as a brake on the executive branch and on the self-interest of "majority faction". Bill Frist, senate majority leader and George Allen, the Republican senate campaign committee chair, said their unprecedented direct campaign against Tom Daschle, the defeated Senate minority leader, should warn moderate Republican and Democratic senators not to be "obstructionist", even though that is precisely what the Founding Fathers intended the Senate to do.
The coming leadership change at the Federal Reserve is also being exploited to limit the Fed's room to criticise the inflationary implications of fiscal irresponsibility. The candidates to succeed Alan Greenspan as Fed chair are limited to those (Martin Feldstein and Glenn Hubbard, for example) who not only have ample qualifications, but also have explicitly supported the Bush team's Social Security and tax agenda. Even when central bankers don the Fed chairman's mantle of impartiality, these prior public statements will give the Bush team some protection from future Fed complaints.
Markets tend to assume that the US political system will prevent lasting extremist policies so, even now, observers discount the likelihood of the Bush administration fully pursuing - let alone passing - this economic agenda. If the thin blue line of Democrats and the responsible Republican moderates in the Senate bravely fulfil their constitutional role, perhaps the damage will be limited. If not, we can foresee the US economy following the path to extended decline of the British economy in the 1960s and 1970s and of Japan in the 1990s.
But, as Japan and the UK showed, once the political-economy dynamic is in motion, it takes years for the opposition to reverse it, even as its failures become obvious. That long-term preclusion of alternative policies is ultimately the goal of the Bush economic agenda.
Monday, November 08, 2004
Whither the Renminbi Peg?
This is something I posted on Brad DeLong's Econ blog about dollar-renminbi issues. Everyone should keep in mind that currency markets, although vast and deep, are subject to manipulation by central banks...
The PRC runs a big trade surplus with us, so they have a lot of dollars. It is in their interests to keep the RMB cheap (to keep exports competitive) and stable (to encourage further foreign direct investment).
The policy is definitely mercantilist in nature. Multinationals have concluded that China is the only scalable manufacturing base in the world: close to a huge pool of inexpensive but skilled labor and also close to fast growing markets (in China and the rest of Asia). The PRC government does not want to do anything to alter these beliefs, which led to $60B in FDI last year. Perhaps more important than the dollar investment figure, there is a huge transfer of technological and business knowledge in progress.
Once it is too late for Western companies to turn back, and domestic demand has grown enough that the economy is not wholly dependent on exports, they will definitely let the currency float.
This is essentially what happened with Japan: export driven growth on the back of a cheap currency, followed by eventual appreciation of the currency. It is hard for us to remember that the Yen used to be cheap in the 60's and 70's.
Another related point: the size of the PRC economy is very different when measured by nominal FX rates vs. PPP. It is clear that this differential will eventually go away as the country becomes fully integrated with the world economy. (Perhaps one could define "integrated" as no large discrepancy between PPP and FX rates, since the same bundle of goods should cost roughly the same in China as in the US, if trade is working properly. Recall the "no arbitrage" condition in efficient markets.) This will only happen if the RMB goes up substantially in value, just as the Yen did.
Note Added: Although the bilateral US-China trade deficit is large, China's balance of trade with the entire world is fairly even. They run big deficits with Japan, S. Korea and Taiwan. In some sense, the flow resembles: components imported to China from these countries, assembled there (modest value add), sold to consumers in US. Dollars flow back to China and to more advanced Asian economies.
The PRC runs a big trade surplus with us, so they have a lot of dollars. It is in their interests to keep the RMB cheap (to keep exports competitive) and stable (to encourage further foreign direct investment).
The policy is definitely mercantilist in nature. Multinationals have concluded that China is the only scalable manufacturing base in the world: close to a huge pool of inexpensive but skilled labor and also close to fast growing markets (in China and the rest of Asia). The PRC government does not want to do anything to alter these beliefs, which led to $60B in FDI last year. Perhaps more important than the dollar investment figure, there is a huge transfer of technological and business knowledge in progress.
Once it is too late for Western companies to turn back, and domestic demand has grown enough that the economy is not wholly dependent on exports, they will definitely let the currency float.
This is essentially what happened with Japan: export driven growth on the back of a cheap currency, followed by eventual appreciation of the currency. It is hard for us to remember that the Yen used to be cheap in the 60's and 70's.
Another related point: the size of the PRC economy is very different when measured by nominal FX rates vs. PPP. It is clear that this differential will eventually go away as the country becomes fully integrated with the world economy. (Perhaps one could define "integrated" as no large discrepancy between PPP and FX rates, since the same bundle of goods should cost roughly the same in China as in the US, if trade is working properly. Recall the "no arbitrage" condition in efficient markets.) This will only happen if the RMB goes up substantially in value, just as the Yen did.
Note Added: Although the bilateral US-China trade deficit is large, China's balance of trade with the entire world is fairly even. They run big deficits with Japan, S. Korea and Taiwan. In some sense, the flow resembles: components imported to China from these countries, assembled there (modest value add), sold to consumers in US. Dollars flow back to China and to more advanced Asian economies.
Sunday, November 07, 2004
Whither the Dollar? A trader's view
Rumors from the financial world:
"Interesting read. As tomorrow's FT article points out below, if the dollar doesn't rally on strong payroll #s, something fundamentally may be changing. What is it ? Potentially foreign governments cutting exposure to US assets. Article cites China, India, Russia and other Middle Eastern countries selling $s. Widening US budget and current account deficits can't be helping either on a 'secular' basis."
From FT: Many currency traders were taken aback on Friday when the greenback fell in spite of bullish data showing the US economy created 337,000 jobs in October. "If this can't cause the dollar to strengthen you have to tell me what will. This is a big green light to sell the dollar," said David Bloom, currency analyst at HSBC, as the greenback fell to a nine-year low in trade-weighted terms.
...
Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate. However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets.
The view of an amateur (me!):
The dollar may fall on rumors, but I doubt seriously whether the BoC (China) has really decided to abandon the dollar. For such an important decision, even were they ready to do it now, I imagine they would want to watch the new Bush administration for a while to see what is happening.
If the dollar falls too much against Asian currencies (Yen, Yuan), there will be a real problem as the J economy could slip back into recession and the growth in China would slow to the point that they are not creating enough jobs to handle the flow of migrants into the urban areas. That would lead to social unrest.
I think the RMB peg will not go away for a couple of years (certainly not fully - a wider trading range is possible, though). Recall that James Baker helped negotiate the Plaza Accord, which devalued the dollar by about 40% in the mid to late 80s, but in an orderly way. I would not be surprised if W puts together a similar deal, although I also would not be surprised if they continue their "benign neglect" of the USD and the market takes it out of their hands...
"Interesting read. As tomorrow's FT article points out below, if the dollar doesn't rally on strong payroll #s, something fundamentally may be changing. What is it ? Potentially foreign governments cutting exposure to US assets. Article cites China, India, Russia and other Middle Eastern countries selling $s. Widening US budget and current account deficits can't be helping either on a 'secular' basis."
From FT: Many currency traders were taken aback on Friday when the greenback fell in spite of bullish data showing the US economy created 337,000 jobs in October. "If this can't cause the dollar to strengthen you have to tell me what will. This is a big green light to sell the dollar," said David Bloom, currency analyst at HSBC, as the greenback fell to a nine-year low in trade-weighted terms.
...
Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate. However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets.
The view of an amateur (me!):
The dollar may fall on rumors, but I doubt seriously whether the BoC (China) has really decided to abandon the dollar. For such an important decision, even were they ready to do it now, I imagine they would want to watch the new Bush administration for a while to see what is happening.
If the dollar falls too much against Asian currencies (Yen, Yuan), there will be a real problem as the J economy could slip back into recession and the growth in China would slow to the point that they are not creating enough jobs to handle the flow of migrants into the urban areas. That would lead to social unrest.
I think the RMB peg will not go away for a couple of years (certainly not fully - a wider trading range is possible, though). Recall that James Baker helped negotiate the Plaza Accord, which devalued the dollar by about 40% in the mid to late 80s, but in an orderly way. I would not be surprised if W puts together a similar deal, although I also would not be surprised if they continue their "benign neglect" of the USD and the market takes it out of their hands...
Outsourcing vs technological innovation
Imagine a new software product. A super-version of TurboTax, the software asks detailed questions via the Web and can prepare sophisticated returns - not just for individuals, but even for large corporations. The cost is a fraction of what U.S. accounting firms would charge for the service. Sounds great, right? Artificial Intelligence lowers the cost of doing business. Companies can pass the savings on to consumers. Some accountants lose their jobs, but that is the inevitable price of technological progress.
Now suppose you find out the guts of the software isn't an AI engine, but rather an office full of Indian chartered accountants in Bangalore. The cost saving is still real, and the fees now go to stimulate the developing Indian economy, rather than into the pocket of a software entrepreneur.
Why is this second outsourcing scenario any worse than the first scenario?
Now suppose you find out the guts of the software isn't an AI engine, but rather an office full of Indian chartered accountants in Bangalore. The cost saving is still real, and the fees now go to stimulate the developing Indian economy, rather than into the pocket of a software entrepreneur.
Why is this second outsourcing scenario any worse than the first scenario?
Rove's methodology: MoveOn's evil twin
This WashPost article describes the winning tactics of Bush's team.
A lot has been made of the Internet tactics pioneered by Dean and 527's like MoveOn. This article shows that the Republicans were not without their own effective uses for information technology. The left relied heavily on people's anger over the last election, or dislike of Bush. The RNC's methodology - which relies more on profiling techniques from consumer marketing - seems more likely to produce a stable, robust base with commonalities beyond a single issue.
...the Bush operation sniffed out potential voters with precision-guided accuracy, particularly in fast-growing counties beyond the first ring of suburbs of major cities. The campaign used computer models and demographic files to locate probable GOP voters. "They looked at what they read, what they watch, what they spend money on," a party official said.
Once those people were identified, the RNC sought to register them, and the campaign used phone calls, mail and front-porch visits -- all with a message emphasizing the issues about which they cared most -- to encourage them to turn out for Bush. "We got a homogeneous group of new registered voters and stayed on them like dogs," another official said.
A lot has been made of the Internet tactics pioneered by Dean and 527's like MoveOn. This article shows that the Republicans were not without their own effective uses for information technology. The left relied heavily on people's anger over the last election, or dislike of Bush. The RNC's methodology - which relies more on profiling techniques from consumer marketing - seems more likely to produce a stable, robust base with commonalities beyond a single issue.
...the Bush operation sniffed out potential voters with precision-guided accuracy, particularly in fast-growing counties beyond the first ring of suburbs of major cities. The campaign used computer models and demographic files to locate probable GOP voters. "They looked at what they read, what they watch, what they spend money on," a party official said.
Once those people were identified, the RNC sought to register them, and the campaign used phone calls, mail and front-porch visits -- all with a message emphasizing the issues about which they cared most -- to encourage them to turn out for Bush. "We got a homogeneous group of new registered voters and stayed on them like dogs," another official said.
Saturday, November 06, 2004
Interpreting the Election
The demographic breakdown of voting patterns is quite interesting. It appears that many groups (evangelicals, young voters, etc.) increased their turnout in absolute terms, but not relative to the total number of voters, which also increased.
So, the Republicans and Democrats were *roughly* equally successful in turning out their supporters, but the R's slightly more so.
Probably, the R's were able to use culture war issues like gay marriage to distract their people from the problems in Iraq and with the economy.
I can see two disasters on the horizon that might give the D's a chance in two or four years: Iraq is the obvious one, but a dollar crisis (see previous post; foreign creditors become reluctant to buy Treasuries, forcing a spike in interest rates, leading to a recession) is also possible.
I can't emphasize enough how strong the R's and how weak the D's are right now, by historical standards. Bush's economic performance was terrible and the war in Iraq unpopular. Yet he won a decisive victory. Imagine how hard he would have been to defeat if he hadn't gone into Iraq, or had a better economy. (On the other hand you might argue that 9/11 helped him a lot as a source of fear mongering and demagoguery.)
From David Brooks' column: (no endorsement of his usually irritating column implied)
Here are the facts. As Andrew Kohut of the Pew Research Center points out, there was no disproportionate surge in the evangelical vote this year. Evangelicals made up the same share of the electorate this year as they did in 2000. There was no increase in the percentage of voters who are pro-life. Sixteen percent of voters said abortions should be illegal in all circumstances. There was no increase in the percentage of voters who say they pray daily.
It's true that Bush did get a few more evangelicals to vote Republican, but Kohut, whose final poll nailed the election result dead-on, reminds us that public opinion on gay issues over all has been moving leftward over the years. Majorities oppose gay marriage, but in the exit polls Tuesday, 25 percent of the voters supported gay marriage and 35 percent of voters supported civil unions. There is a big middle on gay rights issues, as there is on most social issues.
Much of the misinterpretation of this election derives from a poorly worded question in the exit polls. When asked about the issue that most influenced their vote, voters were given the option of saying "moral values." But that phrase can mean anything - or nothing. Who doesn't vote on moral values? If you ask an inept question, you get a misleading result.
The reality is that this was a broad victory for the president. Bush did better this year than he did in 2000 in 45 out of the 50 states. He did better in New York, Connecticut and, amazingly, Massachusetts. That's hardly the Bible Belt. Bush, on the other hand, did not gain significantly in the 11 states with gay marriage referendums.
He won because 53 percent of voters approved of his performance as president. Fifty-eight percent of them trust Bush to fight terrorism. They had roughly equal confidence in Bush and Kerry to handle the economy. Most approved of the decision to go to war in Iraq. Most see it as part of the war on terror.
So, the Republicans and Democrats were *roughly* equally successful in turning out their supporters, but the R's slightly more so.
Probably, the R's were able to use culture war issues like gay marriage to distract their people from the problems in Iraq and with the economy.
I can see two disasters on the horizon that might give the D's a chance in two or four years: Iraq is the obvious one, but a dollar crisis (see previous post; foreign creditors become reluctant to buy Treasuries, forcing a spike in interest rates, leading to a recession) is also possible.
I can't emphasize enough how strong the R's and how weak the D's are right now, by historical standards. Bush's economic performance was terrible and the war in Iraq unpopular. Yet he won a decisive victory. Imagine how hard he would have been to defeat if he hadn't gone into Iraq, or had a better economy. (On the other hand you might argue that 9/11 helped him a lot as a source of fear mongering and demagoguery.)
From David Brooks' column: (no endorsement of his usually irritating column implied)
Here are the facts. As Andrew Kohut of the Pew Research Center points out, there was no disproportionate surge in the evangelical vote this year. Evangelicals made up the same share of the electorate this year as they did in 2000. There was no increase in the percentage of voters who are pro-life. Sixteen percent of voters said abortions should be illegal in all circumstances. There was no increase in the percentage of voters who say they pray daily.
It's true that Bush did get a few more evangelicals to vote Republican, but Kohut, whose final poll nailed the election result dead-on, reminds us that public opinion on gay issues over all has been moving leftward over the years. Majorities oppose gay marriage, but in the exit polls Tuesday, 25 percent of the voters supported gay marriage and 35 percent of voters supported civil unions. There is a big middle on gay rights issues, as there is on most social issues.
Much of the misinterpretation of this election derives from a poorly worded question in the exit polls. When asked about the issue that most influenced their vote, voters were given the option of saying "moral values." But that phrase can mean anything - or nothing. Who doesn't vote on moral values? If you ask an inept question, you get a misleading result.
The reality is that this was a broad victory for the president. Bush did better this year than he did in 2000 in 45 out of the 50 states. He did better in New York, Connecticut and, amazingly, Massachusetts. That's hardly the Bible Belt. Bush, on the other hand, did not gain significantly in the 11 states with gay marriage referendums.
He won because 53 percent of voters approved of his performance as president. Fifty-eight percent of them trust Bush to fight terrorism. They had roughly equal confidence in Bush and Kerry to handle the economy. Most approved of the decision to go to war in Iraq. Most see it as part of the war on terror.
Friday, November 05, 2004
Whither the Dollar?
The conventional wisdom seems to be that the dollar is headed down. The case is made pretty clearly here in the Economist.
The U.S. current account deficit will reach about $600B this year, or about 6% of U.S. GDP. Most of this is financed by Asian central bank purchases of Treasury debt. How long will China and Japan continue to finance our profligacy? Certainly they have strategic reasons to keep their currencies cheap relative to the dollar. But someday (soon?) they'll begin to diversify their foreign reserves into Euros. When that happens, we can expect a run on the dollar and a significant increase in interest rates to keep dollar-denominated Treasuries attractive to our creditors.
How to hedge this risk? If you have any good ideas, let me know! Bonds denominated in Euros or NZ dollars or Norwegian Crowns are one option, but they've already had a big run up in recent years. (The dollar is down 14% in trade-weighted terms since 2002.)
The U.S. current account deficit will reach about $600B this year, or about 6% of U.S. GDP. Most of this is financed by Asian central bank purchases of Treasury debt. How long will China and Japan continue to finance our profligacy? Certainly they have strategic reasons to keep their currencies cheap relative to the dollar. But someday (soon?) they'll begin to diversify their foreign reserves into Euros. When that happens, we can expect a run on the dollar and a significant increase in interest rates to keep dollar-denominated Treasuries attractive to our creditors.
How to hedge this risk? If you have any good ideas, let me know! Bonds denominated in Euros or NZ dollars or Norwegian Crowns are one option, but they've already had a big run up in recent years. (The dollar is down 14% in trade-weighted terms since 2002.)
Income Volatility
Nice article from LA Times on volatility in family income. Basically, although Americans are getting richer, the size of annual fluctuations in income has also become larger. So, although people are earning more they are also putting up with more volatility from year to year.
In finance terms, the risk-adjusted growth in income, even for high earners, is less impressive than just the growth itself.
There was a brilliant study on this recently, which showed that the top 2% of earners had substantial income growth in recent years, but that they weren't *spending* more. Further analysis showed that there was a lot of movement of families in and out of the top category, due to career and job volatility - it is not the same people in the top category from year to year! Families know this, so in good years they don't necessarily spend as if they are confident of more good years in the future. A good example of this is the sales guys at my former company. One year, they might make $200K, but they could easily be unemployed for 6 months and make much less the following year.
When we compare U.S. economic performance with other countries, we might want to adjust our per capita income growth for the additional volatility that the average American now endures. Many would rather make less money if they can enjoy more security.
In finance terms, the risk-adjusted growth in income, even for high earners, is less impressive than just the growth itself.
There was a brilliant study on this recently, which showed that the top 2% of earners had substantial income growth in recent years, but that they weren't *spending* more. Further analysis showed that there was a lot of movement of families in and out of the top category, due to career and job volatility - it is not the same people in the top category from year to year! Families know this, so in good years they don't necessarily spend as if they are confident of more good years in the future. A good example of this is the sales guys at my former company. One year, they might make $200K, but they could easily be unemployed for 6 months and make much less the following year.
When we compare U.S. economic performance with other countries, we might want to adjust our per capita income growth for the additional volatility that the average American now endures. Many would rather make less money if they can enjoy more security.
Map of the future
Here is a county by county map of the USA, showing red and blue counties. A second map with population densities is also included.
hillbillies 1
knowledge workers 0
maps
BTW, Charlie Rose last night was quite interesting. Two editors from Newsweek were talking about their special campaign issue - for which they were given special access to both campaigns, on the condition that the issue would come out after the election.
The lead editor on the story claimed that Kerry was a terrible candidate and a terrible manager. He said on several occasions the campaign staff had to take away Kerry's cellphone because he wanted to revisit every decision and micromanage. He also was a rambling and overly complex speaker until the very end, although he was able to tighten things up for the debates, thanks to extensive coaching. The campaign hired a number of expensive professional coaches to help Kerry, but to no avail.
It was claimed that the initial campaign management was terrible - until the former Clinton people arrived in Sept. Apparently, Bob Shrum did a terrible job - something that was hinted at in the New Yorker profile of him earlier in the year. On the other side, the Bush campaign was run very crisply and effectively.
Apparently, Clinton urged Kerry from his hospital bed to *come out against gay marriage* as a way to tack to the center. I think it is very persuasive that the republicans used this issue effectively against Kerry (look at the 10 or 11 states that passed anti-gay marriage measures - even Oregon). This example just shows the gap between Clinton - a successful realist - and the rest of the democrats.
I guess I agree with Clinton. Given the current situation (see map), I do not think the left has the luxury of expending a lot of resources to defend gay marriage. So many more consequential issues (foreign policy, the deficit, healthcare reform, the supreme court) are in jeopardy that the democratic party cannot allow itself to be held hostage on unpopular fringe issues that the republicans are trying to exploit.
hillbillies 1
knowledge workers 0
maps
BTW, Charlie Rose last night was quite interesting. Two editors from Newsweek were talking about their special campaign issue - for which they were given special access to both campaigns, on the condition that the issue would come out after the election.
The lead editor on the story claimed that Kerry was a terrible candidate and a terrible manager. He said on several occasions the campaign staff had to take away Kerry's cellphone because he wanted to revisit every decision and micromanage. He also was a rambling and overly complex speaker until the very end, although he was able to tighten things up for the debates, thanks to extensive coaching. The campaign hired a number of expensive professional coaches to help Kerry, but to no avail.
It was claimed that the initial campaign management was terrible - until the former Clinton people arrived in Sept. Apparently, Bob Shrum did a terrible job - something that was hinted at in the New Yorker profile of him earlier in the year. On the other side, the Bush campaign was run very crisply and effectively.
Apparently, Clinton urged Kerry from his hospital bed to *come out against gay marriage* as a way to tack to the center. I think it is very persuasive that the republicans used this issue effectively against Kerry (look at the 10 or 11 states that passed anti-gay marriage measures - even Oregon). This example just shows the gap between Clinton - a successful realist - and the rest of the democrats.
I guess I agree with Clinton. Given the current situation (see map), I do not think the left has the luxury of expending a lot of resources to defend gay marriage. So many more consequential issues (foreign policy, the deficit, healthcare reform, the supreme court) are in jeopardy that the democratic party cannot allow itself to be held hostage on unpopular fringe issues that the republicans are trying to exploit.
Looting at Al Qaqaa
For those still interested, here are U.S. soldiers' eyewitness accounts of the looting of plastic explosives.
(Faith-based individuals can ignore this message - the Lord will make it OK in the end as long as we don't allow gays to marry.)
LA Times
The soldiers, who belong to two different units, described how Iraqis plundered explosives from unsecured bunkers before driving off in Toyota trucks.
The U.S. troops said there was little they could do to prevent looting of the ammunition site, 30 miles south of Baghdad.
"We were running from one side of the compound to the other side, trying to kick people out," said one senior noncommissioned officer who was at the site in late April 2003.
"On our last day there, there were at least 100 vehicles waiting at the site for us to leave" so looters could come in and take munitions.
"It was complete chaos. It was looting like L.A. during the Rodney King riots," another officer said.
(Faith-based individuals can ignore this message - the Lord will make it OK in the end as long as we don't allow gays to marry.)
LA Times
The soldiers, who belong to two different units, described how Iraqis plundered explosives from unsecured bunkers before driving off in Toyota trucks.
The U.S. troops said there was little they could do to prevent looting of the ammunition site, 30 miles south of Baghdad.
"We were running from one side of the compound to the other side, trying to kick people out," said one senior noncommissioned officer who was at the site in late April 2003.
"On our last day there, there were at least 100 vehicles waiting at the site for us to leave" so looters could come in and take munitions.
"It was complete chaos. It was looting like L.A. during the Rodney King riots," another officer said.
Wednesday, November 03, 2004
Bounded Cognition
Months ago Microsoft (MSFT) announced a special dividend on Nov. 15 of about $3 per share. They are sitting on a huge pile of cash and don't know what to do with it other than return it to shareholders.
Now, what will happen to the price of a share of MSFT after the dividend is issued? If you go online you can find a lot of discussion and confusion about this point, by obviously very interested individual traders. I have been asked repeatedly about this by fairly sophisticated people.
The answer is that the share price will drop discontinuously by the value of the dividend once it is issued. The argument is kind of trivial: MSFT's future prospects will be the same the instant before and after the dividend, but they will have slightly less cash, so the share price should drop. (Keep in mind they announced the dividend months ago, so there is no new information from the actual payment.)
But, you can find people online discussing a strategy of buying the shares just before Nov. 15 just to get the dividend (which amounts to about 10% of the share price). Not a bad deal, except once you collect the dividend your shares will be worth less. No free lunch.
Talk about bounded cognition - this isn't a hard question like what the dollar-yen exchange rate will be in 3 years. The answer can be deduced by simple logic, but many individual investors are clueless.
Now, what will happen to the price of a share of MSFT after the dividend is issued? If you go online you can find a lot of discussion and confusion about this point, by obviously very interested individual traders. I have been asked repeatedly about this by fairly sophisticated people.
The answer is that the share price will drop discontinuously by the value of the dividend once it is issued. The argument is kind of trivial: MSFT's future prospects will be the same the instant before and after the dividend, but they will have slightly less cash, so the share price should drop. (Keep in mind they announced the dividend months ago, so there is no new information from the actual payment.)
But, you can find people online discussing a strategy of buying the shares just before Nov. 15 just to get the dividend (which amounts to about 10% of the share price). Not a bad deal, except once you collect the dividend your shares will be worth less. No free lunch.
Talk about bounded cognition - this isn't a hard question like what the dollar-yen exchange rate will be in 3 years. The answer can be deduced by simple logic, but many individual investors are clueless.
Tuesday, November 02, 2004
How to Win Friends and Influence People
The all-time classic, now summarized for your convenience!
This is Dale Carnegie's summary of his book, from 1936
Table of Contents
1. Fundamental Techniques in Handling People
2. Six Ways to Make People Like You
3. How to Win People to Your Way of Thinking
4. Be a Leader: How to Change People Without Giving Offense or Arousing Resentment
Part One
Fundamental Techniques in Handling People
1. Don't criticize, condemn or complain.
2. Give honest and sincere appreciation.
3. Arouse in the other person an eager want.
Part Two
Six ways to make people like you
1. Become genuinely interested in other people.
2. Smile.
3. Remember that a person's name is to that person the sweetest and most important sound in any language.
4. Be a good listener. Encourage others to talk about themselves.
5. Talk in terms of the other person's interests.
6. Make the other person feel important - and do it sincerely.
Part Three
Win people to your way of thinking
1. The only way to get the best of an argument is to avoid it.
2. Show respect for the other person's opinions. Never say, "You're wrong."
3. If you are wrong, admit it quickly and emphatically.
4. Begin in a friendly way.
5. Get the other person saying "yes, yes" immediately.
6. Let the other person do a great deal of the talking.
7. Let the other person feel that the idea is his or hers.
8. Try honestly to see things from the other person's point of view.
9. Be sympathetic with the other person's ideas and desires.
10. Appeal to the nobler motives.
11. Dramatize your ideas.
12. Throw down a challenge.
Part Four
Be a Leader: How to Change People Without Giving Offense or Arousing Resentment
A leader's job often includes changing your people's attitudes and behavior. Some suggestions to accomplish this:
1. Begin with praise and honest appreciation.
2. Call attention to people's mistakes indirectly.
3. Talk about your own mistakes before criticizing the other person.
4. Ask questions instead of giving direct orders.
5. Let the other person save face.
6. Praise the slightest improvement and praise every improvement. Be "hearty in your approbation and lavish in your praise."
7. Give the other person a fine reputation to live up to.
8. Use encouragement. Make the fault seem easy to correct.
9. Make the other person happy about doing the thing you suggest.
This is Dale Carnegie's summary of his book, from 1936
Table of Contents
1. Fundamental Techniques in Handling People
2. Six Ways to Make People Like You
3. How to Win People to Your Way of Thinking
4. Be a Leader: How to Change People Without Giving Offense or Arousing Resentment
Part One
Fundamental Techniques in Handling People
1. Don't criticize, condemn or complain.
2. Give honest and sincere appreciation.
3. Arouse in the other person an eager want.
Part Two
Six ways to make people like you
1. Become genuinely interested in other people.
2. Smile.
3. Remember that a person's name is to that person the sweetest and most important sound in any language.
4. Be a good listener. Encourage others to talk about themselves.
5. Talk in terms of the other person's interests.
6. Make the other person feel important - and do it sincerely.
Part Three
Win people to your way of thinking
1. The only way to get the best of an argument is to avoid it.
2. Show respect for the other person's opinions. Never say, "You're wrong."
3. If you are wrong, admit it quickly and emphatically.
4. Begin in a friendly way.
5. Get the other person saying "yes, yes" immediately.
6. Let the other person do a great deal of the talking.
7. Let the other person feel that the idea is his or hers.
8. Try honestly to see things from the other person's point of view.
9. Be sympathetic with the other person's ideas and desires.
10. Appeal to the nobler motives.
11. Dramatize your ideas.
12. Throw down a challenge.
Part Four
Be a Leader: How to Change People Without Giving Offense or Arousing Resentment
A leader's job often includes changing your people's attitudes and behavior. Some suggestions to accomplish this:
1. Begin with praise and honest appreciation.
2. Call attention to people's mistakes indirectly.
3. Talk about your own mistakes before criticizing the other person.
4. Ask questions instead of giving direct orders.
5. Let the other person save face.
6. Praise the slightest improvement and praise every improvement. Be "hearty in your approbation and lavish in your praise."
7. Give the other person a fine reputation to live up to.
8. Use encouragement. Make the fault seem easy to correct.
9. Make the other person happy about doing the thing you suggest.
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