Politics & Prosperity

Acorn Registers the Dallas Cowboys to Vote In Nevada

2008-10-07T17:58:00.000-07:00

Every election cycle Acorn pops up with these sorts of shenanigans - voter fraud that is always for the benefit of liberal candidates. McCain would be well served to hammer Obama on his close and long-term ties to this group. There are isolated examples, but you’ll be hard pressed to find examples of systemic voter fraud benefiting conservatives. Voter fraud almost always is for the benefit of left wing and Democrat candidates. I’ll be looking out for Tony Romo and Terrell Owens at my Atlanta voting precinct November 4^th. If Michael Vick tries to vote, my suspicions will be raised, since the last time I checked, he was still locked up in Leavenworth.

http://elections.foxnews.com/2008/10/07/acorn-vegas-office-raided-voter-fraud-investigation/

Barney Frank Plays His Trump Card

2008-10-07T17:31:00.000-07:00

I’ve been waiting for this and here it is. For years Fannie and Freddie and their enablers, Frank and Dodd and the gang, would accuse as “hating poor people” and “not wanting affordable housing” anyone who tried to responsibly regulate, limit, or otherwise look into their activities. Barney Frank now adds the unfortunate but predictable extension – some of these poor people are black, so people (read "Republicans") attacking the GSE’s are "racists". This guy is so dirty with this stuff it is unbelievable - and now this despicable diversionary tactic.

http://www.breitbart.com/article.php?id=D93LAKT01&show_article=1

Democrat's GSE Denial or, "We didn't do it, nobody saw us!"

2008-10-07T11:18:00.000-07:00

A liberal friend of mine recently sent me some material repeating the Democrat talking points that Fannie Mae and Freddie Mac, enabled by congressional Democrats, are not to blame for the finanical crisis, and that Republicans pointing at the GSE's are only trying to deflect blame from a failure of deregulation. The sources provided included a column from BusinessWeek, an op-ed by liberal economist and New York Times columnist Paul Krugman, and a piece from The Huffington Post.

The problem with The Huffington Post, besides the anger and hate, is that stuff gets thrown out there un-cited or cited from dubious sources that is for the consumption of the left who mostly just shout “Amen” - with no critical thinking. It is actually quite amusing how many of the featured articles on The Huffington Post are from "political pundits" such as Barbara Streisand and Alec Baldwin. Unfortunately, the NYT’s is getting more like The Huffington Post every day, with Frank Rich (dubious and spurious "facts") and Bob Herbert (anger) leading the charge. No respectable journalist is going to look to The Huffington Post for a factual discourse. But I digress.

In The Huffington Host piece, written by a Mr. Abromowitz, he actually cites Wikipedia as a source for what Fannie and Freddie can and can’t do. You’ve got to be kidding me. As I’ve explained to my kids, Wikipedia is useful for quick access to information, but it is not a valid source for a school paper (or an op-ed in this case). Anyone can put something out on Wikipedia, or edit a piece that is already published. For all I know Abromowitz placed the entry there himself. Abromowitz writes:

“Now, as even Wikipedia will tell you, "the term 'subprime' refers to loans that do not meet Fannie Mae or Freddie Mac guidelines." So how can Republicans point to Fannie and Freddie to lay blame when asked about the current housing crisis?”

I looked at the author’s bio, and he is an attorney whose work focuses on “affordable housing”, So he has to know what he is writing is not true. Krugman repeats the falslehood that Fannie and Freddie can’t touch sub-prime paper (un-cited). Krugman should know better. In addition, Krugman writes:

“Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco.”

I don’t know anything about Aaron Pressman in BusinessWeek, so I don’t know if he should know better or not. He does cite a Federal Reserve study that recounts the causes of the crisis and does not mention the GSE's. The Fed study is accurate, but focuses only on the scope of the Fed’s mission, which does not include the GSE's, but does focus on what in my opinion is the other root cause – the incompetence (or worse) of the rating agencies. He goes on to state the following (un-cited), which is demonstrably false.

“All those no money down, no interest for a year, low teaser rate loans? All the loans made without checking a borrower’s income or employment history? All made in the private sector, without any support from Fannie and Freddie.”

The most in-depth and factual analysis I have found is an overview paper from the American Enterprise Institute written by Peter J. Wallison, the Arthur F. Burns Fellow in Financial Policy Studies at AEI, and Charles W. Calomiris, the Henry Kaufman Professor of Financial Institutions at Columbia Business School. The were assisted by Edward Pinto, a former chief credit officer of Fannie Mae, who helped decipher the GSE's Enron-like disclosures. It is scrupulously cited and footnoted. Mr. Walllison testified before Congress yesterday as an expert on the subject.

http://www.aei.org/publications/pubID.28704/pub_detail.asp

It is a very long piece, but I’ll highlight a few points.

In 1994, Fannie Mae Initiated a $1 trillion affordable housing initiative, and both Fannie and Freddie announced new $2 trillion initiatives in 2001.
In the early ‘90’s the Democrat-controlled Congress lowered the capital requirement for the GSE's from 10% to 2.5%% in order to increase funding for “affordable housing”.
In 1995, the Clinton administration approved the GSE's purchase of sub-prime loans in order to meet their affordable housing targets (pre-OFEHO, there was no GSE egulatory agency at the time), but did not provide any rules about lending practices that needed to be followed for these loans.
In 2004, the House Financial Services Committee developed a GSE oversight reform bill that was so badly weakened by GSE lobbying that the Bush administration refused to support it. The Senate Banking Committee, then under Republican control, adopted much stronger legislation in 2005, but unanimous Democratic opposition to the bill in the committee doomed it when it reached the floor, including opposition from Barack Obama.
On June 30, 2008, Fannie held or had guaranteed subprime and Alt-A loans with an unpaid principal balance of $553B, plus $25B of Alt-A and $36.3B of subprime loans purchased as private label securities That’s a grand total of $619B – or 23% of its single-family mortgage book.
In August of this year, Freddie reported that 52% of its entire single-family credit guarantee portfolio was from the problematic book years 2005-2007. It further reported that these mortgages had the following subprime characteristics: option ARM - 72%, interest only - 90%, credit scores fo less than 620 - 61%, loan to value greater than 90 - 58%, Alt-A - 78%.
Freddie’s total junk, Alt-A and subprime loan exposure in August was $392B, or 20 percent of its entire single-family mortgage book.
Fannie Mae and Freddie Mac became the biggest buyers of the AAA tranches of subprime pools in 2005–07. Without their commitment to purchase the AAA tranches of these securitizations, it is unlikely that the pools could have been formed and marketed around the world.
The AEI paper also dissects what it charitably calls Krugman's "confusion” about his misstatements that the GSE's were prohibited by law from purchasing sub-prime loans, and that the GSE's exposure to sub-prime loans was zero, neither of which is true.
On September 23, in Congressional testimony, regulator James Lockhart said the following as reported in the Washington Post:

Fannie Mae and Freddie Mac purchased and guaranteed "many more low-documentation, low-verification and non-standard" mortgages in 2006 and 2007 "than they had in the past." He said the companies increased their exposure to risks in 2006 and 2007 despite the regulator's warnings.

Roughly 33 percent of the companies' business involved buying or guaranteeing these risky mortgages, compared with 14 percent in 2005. Those bad debts on mortgages led to billions of dollars in losses at the firms. "The capacity to raise capital to absorb further losses without Treasury Department support vanished," Lockhart said.

The Obama Policy Challenge

2008-10-07T08:36:00.000-07:00

It is very possible that the current economic crisis will lead to Barack Obama winning the presidency. Ironically, Obama's policies, if enacted, will further damage the economy. When I ask Obama supporters why they think he is the best candidate to lead our country, I invariably hear that Obama has superior judgment, is thoughtful, and is eloquent. But here is the problem. Whenever I ask for an example of Obama’s superior judgment other than the fact he opposed the Iraq war from the safe confines of the Illinois statehouse I draw a blank.

Likewise, it is hard to get specifics from supporters on actual policy proposals that they think are better than McCain's. Or they'll say something like, "Obama will provide health care to every American". Well, McCain's plan will too. Can they tell me why Obama's heath care plan is superior to McCain's in any factual sense? They cannot.

To take the Obama Policy Challenge you have to come up with several Obama policies that are materially different from McCain’s position on the same subject. For example, both Obama and McCain agree that we need a few more troops in Afghanistan. Both agree we need to concentrate our efforts on the Afghanistan/Pakistan border region. Both agree that torture is unacceptable. Both agree (finally) that the surge “succeeded beyond our wildest expectations”. They both support the wiretapping FISA program. Both support campaign finance reform (as soon as Obama is done with his campaign). In fact, I think Obama hurt himself in the first debate by starting off many of his rebuttals by agreeing with McCain on many of the issues.

Speaking of judgement, Governor Palin is making a strong case on the campaign trail that Obama’s long relationship with Bill Ayers is a problem. It is interesting that the 5 years Obama spent on Ayres’ board, which is really the only executive experience he has, is the one period Obama will not talk about. Ayers’ Annenberg Challenge raised and distributed money to leftist groups with the goal of supporting Ayers’ educational philosophy – the radicalization of young students. Obama was in charge of distributing the money each year to groups like Acorn in order to turn school children in to little Bill Ayres. This is the man who would be president.

The explanations from the Obama campaign regarding the Ayres relationship have been a dog’s breakfast of shifting spin. Bill Ayers was “just a guy in Obama’s neighborhood”. When Obama met Ayers he was a respectable professor – Obama did not know about his radical background as a terrorist. Obama was only 8 when Ayers was bombing the Pentagon (I have no idea why this excuses Ayers’ actions and makes it OK to be his pal). At one point Obama’s campaign manager said their kids went to the same school. That may be the best one, as Ayers’ kids are 20 years older than Obama’s. I think it was just last year when a Chicago magazine featured Bill Ayers and published a picture of him proudly grinding an American flag into the ground in a back alley.

The Obama campaign believes the Ayers issue is damaging, because they have counterattacked hard by misrepresenting McCain’s days with the “Keating 5”. McCain did show some bad judgment getting anywhere near this guy, and was investigated by the Democrat-led Senate. But he was cleared 100%. In addition, the attorney hired by the Democrats to investigate McCain said that the senator was the most squeaky clean politician he’d ever seen. In a battle of associations, Keating is of course a legitimate topic, but only if you don’t lie about it.

I frankly don’t understand why the McCain campaign is so reluctant to make a big issue out of the other ghosts of Obama’s past. He sat in the church pew of America hater and racist Reverend Wright for 20 years, but claims to have never heard anything divisive. I get the sense that McCain thinks Wright is off-limits because of the racial overtones of attacking him. But since the only black votes McCain will probably get are Thomas Sowell and Condi Rice I’m not sure why that matters.

Obama’s mentor getting started in the Illinois senate was state legislator Alice Palmer, who prior to the fall of the Soviet Union travelled frequently to communist party meetings there. She was a vocal proponent that everything the Soviet Union was did was good and everything the U.S. did was bad (sound familiar?). I haven’t heard a peep out of the McCain campaign about her.

I think that if the great uninformed majority who are going to vote for Obama might be given pause if they truly knew how comfortable he is with these radical America haters – and how he sought them out as mentors and advocates for his political gain. What if the reciprocal was true and McCain had maintained a 20 year relationship with a white supremacist, distributed millions of dollars to radical fascist activist groups, and been pals with someone who had bombed abortion clinics and black churches back in the day and said he “didn’t do enough” and was “unrepentant”, all along claiming to usher in post-partisan politics? McCain wouldn’t even be able to run for county commissioner. Can anyone explain perhaps the most extreme double standard in the history of politics in our country? Please post a response and let me know. It truly eludes me.

Remember, to play the Obama Policy Challenge you have to be able to come up with several examples of Obama’s superior judgment, and several policy proposals that are materially different from McCain that you agree with. I’d really like to know. You can’t claim superior judgment without evidence of such, and thoughtfulness without policy as a lone credential for the presidency is insufficient.

The Roots of the Financial Crisis - A Sketchy Analysis By the NYT's

2008-10-05T13:41:00.000-07:00

http://www.nytimes.com/2008/10/05/business/05fannie.html?pagewanted=1&hp

Although seemingly in-depth on the surface, this article is typical of the NYT’s when their agenda is culpable.

There is only a brief mention of Barney Frank. No mention the #1 and #2 largest recipients of GSE money – Dodd and Obama. No mention of the constant attempts by the GOP over the last decade to strengthen oversight and reform the GSE’s – reforms viciously attacked by Barney Frank and his posse. No mention of congress overlooking the GSE’s creating what amounted to a MBS hedge fund to increase earnings – which had nothing to do with their charter but greatly increased risk.

The comment about charging higher fees for riskier loans to offset risk doesn’t make sense. If the capital ratio doesn’t change then these fees aren’t retained to offset losses. They just goose earnings that lead to larger bonuses for the executives and the investors.

The Countrywides of the world would never have generated all the questionable loans if the GSE’s weren’t being pushed by Congress to aggressively expand “affordable housing”.

A casual reader of this story would largely be led to believe that they were rouge agencies and that Congress had a limited role in our financial crisis.

The other root cause of the crisis rests with the ratings agencies. They’re rating of MBS’s as ‘AAA’ that clearly were not, combined with Greenspan’s and Japan’s ‘free’ money meant that financial institutions and investment banks were comfortable in taking on leverage levels that otherwise would have been insane. I am actually quite surprised the S&P’s of the world have not been driven out of business by massive class action suits.

Almost everything of consequence in the financial crisis can be traced back to these two root causes.

Our Financial Crisis - The Facts Don't Seem to Matter

2008-10-05T13:38:00.000-07:00

http://article.nationalreview.com/?q=NGRjODM1MTJlOGZiZDk2ODI4NTUzMWMxYjgwMjliMGQ=

I think Thomas Sowell probably has it right. Facts don’t matter when it comes to the financial crisis. The McCain campaign seems strangely reticent when it comes to connecting the dots for the American people about the cause and the principals in the financial crisis. The republicans are not doing a good job explaining their economic policies and are doing even worse at showing how misguided Obama’s economic policies are. How many times did Palin talk about Wall Street greed during the debate instead of democratic intransigence?

In fact they are not really economic policies at all - they are class-warfare social policies. Although I believe McCain/Palin will close the gap and make it a close election, I fear that Obama will be elected by a majority of Americans that don’t understand the issues, and perhaps don’t care. Combined with Acorn voter fraud the democrats will be tough to beat in the key battleground states.

McCain is pulling out of Michigan because the campaign doesn’t think they can turn a heavily democratic state. This is the frustration of us conservatives. Michigan’s voters would rather stay with the party that helped get them into the mess they’re in instead of trying something different.

The real tragedy is that Obama’s “economic/social” policies will not help the economy and will most likely hurt badly, not just not the U.S., but the world. But he’ll be thoughtful and articulate throughout it all.

The Democrat's Deregulation Red Herring

2008-10-04T19:52:00.000-07:00

The last weeks have reached the height of incredulity with the likes of Barney Frank denying any responsibility for our current financial crisis. Perhaps a look at the root causes is in order.

It all started with Jimmy Carter and the Community Reinvestment Act in 1977, mandating that banks increase leading to low income families in the name of “affordable housing”. More pressure to expand sub-prime lending was put on the banks by the democratic congress in the 1990’s by expanding the 1977 legislation. Along the way the GSE's spent millions lobbying congress and contributing campaign money to the GSE's supporters. Over time, the GSE's became a sort of slush fund for liberal causes, contributing money to all sorts of liberal organizations and causes.

President Clinton’s administration pushed to reform the GSE’s Alan Greenspan made it his personal mission for years - warning over and over again against the size and activities of the GSE's. The Bush administration took up the task along with republicans in Congress. After it came to light that the GSE’s had committed accounting fraud to maximize bonus payouts to executives, the GOP tried to use this as leverage to finally increase oversight and put a regulator in place with real teeth. It was blocked by Barney Frank and his “posse”, the apologists for the GSE’s. I love the video clip circulating on the Internet with Fannie Mae CEO Raines stating that Fannie purchased mortgages were so “riskless” that their capital requirement should be lowered to 2%. He pulled $90M in compensation out of Fannie and is now an advisor to the Obama campaign.

Anyone who challenged the out of control GSE’s was labeled a hater of poor people, an opponent of affordable housing. Congress encouraged and enabled the GSE's to dramatically expand it's purchase of sub-prime loans. With the implicit backing of the government, and the desire to buy this questionable paper, the market rushed to generate as much of it as possible, without much regard to the particulars.

The current Democrat regime holds the repeal of the Glass-Steagall Act, an effort partly architected by McCain advisor Phil Graham, as a catalyst in creating the financial crisis. The Democrats shout out that the reckless obsession with laissez faire financial markets by the GOP are to blame. But as Bill Clinton has recently pointed out, the repeal of Glass-Steagall in 1999 actually increased the stability of the financial sector in this current crisis. Obama accuses McCain of supporting irresponsible deregulation, but the truth is more about allowing consumers to use ATM’s across state line and the like.

This all is a great example of how members of congress should be barred from accepting campaign contributions from lobbyists who represent the industry or companies that the members oversee on their respective committees.

It is quite amazing the way the democrats have convinced the uninformed majority that the problem is everyone’s fault but their own.

Obama and the Saul Alinsky Method

2008-10-04T19:24:00.000-07:00

Barack Obama's long-term association with racist Reverend Wright has been widely publicized, and to a lessor extent the terrorist Bill Ayers. But the foundation of much of Obama's early work as a community organizer, and it appears parts of his world view were influenced by Saul Alinsky. Senator Obama was trained by Chicago's Industrial Areas Foundation, founded by the radical communist organizer Alinsky in 1940, by Alinsky disciples. Michelle Obama actually used phrases from Alinsky's last book, Rules for Radicals in her speech at the democratic national convention. There is even a picture on Obama's campaign web site teaching at the University of Chicago with "Power Analysis" and "Relationships Based on Self-Interest" written on the board, key terms used in the Alinsky method.

Alinsky was a strong proponent of the end justifying the means. He was a bare knuckle brawler that inspired generations of far-left activists. The GOP has never been good at these types of win at all cost practices on the ground. Alinsky believed in ignoring ethics and morals to achieve his desired outcome. In Rules for Radicals Alinsky wrote, "Ethical standards must be elastic to stretch with the times…all values are relative in a world of political relativity." He even went so far as to praise the "first radical…who rebelled against the establishment and did it so effectively that he at least won his own kingdom — Lucifer." ACORN is an organization based on the Alinsky method.

It is predictable that the states where ACORN is being caught perpetrating voter fraud this election cycle are the key swing states (Ohio, Florida, etc.). In Ohio yesterday, a judge ruled against a GOP lawsuit that asked that people not be able to register to vote and vote and the same day. No chance of fraud there! In the 2004 election, a change of 3-4 votes per precinct in Ohio would have made John Kerry president.

As a community organizer, Obama had close ties to the Chicago ACORN chapter and trained a number of their leaders and activists. Recently Obama's campaign paid $800,000 to ACORN for "field work". In Obama's original 1996 state senate campaign (launched with an event at Bill Ayers house) ACORN members were used as volunteer shock troops.

According to the New York Times, Obama's memberships on the Woods Fund and Joyce Foundation boards, "allowed him to help direct tens of millions of dollars in grants" to various liberal organizations, including Chicago ACORN.

I think Bill O'Reilly had a valuable insight when he commented to Obama in his interview of him that Obama seems very comfortable with very far-left people and organizations. How many average middle Americans would feel comfortable sitting down and even having a conversation with Bill Ayers, Bernardine Dohrn, Saul Alinksy, Alice Palmer, Reverend Wright, Father Phlegar or Louis Farrakhan? It is a rouges gallery of American terrorists, communists, leftist radicals, racists, and anti-Semites.

How can you reconcile these associations and history against someone who has pledged to the "post-partisan"? In Obama's associations, voting record, and work history there is not a single indication that he will govern from the center. If you know of any, let me know. If his track record is a guide, he will be the most radically leftist president in our history, but I'm sure in a thoughtful way.

Fairness is the most overused and disingenuous word in the liberal lexicon. Massive tax increases under the guise of "fairness". No free trade agreements under the guise of "fair trade". $340B in annual spending increases to "recast" the safety net woven by FDR and LBJ. Wealth redistribution on an unprecedented scale. It doesn't sound like a post-partisan agenda to me. Obama's "fairness" sounds a lot like socialism.

Media Double Standard Alive and Well

2008-10-04T19:11:00.000-07:00

If Sarah Palin had made even a few of the dozen or so overt misstatements that Joe Biden made in the VP debate the media would be calling for her to be removed from the GOP ticket. Joe, of course gets a “pass” by the media.

It is hard to believe that someone that has been Washington for so long, and on the Foreign Relations Committee for years, could be so constantly wrong with the facts. I almost fell out of my chair when he started talking about Israel and the surrounding area. He must of made six statements in about 60 seconds that were not just incorrect, but way incorrect.

Sarah Palin didn’t have enough time or background knowledge to call him on all of it. I'm certainly not going to make Governor Palin out to be some foreign policy expert, but she did seem more comfortable than Biden in talking about Pakistan and Afghanistan. You knew that she really hit her stride when she asked Ms. Ifill if they could go back and talk more about Afghanistan. Biden gave the impression as having more depth, but what good is that if the specifics of that “depth” are factually incorrect. Unfortunately I fear the uninformed majority in this country don’t know enough to understand that he is spouting nonsense.

McCain was castigated because he briefly misspoke about Iran helping Al Qadea (which actually turned out to be true as part of Iran’s destabilization strategy, but was not what McCain meant). But when Biden couldn’t keep Hamas and Hezbollah straight or makes up history about Lebanon the mainsteam media is silent.

The above points to Biden's inadvertent misstatements, and does not include the out and out falsehoods or misrepresentations that are standard talking points in the Obama/Biden stump speech such as: McCain wants to give the oil companies another $4B in tax breaks; Obama never said he would meet with Ahmadinejad (you can watch the primary debate where he said exactly this on http://www.youtube.com/ - he as only compounded the problem since by first trying to explain it and then trying to deny it).

Perhaps the most stupid but factual statement that Biden made during the debate was accusing that McCain’s tax credit for families to buy their own health insurance would “go straight to the insurance companies”. Scandalous! Duh, its money to buy insurance!

Nancy Pelosi's Summer Break, Part II

2008-08-01T18:23:00.000-07:00

In addition to “saving the planet” here is what Nancy Pelosi said yesterday at an end-of-session roundtable in defense of her not allowing a vote on drilling:

"I will not ... give the administration an excuse for its failure."

Now that’s funny. The Bush administration has produced a balanced and thoughtful energy strategy that has a strong commitment to alternative energy along with appropriate use of traditional energy sources. The Democratic controlled Congress has refused to even consider it. I have read it, but I doubt if Nancy Pelosi has bothered.

The Bush administration has accomplished more regarding alternative energy research than any administration in history. Certainly very little was done by Clinton/Gore. Speaker Pelosi’s answer - go after evil speculators and drive the oil futures market off-shore, confiscate “windfall profits” from oil companies so they’ll have less money to fund exploration, release oil from the Strategic Petroleum Reserve, sue OPEC, promote corn-based ethanol, count on alternatives that are decades away from prime time, block nuclear power, and on and on.

From the San Francisco Chronicle:

“Pelosi has been holding votes on measures aimed at addressing gas prices, such as legislation to crack down on speculators in energy commodity markets and a measure to force Bush to release oil from the Strategic Petroleum Reserve. But here's the catch: The bills have won majority support, but failed to get the two-thirds backing needed to pass under special rules Pelosi has used to keep Republicans from offering a drilling measure on the House floor.”

These bills have been passing by a wide majority but aren’t going forward due to the two-thirds rule. It is the only way she under congressional rules can block the GOP from offering any amendments.

Some democracy, huh? Shouldn’t the House at least be allowed to vote on this stuff? Now a group of democrats are defying Pelosi by working with the GOP on a compromise bipartisan bill to increase domestic production and also accelerate conservation and alternative energy sources. But with Nancy banging the gavel today to adjourn for 5 weeks, I guess it will have to wait.

Some in the GOP are so frustrated that they have asked President Bush to call Congress back into emergency session, which he can do under Article II of the Constitution, to deal with the energy issue. No summer break until Pelosi/Reid actually do something!

From FoxNews.com:

House Minority Whip Roy Blunt (R-MO) said, “I just saw one of the Democrats interviewed on television. The question was, if [gas] was $10 a gallon and you knew exactly where to get it in Alaska or on the coast, would you drill there, and there was no answer."

I’d like to know which Democrat that was. I’ll bet he was like a deer caught in the headlights. Nancy Pelosi's desperate maneuvers are only reinforcing that Congress is the cause of much of our energy crisis, not the White House.

Time For Nancy Pelosi's Summer Break

2008-08-01T11:54:00.000-07:00

Nancy Pelosi continues to earn a reputation as the least effective Speaker of the House in generations. She also has an ideological coarseness that is distinctly unpleasant, and is not becoming to the with the office of the Speaker.

Her abdication, aided and abetted by Senate Majority Leader Harry Reid, of one of Congress’ primary roles, appropriations, is appalling. Congress will adjourn today for a five week break without passing a single appropriations bill - the first time this has happened since the 1950's.

Under Pelosi/Reid Congress continues to spend a great deal of time and money investigating manufactured "scandals" like Valerie Plame and Justice Department hirings and firings. Meanwhile, there has been no investigation of “Friends of Angelo” corruption even as Congress passed the “Bank of America/Countrywide Financial Bailout Act”. Why? Because Democrats, including Chairman of the Senate Banking Committe Chris Dodd, are dirty with it. Contrast this with the Bush executive branch who had no qualms about indicting Republican Senator Ted Stevens on corruption charges in an election year.

Ms. Pelosi has spent all summer maneuvering to make sure no vote on off-shore drilling occurs. To do so she has had to resort to virtually shutting down Congress. If a vote to authorize new domestic production was allowed, there is a good chance it would pass.

Today's Wall Street Journal commenting on the failure to pass an anti-speculation bill said, "But the legislation actually failed to become law -- by design. It needed a two-thirds majority because Speaker Pelosi suspended the rules to prevent Republicans from offering amendments, drilling among them. Ms. Pelosi had decreed that she would not permit a roll-call vote under any circumstances, even if it stopped her own goal of wrecking the U.S. futures market."

When questioned during an interview by Politico about her opposition to any expansion of domestic energy production, she testily replied, "I'm trying to save the planet, I'm trying to save the planet." Since Ms. Pelosi opposes oil, coal and nuclear, 93% of all potential energy production is off limits, with viable alternatives many years away.

Today's Wall Street Journal editorial page suggested that this sort of behavior could have repercussions come November. I, however, am under no such illusions about Speaker Pelosi losing an election this fall. She is no doubt regarded as a hero to her loony left district in San Francisco. But I am not aware of a single position that Speaker Pelosi advocates that stands up to intellectual scrutiny.

Barack Obama - A Career Without Conviction

2008-08-01T11:23:00.000-07:00

http://www.nytimes.com/2008/07/30/us/politics/30law.html?_r=1&em&oref=slogin

The above link is to a New York Times article about Barack Obama. I applaud the New York Time’s for a thoughtful and insightful piece. I wish more of their work was like this.

I find it fascinating the lengths Obama has gone to over the years to not take a definitive stand on anything. He voted “present” 130 times in the Illinois Senate, instead of casting "yes" or "no" votes on legislation. In 12 years at the University of Chicago he never published a scholarly article. In the U.S. Senate he has not taken the lead on any issue. His law school students admired his intellect and his ability to parse the complexities of issues but were frustrated by his unwillingness to ever say what he believed.

In the NYT’s article, libertarian colleague Richard Epstein summed it up well when he lamented that Barack Obama would not venture beyond his ideological and topical comfort zones. “His entire life, as best I can tell, is one in which he’s always been a thoughtful listener and questioner, but he’s never stepped up to the plate and taken full swings.”

When you combine this with his wholesale reversals on almost every key campaign position, like the FISA bill with retroactive immunity (he had promised to lead a filibuster against this), public funding for campaign finance, or gun control, it leads me to one conclusion. He is deeply unprincipled.

Can you with any conviction say what it is Obama believes? I can’t. Ronald Reagan spent a decade meeting and speaking with groups in every corner of the country to articulate his plan to defeat communism, promote smaller government, and recharge the economy by cutting taxes. As president, Ronald Reagan governed according to his principles; there was no confusion. Barack Obama has spent 20 years taking extreme care to ensure no definitive position could ever be ascribed to him.

Is a thoughtful listener and questioner and an accomplished facilitator who cannot take a definitive, principled stand the best person to be President? Can he make the “least bad choice” or will he be paralyzed by his ability to see the unfortunate consequences of every course of action? In this regard, Barack Obama is a very risky proposition.

Obama's Surge Illogic

2008-07-22T17:26:00.000-07:00

Barack Obama is running a good campaign. His staff understands the power of images and there have been no shortage of positive images for the Obama campaign during his trip to the Middle East.

Senator Obama has benefited from an adoring media who have not pressed him on the tough issues. But on his recent trip to the Middle East, he has been asked several times about his lack of support for the surge. An ABC correspondent posed to Senator Obama whether he would support the surge, knowing what he knew now? Katie Couric attempted three times to get a straight answer from Obama on this subject, without success.

Obama has begun to fully acknowledge that the surge and accompaigning change in strategy has transformed the security situation in Iraq. But Obama answered ABC that he would not support the surge knowing what he knows now. He went on to say that "these types of hypotheticals are difficult". He looked uncomfortable during the exchange and appeared weak in his response to a question he is bound to be asked.

To acknowledge the success of the surge but then to say he still would not support it in hindsight is illogical, and he knows it. It is hardly a difficult hypothetical to understand that if you knew the surge would work that it follows you would support it.

This is not the first time Obama has looked uncomfortable and unprepared when confronted with the rare tough question. When during the ABC debate George Stephanopolis asked him about his long term association with American terrorist Bill Ayers, he was similarly befuddled. Senator Obama is an accomplished and powerful speaker when aided by a teleprompter. Without a teleprompter and written script, he can be an indifferent speaker.

Perhaps chagrined about their lack of objectivity up to this point, hopefully the media will begin to ask the tough questions.

How Congress' Hybrid Subsidy Misses The Mark

2008-07-21T13:47:00.000-07:00

Congress has a troubling tendency to dictate the means rather than the goal to be achieved. In doing so, Congress believes that it knows best to accomplish a desired outcome. This arrogance almost always results in sub-optimization. Instead of allowing the creativity of the marketplace to figure out the best way to achieve the ultimate goal, Congress prescribes the means.

The tax credit for hybrid vehicles is a great example. Congress offers a tax credit of up to $3,150 for hybrid vehicles. Hybrids combine an electric motor along with a scaled down combustion engine to achieve greater gas mileage.

But is promoting hybrid vehicles the right goal? Of course not. The ultimate goal is to reduce the amount of transportation fuel that the country uses, both to reduce our dependence on foreign oil and to reduce C02 emissions.

Since hybrids use less fuel, how does subsidizing this particular technology sub-optimize the results? Because selling more hybrids does not necessarily reduce the countries fleet mileage. A Chevy Tahoe hybrid gets 22 MPG. Why should a buyer of such a vehicle get a credit when a person who buys a conventionally powered Toyota Corolla which gets far higher gas mileage (27/35) does not?

If the goal truly is to reduce gasoline usage, why does Congress not have a rebate based on the best MPG instead of a particular technology? Why not have a tiered subsidy with the most rewards for people that buy the highest MPG vehicles, regardless of technology?

Compounding the problems with Congress' central planning model is that subsidies for hybrids increases demand, which elevates the price the price in the market. Manufacturers also build at least part of the subsidies into the prices of the vehicles. Just try to get a hybrid at list price. Congress also saw fit to put a cap on how many of each make and model hybrid can receive a credit. For example, the Toyota Prius is currently "capped out".

The kicker is that many of the people that will buy a hybrid, costing more than a traditionally powered vehicle, will be caught buy the Alternative Minimum Tax (AMT). For those swept up in the AMT dragnet, the hybrid tax credit is disallowed.

Should We Take Iran's Threats Seriously? The Left Wing Loons Respond

2008-07-20T08:55:00.000-07:00

There was an op-ed in the NYT’s Friday by an Israeli historian Ben Morris regarding Iran's threat to Israel's survival. The gist was that Israel will have no choice but to preemptively strike Iran if progress to end their nuclear capabilities isn’t made on other fronts. A writer on The Huffington Post, the far left blog/smear site, posted a detailed response to the NYT’s piece. I didn’t agree with everything he said but it was a decent enough effort and he had some good points.

But when you read the comment section following his critique the far left loons come out. At the bottom of this post are a couple of the more coherent comments. Typos, grammatical errors and rampant conspiracy theories are theirs – I’ve simply cut and paste them as is. The amount of blind hatred and just plain ignorance about the world is stunning. Unfortunately, because they are on a site like The Huffington Post, they probably vote.

Israel was chartered as a country on a tiny sliver of land by the U.N. in 1948. At its narrowest, you can drive from the ocean to the eastern border in about an hour. The Arabs immediately attacked to drive the small Israeli force into the sea. They barely survived. The Arabs massed what should have been overwhelming forces over and over again with the purpose of destroying the Jewish state including 1967 and 1973. Desperate, pitched battles all. No Arab country has ever acknowledged Israel’s right to exist.

Is it unfortunate and unfair that the Palestinians have lost the right to a 300 by 60 mile stretch of land in recognition of the historical Jewish homeland? Yes. But when you compare the almost incomprehensible vastness of Arab lands in the Middle East, is this so much to concede? The displaced Palestinians have chosen to live in what amount to refugee camps for 60 years, encouraged to do so and left in poverty by their wealthy Arab brethren. Meanwhile, Israel with a population about the size of New York City has become an extraordinary economic and technological powerhouse – also by choice.

Israel has agreed to land concessions and has even recognized that Jerusalem will ultimately have to be divided. But when you are negotiating with a party that believes in their core that the only acceptable solution is your destruction, it is a pretty one sided conversation.

I love some of the comments below that say if only Israel was not a belligerent power intent on expansion everything would be peaceful. If Israel would just choose to live in peace Hezbollah would simply melt away. The view from the left seems to always be that Israel is the aggressor. Israel has never attacked, or even responded militarily, without extreme provocation.

I cannot imagine any other sovereign state on the planet being as hesitant to strike back as Israel is in the face of constant deadly attacks. In something like the last 8 months 4,000 Iranian supplied rockets have been fired into Israel from the Gaza Strip. Israel responds as best it can, but the casualty statistics show that they are rarely willing to risk killing non-militants. Since the rockets are most often fired from civilian areas their response options are limited. Iran sponsored Hezbollah has no such restrictions.

With apologies to the commenter below that Akmadinajad has simply been “mistranslated”, Iran’s leaders regularly and emphatically say that Israel will be destroyed. Iran is continuing and expanding its nuclear enrichment efforts. Those that say that Iran has halted its nuclear weapons program don’t understand what it takes to make a nuclear bomb in the 21st century. Enrichment is the hard part. The rest can be completed relatively quickly.

So given the history of Arabs fulfilling their threats against Israel, Iran’s threats must be taken at face value. Much of the human experience is about surviving. What is Israel supposed to do, passively accept a nuclear holocaust and the destruction of its entire population?

Comments on The Huffington Post:

"The US is under the body-snatchers-like control of the multinational corporations led by teh oil companies. Israel is suffering from a group insanity which believes that ethnic cleansing and atomic war are preferable to accepting the fact that Israel, in order to survive, must live within its own borders and at peace with its neighbors."
"Doesn't he realize how much his words about the Palestinians parallel the speeches of Hitler prior to Crystal-Nacht? The parts about Iran sound EXACTLY like how Hitler described the USSR in 1940 (Hitler thought the western powers would "assist" him in the invasion of the USSR too.) I guess what goes around comes around."
"If Mr. Morris advocates and justifies a preemptive attack on Iran they and those who support those views should be branded as international criminals and terrorists."
"Problem is, as I see it, that the Israelis seem to have taken the Holocaust out on the Palestinians who had nothing to do with it."
"As Dr. Goebbels proved, by defining your [Israel’s] enemies as sub human you can push the limits of National morality to any level."
"Iran is a rational country and has demonstrated it in many occasions."
"One good thing: If Iran is attacked, then industrial society will collapse, and at least we won't have to worry about global warming any more..."
"Isn't the root problem the fact that Israel already has nuclear weapons and has refused to sign the Nuclear Nonproliferation Treaty? Isn't that what has destabilized the region and caused Iraq and Iran to pursue development of their own WMDs?"
"Actually, the root problem is that BushCo wants higher oil prices, and the Iranians want higher oil prices, and so neither of them has any interest in reducing tension in the Gulf. In my view, nukes are just an excuse. Why some Israelis are getting mixed up in this cynical and dangerous game beats me. Probably for internal political reasons - the Palestinian bogeyman isn't as scary as he once was, and the far right needs a new enemy to justify its bigotry."
"Zionist ideology scares me to death. It is illogical, bigotted, fear-based, and for some reason not allowed to be discussed publicly in America."
"Please do not feed us the drivel about Iran waging a proxy war by supporting terrorists like Hizbollah and Hamas. One man's terrorist is another's freedom fighter. The day a lasting peace can be negotiated between Israel and her neighbors, these organizations will cease to exist as a threat to anyone."
"And the idea that Iranians want to destroy Israel is so ridiculous. It's all based on a mistranslation of one single sentence of Ahmadinejad, where he in fact said that the Israeli apartheid regime should disappear - not Israel as a country."

Has The U.S. Invasion of Iraq Destabilized The Middle East And Contributed To Higher Oil Prices?

2008-07-18T12:05:00.000-07:00

In the face of surging oil prices Democrats have attacked President Bush and the U.S. invasion of Iraq as destabilizing the Middle East and greatly contributing to high oil prices. Also, the left claims that Bush's policies in the Middle East have elevated Iran as the main player in the region which has made the world less safe and has also added to a risk premium for oil. Are these assertions true? An analysis can be framed in 4 sections along with conclusions and implications.

Has Iraq’s current and future oil production been diminished by U.S. actions?

Iraqi oil production peaked in the 1980’s at about 3.5M barrels per day. Prior to the U.S. invasion of Iraq in 2003, production had dropped to 2.5M barrels a day. The primary cause of the reduced production was a lack of investment and lack of technology. Had the U.S. not invaded Iraq, oil production would have continued to fall.

Iraq’s oil production today is 2.5M barrels a day, identical to the pre-invasion volume. With the situation stabilizing, the Iraqi government is now bidding out contracts to oil companies to greatly improve the technology, investment, and production of Iraqi oil. The U.S. Energy Information Administration (EIA) estimates the long term sustainable production of oil in Iraq to be between 2.8 and 2.9 million barrels a day.

Has the U.S. action in Iraq reduced oil production in the Middle East outside of Iraq?

The U.S. invasion of Iraq has not reduced production elsewhere in the Middle East. Rather the Saudis have increased production. It should be noted that the two largest sources of oil consumed in the U.S. are Canada and Mexico. Canadian production is increasing due to investment in oil sands. Mexican production is falling due to aging fields that have suffered through underinvestment, mismanagement and corruption since the oil industry was nationalized. Another major source of oil consumed in the U.S. is from Venezuela. Venezuelan oil is heavy, high sulfur stuff that is difficult to refine. Oil production is falling in Venezuela since the industry was nationalized by El Presidente Chavez. Venezuela fields are suffering from underinvestment and desperately need advanced production technology that is now not available to them.

Is Iran now the main player in the Middle East, and if so, what are the root causes?

Now that both the political and security situation in Iraq has improved dramatically, it is a good time to consider this question. I think most will agree that Israel is the strongest military force in the Middle East. The United Arab Emigrants has the most dynamic, fastest growing, and diverse economy of all the Arab countries and has become the financial center of the region. The Saudis have a stable, albeit corrupt and bloated monarchy, and the most wealth from oil revenues. Arab-Persian tensions at least partly counters the fact that both Iran and the majority of Iraqis are of the Shiite branch of Islam. So you have a troika of Sunni Saudi Arabia, Shiite/Arab Iraq, and Shiite/Persian Iran along with Jewish Israel. This appears to be a fairly balanced situation – or at least no less stable than 10 years ago. Clearly, if radical Shiites had won the civil war in Iraq it would be another matter altogether. But a sovereign and democratic Iraq is a clear counterbalance to the radical theocracy in Iran.

Although Iran is rhetorically provocative, it is rotting from the inside out. There is a high level of dissatisfaction among younger, progressive Iranians that take offense to being beaten for leaving the house without a burka. Iran has under invested in its energy infrastructure (sans nuclear) and must import most of its refined distillate transportation fuel. As a result they are highly vulnerable to sanctions, if the U.N. was a responsible and proactive organization.

The biggest threat to the region minus Saddam is Iran gaining access to nuclear weapons. Given their progress to date, this effort was well underway before 2003. The invasion of Iraq was not a trigger for initiating a nuclear program. Iran’s stated goal is not to invade Iraq or any other Arab state, but to destroy Israel. Certainly the U.S. action in Iraq is neither here nor there when it comes to this obsession. Iran’s continued push to produce weapons grade nuclear material is not about the U.S. and Iraq.

The Iranian Islamic Caliphate has been in place for 30 years, dating back to the Carter Administration. Iraq’s place in the region is not one of being the main power, but one of several powers. It is no more or less radical today than before the invasion.

Irrespective of production, is there a greater risk premium in the price of oil today than before the Iraq invasion? If so, is the root cause the U.S. involvement in Iraq?

It is broadly agreed that there is a significant risk premium in the price of oil. The U.S. invasion was destabilizing until the surge and change of strategy worked. But in the last 18 months the progress in Iraq’s security and political situation has been transformed. Sectarian violence for the last 6 months has been zero. After a one year boycott, Sunnis are returning to the government. 15 of the 18 legislative benchmarks have been met. The last big hurtle is the sharing of oil revenues between the provinces. But the al Maliki government has been distributing the revenues in an equitable fashion to Sunni and Shiite alike while the legislation continues to be negotiated.

The fact that the price of oil has doubled in the last year, even as violence was rapidly diminishing in Iraq, leads one to conclude that the U.S.’s Iraqi involvement is not contributing to the risk premium. You can draw a line on a chart from the upper left to the lower right indicating the reduction in sectarian violence in Iraq. Then you can draw a line on the same chart from the lower left to the upper right indicating the increase in the price of oil.

What has changed in the last year that could cause an increase in the risk premium for oil? The most likely culprit is Iran’s nuclear ambitions combined with ever more apocalyptic language about the inevitable destruction of Israel. For its part, Israel will have no choice but to strike preemptively if the choice is that or the end of its existence and the death of all of its people. Israel has destroyed nuclear facilities in Iraq and Syria over the last decades, and they will have no option but to attack Iran if the international community does not act responsibly. In response, Iran has promised to block the Strait of Hormuz if attacked. This increasing tension is the biggest single cause of the risk premium for the price of oil.

Conclusions and Implications

Consider this – most of the world’s oil is controlled by sovereign governments hostile to the U.S. (Saudi Arabia, Russia, Venezuela), or chronically unstable (Nigeria). The best short to intermediate term answer to reducing the risk premium for oil is to develop a Western hemisphere energy strategy that will more broadly diversify the sources of oil into less risky regions.

Canada is expanding production in its extensive oil sands. Brazil is in the first stages of developing deep-water fields in its outer continental shelf (OCS) that are the largest reserves discovered in decades. We can work constructively with Mexico to improve its oil production technology. We can eliminate the import duty on Brazil’s sugar cane based ethanol while eliminating our corn based ethanol mandate. We can dramatically expand domestic production in our vast oil shale deposits (potentially more oil than Saudi Arabia – but higher production costs), the OCS, and that tiny corner of ANWR that has proven reserves of 13B barrels.

Longer term we need to be aggressively developing alternative energy technologies, understanding that broadly viable alternative solutions may take a long time. But greatly diversifying oil production in North and South America is the best way to reduce the risk premium, and increase supply overall, in the foreseeable future.

The Obama/Pelosi/Reid answer: nationalize the U.S. oil and refining industry, divert oil company profits from further oil exploration to fund alternative fuel research that may not help for decades, continue protectionist policies to prop up corn-based ethanol (30% of our corn used to produce 3% of our transportation fuel), release oil from the strategic oil reserve, and continue to prohibit new domestic production. None of these Democratic proposals will lower the price of oil - rather, quite the opposite.

Is Barack Obama The Heir To JFK's Legacy?

2008-07-17T17:44:00.000-07:00

Barack Obama has none too subtle about wanting us to believe he is the heir to John F. Kennedy's legacy. The Obama campaign's latest maneuver to promote this linkage has surfaced in the planning for the senator's upcoming trip to Europe and the Middle East. The campaign has made a request of the German government for Obama to speak in front of the Brandenburg Gate, the site of JFK's famous "Ich bin ein Berliner" speech, and Ronald Reagan's powerful and prescient "Mr. Gorbachev, tear down this wall." speech.

German Chancellor Merkel has made known her reluctance to grant Barack Obama's request. Kennedy and Reagan were both statesman when they made their seminal speeches. Barack Obama is a tourist by comparison.

Is Barack Obama the heir to the Kennedy legacy? Like Kennedy, Barack Obama is a young and charismatic politician with a gift for oratory. Both are Democrats. Unfortunately for Barack Obama, the comparison ends there.

Kennedy served full terms in both the House of Representatives and the Senate before launching his candidacy for President. Barack Obama has served only a partial term in the U.S. Senate. His legislative record is so scant that his TV commercials cite legislation he voted for as an Illinois state senator.

As President, John F. Kennedy was a pro-growth Democrat who cut taxes, creating a surge in the economy and greatly increasing tax revenues to the federal government as a result. Barack Obama is against policies that promote economic growth and instead supports protectionism, exclusionary union agendas and austerity.

President Kennedy experienced the horrors of war in WWII and was a strong advocate for national defense. Obama has piled up a number of unfortunate statements that highlight his naivety when it comes to global matters and national defense.

Standing in front of the Brandenburg Gate will not change the fact that Barack Obama and John F. Kennedy could not be more different in terms of experience and policies. Today, Kennedy's pro-growth and strong defense policies would make him a Republican.

The candidate for this year's presidential campaign that would govern the most like John F. Kennedy: John McCain.

Opponents To Off-Shore Drilling Are Still Living In 1969

2008-07-17T16:09:00.000-07:00

Speaker of the House Nancy Pelosi has stated unequivocally that she will not support drilling on the outer continental shelf (OCS). Senate Majority Leader Harry Reid appears ready to tow the no drill line as well. For politicians like Ms. Pelosi, the 1969 oil spill off of the coast of Santa Barbara, California was fundamental to shaping their view that drilling for oil on the OCS was too risky.

1969 was a long time ago. The advances in drilling technology since 1969 have been nothing sort of extraordinary. Companies like Smith International, Hydril, Amcol International, National Oilwell Varco and Oceaneering have transformed the process. In the western Gulf of Mexico, the only off-shore area where drilling is permitted in the lower 48 states, there has not been a major or even minor incident. Even in the tempest of Katrina, not a single drop of oil was spilled in the gulf.

Today, the technology exists to drill deeper and less invasively than ever before. What is most frustrating about this, is that these predominately American technologies are being used everywhere else in the world but America. Brazil's Petrobras has discovered enormous oil reserves off their continental shelf that are only now recoverable due to the advances in deep water drilling and production technology.

Think about how long ago 1969 was in terms of technology. In 1969 the IBM PC was still 11 years from being invented. The F-4 Phantom was the front-line fighter for the U.S. military. Most family TV's were black and white. Cars regulated gas flow using carburetors. The Arpanet, the Defense Department's distant predecessor to the Internet, was just in the planning stage. Music would still be sold on pressed vinyl albums for years to come.

Politicians and advocates that oppose drilling in the OCS are still living in 1969. Time for a time warp to the present.

Confusion Reins At The SEC

2008-07-17T04:22:00.000-07:00

SEC Chairman Christopher Cox announced before the Senate Banking Committee on Tuesday that he was invoking emergency powers to ban naked shorting of Freddie Mac and Fannie May, along with a number of other primary broker banks.

When a stock is sold short, the seller borrows the shares from his broker and then immediately sells them, hoping to buy them back later at a lower price and return them to his broker. At a minimum, the broker of a short seller has to at least locate the shares to be borrowed. Naked short selling means that shares are sold without borrowing or even locating the shares. This allows large traders such as hedge funds to lean into stocks and push them down by selling lots and lots of shares they don't have.

So it naked short selling illegal or not? On CNBC yesterday afternoon Commissioner Cox told Erin Burnett that naked short selling was not illegal. This answer clearly surprised the seasoned CNBC journalist. But in today's New York Times, Cox is quoted as saying on a conference call with reporters, “A run on the bank that can take hold quickly would likely be turbocharged by illegal naked short selling.”

Market maven and CNBC personality Jim Cramer appeared just after Commissioner Cox and actually read from the SEC's own regulations spelling out that naked shorting is clearly banned. Mr. Cramer was incredulous that Commissioner Cox would think he needed to take emergency action for something he could, and should have been doing, all along.

There are a few exceptions regarding market makers, but for the broad trading community, naked shorting is prohibited. In fact, Mr. Cramer, who ran a successful hedge fund for years, said that if a short seller does not deliver the shares for settlement, he risks having his broker unwinds the trade with the short seller taking a big hit.

Why all the confusion? Let's face it, the SEC has never been an organization that inspires confidence with their vigilance and competence. They have been asleep at the wheel again and again, most recently during the collapse of Bear Sterns. Perhaps the invocation of "emergency powers" is an attempt to divert attention from the fact that the SEC's lax attitude toward oversight has once again caused damage. The bottom line is that Commissioner Cox's lack of clarity and lack of understanding of his own organization's regulations does not inspire confidence.

Obama Eases Toward The Mother Of All Flip-Flops

2008-07-15T19:39:00.000-07:00

Barack Obama wildly careening to the right for the general election has been well publicised. The last big flip-flop to come is on Iraq.

The anti-war segment of the Democratic party is so invested in immediate withdraw, Obama needs to be particularly careful that this latest maneuver will not upset his liberal base even further. But there is no question that the Senator has begun the process of shifting his long held view that the surge would never work, and that a troop withdraw on a rigid and predetermined timetable would be immediate and nonnegotiable when he took office.

Tuesday reiterated his position for the base that he strongly stands by his plan to end the war. Part of his rationale is that the Iraqis have not made political progress, which is demonstrably untrue. Great progress has been made in the political reconciliation of Iraq.

During the original Senate hearing where General Petreaus reported the first successes of the troop surge, Senator Obama was critical and dismissive. Hillary Clinton essentially called General Petreaus a liar. Barack Obama was not willing to criticize MoveOn.org's deplorable "General Betrayus" add in the New York Times. Now, just last week, Barack Obama made comments that were critical of the ad.

Now if you go to Obama's web site, the shift is taking place in real time. The New York Daily News reported that Obama's campaign has removed a statement criticising the surge from the section discussion his solution for Iraq. Obama campaign aid Wendy Morigi explained that the change was made to better reflect current conditions.

But the changes do not stop there. Whereas Obama's web site previously stated tersely that, "Obama will immediately begin to remove our troops from Iraq.", it now has more nuanced language that Obama will pursue "a responsible, phased withdrawal" that will be directed by military commanders and done in consultation with the Iraqis. In addition, the web site includes a new statement that Obama "would reserve the right to intervene militarily, with our international partners, to suppress potential genocidal violence within Iraq."

Senator Obama departs shortly for the Middle East with stops in Israel and Iraq. On his return, be prepared for his consultations with military commanders and Iraqi leaders to continue to soften his position on Iraq.

Today's Senate Banking Committee Testimony

2008-07-15T18:08:00.000-07:00

Federal Reserve Chairman Bernake appeared before the Senate Banking Committee as part of is semi-annual testimony on the state of the economy. Afterward, Treasury Secretary Paulson and Securities and Exchange Commission Cox joined to further examine the plan for backstopping Freddie Mac and Fannie Mae.

The Democrats who make up the majority of the committee went after Bernake with all of their pet economic theories, which usually have no basis in economics. Chairman Bernake very patiently explained basic economics to each of them. Secretary Paulson did the same regarding capital markets.

A couple of the Democrat's favorite themes today included:

The deficit (which in the Democrats view of reality is entirely the fault of President Bush, although only Congress can authorize spending) is the cause of the weak dollar. Chairman Bernake explained that the current deficit had a minimal effect on the dollar.
Speculators are the reason oil prices keep going up. Bernake’s explained that this was not true - oil “speculators” provide stable price discovery and liquidity. The fundamentals of supply and demand are the biggest reason oil prices are going up. Demand is increasing in a world of inelastic supply. The weaker dollar is a contributory factor, but not the main factor.
Why didn’t we see this problem coming with Fannie and Freddie? On this one both Mr. Bernake and Mr. Paulson were completely exasperated. Paulson went through a litany of all the efforts of Treasury to get Congress to reform the GSE’s – with zero results. You can go back 10 years or more and look at Greenspan’s testimony to this very body practically begging Congress to reform the GSE’s. Instead Congress pressed the GSE’s over the last decade to increase their leverage and expand lending to facilitate mortgages to low-income borrowers. Now they have also approved Fannie and Freddie to increase their exposure to more expensive mortgages as well.

One spirited exchange had a Democratic Senator insinuating that Paulson did not understand capital markets! Whatever you think of Hank Paulson, former CEO of Goldman Sachs, the world’s most successful and highly regarded investment bank, he certainly understands markets.

The most embarrassing episode was SEC chairman Cox stating that he had issued instructions for “emergency powers” to be invoked to prevent naked short selling. Since naked shorting is already illegal, this was simply an admission that the SEC has been asleep at the wheel as usual and has not be enforcing their own regulations.

It also highlighted perhaps one of the stupidest decisions in SEC history, eliminating the uptick rule last year. Eliminating the uptick rule, combined with zero enforcement of naked shorting, has made it easier for hedge funds to lean into individual stocks and conduct “bear raids”.

This Time We Really, Really Mean It!

2008-07-15T15:34:00.000-07:00

The three wise men of the U.S. economy, Treasury Secretary Paulson, Federal Reserve Chairman Bernake, and Securities and Exchange Commission Cox testified before the Senate Banking Committee.

One of the measures that was announced by the SEC was that they were invoking "emergency powers" to prevent short selling of Freddie Mac and Fannie Mae, along with all other broker-dealers, without verification of borrowed stock. Most of us can only short sell a stock if we first borrow it from a broker. But some hedge funds and big traders short sell stock they have not borrowed first. This is called naked shorting. When it comes time for settlement, these traders simply don't deliver the shares.

Here is the ridiculous part - it is already illegal. Mr. Cox actually when on national TV today to invoke "emergency powers" for something they are already supposed to be prosecuting! This lack of enforcement against naked short sellers along with the SEC suspending the uptick rule last year have greatly contributed to hedge funds being able to conduct concentrated "bear raids" on stocks, driving them down and creating fear.

The SEC has a well earned reputation for being asleep at the wheel and only getting involved after it is too late. Emergency powers or no, the SEC needs to do its job and prevent and prosecute illegal naked shorting.

Real Heros Don't Have To Embellish

2008-07-13T12:49:00.000-07:00

The U.S. aircraft carrier USS Forrestal was involved in the worst carrier accident since WWII. Operating in the Gulf of Tonkin during the Vietnam war in 1969, the USS Forrestal was engaged in bombing sorties over North Vietnam.

While switching from external to internal power, an electrical surge caused a Zuni rocket to fire from the under wing rocket launcher of an F-4 Phantom that was being prepared to take off. The rocket hit a nearby A-4, also being prepared to take off, rupturing its fuel tank and causing an instant conflagration. The A-4's two 1,000 pound bombs were dislodged and dropped into the flaming jet fuel on the flight deck.

Before it was all over, nine 1,000 pound bombs "cooked off", as more planes full of fuel were caught up in the disaster. Huge holes were blown in the armored flight deck, spreading the fire to the decks below. 131 servicemen were killed that day, and 161 were injured. Most of the fire crew was instantly killed when the first bomb went off about 1 1/2 minutes after the first fire was triggered.

Surrounded by flames, the pilot of the F-4 Phantom escaped death by walking out on the nose of his plane and leaping from the refueling nozzle. The name of that pilot? Lt. Commander John McCain - future POW, U.S. Senator, and candidate for President of the United States.

As a student of history, and a keen observer of politics, I was surprised I had never heard of McCain’s central involvement in this harrowing and deadly event until just recently. McCain makes no secret of his military service, and is rightly using it to his advantage in the campaign. But when pressed, he is quite reticent about his own experiences - instead commending all the brave men and women with whom he served.

Quite a contrast to John Kerry, who made up stories about his courage under fire in episodes his commanding officer and fellow officers say never happened and in places they say Kerry never was. Quite a contrast to John Kerry testifying before Congress about all sorts of “Winter Soldier” atrocities by American troops in Vietnam – atrocities that were later shown to almost all be fabrications.

Quite a contrast to Gore claiming to have invented the Internet and being the model for the protagonist in the novel “Love Story”. Quite a contrast to Hillary’s stories of daring landings under sniper fire and claiming credit for much of her husband’s presidency.

Quite a contrast to Obama claiming credit in his new TV commercial for a bill in the U.S. Senate that he never even voted on. Quite a contrast to Obama who maintained close, long term relationships with radical and unrepentant America haters and then claimed he didn’t know they were radical.

I guess when you've actually done it, you don’t have to brag about it.

Another Misguided Quick Fix Idea From Nancy Pelosi

2008-07-12T07:40:00.001-07:00

Speaker Pelosi has now called on President Bush to release oil from the Strategic Petroleum Reserve (SPR). This is the latest Democrat's frantic search for political cover to "fix" a problem they have helped create.

Releasing oil from the SPR because gas costs $4 a gallon is a terrible idea. The SPR was created to avert a catastrophic economic collapse in the event of a major supply disruption. This week gasoline inventories in the U.S. rose by 1M barrels. Oil prices are going up because increases in demand, particularly in the emerging economies of China and India. gasoline consumption has actually dropped (demand destruction & substitution behavior) in the U.S. for the first time as a result of higher gas prices.

The Democrats have been arguing passionately against increasing domestic oil production. One of their arguments has been that this eventual production would have a negligible effect on gas prices at the pump. Whether this is true or not, releasing oil from the SPR would have a very small impact on gas prices, if at all. The price of gasoline has not risen nearly as much as oil input costs to the refiners. Releasing some oil from the SPR might lower the price of oil a bit, for a very short period of time, but would have a minimal effect on the price of gas. And oil released from the SPR now will not be available when we have a major supply disruption.

This blog supported suspending additional purchases to the SPR, which Congress enacted about 2 months ago. The SPR is over 95 percent full. Continuing to buy oil for the SPR at record high prices when the reserve is almost full doesn't make sense from a cost-benefit standpoint.

But we live in a world where the chance of a major supply disruption is real. As Iran presses forward with nuclear weapons and missile technology, Israel may have no choice at some point but to attack Iran. Iran has promised to shut down the Strait of Hormuz if they are attacked. If this happened, oil would go to at least $200/barrel and the economic shock to our country would make 1973 look like a holiday.

This is the reason for the SPR. Not political pandering in an election year.

Poole Can't Keep His Mouth Shut

2008-07-11T14:57:00.000-07:00

Recently retired ex-St. Louis Federal Reserve President William Poole said yesterday that Freddie Mac and Fannie Mae, the two U.S. mortgage government sponsored entities (GSE's)were "insolvent" and raised the prospect of a government bailout. Mr. Poole has a history of getting it wrong and opening his mouth at the worst possible times, and this statement was the height of irresponsibility.

The stock prices of both Freddie and Fannie had already been severely punished. Mr. Poole's irresponsible comments pushed the shares even further. Worse, it took away any chance of the two firms being able to raise private capital by issuing new common stock. The stock price is simply too low at this point to make this a viable alternative.

Fannie and Freddie, their regulator, and Treasury Secretary Paulson have all said over the last two days that the GSE's are adequately capitalized. But in this cynical market, where Bear Stearns CEO claims adequate capital 2 days before collapsing, these statements are viewed with suspicion. Who knows what the truth is.

This is not a question of whether Fannie and Freddie will cease to exist. In the end, the government can nationalize them, and longer term they will be fine. They are in a profitable business that in normal times generates strong cash flow. But the vintage 2005 to 2007 loans have a much higher level of toxicity than normal times and could quickly consume the GSE's capital.

The best alternative is for private capital to find its way to the GSE's. The next best solution would be for the government to provide capital in exchange for warrants. This is what happened during the bailout of Chrysler. The Chrysler turned out to be a very profitable transaction for the government. The least desirable solution is for the GSE's to be nationalized.

Maybe we can ring up the Saudis and say, "You know all those gizillions of dollars we've paid you for oil, and will continue to pay you? Could you take just $75B of the gizillions and recapitalize Freddie and Fannie for us?"

Again, Freddie and Fannie, or some recapitalized government agency, will continue to perform the function of providing liquidity to the mortgage industry. There was a brief rally this afternoon in the market when Reuters reported that Federal Reserve Chairman Bernake had told the GSE's that they could access the discount window. But this information has yet to be confirmed by the FMOC.

There is almost no scenario at this point that will save the holders of the common stock. Like a bankruptcy, the bondholders of the secured debt end up owning the assets - the shareholders of common stock get zero.

Nitrogen Fertilizer Comes Full Circle

2008-07-07T11:16:00.000-07:00

Sharp increases in prices typically result in substitution behavior or demand destruction. Prices for a ton of fertilizer, whether it be phosphate, potash or nitrogen have tripled or quadrupled over the last 18 months with no let-up in sight. Demand destruction has not occurred to date.

Prices for crops including wheat, corn, cotton and soybeans continue to be at all time highs due to global demand. Farmers are not happy about the price of fertilizer, but they can afford the higher prices. Plus, the alternative is much smaller yields for their efforts. This is one of the reasons that fertilizer stocks have been one of the safe havens of this difficult stock market.

But substitution behavior is another matter. Suddenly farmers are willing to consider alternatives to synthetic nitrogen. Here on the north side of Atlanta a new company, Organic Growing Systems, is producing nitrogen rich fertilizer from chicken manure. Disposing of manure from livestock, whether it be chickens, hogs or cows is a real problem. Turning this waste from a problem into a resource makes a lot of sense.

It was not too long ago when sustainable farming was the only option. Synthetic fertilizers had not been invented. Livestock produced manure which was composted and used to fertilize the crops and build up the soil. For hundreds of generations people practiced this type of low input, sustainable farming.

The addition of large amounts of synthetic fertilizers, much made from natural gas and petroleum, is a "high-input" model. Nutrients constantly has to be brought in to continue producing high yields. High input farming treats the soil as a sterile medium that must have artificial nutrients added for every crop for every year. Organic fertilizers feed the plants but also improve the soil.

Eliot Coleman is an icon in the field of modern organic farming. Back in the 1960's when he began growing crops for the commercial market, he didn't have enough money for synthetic fertilizers. Synthetic fertilizers were being touted as nutritionally identical to the traditional organic types. Since he could get organic nutrients on the cheap, he was happy to buy into the "nutritionally identical" story - although not in the way the fertilizer companies desired.

Today there is a growing realization that organics offer a viable substitute - while solving the waste problem at the same time. Nitrogen intensive crops such as corn and sod offer the chance for farmers to save money and not rely on fertizlers that use fossil fuel as feedstock.

Organic Growing Systems can currently produce 30 tons of nitrogen rich chicken fertilizer a day. They are expanding to produce 200 tons a day. It is an idea that is coming full circle.

Robert F. Kennedy, Jr.'s Energy Manifesto - A Critique

2008-07-06T17:24:00.000-07:00

http://www.vanityfair.com/politics/features/2008/05/rfk_manifesto200805?currentPage=1

In this recent op-ed in Vanity Fair, Robert F. Kennedy, Jr. has some interesting ideas, but his "manifesto" also has much that is dubious. In addition, the concluding paragraph is not supported by the balance of the article.

His opening analysis that England banning slavery launched the industrial revolution seems unlikely to me. It assumes that there would be no disruptive technological innovation while slavery existed in England. But in America, where slavery was entrenched more than anywhere in the world, the cotton gin was invented, negating much of the economic argument for slavery in the agrarian south. Would the steam engine, which was the driving force of the industrial revolution, not have been invented, or been significantly delayed? Doubtful.

His statement of causation that California’s status as the “most energy efficient state” has resulted in it having the largest economy is disingenuous. In truth, California only has enough electricity because it outsources the generation to other western states that produce it using coal. Their claim of being a green state is a sham. The Wall Street Journal called it energy colonialism.

California, a state with barely enough baseline electricity, shut down a 650 MW nuclear plant due to protests and replaced it with a 3 MW solar facility. Companies will not locate in California because the electricity is not reliable. California based and very environmentally attuned Google, which is building out vast data centers, has cited this a principle reason for not locating them in California. Green mandates that cannot be justified economically drive up California’s taxes, also causing business to leave or not locate there. There are lots of reasons that California has the largest economy, but energy efficiently is not one of them.

Cap and trade is a very bad idea when it comes to the economy. It would be less harmful to just put a straight carbon tax on everything to offset the real or imagined externalized cost (still a large tax on the economy, but perhaps not as catastrophic). Creating a cap and trade system where the government controls both the supply and demand can only end badly, and could very likely result in a deep and prolonged recession.

His assertion that the power grid system is hopelessly Balkanized is almost certainly true. I’m all for eliminating barriers to connect and transmit electricity, and empower new sources to connect to the grid. I wish the Democrats would do the same for health care, which is the most Balkanized industry in the country - through government mismanagement.

His example of Iceland is interesting, but not particularly relevant to the needs of the United States. Iceland is a small country with a small population that sits atop one of the most active volcanic regions on the planet. Heating the homes in this cold country with geothermal energy is a natural practice. But Iceland cannot be extrapolated to the United States, with it's diverse climate, and more diverse energy needs. Geothermal efforts in the U.S. have had mixed results.

A direct current backbone to move wind and solar generated power to where it is needed seems like a smart and necessary proposal. It is essential that we can bring this power on-line in a manner that can be broadly distributed.

The following idea is similar to proposals I’ve seen advocated on some of the liberal blogs like the Daily Kos and the Huffington Post:

“Businesses and homes will become power plants as individuals cash in by installing solar panels and wind turbines on their buildings, and by selling the stored energy in their plug-in hybrids back to the grid at peak hours.”

I hear about these types of "solutions" all the time. But the people advocating them are looking at the energy problem with rose colored glasses. Battery technology to make plug-in hybrids broadly viable is not within sight. If it takes 6 hours to charge my plug-in car, which gives it a range of 40 miles, then how am I going to have enough “juice” to sell back to the grid? Maybe these folks are big Keanu Reeves biggest fan and have watched “The Matrix” a few too many times.

Neither do I see anyone but the idle rich being able to afford to install solar panels on their home and sell surplus electricity to the grid. I recently researched what it would cost to install a home solar panel system. The cost was about $20,000, plus installation, for a 2,000 watt system. That is enough power to light 20 100 watt light bulbs at the same time. A vacuum cleaner uses almost that much power. No surplus here, and the capital investment makes no economic sense. $20,000 to light a couple of rooms? Forget air conditioning or an oven. But the greenies stubbornly cling to this as the answer.

It is telling that 10% of all venture capital dollars are already flowing into alternative energy. This is consistent with my belief that with oil over $100/barrel, and coal at a similarly priced on a relative basis , private capital will go “all in” to solve the problem – without government bungling.

The last paragraph is not supported by the rest of the article.

“We will cut annual trade and budget deficits by hundreds of billions, improve public health and farm production, diminish global warming, and create millions of good jobs. And for the first time in half a century we will live free from Middle Eastern wars and entanglements with petty tyrants who despise democracy and are hated by their own people.”

The entire article centers on the generation of electricity by non-fossil fuel means. That is a result that is achievable, probably only the addition of nuclear to his proposals, but achievable nevertheless. But for his conclusion to be true, electricity will have to become the primary fuel for transportation. This seems to be an underlying hopeful hypothesis with many on the left. But the facts say that it is not in the foreseeable future.

A recent Politics & Prosperity article separated the current and future uses of various sources of fuel. The discussion is usually a confusing mish-mash that does not differentiate between electricity generation and transportation. There is currently no technology to economically and practically eliminate oil distillates as the primary fuel for transportation. We need to aggressively pursue realistic solutions, like using the “Prius model”, verses the “pure plug-in model” for much higher MPG to make a real difference in the near term.

Are Plug-in Electric Cars the Answer?

2008-07-03T17:39:00.000-07:00

With gas prices surging, and global demand unlikely to abate, GM is pushing hard to get it's Volt plug-in out the door. Still several years away, there are R&D challenges to overcome, like the fact that traditional headlights and taillights draw too much power.

The Volt will be able to travel 40 miles after a 6 hour charge. That means it can only be used by a homeowner with access to electricity where the car is parked overnight. If you have an apartment or park in a city deck it will not be an option. In Atlanta, where I live, the distances are sprawling, and the traffic an abomination. Drivers are careful not to let their gas tanks get very low as a lengthy traffic delay is always possible. After the Volt battery system is exhausted, a small gasoline engine engages to run the car and recharge the batteries.

The rumored price of the Volt has risen to $45,000 - and GM will probably still lose money with every unit. There is already an all electric plug-in car available on a limited basis in California. It has greater range than the Volt but costs more than $100,000.

Are electric plug-in cars green? It all depends on where you get the electricity. 51% of the electricity in this country comes from coal-fired plants. These plants are being retrofitted to be cleaner, but there currently is no available technology to reduce carbon emissions.

With today's highly advanced automotive emission systems cars are amazingly clean. It is difficult, perhaps impossible, to argue that running cars on coal generated electricity is cleaner than running cars on gasoline given the state of technology for both fuels. There is a technology with the ability to provide baseline electric power to the grid with zero emissions: nuclear. If we aggressively build out our nuclear power capabilities we can dramatically lower greenhouse gas emissions.

What we need, for now, is not the Volt. We need the next generation of Prius. Toyota has it right. Combine a much smaller gasoline engine with supplemental electric power for much greater gas mileage, range, and no coal (instead of an all electric car with a small backup gasoline engine). This is technology that can be maximized for today with great effect. The Prius gets ~48 MPG highway and a little less, but not dramatically less, for city driving. In contrast a BMW 530, with a 3.0 liter engine, gets about 29 MPG highway.

There have been a flurry of recent announcements about companies gearing up to use lithium-ion batteries for electric plug-in cars. These batteries get quite hot. They sometimes catch on fire. In my Dell PC, the battery no longer holds a useful charge after about 1 year. The replacement cost to power my small laptop: $110 (plus shipping). Now scale that up for an automobile.

We are a long way from a pure plug-in. But if we follow Toyota’s example we can make real measurable progress right now.

Do GM Stockholders Actually Own Anything?

2008-07-02T20:33:00.000-07:00

GM, which I can’t believe could on anyone’s buy list, was down hard again today after Merrill Lynch issued a note that bankruptcy is not out of the question. I would be very nervous holding GM common stock.

The situation has gotten so serious there that it is questionable whether holders of the common stock really even own something. At some point the holders of the senior debt will effectively control the company. If you want to be “in” GM, I would strongly recommend selling the common and buying senior preferred instead.

Bethlehem Steel used to be one of the largest and most admired companies in the world. But they ended up like GM in a declining market where they had the wrong products and very high fixed costs. One day, Bethlehem Steel just canceled the common stock and the bondholders owned the company.

I hear chatter about how at some point GM will be a great trade. Thanks, but no thanks. I don't need that kind of risk in my book.

Barack "Corleone" Obama

2008-06-30T16:51:00.000-07:00

One of the truisms of political campaigns is that candidates send out surrogates to make the tough jabs at their opponents, and then deny that the campaign had anything to do with it.

General Wesley Clark is the liberal's general, and a senior advisor to the Obama campaign. He is trotted out whenever the left wants someone in uniform to make their points. Yesterday, General Clark went after John McCain's qualifications to be President. he said that John McCain had never held an executive command in wartime conditions (John McCain commanded the largest air squadron in the Navy, but not during wartime). He hasn't "ordered the bombs to fall". He further said that getting shot down over Vietnam does not qualify him to be President. It was a revolting performance. George McGovern, John J. Rockefeller and others have made similar "hits". It is no accident.

Do the Democrats really think this is a winning strategy - to attack McCain's decorated military record? If the Democrats are going to run on the issue of Senator McCain's experience and military record then they've already lost. Every time they make statements like this they accentuate Barack Obama's lack of experience in both public and private service - made even more stark when compared to Senator McCain.

Today, speaking in Independence, Missouri, Barack Obama said, "I will never question the patriotism of others in this campaign. And I will not stand idly by when I hear others question mine." It reminded me a great deal of the scene in The Godfather when Al Pacino sits innocently in church while his soldiers, following his orders, assassinate the key leaders of the other New York crime families to consolidate power for the Corleone's.

Clearing Up Confusion About Types and Uses of Energy

2008-06-29T17:46:00.000-07:00

The national debate on energy is a confusing mish-mash. I hear both private individuals and pundits talking about nuclear, clean coal, ethanol, new domestic drilling, synthetic gas, and every other sort of fuel in the same breath. The fact is that it is very important to separate the sources of energy from the uses - and how that use may change over time.

The most important differentiation is to always separate energy used for transportation verses energy used for electricity - our two biggest needs. We can build nuclear plants to greatly expand the generation of emission free electricity. But for now, this is largely irrelevant to our consumption of oil and the resulting distillates.

80% of the oil consumed in our country is for transportation - gasoline, diesel, jet fuel, etc. The current ethanol mandate is diverting 30% of our corn crop to produce 3% of our automotive transportation fuel. Plus, ethanol consumes as much energy as it produces, or worse. We can produce all the electricity in the world, while having zero effect on the price of gas.

51% of our electricity in the United States is generated using thermal coal. Without a rapid build out of additional generating capacity, we will limit our economic growth and our standard of living. Without an accelerated build out in new electricity generation we may begin to experience countrywide what is occurring in California - a lack of reliable electricity and rolling brown-outs. Right now nuclear energy is the only technology that can scale quickly enough to provide baseline power to the grid. In fact, nuclear power gives us a much better short term solution than we have for transportation fuel. Solar and wind are important components but solar in particular is years away from being cost effective.

There are currently no economical substitutes for transportation fuel. Longer term, there is great hope that electricity will fuel our cars, but that is a still a long while off. We need to greatly improve plug-in and hybrid technology. In the meantime, we need to continue to develop new sources of oil to bridge the gap. Synthetic fuel produced from coal is a technology that already exists but is currently not cost competitive - even with gas at $4.25 per gallon. Hydrogen fuel cells are extremely expensive to operate and free hydrogen is not free.

I don't think we need to worry about oil prices falling to a level where it will impede research and development. We need to keep pushing on all fronts - electricity and transportation - traditional and alternative.

The Supreme Court Affirms An Individual Right To Bear Arms

2008-06-29T17:23:00.000-07:00

http://www.nytimes.com/2008/06/27/opinion/27fri1.html?_r=1&ref=opinion&oref=slogin

I seems to me that the New York Times editorial page used to be more intelligently reasoned and better written. The above link to their editorial on the Heller decision is a combination of the absence of legal reasoning, lots of examples of why guns are bad (interesting but irrelevant), and out and out falsehoods and misrepresentations.

Let us start with the examples of why guns being bad and are used for evil purposes. Great detail is provided in a number of example such as the shootings at Virginia Tech and more recently at Northern Illinois University and statistics about the large number of guns in the country. All of this is interesting, and factual, but it has nothing to do with whether the Constitution recognizes an individual right to bear arms. I believe the term is “red herring”.

How about the absence of legal reasoning? The New York Times claims a “radical break form 70 years of Supreme Court precedent”, but offers no legal facts. The truth is the Supreme Court has never ruled directly on whether the Second Amendment is an individual or collective right, and there is no radical break. The 70 year old case to which they are referring is United States v. Miller. Miller litigated a law enacted after the St. Valentine’s Day massacre where warring mobsters were machine gunned down a Chicago alley. The law restricted ownership of certain types of weapons that were not in general use, such as the fully automatic weapons used in the massacre. The Court agreed that the restriction was Constitutional, but in no way impeded individuals to own most types of guns.

There are only two other cases in Supreme Court history that directly rule on the second amendment. Both cases occurred after the Civil War, and neither addressed the individual verses collective right issue. The Supreme Court in Presser v Illinois did point out that the overall intention of the Bill of Rights was to restrict the federal government from infringing on individual rights. All three cases have affirmed that the right to bear arms is not unlimited, and have supported reasonable gun regulation. But the New York Times assertion that the Supreme Court ignored precedent is blatantly false.

The District of Colombia law required that any weapons kept in the home be rendered inoperative, such as by having them unloaded and disassembled. The Supreme Court ruled that such a restriction effectively bans an individual from bearing arms in the protection of his home, and is therefore effectively a ban on the individual right to bear arms.

If ever there was a case that you think would be ruled on 9 to 0, this was it. Even if you set aside the most radical members of the court, Justices Stevens and Bader-Ginsberg, the ruling should be 7 to 2. Let’s think about Justice Stevens assertion that this ruling “creates a new Constitutional right”. All of the rights enumerated in the Bill of Rights are intended to limit the government from restricting individual actions. The drafters of the Constitution were very wary of a strong federal government. The Bill of Rights was added as amendments to the Constitution in order protect of individual rights and weaken the power of the federal government. Research shows that the founding members of the country clearly believed in an individual’s right to bear arms, separate from government service.

Antonin Scalia, who authored the majority opinion, is an originalist. He interprets the constitution on the strict construction of what it says, but also the plain original meaning of the day. In other words, when the Constitution and the Bill of Rights were drafted, what was the common public meaning of the day? Justice Scalia brilliantly parses the prefatory and operative clauses of the second amendment to show how the right to bear arms is an individual right, and that maintaining an effective militia is one purpose, but not an exclusive purpose. The liberal argument that the second amendment is only a collective right that is controlled solely for the purposes of the federal government flies in the face of original intent.

If the right to bear arms, even with the use of reasonable restrictions, is untenable for our country, then we should change the constitution to make it so. Liberal judges, like Stevens, conjure up new meanings from the constitution as if it was some sort of legal ouija board. Liberal judges rely on a “right to privacy” for justifying all sorts of individual actions and behaviors. The “right to privacy” as a broad, individual right is nowhere to be found in the Constitution. Using the excuse that the times have changed as cover to “reinterpret” the Constitution is the hallmark of legislating from the bench. The Constitution is not a living document. If it needs to be changed because circumstances have changed, then we should change it. In fact, many individual rights issues are not Constitutional issues at all. They are legislative issues.

I love the part where the New York Times states, “This audaciously harmful decision, which hands the far right a victory it has sought for decades…” Maybe these are the same "far right" people that make up working class families in middle America that are bitter and clinging to their guns and religion. So it is now “far right” to simply believe the constitution means what it actually says? Even Barack Obama believes that the right to bear arms is an individual right – subject to reasonable regulation, of course.

Our Upside Down Government

2008-06-25T16:48:00.000-07:00

So much of what our government does is upside down.

The Democrats want to confiscate profits from oil companies, which have one of the lower profit margins as an industry at 9%. This is money that we badly need for the oil companies to plow back into further exploration and production.

But now we turn around to the banking and mortgage industry, which is losing huge sums of money due to reckless lending, and are going to bail them out to the tune of $300B! Not only that, some of the key provisions of the bill were written by banking lobbyists. Never mind that the chairman of the Senate banking committee, Chris Dodd (D-CT) got a special mortgage deal from Countrywide, the largest benificiary of this bailout.

This bill will allow these mortgage companies, like Countrywide, to cherry pick the worst loans in their portfolio and dump them on the FHA. How's the FHA doing? Darn it, the FHA has experienced loan defaults at more than twice the industry rate for the last 6 years! And this bill will place on the FHA balance sheet all of the worst ARM loans made by the mortgage industry, for the taxpayers to cover.

It gets better. This bill will let certain non-profit groups originate loans with no documentation and no down payments and then hand them off to the FHA. Didn't we just do this? Have we learned nothing? I thought the Democrats were against "corporate welfare"? Get your checkbooks out.

Our government's upside down governing goes on and on. The newly passed farm bill will funnel hundreds of billions of dollars to the farm industry at a time where crop prices at are an all time high. Most farmers have never made so much money. Even worse, the "floor" price for crops has been raised to the level of the new incredibly high levels. That means that if crop prices later come down the taxpayers are on the hook for the difference. All of this nonsense raises prices for everyone on everything from cheese to grains and everything in between.

On the flip side, our government then turns around and has to pay out subsidies to lower income families who can't afford the food that the government made more expensive. What many people don't know is that the farm bill legislation is always "bundled" with the food stamp bill. Not all members of Congress have agriculture as a major constituency, but all have people that benefit from the food stamp subsidy. This is how the farm bill always gets broad support.

Going back to energy, Obama wants to seize oil company profits, and redistribute the money to families who are being challenged by high fuel prices, among other things. But it is Congress' energy policies that have directly contributed to high energy prices and have placed us in a situation where there are no short term solutions.

Too often our government is like the woman who swallowed the fly, with each action striving to fix the problem caused by the last problem, and causing the next.

Disclosure: at the time of this publications, the author was long BAC.

...what do you do, sir?

2008-06-25T15:20:00.000-07:00

The Democrats gained the House of Representatives and the Senate on the strength of their opposition to the war in Iraq. Barack Obama was fortunate enough to not be in the U.S. Senate when the vote to authorize military force against Saddam Hussain was cast. It has provided him the luxury of opposing the war from the start. Who knows what he would have really done in the "line of fire" on the big stage.

Barack Obama has made withdrawing from Iraq on a fixed timeline starting on day one of his presidency a core policy of his campaign. Unfortunately, for the Democrats, the story in Iraq has changed dramatically. The talking points on which they have successfully attacked Bush and the GOP are being rapidly eroded by the facts.

The surge has succeeded beyond the most optimistic expectations. Violence has dropped dramatically. Anbar's Sunni province has been transformed. Al Qaeda is on the run. The Iraqi Army has taken the lead in successful miltary operations to clear Shiite insurgents from Basra and Sadr city. Sadr himself is refocusing his attention on political rather than military power. Oil revenues are being distributed fairly to the provinces. Oil production is increasing. Most of the legislative benchmarks have been met. Even the fact that the Iraqi's have driven a tough negotiation regarding a long-term security agreement with the U.S. is a positive sign that Iraq is comfortable asserting its national sovereignty.

Despite all of this, Senator Obama has doggedly stuck to his plan to withdraw our forces, without regard to what is happening on the ground. John Maynard Keynes, the famous British economist, was once challenged about changing his position on a particular issue. Keynes responded, "When the facts change, I change my mind - what do you do, sir?"

The success of a democratic Iraq in the most dangerous and autocratic region of the world is now within sight. It is worrisome that the man who may be president will not adapt his position to a situation when the facts change - or be so invested in defeat that he cannot admit he was wrong.

Leniency For Depravity

2008-06-25T09:57:00.001-07:00

In a 5-4 decision today the Supreme Court overturned a Louisiana law allowing for capital punishment in cases of child rape. I can think of nothing on this earth more disturbing and reprehensible than raping a child.

"With respect to the question of moral depravity, is it really true that every person who is convicted of capital murder and sentenced to death is more morally depraved than every child rapist?" —Justice Alito writing in dissent, in which Chief Justice Roberts and Justices Scalia and Thomas joined.

Green To the Max, No Matter What It Costs!

2008-06-25T09:31:00.000-07:00

Here is a link to an article in today's Wall Street Journal regarding the Democrat's "Green Convention" in Denver.

http://online.wsj.com/public/article/SB121434145793701111.html?mod=blog

Back in the day the Democratic Party was the party of working, middle class Americans. These families, and the Democratic Party, had what today are considered conservative values. Now the Democratic Party is so consumed with paying tribute to radical fringe groups that they are no longer relevant to middle America.

This article is a great vignette of a good idea taken to extremes. Not only does everything at the convention have to be environmentally correct, but politically correct too. One example: only products produced by American unionized labor can be used. It is apparent more and more that the far left wing of the Democratic Party is pushing harder than ever to do two things: promote a government takeover off all significant segments of the economy (recent nationalization proposals include: healthcare, mortgages, oil companies, refineries, student loans, etc.), and mandate behavior based on liberal beliefs through rationing and legislative fiat. For the convention, they have even mandated what colors the food has to be on the plate. If Obama wins in November, and the GOP loses a filibuster quorum in the Senate (both very possible scenarios), then it is almost certain that the government will have to begin rationing electricity within a number of years.

New York City has banned transfats from all restaurants. So I no longer have the right to choose to eat something cooked with transfat, even once a year? I’m all for requiring disclosure so that consumers can make an informed decision. But a total ban? The Democratic convention has banned all fried foods, regardless of color or type of oil. How long until my Emeril Lagasse deep fryer is outlawed and I have to deep fry my occasional guilty pleasure in secret under the threat of a fine or even arrest?

Locally produced food is a good idea, to the extent it is practical. But it is hard to see how an ever growing global population can be fed solely by local food. The world’s population has outgrown that. There is a certain productivity in industrialized agriculture that cannot be avoided. OK, maybe off-season fruit from Chile delivered by jetliner is something to debate. But I’d still like to have my Spanish Rioja, Italian Parmesano Reggio, bread made from Kansas grown wheat, and black peppercorns from Indonesia.

What the radical liberals never consider is the cost of their obsessions. Flex-fuel transportation fueled by beer waste. Products from low productivity union shops. A crew of 900 sorting all the garbage by hand. A very expensive event to be sure.

As an aside, the Denver Democratic organization responsible for raising money for the convention has come up short. I guess it’s harder to obtain money for all this radical stuff when you have to ask nicely instead of seizing it from society’s producers by threat of force.

Scapegoat, er, Election Season Is Here

2008-06-24T18:37:00.000-07:00

Congress is frantically looking for an election year scapegoat for high oil and gas prices. Saudi Arabia is breathing a sigh of relief as Congress' focus on speculators diverts attention from the treasure that is flowing into OPEC coffers.

Obama, and many Democrats, has been thundering from the campaign podium that we must close the "Enron loophole", that allowed some types of energy futures trades to fly beneath the regulatory radar. Even John McCain has been drawn into the prospect that it must be speculators that are driving up the price of oil. Whoops, it turns out that the Enron loophole was closed in a provision inserted into last year's farm bill. The surge in oil prices occurred after that.

Some Democrats "on the case" announced that their own committee investigations show that 50% of the current price of oil is due to spectators. Enough of these aspiring "Colombo's". Time to bring in the expert government regulators that oversee futures trading.

Enter Walter Lukken, acting chairman of the Commodity Futures Trading Commission. Mr. Lukken, testified before Congress that there is "no smoking gun" indicating speculators are behind the rapid rise. The conclusion of his commission's investigations is that rising global demand and inelastic supply are to blame. Interviewed on CNBC's Kudlow & Company tonight Mr. Lukken stated that there are as many short positions as long positions with traders that can be classified as speculators.

Many of the so called "speculators" are pension funds that are actually investing in broad-based commodity indexes. They are not trading in the futures market at all. I personally have been both long and short the USO, an ETF that tracks the price of oil. And I don't have a futures trading account.

Bush's Stealth Manhattan Project for Energy

2008-06-21T20:33:00.001-07:00

Anyone who says we need a “Manhattan Project” for energy doesn’t realize that we already have one. The Bush Administration has accomplished more than any other administration regarding alternative energy. This is in sharp contrast to the Democrats who would have you believe all Bush and Cheney care about is enriching the oil companies. The facts say otherwise.

Under the direction of the Bush White House vast amount of research and work that is going on across both renewable and traditional fronts including solar, clean coal, hydrogen fuel production and fuel cells, cellulose ethanol, wind, battery technologies and many other topics. A few facts:

The Department of Energy ('DOE') is the largest supporter in the U.S. of basic research in the physical sciences. The DOE provides more than 40% of the total funding for physics, chemistry, materials science and other physical sciences.
There are 17 national laboratories under the jurisdiction of the DOE performing both theoretical and practical research.
The DOE funds more than 7,000 individual research projects at universities, national laboratories, U.S. industry and the non-profit sector.
The DOE estimates that with focused government coordination and assistance solar might provide 21% of electricity generation by 2030 (1% is the pessimistic case). This includes utility use of advanced concentrator technologies.
A recent study published by the DOE estimates that as much as 20% of the country's electricity could come from wind energy.

I think the estimates for solar and wind are very optimistic. Government, and government trying to direct industry, just does not work that efficiently. Solar in particular is a long way from being at grid parity regarding cost. Nevertheless the the amount of basic research and strategic coordination is impressive.

For all the oratory from the Democrats about a Manhattan Project for energy, I have yet to hear a specific proposal regarding research or other action that the Bush Administration is not already doing. The next time Obama or another liberal politician says we need a Manhattan Project for energy, realize that we essentially already have one. Ask for specifics.

Maybe the White House should take a page out of the Big Oil's playbook. Hardly a day goes by without seeing a new TV commercial by the oil companies touting their green research on alternative fuels. Meanwhile, the administration quietly proceeds while getting no credit for leading a massive effort to develop all these technologies.

Democrats Call for Nationalizing the U.S. Oil Industry

2008-06-21T18:53:00.000-07:00

The Democrats recently had the oil executives up on the hill again for 2 days of grandstanding (by Congress, not the oil executives). Senator Dick Durban (D-IL) was practically apoplectic in a grand piece of political theater. The ultra-liberal Maxine Walters (D-CA) actually threatened the oil companies with nationalization.

Now there are calls from some within the Democratic Party to nationalize our nation's refineries. Rep. Maurice Hinchey (D-NY), member of the House Appropriations Committee, and a strong opponent of off-shore drilling, stated last week that, “We (the government) should own the refineries. Then we can control how much gets out into the market.”

Maybe we should check with Hugo Chavez and see how that’s going. Oh, that’s right. Venezuela’s oil is heavy, high sulphur stuff that is hard to refine. The country’s oil fields are in decline and will need major investment and sophisticated technology and know-how to maintain production going forward. But now El Presidente has guaranteed that no one who has the technology and know-how will touch Venezuela with a 39 ½ foot pole.

It was quite clear from the give and take during the hearings that none of the Democrats had the slightest idea about how oil markets work - frightening and discouraging.

Here’s the best part. Most people know that new domestic oil exploration has been largely prohibited for 30 years, and that we have not built a new refinery for 35 years. But what you may not know is that India is close to putting the finishing touches on a brand new refinery that will be the largest in the world. It is a short tanker ride from the Persian Gulf to India. So now not only will we have to send an ever increasing amount of money to our enemies for oil but we will then send even more money to India to refine it before they ship it to us.

Brilliant!

Manhattan Project Equivalency

2008-06-21T18:43:00.000-07:00

Obama and the Democratic "talking point" gang speak often of a “Manhattan Project” for our energy future. The WWII Manhattan Project cost was $2B between 1941 and 1946. That translates into about $24B in 2008 dollars.

The Department of Energy's ('DOE') budget request for 2009 is about $25B. If you strip out money for security and defense (nuclear non-proliferation, navy nuclear, etc.) the DOE budget is about $16. At this run rate we will spend $80B over the next five years, the length of the Manhattan Project if you throw out 1941, a ramp-up year. In other words, we are already spending more than three times as much on government energy spending as we did on creating the atomic bomb – just by the DOE.

Now, think about all the tax credits for solar and wind. Then add the ethanol subsidies. None of this is in the DOE budget. They are just giveaways to promote certain behaviors. And of course none of this includes the costs that are externalized from the federal budget via mandates for everything from cleaner emission requirements for coal plants, increased spending by car companies to meet mileage and emission requirements, and increased costs of food due to diverting vast agricultural resources away from food to fuel. The Pentagon is spending huge sums of money to buy synthetic fuel (coal gasification – even with today’s oil prices it still costs 50% more than refining oil into transportation fuel).

I don’t know how much all these subsidies and externalized costs add up to but let’s say conservatively that it is another $100B over 5 years (it is probably much, much more). The point is that the government is spending enormous sums of money on energy research, alternative fuel subsidies, and even greater sums are being spent on unfunded government mandates.

Now I’m not debating the validity of any of these efforts. I’m just pointing out that there are enormous taxpayer and consumer monies being spent on all of this – far in excess of “Manhattan equivalency”. So when Obama talks about a Manhattan Project for energy, just exactly what is it he thinks can be accomplished and how much will it cost? I don’t think that anyone is suggesting that there is some energy source just waiting for the government to discover that will suddenly solve the problem, like the atomic bomb ended WWII.

In the case of the Manhattan Project, the theory was understood. The nature of critical mass had been established at the University of Chicago. As long as Oakridge could produce the enriched uranium, Los Alamos just had to figure out how to trigger a critical reaction on queue.

With energy the list of alternatives is well known. With oil at $130/barrel and climbing there is a strong profit motive for venture capitalists and entrepreneurs to develop better execution of these alternatives. In many ways, this is an easier problem to solve than the atom bomb.

The government can, and already does, fund a great deal of research to help alternative technologies reach commercial scale. The government can also apply a little common sense and enable us to attack the problem across the board using all of the resources at our disposale, both new and traditional.

The Spector of Speculators

2008-06-21T17:15:00.000-07:00

When it comes to oil we are in a parabolic run up not dissimilar to the Nasdaq bubble of 1999/2000. The thing about bubbles is that they can inflate for a lot longer than you’d ever imagine. There are a lot of companies who have significant energy costs or are otherwise impacted by the price of oil that are rushing in to lock in prices for the future. It is a lot like a short squeeze. Everyone is panicking that if they don’t lock in now they are going to get hurt even more.

Joe Lieberman says he is going to introduce a bill that will prohibit anyone from trading in oil futures that are not able to take physical delivery. So I guess this means that for companies where managing their energy exposure, like airlines, but do not take physical delivery, will be barred from the future exchanges?

Other bills are being introduced by the Democrats to prohibit index funds from trading commodity futures. Are we really going to say Party A can invest in only these types of investments and Party B can invest in others? Is this the Soviet Union?

It is doubtful that speculators are materially affecting oil prices. There are many traders taking short position in oil right now, expecting the bubble to pop. It is not a long only market when it comes to traders. If fact, speculators, let's call them commodity traders (investing in futures without intending to take delivery of the physical commodity), create liquidity that is highly beneficial to the price discovery and companies being able to efficiently move in and out of positions.

If traders that do not take physical delivery are the cause of rising prices, then consider this. Eventually, these traders have to sell their futures contracts before the commitment date to take delivery. If speculators were such a powerful force, then this selling should cause the price to fall dramatically at the point when the contracts have to be "rolled forward". Last week was futures expiration for the quarter and options expiration for the month. No drop in price was experienced.

The global daily production of oil peaked in 2005 at 85 million barrels. The current demand is about 85 to 87 million barrels. Since 2005 emerging economies such as China and India are consuming ever greater amounts of energy and commodities. Without more supply, and growing demand, the price goes up. Certainly there will be some downward pressure in short term prices as the high costs cause demand destruction and substitution behavior. We have already seen some of this in the U.S. over the last several months.

A clue to determining if speculation is a factor is to look at other commodity prices that are not traded on futures markets. Iron ore and coal are good examples. Both of these commodities are traded through contracts between private parties. Neither of these are traded on a futures exchange. But the cost of both of these commodities have skyrocketed more than the price of oil due to global demand.

In fact, all the commodities that are needed to build out the surge in global infrastructure and racing up due to skyrocketing demand in the face of a long lead time to increase supplies. Why do steel companies have sustainable pricing power for the first time in generations? It is because China and Russia used to be able to flood the market with cheap steel. Now China is making as much steel as they can and importing much more. Why has the price of coal more than doubled recently. China used to be a net exporter of coal. Now they are a net importer. Not only are they now a net consumer of coal but all the other countries in Asia that used to buy coal from China are now scrambling to obtain substitute supplies from Australia and the United States.

Congress, having created the lack of supply, and frantically looking for political cover, will undoubtedly make the situation worse. If Congress wants to close the "Enron loophole" then I'm fine with that. And it might have some short term effect. But it will not change the fundamental supply and demand dynamics of the market.

The U.S. Congress always feels compelled to "do something". But that something rarely solves the problem, makes it worse, and has severe unintended consequences. Take Enron for example. Congress' solution was to pass Sarbanes-Oxley. "Sarbox" has solved nothing and has had the unintended consequence of driving new companies to IPO in London and Hong Kong instead of New York. Sarbox has had a chilling affect on attracting capital to the U.S. and has been financially untenable for smaller U.S. companies.

If Congress has its way with making the U.S. commodities exchanges non-competitive in the world market then oil futures trading will simply move to the Dubai exchange. Nothing will have been solved. But the Nymex will be damaged irreparably. Like with Sarbox, Congress is always fighting the last war.

No, No, No!

2008-06-20T14:55:00.000-07:00

http://www.breitbart.com/article.php?id=D91DVH680&show_article=1

Obama's first comment says it all. John McCain's proposal to allow offshore drilling "makes absolutely no sense at all". Then he proceeds to run out a couple of the Democratic talking points. I’m not worried if drilling on the continental shelf will only lowering gas prices by cents. I’m much more worried about gas being $10 per gallon in 10 years if there is not dramatic action to develop domestic supplies.

Why not let the oil companies explore? If it really turns out that in 2030 we don’t need the oil, then the oil companies took the risk and get screwed. Obama should love that.

So Obama is against developing new domestic oil supplies. He is against nuclear, which is the only technology available for the foreseeable future that can provide baseline electricity with no carbon emissions.

True plug-in cars are still science fiction. The battery technology simply does not exist. No one has figured out how to produce free hydrogen economically, or without fossil fuels. There is no technology on the horizon for truly clean coal. The technology exists to eliminate most of the non-carbon emissions. But there is no technology available to eliminate carbon emissions – even though the Bush Administration is working on it. Under the Bush Administration, the DOE has already been put on track to spend $150B in alternative fuel technologies in Obama's 10 year timeframe.

Obama and the liberals, and some Republicans, suffer from “miracle thinking”. They think that we are close to a breakthrough. That if we “just spend a little more money, the solution will be achieved.” They also suffer from “all or nothing” thinking. The only answer is breakthrough alternative technologies, and nothing else. They also think that conservatives also suffer from “all or nothing” thinking – favoring only the development of new fossil fuel production. This is demonstrably false. And politicians of all strips all suffer from an inability to understand that long term problems require long term solutions. Politicians always grab at the “quick fix”, which is usually no fix, or makes the problem even worse.

Only conservatives seem to be able to lay out a balanced attack that is actually realistic. Liberals can’t make the “least bad choice”. We are in a situation where there is no miracle waiting around the corner. We have to employ every technology as well as appropriately use fossil fuels and rapidly accelerate nuclear. John McCain called this week for building 45 new nuclear plants by 2030. Spend the $150B on alternative technologies. But if that’s all we do we will effectively put a cap on our economic development – which is probably what Obama really wants anyway. Obama policies will create an energy crisis in electrical energy generation that will simply lead to more coal being burned.

Here is an amusing point. The one of the anti-nuclear crowd‘s main objections is what to do with the waste. Of course you store it in the ground under Yucca mountain, if Harry Reid wasn’t such a nuclear obstructionist. Until then it is being stored underground or underwater on site at our nation’s 104 nuclear plants. But the “alternative technology” for truly clean coal is some form of carbon sequestration. In other words, they want to figure out how to bury it underground!

Do you really think that a relatively small amount of nuclear waste, much of which is reprocessed in the newer plants, is a greater danger that the hundreds and hundreds of millions of pounds of carbon that we are pumping into the atmosphere each year?

On the Brink of Success

2008-06-19T17:03:00.000-07:00

Obama said unequivocally that the “surge” could never work. He stated that he could not find a general who could tell him how many more troops it would take to succeed. I guess he never bothered to talk to General Petreaus. He does not believe there is any point to him traveling to Iraq to see for himself what is happening on the ground. Susan Rice, a top Obama foreign-policy adviser, says that the GOP argument that he should do so is "complete garbage."

He is doggedly insisting that regardless of how much progress has been made he will immediately begin withdrawing troops on a fixed schedule. This sort of arrogance is disturbing for someone who may be Commander in Chief.

Now Senator Obama is hinting that he may travel to Iraq. And in a conversation with the Iraqi Foreign Minister, Obama was implored not to act recklessly. A Washington Post editorial quoted the foreign minister as saying "my message" to Mr. Obama "was very clear. . . . Really, we are making progress. I hope any actions you will take will not endanger this progress."

Progress in Iraq is accelerating. We can now begin to see a future where there is a stable and democratic country in the center of the most dangerous and autocratic region of the world. Iraq may have as much oil as Saudi Arabia. Under Saddam Hussain the countries oil infrastructure was broken and crumbling. Now it is (slowly) being rebuilt. How’s that for a Bush legacy?

U.S. Manufacturing - Stronger Than Ever

2008-06-19T16:58:00.000-07:00

One of the concepts that I’ve come to recognize recently is that American manufacturing is stronger than ever. But there has been a seismic shift from dumb, mass produced manufacturing to smart, solve the world’s problems manufacturing. Some are calling these manufacturing companies “new tech”. Where silicon valley is focusing on the next version of Grand Theft Auto to teach our children how to be better felons, these new tech companies are making the world a better place.

Since 1950 manufacturing output has soared in the United States. But manufacturing jobs have steadily decreased due to vast advances in productivity. When people lament the loss of manufacturing jobs, they are missing the big picture that we are producing more than ever and growing our GDP - to the benefit of all.

Aside from the obvious large cap companies like Boeing and Caterpillar, there are multitudes of companies that Joe Mainstreet has never heard about that are driving American’s manufacturing success in the global economy. The specialized heavy equipment for mining coal and other minerals is a global duopoly: Bucyrus and Joy Global, both based in Wisconsin. The world’s premier crane manufacturer: Manitowoc , also based in Wisconsin. Owens Illinois doesn’t just make pink insulation. It also manufactures the carbon composites for the blades of wind turbines. The list is long and distinguished: Flowserve, Gardner Denver, Parker-Hannifin, Deere, Emerson Electric, Otter Tail, Eaton, National Oilwell…

Obama’s view of our country is so negative – where success and wealth must be punished (“Reward work, not wealth.” is his stump speech line – why not reward both?), where racism is endemic, where corporations are evil, where valid public service does not include the military (made clear by his commencement address at Wesleyan), where manufacturing is dead.

His populism doesn’t embrace change for the future. He wants to return to a world where uneducated people could join a union and earn ridiculous money in dumb manufacturing. He has this redistributionist scheme to confiscate profits from companies he considers un-American and give it to companies he considers pro-American. Obama’s vision for our economy is a Soviet-style central planning model where he takes away and redistributes based on his belief of what is fair.

Why Can't We Drill?

2008-06-19T14:44:00.001-07:00

I have watched closely the recent case for and against expanding domestic oil production. The Democrats have a carefully constructed set of talking points. How do I know? Because every single Democrat that comes on TV to debate the issue runs through the exact same points. Here they are:

We can’t drill our way out of this problem. This statement is inane on its face. We’ll need supplies of oil for a long time. Any additional domestic production, which will also be new production to the world supply, is better than not having any additional production. Maybe the Democrats are trying to imply that the only energy solution that the GOP supports is drilling for oil – which is absolute nonsense.

We shouldn’t drill in ANWR because it will take 10 years before new oil will be available to the country. Also a silly statement. Are the Democrats suggesting that 1 million barrels of oil a day in new production will not be helpful in 10 years? Would it be better to continue buying oil from Hugo Chavez or the Arab dictators? Are they assuming that 10 years from now that there will be no need for oil in this country? The entire global oil production peaked in 2005 at 85 million barrels a day. 1 million barrels a day is not insignificant.

ANWR is a pristine wilderness that must be protected. ANWR is a vast 19 million acre section of northeastern Alaska. Only a small area in the northeastern corner of ANWR is needed to drill. Current drilling technology is much less invasive and ecologically protective than in the past. The Bush administration has done the homework to confirm that innovative methods of drilling can be used that will have almost no impact on the environment or wildlife in this small corner of ANWR. Anyone who is making this point doesn’t understand the facts, or has some other agenda.

If we were to bring ANWR supplies on-line, it would only reduce gas prices by 1 cent a gallon. I haven’t had a chance to validate this point. Regardless, providing 5% of our needs from a new domestic source certainly is smart. I'm not so worried about lowering the gas price as I am that it will double in 10 years, or sooner, without significant new domestic supply. China, India, and the rest of the emerging markets are going put greater and greater demand pressure on prices for years to come.

Big Oil is sitting on thousands of leases on 68 million acres of federal land and are not drilling on it. Congress needs to pass a “use it or lose” it law in regard to these leases. What is the point of opening up new areas to drilling when they are not even drilling on the land they already have access to? It is true that oil companies have leases on this land, which may or may not turn out to be productive. But having leases on land does not mean a company has an approved permit to drill. The Democrats make sure it is a very difficult and lengthy process to have a permit approved. Environmental groups also file endless lawsuits to block the permits from being approved. So much of this land is not really approved for drilling. Plus, the Democrats’ 10 year argument for ANWR is the same here. The truth is that all of the highest potential areas have been removed from development. For example, in last year’s budget, Congress put in prohibition on developing the most promising oil shale areas – areas that appear to have several more times the oil that Saudi Arabia has – 800 billion barrels in shale oil in the U.S. And “use it or lose it”? How does this solve anything? It you take the lease away they there still is no domestic production. Stupid. And in fact, where permits are grudgingly granted, this land is being developed.

We need a Manhattan Project to develop new sources of alternative energy. Bill Clinton and Al Gore were in power for 8 years and did absolutely nothing about alternative energy. Former Clinton insiders say that Clinton was terrified of offending the Saudis. He wanted them to pump as much oil as possible. The truth is, and I’ve done the homework, that the Bush administration has done more to develop alternative sources of fuel than any other administration. Under the Bush Administration the Department of Energy has thousands of projects underway with private and public organizations to conduct research and solve the intractable problems of alternative energy. Examples include clean coal using carbon sequestration, solar concentraor technology, and hydrogen fuel creation. Bush has pushed for the development of non-food based ethanol, such as switch grass (closer to sugarcane than corn in energy conversion). But Congress, Democrats and Republicans both, have pandered to the corn lobby instead. We are diverting 30% of our corn crop, with huge consequences to the food supply chain, to produce 3% of our “gasoline”. I have not heard a single concrete proposal from the Democrats about what ”Manhattan Project” research needs to be done that is not already being done by the Bush administration.

During the Bush Admission oil prices have surged – which is no surprise since the oil industry wrote the Bush Administration’s energy policy. The Democrats love to point out that the majority of the people that worked with Dick Cheney on the White House’s energy strategy were connected to the oil or energy industry in some way. Really? What experts should we engage to develop an energy strategy? The hospitality and food service industry maybe? Or perhaps some investment bankers? Have you actually read the White House’s energy strategy for our country? I have. It is a comprehensive and balanced plan that focuses heavily on alternative fuels as well as being realistic regarding fossil fuel needs. No one on the talking points circuit, mind you, points to a single action or policy of the Bush Administration that has contributed to the rapid escalation of oil and gas prices. Has Bush caused the surging economies of emerging markets such as China and India, that have pushed oil and commodity demand beyond supply? Of course not. But in the Democrats’ playbook, correlation does equal causation.

The coasts of Florida and California are important to tourism and are environmentally sensitive. The truth is that the drilling is much more environmentally safe than in the past. Today’s ability to drill horizontally opens up all sorts of possibilities. Ultra deep water drilling off of the coast of Brazil has discovered the largest oil reserve in a generation. There has not been a major, or minor, environmental issue in the Gulf of Mexico, the one area where offshore drilling is allowed (so long as it is not off the Florida coast), in decades. Even Katrina did not cause any oil to be spilled from offshore rigs. Plus, these rigs would be so far off the coast as to never be seen by anyone.

There are plenty of off-shore areas available to explore. All of the Atlantic coast, all of the Pacific coast, and one third of the Gulf of Mexico coast is banned from exploration and production. No one has even been allowed to perform a survey of these banned areas in almost 30 years.

The Democrats talking points don’t make any sense if you are semi-intelligent and have some basic understanding of the facts. There are only two possible explanations that I can come up with for the Democrats’ unrelenting obstruction in developing our domestic energy sources (assuming they’re not complete idiots). The first is that they are so obsessed with a fear of global warming that they place this in greater importance than having sufficient energy to grow our economy. The second is that by creating an energy crisis, enough political capital will be created to seize government control of another major segment of the economy, and increase their power as a result.

While #1 is probably in play with some, #2 is almost a certainty. There is more and more talk within the Democratic Party of nationalizing the U.S. oil industry. Of course, “Big Oil” controls less than 5% of the world’s oil reserves. If the oil industry was nationalized, and placed under Democratic control, it is a certainty that we will have even less energy and higher prices. But the Democrats will have the most powerful of all powers – the power to ration. Having done everything possible to block domestic supply, given total control of the country’s oil industry would mean they could reduce it even more.

Round Up the Usual Suspects

2008-04-05T13:01:00.000-07:00

Like Captain Renault in Casablanca, the usual suspects must occasionally be rounded up to make a show of action, even though it truly is only for show. Unfortunately the only “beautiful friendship” regarding America’s energy policies is between the Democrat's pandering and their constituent’s ignorance.

Rep. Edward, Markey, D-Mass. decided that is was time for the regular bit of political theatre that Congress conducts periodically with the “Big Oil” companies. "On April Fool's Day, the biggest joke of all is being played on American families by Big Oil," Rep. Edward Markey, D-Mass., said as he summoned the oil company executives and kicked of his committee hearing. Chairman Markey berated the oil company executives for not doing enough to lower oil prices and to develop alternative energy sources such as wind power and biodiesel.

This sort of show trial has been held over and over again whenever the Democrats control Congress. There has never been any evidence discovered that somehow the oil companies are manipulating the price of oil or engaging in any other sort of collusion. I find it quite preposterous that the government believes it is Big Oil’s responsibility to develop alternative energy sources. If it is in their best interests, I suppose they might. But at the end of the day, they are in the business of exploring and producing oil and its end products. They are not in the alternative energy research business.

The facts are that the Exxon Mobil's of the world have very little to do with the price of oil. They simply don’t control enough of the world’s reserves to do so. Sovereign states such as Saudi Arabia, Canada, Russia, Mexico and the like are the holders of the vast majority of the world’s reserves. And at least at this point, the price of oil is largely a demand story, not a supply story. With emerging countries around the world experiencing a synchronized growth in their economies that is unprecedented – and consuming an increasing amount of fossil fuels as a result.

As an industry Big Oil has an unimpressive profit margin of only about 6%. Yes, the profits in absolute terms are large, simply due to the scale of the operations. Why are the profit margins so low if the price of oil is so high? There are two reasons. First, and the Democrats never seem to remember this when in attack mode, the Big Oil companies pay enormous sums of income taxes to the Federal coffers – more than any other industry. The second reason is that Big Oil spends much of the remaining money on oil exploration and production, attempting to replace reserves as oil is consumed. The replacement of reserves gets more difficult and more expensive with each passing year.

Both Democratic Presidential candidates want to confiscate oil company profits to pay for alternative energy programs. But seizing profits that are desperately needed for further exploration is not going to help the situation – only make it worse. With oil at more than $100 a barrel does anyone really think that entrepreneurs and venture capitalists need further encouragement to develop alternatives, or that somehow the government can do a better job than incentivized capitalists?

Look at the centerpiece of the government’s approach to alternative energy – corn based ethanol. Corn-based ethanol is a boondoggle, consuming almost as much energy as it provides, while driving food prices through the roof - really smart. For 35 years the Democrats have blocked every attempt by our country from having a rational energy policy. The Democrat’s subservience to the endless special interest groups that make up the Democratic base mean that we have no new nuclear power plants, no clean coal, no wind farms near rich, no new refineries, liberal areas, no drilling far out on the continental shelf or in a tiny corner of the Arctic National Wildlife Reserve (ANWR). The Democrats rail against our increasing reliance on imported oil and about high energy prices. But it is the Democrat's parsimonious pandering has directly resulted in the energy mess we are in.

Contrast this to other countries with rational and successful national energy policies. France obtains more than 70% of their electricity from nuclear power. They continue to build plants with advanced designs and have a long history of safety. Brazil is essentially energy independent. They produce large amounts of ethanol from sugar cane, which as a much more efficient energy conversion ratio than corn. They have maximized their use of hydroelectric power. They have aggressively promoted exploration for oil on the outer continental shelf. The result is a new oil field that one day may rival Saudi Arabia.

But no, the Democrats believe it is better to just round up the usual suspects and continue to promote policies that weaken America in order to stay in power.

James Carville Is A Man of His Word

2008-03-27T21:30:00.000-07:00

James Carville was one of the architects of Bill Clinton's successful 1992 Presidential campaign. He has been to Clinton what Karl Rove has been to George W. Bush (or for you TV fans, what Josh was to President Bartlett). He is a tough, smart, straight talking, hard charging, politico partisan. Carville continues to be a loyal Clintonista.

When Bill Richardson endorsed Barack Obama last week, James Carville called him a Judas, noting that is was just about the same time of year when Judas accepted 30 pieces of silver to betray Jesus (Bill Richardson served in the Clinton Administration as U.N. Ambassador and Secretary of Energy). Conservative commentators condemned the comments as mean-spirited.

Appearing on the Sunday talk show circuit Carville was asked about his comments and the subsequent uproar. Mr. Carville said that his comments were correctly quoted, taken in context, and had the desired meaning! He added that he thought the seasonal metaphor was quite apt.

I don't agree with James Carville's politics, but it sure is refreshing for a politico to say what he means and stand by it. No mealy mouth explanation about how that wasn't what he meant, or that he was taken out of context. None of Bill Clinton's innuendo and double-speak denials. None of Barack Obama's sitting in a pew for 20 years but never hearing Reverend Wright spew hate speech. James Carville spoke his mind and stood up for it. Good for him. I respect that.

For the record, I think very positively of Bill Richardson. He is a pro-growth Democrat who has a good record as governor of New Mexico. On a pure policy and resume basis he was the democratic presidential candidate that was the best qualified to be a good President.

Here Is A Headline You Never Want to See

2008-03-27T17:15:00.000-07:00

"Gate Orders Inventory of U.S. Nukes"

I guess we want to make sure that we didn't misplace any of them. I will look forward to the answer.

http://news.yahoo.com/s/ap/20080327/ap_on_go_ca_st_pe/missile_mistake_12

And to Think I Saw It On Mulberry Street

2008-03-27T12:26:00.000-07:00

Recidivism is a word most often reserved for criminals or sexual predators. But there is such a disturbing pattern of repeated and outlandish embellishment by Democratic leaders that the word comes to mind. Al Gore just cannot help himself, at various times claiming to have invented the Internet and that the male protagonist in "Love Story" was based on him. Of course, the wildly exaggerated and spurious claims throughout "An Inconvenient Truth" have been well documented so there is no need to repeat them here.

How about John Kerry, and his Winter Soldier testimony before Congress on the atrocities committed by our troops in Vietnam? These claims have been systematically shown to be fabrications. In fact, many if not most of the Winter Soldiers stories were made up by people that did not even serve in Vietnam, or served in different roles with different ranks in different places than they claimed. How about John Kerry insisting that he was in a firefight with the Viet Cong in Cambodia on Christmas eve? His commanding officer and most of the men he served with called him a liar, a charge which he has never successfully refuted.

Bill Clinton has a long and distinguished record of lying about his endless affairs, including the most famous, Ms. Lewinsky (an interesting side note: Hillary's just released White House schedule shows that she was at the White House when the most infamous of the Lewinsky liaisons occurred).

Now comes Hillary. Her repeated account of landing in Bosnia under sniper fire has been unceremoniously debunked since CBS released video footage of the event. Hillary's claim to have been instrumental in the Irish peace process has been similarly assailed.

What is interesting in all of these examples is that when challenged with evidence to the contrary, they continue to insist that the stories are true. Hillary doggedly repeated the Bosnian tale, with Hillary more Rambo-like with each telling. This was even after numerous people, including travel companion comedian Sinbad, said it did not happen the way Hillary described. Only after video came out with Hillary participating in a large, and peaceful, ceremony on the tarmac being presented flowers by an 8 year old Bosnian girl did she and her campaign reluctantly admit to "misspeaking".

In this day and age of 24/7 news coverage and cameras on every cell phone it amazes me that these politicians think they can get away with these preposterous stories. I reminds me a lot of teens that beat up some other kid, post the video on the Internet, and subsequently get arrested. Hillary, and Al, and John Kerry and Bill Clinton are all intelligent people, but they continue to commit these gaffs. There must be another explanation - they just can't help themselves. Even when they get caught, they do it again and again - recidivism.

Perhaps I am having a conservative blind spot, but I am having a hard time coming up with parallels in the GOP. I can't think of Ronald Reagan embellishing his accomplishments. John McCain has a long and distinguished career as a U.S. Senator, and is the anti-John Kerry when it comes to Vietnam service. George W. Bush may have gotten special favors to serve in the National Guard, but he didn't lie about it (sorry Dan Rather).

George H. W. Bush was a true WWII hero, surviving 58 combat missions as a Navy pilot and winning the Distinguished Service Cross. He was shot down over the Pacific and was rescued by a submarine. Before becoming President, "Bush 41" served in the U.S. House of Representatives, was Liaison to China, Ambassador to the U.N., and Director of the CIA. None of these GOP leaders had to embellish their experiences. They were genuine leaders and heroes.

If anyone can help me out with some examples please post a reply. Of course all politicians need to be viewed with skepticism. It is a profession that seems to appeal to liars and cheats. In the meantime, the Democrat's outlandish claims of achievement seem an awfully lot like the Dr. Seuss tale, "And to Think I Saw It On Mulberry Street". It makes you wonder if anything else they say is true?

The Democrat's Gordian Knot

2008-03-23T14:38:00.000-07:00

The Democratic Party has a well earned reputation for making it as hard as possible on themselves to win the White House. Think Dukakis in the tank, Walter Mondale or Eugene McCarthy in any situation, Edmund Muskie breaking down in tears. Bill Clinton is the only politically talented Democrat to run for the White House since LBJ. And of course, Mr. Clinton has his own peccadilloes.

This year may be the hardest yet. First Howard Dean imposes the primary death penalty on Michigan and Florida for moving their primary dates up against the wishes of the Democratic National Committee (DNC). Hillary campaigned in those states anyway but Barack Obama did not. The Obama campaign has now outmanuveured Clinton to thwart any do-overs in Michigan and Florida. Senator Obama believes he can win the nomination without those two states, with the help of the superdelegates. A do-over in these states would probably only have helped Clinton.

Now it gets interesting. The first task at the national convention in Denver will be for the Credentials Committee to decide what delegates will be seated. There are 186 committee members. 25 are named by Howard Dean and he has done so. The Credentials Committee will have to wrestle with whether to seat the Michigan and Florida delegates. The 186 could effectively decide the nomination. They can override Chairman Dean and seat the delegates from the banned states, or they can work out some other solution.

Much has already been said about the superdelegates. They are free to vote for whomever they want. The bottom line is that the nomination is going to be negotiated, or brokered, which will lead to bitterness on the losing side. Polls are showing that one in five Democrats may bolt to McCain if their Democratic choice does not prevail at the convention.

If it does come down to the superdelgates Hillary may be in even more trouble than she is in now. Mareen Doud in today's New York Times writes that, "If Jimmy Carter, Al Gore and Nancy Pelosi are the dealmakers, it won’t take Hercule Poirot to figure out who had knives out for Hillary in this “Murder on the Orient Express.”

None of these superdelegates are fans of the Clintons and their bare knuckles, entitlement style. In fact, it seems clear that Clinton fatigue has finally set in on the Democratic Party. Even once loyal Clintonista, Bill Richardson, jumped on the Obama bandwagon, and was promptly and savagely trashed by the Clinton campaign (I'm pretty sure calling out someone as a "Judas" is ill-mannered, especially at Easter).

As the Democrats attempt to unravel the Gordian Knot, it seems likely that Barack Obama will be the nominee. I don't think Obama can win against McCain in the general election. He lacks experience. Reverend Wright will weigh like a millstone around neck. He has been beaten by Hillary Clinton in the large, critically important states like Ohio and Texas. Senator Clinton is going to win huge in Pennsylvania. If you can't win Ohio you can't win the White House.

It is easy for me to envision an exhausted and embittered Hillary Clinton at a concession news conference channeling 1960 Richard Nixon, "You won't have Hillary Clinton to kick around any more!" Good riddance.

What I Learned in the Market Collapse

2008-03-23T07:31:00.000-07:00

The rapid market downturn over the last 5 months, and especially the stunning January collapse, has been the most difficult investing environments I've ever seen. Even the tech meltdown in 2000 and 2001 was much slower moving, offering greater room to maneuver on the way down. Traders for whom I have great respect, such as Dennis Gartman of the "Gartman Letter", with 25 years of trading experience, have stated that they have never seen anything like the continuing difficulty and violence of this market. Like most, I took it in the throat.

Here are a few of the lessons I intend to remember "next time":

It is always better to be out of the market and wish you were in, than to be in the market and wish you were out.
It is OK to just sell everything so you can sleep at night and live to trade another day when the market finds a stable bottom.
A violently volatile bear market means that you have to dramatically "shorten your swing". There is actually great opportunity to make some money by buying extreme weakness and selling the sharp bear market rallies. But to do so you have to be very nimble, taking quick gains and being more willing than not to leave some potential profits on the table.
Hedges matter. As I finally got me head around the type of market we were really in I switched to a trading profile that was much more hedged, limiting my upside but also significantly protecting my downside. For example, I set up many of my long positions, especially the higher beta positions, as vertical call spreads (buy a call at one strike price and sell a call at a higher strike price with the same expiration date). This allows me to capture the upside to a certain strike price while greatly reducing the cost of the long side of the spread. When the market makes violent moves up or down I can take off one side of the spread and capture those profits and then reestablish the spread when the stock moves back the other way.
When great profits have been made in the market, always take some off the table and put it away somewhere safe.
It is important to always have some money on the side to take advantage of stocks that are unfairly punished. Too many people are too fully invested too much of the time.
Professional traders and investors understand that in a difficult tape it is more important to limit the downside risk than it is to maximize upside gains. Personally, this is an area of discipline where I will do better going forward.
You have to find a way to "stay in the game". Otherwise, when the rebounds occur, you don't benefit from the ride up. You end up selling low and then buying back in high.

Secretary of State Pelosi?

2008-03-23T06:35:00.000-07:00

Nancy Pelosi is confused. She is the Speaker of the House but time and time again she feels compelled to insert herself into foreign policy at the most inopportune times. A while back she traveled to Syria, meeting with the head of state of a known terrorist state, allowing terrorists to cross their border into Iraq to fuel the insurgency, over the strong objections of the administration.

Now she is in India visiting the Dalai Lama in exile and inserting herself into a very delicate situation involving Chinese politics. Her bungling exacerbates the United States' ability to deal effectively with the China/Tibet conflict because Ms. Pelosi is a well know China basher. Already she has drawn strong negative comment from the Chinese government.

The Constitution grants the executive branch the primary responsibility to conduct foreign policy. In the case of treaties with other sovereign states, the President negotiates the treaties and the Senate votes to ratify the treaties. No role there for the House of Representatives.

I suppose everyone needs a hobby, but Nancy's dabbling is made all the more unfortunate by the fact that she has accomplished so little as Speaker of the House. Of course it is not the worst thing in the world for Congress not to do much. But Nancy and her chamber of horrors have been unable to perform even the most rudimentary duties. For example, Congress must finalize the budget and send it to the President within a particular timeframe. This is one of Congress' most fundamental responsibilities. Congress did not do so. Maybe Nancy should spend less time in a dalliance with the Dalai and focus on doing the people's work within the framework of the Constitution. Nobody likes a constitutional interloper.

Charles Krauthammer's Insightful Take On Obama's Speech

2008-03-21T12:03:00.000-07:00

http://www.washingtonpost.com/wp-dyn/content/article/2008/03/20/AR2008032003017.html

These People Want to Run the Country?

2008-03-21T10:22:00.001-07:00

The Democratic Party wants to run the country but they can't even run their own party.

What could have possessed Howard Dean to invoke the primary "death penalty" on Michigan and Florida, denying these states to seat delegates at the convention? At first Howard Dean insisted that if a new primary was run in Florida that the State of Florida should pay for it. But the government correctly rebuked Mr. Dean telling him that is was not the taxpayers of Florida that should pay to correct a mess of the Democratic Party's making!

After considering a mail-in ballot paid for by private Democratic donations it now seems clear that there will be no do over in Florida. The deadline also just passed for the Michigan legislature to authorize a re-do of the Democratic primary, so Michigan is "out" too. Now Democratic donors from those states are demanding that Howard Dean and the Democratic National Committee (DNC) return donations made by them. No representation, no money.

Hillary Clinton is insisting that the delegates from these two states be seated at the convention. This is perfectly logical to Senator Clinton as she was the only candidate who campaigned in these states and was the only candidate on the ballot in one. Barack Obama does not quite see the logic. It may actually happen that two of the most important states in the general election, particularly Florida with its large number of electoral votes, will be disenfranchised by the Democratic Party.

All of this is setting up for the most entertaining (if you're a Republican) national convention since the 1968 Democratic debacle in Chicago. It seems likely that neither Obama or Clinton will have enough primary delegates to win the nomination outright, which brings us to the delicious topic of Superdelegates.

There has been much angst of late regarding the role of the Superdelegates. Many on the left have stated that it would be a travesty for one candidate to win the most primary delegates but have the Superdelegates award the nomination to the other candidate. But, in fact, this is exactly what the Superdelegates are meant to do.

The Superdelegates were put in place after the 1968 convention where Eugene McCarthy, who had no chance of winning the general election, was nominated as the Democratic presidential candidate. The Superdelegates were put in place soon after to protect the party from itself. Who are the Superdelegates? They are largely party apparatchiks. That's right - the nomination will be decided by what in an earlier age was called the "smoke filled back room".

As Hillary Clinton infamously said during her crusade to nationalize health care - and I'm paraphrasing, "some things are too important for the people to decide for themselves." This is the rallying cry of liberalism. That a paternalistic government will control and decide everything. Or in the case of the Democratic National Convention, the paternalistic party will decide what is best for their voters.

Now comes a report that the hosting committee in Denver has not been able to raise enough money for the convention. The internecine war within the party has caused the party to take its eye off the ball of the importance of staging a great convention.

This party wants to run the country? Really?

David Mamet's Epiphany

2008-03-21T10:06:00.000-07:00

A poignant essay by one of our greatest playwrights who transformed his belief system from "brain dead liberal" to conservative.

http://www.villagevoice.com/news/0811,374064,374064,1.html/full

Laura Bush for President! Barney for Vice President!

2008-03-21T08:02:00.000-07:00

Long delayed by the Clintons, the first tranche of records documenting Hillary Clinton's activities during her husband's presidency were finally just released. 11,000 pages documenting Mrs. Clinton's schedules are now finally available for review, 8 years after Bill Clinton left office. Do these schedules support Hillary's claim that her eight years as first lady give her the experience to be President and Commander in Chief? The short answer is an emphatic no.

During Bill Clinton's presidency Hillary played the traditional ceremonial role of a first lady. It turns out that she was not answering the phone at 3:00 AM or presiding over the Situation Room. Her main policy effort during the administration was to lead the effort to nationalize health care, which was rejected by the American people, and bungled by Mrs. Clinton. If Mrs. Clinton has the experience to be President then so does Laura Bush. Perhaps Barney,the Bush's dog, and an almost 8 year resident of the White House, is qualified to be Vice President!

On the question of experience, Hillary has been in the Senate for part of one term. Barack Obama served for a short time in the Illinois state legislature before now serving a short time as a U.S. Senator. In neither venue have his legislative efforts been noteworthy.

Contrast these two to John McCain. Senator McCain has many years of service in the U.S. Senate where he has earned the respect of both sides of the aisle. He has a legislative record that can be reviewed. He is perhaps the foremost authority in Congress on our U.S. military. He is a war hero. His reputation for integrity is impeccable. He has not one earmark to his name.

Hillary Clinton running on experience may win the Democratic nomination but it will lose the general election for her against McCain. Barack Obama running as the candidate of unity and change has been damaged by a 2 decade association with a hateful demagogue. As the media continues to finally delve into Senator Obama all they will find is an impressive individual who on policy matters is just an uninteresting boilerplate liberal. Barack Obama may one day be President, but not this time.

John McCain is the only centrist, and experienced, candidate that can unify and lead our country.

The Black Liberation Theology of Obama's Church

2008-03-20T22:00:00.000-07:00

Reverend Wright, in the "talking points" page of his church's web site, describes "systematized black liberation theology." Reverend Wright credits James Cone of New York's Union Theological Seminary with having undertaken this systematization. Here is Mr. Cone's description of black liberation theology:

Black theology refuses to accept a God who is not identified totally with the goals of the black community. If God is not for us and against white people, then he is a murderer, and we had better kill him. The task of black theology is to kill Gods who do not belong to the black community. . . . Black theology will accept only the love of God which participates in the destruction of the white enemy. What we need is the divine love as expressed in Black Power, which is the power of black people to destroy their oppressors here and now by any means at their disposal. Unless God is participating in this holy activity, we must reject his love.

This is the church at which Barack Obama congregated for 20 years. An odd belief system for Mr. "Audacity of Hope".

Obama's Big Speech - the Aftermath

2008-03-20T19:41:00.000-07:00

Today Senator Obama went on a Philadelphia radio station to explain that Grandma is “not a racist” after he threw her under the bus in yesterday's speech. Then he said she is just a “typical white person”. Now I do not believe in any way that Senator Obama meant anything by that. But there is such a double standard when it comes to even the most unintentioned racial comments. Barack Obama actually had the audacity to equate Geraldine Ferraro's comments that some will vote for Senator Obama because he is black with the venemous hate spewing forth from Reverend Wright.

What if John McCain said something about a “typical black person”? He would be called out as racially insensitive by the Jackson/Sharpton/Wright wing of the black community. Trent Lott was pressured into giving up his post of Senate majority leader because he made a joke about Strom Thurmond that was ill considered and branded racist by some. Obama called for Senator Lott's resignation for being so insensitive. By the way, Obama also called for Don Imus to be fired for his regrettable comment.

It seems clear that Obama joined this church for political reasons to boost his credentials in the black community. It helped him get elected to the Illinois legislature, where my research shows that his primary accomplishment was voting “present” 130 times. If Obama really is the candidate that wants to transcend race then he should have objected many years ago not just to the hate speech, but to the indoctrination of the congregation with offensive falsehoods like the government killing the black population with HIV.

Listening to Reverend Wright sounds a lot like the radical Islamic mosques and television programs that "train" children from the earliest age that the United States is the "great Satan" and that the Jewish people are sub-human animals.

I think the speech yesterday helped calm his supporters. But it did not help with people on the fence. For the working blue collar class voters with whom Hillary has already done well, the Reverend Wright debacle will seal this segment for the Clintons in the remaining primaries. She is going to win huge in Pennsylvania.

The fact that Obama only sought to disavow and spin Reverend Wright and black liberation theology after getting "caught" makes him just another hypocritical politician who says what he needs to when he needs to win. He is certainly smart enough to have known better. Barack Obama was editor of the law review while at Harvard Law School.

What are the choices then for loyal Democrats? Barack Obama, who proclaimed to be the candidate of change who transcended race? Barack Obama who claimed to be the candidate that would lead not just the red states or the blue states but the United States? Instead he simply looks like a typical politician with unoriginal leftist policies that pander to big labor and the other special interests to which the Democratic Party is their patron. Plus, he has he has been unable to win the "big" states that are mandatory to winning a general election.

The other choice is Hillary Clinton. Do Democrats really want to have another round with the Clintons? The Clintons thrive on drama, careening from one self-induced crisis to another. Plus, her just released schedule while in the White House shows that she played the typical ceremonial role of a first lady. She is no more experienced to be President than Laura Bush - and Obama is even less experienced than that!

A while back I had pretty much given up hope of the GOP retaining the White House. But I am more optimistic than I have been in a long time. Hillary, Obama or McCain? I think a lot of voters in a general election will think McCain is a pretty good choice. He certainly is the only candidate of unblemished integrity.

The Clintons Take a Page Out of the Nixon Playbook

2008-03-19T15:40:00.000-07:00

All disingenuous protests to the contrary, the Clinton's have taken every chance to label Barack Obama as the "black candidate". They don't care if they alienate the black community during the Democratic primary because they believe that if they win the nomination, they will still receive the black vote in the general elections.

Bill Clinton shamelessly tried to whip up a white voter backlash by drawing parallels between Barack Obama and Jesse Jackson in South Carolina. This week, in his best Nixonian style, Bill Clinton strongly stated that he did not make an issue of Senator Obama's black heritage during the South Carolina primary. This is exactly the same as Richard Nixon in 1960 when he emphatically stated that he would not make an issue on John F. Kennedy's Catholic religion. Of course by making that statement he was making sure that Kennedy wore the Catholic label.

Does anyone really think that Geraldine Ferraro's statement that Obama is only where he is because he is black was not orchestrated by the Clinton campaign? Ms. Ferraro is too savvy and experienced a political operative to do this by accident. She took one for the team, while allowing the Clintons plausible deniability.

Senator Obama's Big Speech

2008-03-17T18:45:00.000-07:00

Barack Obama is making a major speech tomorrow to address religion and his long association with Reverend Wright. Polls show that only 8% of Americans are not turned off by Reverend Wright’s statements. Senator Obama has lost 5 percentage points in popularity in 3 days. Perhaps the clearest indication that this is a problem for Obama – the Clinton’s haven’t touched it with a ten foot pole. They are waiting to see how much damage there is and if they even need to do anything.

There are two issues for the Senator. First, the issue is one of judgment. He says that he has the judgment to be President, to be Commander in Chief. But he maintained a close association with a radical America hater for 20 years. Either he did not think it was a big deal or he really bought into the hate and the culture of victimization of the black community. His wife’s comment about never being proud of her country hints at the latter. Second, his response to the controversy has not been candid. His statements that he did not know about any of this is disingenuous to say the least.

There is absolutely no way Obama did not know about his pastor’s views and actions (such as traveling with Farrakhan to visit Gaddafi in Libya). Now he says that he does not agree with his pastor but only after the Reverend’s views came to light in the media. This is combined with the revelation from Obama the other day that campaign contributions raised by Rezko were actually almost double what he had previously admitted to, and his relationship to Rezko was much deeper that previously admitted to. Again an issue of candor.

It is interesting that the only time I’ve seen Obama look uncomfortable in a debate is when he was asked if he would disavow the endorsement of Louis Farrakhan. Obama hemmed and hawed and looked very reluctant to take a position. I think this issue surfacing has caused a lot of people to realize that we don’t really know very much about Barack Obama. His legislative record in the senate is scant. His speeches on the campaign trail lack specifics.

Mainstream media coverage has been predictable. On Friday, the day after the sermons aired on Fox News, neither NBC or CBS covered the story. ABC had 20 seconds. The New York Times had a well written, and I think fair article, but it was buried. In contrast, the NYT’s led with a major front page story on McCain’s association with a lobbyist. Although the story was light on facts and heavy on innuendo, the point of the story was one of association and judgment. Isn’t this controversy involving Senator Obama one of association and judgment?

This is awkward for the Democratic Party because many in the left wing of the party largely share the anti-American views – that America is the source and cause of all that is bad and evil in the world. Democrats like Senator Durbin who last year compared the United States to Stalin’s USSR, Pol Pot’s Cambodia, and Hitler’s Germany.

Observing the dialoge on Reverend Wright, racism and oppression of the black community seem to be defining themes in some parts of black culture. How else can you explain that some blacks, including Reverend Wright, believe that the U.S. government invented the HIV virus to infect and kill people of color? How else can you explain that some believe that the U.S. government imports drugs, sells them to blacks to “hook them” and then have a reason to put them in prison? How else can you equate the U.S. bombing of Hiroshima and Nagasaki to 9/11? These bombings ended a war against a Japanese people that were fanatically prepared to die rather than surrender? It saved by most estimates several hundred thousand American lives in a war that was launched by the Japanese with a sneak attack on Pearl Harbor.

I don’t believe that Barack Obama believes the statements made by Reverend Wright, although it seems Michelle Obama does to some extent. But that does not excuse the Senator in terms of judgment and association. In his speech tomorrow I think Barack Obama would be well served to do a full mea culpa. He needs to say that he was aware of Reverend Wright’s beliefs and statements and that he should have rejected them a long time ago. If he continues to parse this so finely (he very carefully said that he was not in the pew when the statements on the tapes were made, not that he was unaware of the statements or beliefs) he risks looking just like another smarmy politician trying to spin a damaging issue.

We don’t really know Obama. Unfortunately we know the Clinton’s only too well. We know that they are pathological in their pursuit of power and will say or do just about anything to achieve their goal. But is the same true for Obama, but with a more polished and erudite style?

Quote of the Day

2008-01-17T16:56:00.000-08:00

Bernie Schaeffer, of Schaeffer Research, had the quote of the day commenting on Chairman Bernake's performance before the House Budget Committee:

"If he could bring himself up to the level of useless, it would be a vast improvement."

Another Confused Democrat - Poor Representative Kaptur

2008-01-17T11:05:00.000-08:00

Marcy Kaptur, (D) Ohio, provided the one amusing moment during Chairman Bernake's testimony to the House Budget Committee today. One of her many questions related to the culpability of Wall Street investment firms in creating the housing credit mess. She said that since Chairman Bernake's previous job was as the former CEO of Goldman Sachs she would appreciate his views.

Aides and Chairman Bernake were quick to point out that the former CEO of Goldman Sachs was Treasury Secretary, Hank Paulson. Representative Kaptur looked confused for a moment and then said something to effect of "Oh, you're the other one". I'm pretty sure she has absolutely no idea who Ben Bernake is or what his responsibility is.

Chairman Bernake wryly said that his former job was "CEO of the Princeton Economic Department". Marcy Kaptur may have a bright future one day as Democratic Speaker of the House.

Viva Las Vegas

2008-01-17T11:00:00.000-08:00

Last March the Democratic Party of Nevada set the schedule and rules for this weekend's Nevada Democratic caucus. In an effort to enable more individuals to vote, the Party set up special "at large" precincts that would allow casino workers to vote at a number of major casinos.

Six individuals and the Nevada teacher's union have filed suit to block voters working on "the strip" from voting in the special at large precincts. They argue that the way the Party defined the at large precincts and how the delegates will be allocated, the at large precincts will have a disproportionately large say in delegates to the state convention. I won't take you through all the math. Here is a link to the lawsuit.

http://graphics.nytimes.com/packages/pdf/politics/20080112_nevada_lawsuit.pdf

If what is described in the lawsuit is correct, then it certainly does seem unfair. But the timing of the lawsuit is curious. It was filed just 2 days after the Nevada Culinary Union chose to endorse Barack Obama. This is the largest block of voter in the state that belong to a unified group. And yes, most of them work in and around the casinos on the strip.

These new rules have been in place since last March. Did someone really just figure out that the rules were screwy? It certainly seems like the at large precincts were OK when it would benefit the candidate supported by the Democratic Party machine - Hillary Clinton. Now, suddenly, there is a race to block it before it can benefit Senator Obama.

A local television reporter asked Bill Clinton about the lawsuit and its curious timing. Bill Clinton bullied the reporter, and in his best "I did not have sex with that woman, Ms. Lewinsky" tone, angrily denied that he had anything to do with the lawsuit. But then he proceeded to articulate the points in the lawsuit and defend the suit as valid and important.

The Democratic Party is going to enforce an ID check at these at large precincts to make sure that only people that work within 2 1/2 miles of the strip will vote in these special precincts. This is only days after liberals, with the passionate support of the Democratic Party, argued before the U.S. Supreme Court that voter ID laws would disenfranchise voters and was fundamentally un-American. The honor system is OK for elections but not for the Democratic primaries? That's rich.

Postscript: since publishing this entry the court has ruled ruled against the lawsuit. The casino "at large" precincts will go on as the Democratic Party originally specified.

Larry, Moe & Curly - Which One is Chairman Bernake?

2008-01-15T16:23:00.000-08:00

Ben Stein wrote an excellent article in this Sunday's New York Times. He compares the Federal Reserve to the 3 Stooges. They just don't get it and keep hitting the wrong person in the head.

http://www.nytimes.com/2008/01/13/business/13every.html?_r=1&scp=1&sq=ben+stein&oref=slogin

Mr. Stein argues that the Federal Reserve has been reluctant to cut rates deeply and quickly enough due to worries about oil-fueled inflation. But he correctly points out that none of the reasons that oil, and as a corollary, food prices due to the ethanol boondoggle, are in the control of the Federal Reserve.

They cannot affect these elements of inflation. But they can provide the credit the economy needs to reaccelerate. The Fed can do more to convince the banking system that they "have their back" so the banks can lend with confidence.

From Bad to Worse

2008-01-15T14:24:00.000-08:00

The market free fall continues. This morning the retail numbers were terrible. Citigroup's results and announcements accelerated the decline. Citi had an opportunity to throw in the kitchen sink this morning but it does not appear to have done so. Citi announced an additional $18B in write-downs and slashed the dividend by 41%. Citi also stated that it would have a reduction in force of 4,500.

None of these moves was sufficient. Citi had an opportunity to really be aggressive and it seems that they were not. The Street believes that more write-downs are likely. When a new CEO comes in it is a chance to make a clean sweep, however ugly, and then beginning to build his own legacy. The Street thinks that the layoffs should have gone deeper and that the dividend cut should have been more aggressive.

Two themes appear to be in play. First, the failure to throw in the kitchen sink may be a function of promoting from within. I had previously written that it was a mistake to promote a new CEO from within. This limits the transformational power of the new CEO. I also suspect that the dividend not being reduced further may have been due to a negotiation with Citi's Middle East major investor - an investor that can not be too happy these days.

After the bell tonight Intel announced earnings that did not meet analyst expectations. The stock, which was already down substantially, took a 16% hit. That is when you know things are bad. When a slight miss by a bellweather makes a move down like that it means that the bottom is not here yet.

Will the Fed make an aggressive move before their scheduled meeting on the 30th? It would be interesting if the Fed cut rates by 50 basis points on Friday morning, blowing the shorts out of the water on January options expiration.

The Clintons Hit Obama Hard

2008-01-15T11:45:00.000-08:00

I find it quite amusing that all of the sudden the Democrats and their mainstream media find themselves in the very uncomfortable position of arguing about race. And the Clintons are gearing up for a bare knuckles brawl to take down Obama.

Hillary Clinton sat placidly by while her surrogate, Bob Johnson, founder and owner of BET Entertainment, drove the attack. Mr. Johnson made thinly veiled references to Barack Obama's youthful drug use. Then he dropped the hammer and suggested that Senator Obama was acting like Sidney Poitier, a clear insinuation that Obama is not "black enough".

It was not unlike when Hillary stood by smiling while the wife of Yasser Arafat spewed the most vile anti-Israel venom. Hillary's explanation that time was that was that she does not understand Arabic and so she did not realize what was being said. I don't think that explanation will work with Bob Johnson's comments. He made them in English, which I believe Hillary understands.

Now the Clinton and Obama camps have declared a truce - for now. Truce or no, it certainly makes for an entertaining spectator sport. The mainstream media may be giving Obama a pass but the Clintons clearly are not. Senator Obama makes the Democratic machine uncomfortable. He is a young, successful, black politician that is not beholden to the Democratic machine like other black Democratic leaders such as Charlie Rangel and John Lewis who owe their careers and power to the party.

Is the Risk of Recession Overblown?

2008-01-14T18:49:00.000-08:00

The economy has slowed down. Are we headed for a soft landing or are we going to have a recession? On one front there is no question that the financial sector and the housing sector have fallen on hard times. While the core banking system is going to be fine (albeit with substantial write-offs) the extended financial sector that was exuberantly fueled by Greenspan's flood of liquidity and credit has been devastated. The housing sector clearly got ahead of itself and will take years to fully recover.

However, I find it highly unlikely that housing prices are going to experience a net decrease in value across our country of up to 30% like some are calling for. In cities like Atlanta, where I live, the valuations were never wildly inflated and should not experience the correction that will be occur in frothier markets like Florida.

Valuations for the financial sector have come down about 50% from the peak. This is about where the bottom occurred in the financial sector meltdown in 1990. There are signs that a bottom is forming.

Citigroup is expected to dramatically slash its dividend tomorrow. This is actually a positive sign that the new CEO is taking the right actions to shore up the firm and I will be surprised if the stock takes a major hit tomorrow as a result of this decision. Bank of America (BAC) buying out the remainder of Countrywide will ultimately propel BAC to further dominate retail banking in the United States.

The classic definition of a recession is negative GDP growth for two consecutive quarters. By this definition we are nowhere close to a recession. GDP numbers for the previous two quarters were very impressive. Excluding the financial sector corporate profits will be up substantially in the forth quarter. There is no question that there has be a slowdown and that the GDP numbers for the next two quarters will be much less robust. But the Federal Reserve is currently not predicting a recession, just a slowdown.

In addition to the "classic" definition there are four more detailed indicators that are monitored to determine whether we are in a recession.

Industrial Production: industrial production has declined from the peak, after steady gains for a long time.
Employment: payroll numbers continue to be strong, but household survey numbers show a decline of 1M jobs. Last Friday jobs reports was decidedly soft. But I expect that number to be revised upwards. There has been positive job creation for 52 straight months, an unprecedented record.
Personal Incomes: personal income continues to exhibit strong growth. Real wages (net of inflation) continue to grow at an impressive 2%.
Manufacturing & Trade: manufacturing and trade continues to be quite strong.

The bottom line is that two out of the four indicators are showing weakness while the other two continue to exhibit strength. In particular, the employment number bears close monitoring. While jobs and income are strong, a recession will be much less likely.

Disclosure: at the time of this posting the author was long BAC.

Debunking the Liberal Argument Against Voter ID's

2008-01-13T17:20:00.000-08:00

A number of states have enacted laws requiring a government issued ID to vote. Indiana's voter identification law is now being argued before the Supreme Court. Cynthia Tucker, head of the editorial board for the Atlanta Journal-Constitution ("AJC"), made the liberal argument against voter ID laws in today's AJC. Since most liberal positions don't stand up to facts or logic let's take a look at her statements and arguments and see if they hold up.

AJC - If the U.S. Supreme Court upholds Indiana's harsh voter ID law, as it seems poised to do, hundreds of thousands of [minorities] should march in protest...should convene the biggest political demonstration since the historic March on Washington in 1963.

This must mean that this is the most important issue that has faced American minorities since the systemic and institutional discrimination that plagued our country for generations. While much progress has been made, I find it hard to believe that with all the challenges still faced by minorities that the Supreme Court's decision on voter ID laws should trigger the largest political protest in 45 years. But let's look at the key points of her argument and see if it is so.

AJC - "There has never — never — been a single documented case of "voter impersonation" at the ballot box..."

John Fund, author of the book "Stealing Elections: How Voter Fraud Threatens Our Democracy", points out a number of examples that contradict Cynthia Tucker's assertion. In the 1980's the District Attorney of Brooklyn detailed a massive, 14 year conspiracy that recruited people to place votes as fraudulently registered voters, dead voters, or voters that had moved.

Mr. Fund also documents that in the hotly contested Washington state governor's race that was decided by 129 votes ineligible felons voted and votes were cast in the name of people that were dead but were still on the voter rolls. In Milwaukee, Wisconsin, in a very close 2004 presidential vote more than 200 felons illegally voted and 100 people voted twice. A New York Daily News investigation found that between 400 and 1,000 people in New York and Florida voted twice in recent elections. In Florida, where the disputed 2000 presidential election was decided by 547 votes, there are still 65,000 dead people listed on the voter rolls - no opportunity for voter fraud there!

In addition, it is widely acknowledged today by presidential scholars and historians that John F. Kennedy would not have won the presidency if it had not been for massive voter fraud in Chicago (compliments of Mayor Daley) and in Texas (home state of Vice Presidential candidate Lyndon Johnson). Richard Nixon had a legitimate case to challenge the election. But in those less litigious times he decided that it would undermine the country to do so.

AJC - "...absentee ballots [are] where most voter fraud occurs. But because absentee voters tend to vote Republican, many GOP-dominated legislatures have made absentee balloting rules less stringent..."

Most of the people that need to use the absentee process are business people that travel extensively and the military. It is true that both successful people in business and the defenders of our country vote for Republicans over Democrats. There have been problems documented regarding absentee ballets, and I have no problem with increasing the stringency of the absentee process. An oft-cited example of absentee voter fraud is the 2003 East Chicago, Indiana case. Unfortunately for Cynthia Tucker and the left, this was a Democratic primary and the fraud was perpetrated by Democrats, not the GOP.

AJC - "[Mary Jo Criswell's] ballot was thrown out when she showed up at her Indiana polling place expecting to use the same forms of ID, including a bank card with a photo, that she had used in the past. She has epilepsy, she says, so she has never had a driver's license."

In fact no one, including Mary Jo Criswell, had their ballots thrown out. The 34 people that did not have the proper ID were allowed to cast provisional ballots. They had the option of returning within 10 days to provide the proper identification. In a very close election additional steps could be taken to validate these provisional ballots. No one was disenfranchised. In both Indiana and states such as Georgia a free government ID will be provided if an individual does not have a driver's license or other acceptable identification.

AJC - "With so many elections decided by a margin of a few hundred votes, Republicans figure they can stay in power by blocking just a few Democratic ballots."

An honor system only works if all involved have honor. The political history of our country offers plenty of cautionary tales why the most important constitutional duty we have a citizens, to vote, is best not left to an honor system. In 2005 a bipartisan commission led by James Baker and President Jimmy Carter recommended voter ID laws more stringent than Indiana's. The commission correctly pointed out that more than 100 democracies around the world have voter ID laws without disenfranchising anyone.

The lady who cuts my hair has to have a state license to legally do so. A driver's license is required to drive a car. A government issued ID is required in today's dangerous world to enter a federal building or to cash a check. Are any of these examples more important than making sure that we take all measures to ensure that we protect the most fundamental foundation of our Republic: one person, one vote?

In fact the reason the liberals object to voter ID laws is because most voter fraud is perpetrated to the benefit of Democrats. As one example a major election cycle never goes by without voter registration shenanigans by Acorn, a liberal activist group. The GOP has just never been as good at the type of bare knuckles, win at all costs, the end justifies the means tactics that the Democrats excel in. Just "Google" voter fraud and see what comes up.

Clowns to the Left of Me, Jokers to the Right

2008-01-12T12:26:00.000-08:00

With apologies to Bob Dylan, I am struck by the lyrics of his song, Stuck In the Middle with You, when evaluating our politicians' and Federal Reserve's responses to our current economic predicament. An excerpt of the lyrics includes:

Clowns to the left of me!
Jokers to the right!
Here I am stuck in the middle with you.

Yes I'm stuck in the middle with you,
and I'm wondering what it is I should do.
Its so hard to keep this smile from my face.
Losing control yeah I'm all over the place.

Clowns to the left of me!
Jokers to the right!
Here I am stuck in the middle with you.

On the left, Hillary Clinton has proposed a $70B self-described stimulus package. I say "self-described" because is a proposal that has no stimulus and in fact may have the opposite effect. It includes $30B of money for people in danger of foreclosure, $20B to pay for people's heating bills, and $10B for additional unemployment benefits. These may or may not be good things things to do, but there is nothing stimulative about them. When you take money away from people that are productive and from people who have the ability to create jobs, and give it to people that are not productive and do not create jobs, it is the opposite of stimulative. The non-producers are enabled and the producers are disincented.

I expect these types of policy oxymorons from the left. But what is even more frustrating is that President Bush and other Republicans are talking up some of the same type of demand side Keynesian nonsense. President Bush is discussing a tax "pre-bate" which would give money to to middle and lower income families. None of this is stimulative. It is just the government writing checks to redistribute income.

Let's extend the liberal demand side argument to its ultimate conclusion. What would happen if the government took all the money from the entrepreneurs, investors, capital creators, and producers and gave it to everyone else? Well, then there would be no economy. Stimulus incentivizes capital creation, investments, risk-taking and therefore productivity and job creation.

For starters the Federal Reserve needs to quit treating this an academic exercise and aggressively cut the target federal funds rate. Continuing to insist on a target rate that is inverted to the T-Bill rates is nuts. This effectively imposes a tax on member banks. The bond market is telling the Fed the correct target rate.

In contrast to Hillary's non-stimulus stimulus proposal the government can quickly add true stimulus to the economy. One simple way is to allow companies to temporarily accelerate depreciation. This will increase the velocity of new investments and will stimulate the economy. On a longer term structural basis the Congress needs to cut the corporate income tax rate so that the United States is more competitive with the rest of the world. This could also be done quickly and would be hugely stimulative to the economy.

Incentives matter. Risk taking and entrepreneurship matters. The continuing worldwide economic boom is a direct result of countries throughout the world adopting capitalist and supply side principles. Almost all of Eastern Europe has now adopted a flat tax. Growth in India, China and Eastern Europe is exploding as a result of these reforms. Meanwhile both the clowns to the left and the jokers to the right drift toward a Keynesian demand side funk that ignores incentives and will not stimulate the economy.

Which Candidates Are Still Viable?

2008-01-09T16:16:00.000-08:00

First, time for some eliminations in the current Presidential campaign. For the Democrats, Chris Dodd and Joe Bidden have dropped out. Neither ever had a chance and would have served the American people better by actually getting something done in the Senate where they are both committee chairmen. Bill Richardson continues to hang on but he is running more for Vice President than President. Dennis Kucinich is just there for comic relief.

For the Republicans, Ron Paul is entertaining, but not a serious candidate. I did enjoy his rant at Chairman Ben Bernake the last time the Chairman testified before Congress. Is Duncan Hunter still in the race? Who knows. Fred Thompson is the only true conservative in the GOP race but is not mounting a serious campaign. His wife seems more inspiring then Fred.

I'm sure I've forgotten some candidates. But if I have, then they are not relevant anyway. Who remains? The survivors are Hillary Clinton, Barack Obama John Edwards for the Democrats and Mike Huckabee, Mitt Romney, John McCain and Rudy Giuliani for the Republicans.

I will be very surprised if John Edwards increases his position from distant third. His angry populist rhetoric will be drowned out by Obama's polished populist rhetoric and the Clinton political machine.

Barack Obama almost beat Hillary Clinton in New Hampshire, a state where the demographics are almost all white. As the campaign moves into states where there is a higher percentage of black voters, like South Carolina (one third of Democratic voters are black), he could post very strong results. Barack won the younger vote in New Hampshire by a factor of 3 to 1. Barack's positions are very, very liberal. But he is rarely challenged by the press. NBC's correspondent assigned to cover him was caught on video saying he was so caught up in Obama that he could not be objective. The media is giving Obama a pass. I'll be surprised if the Clinton machine doesn't put a full court press on getting negative stories run in the press.

Hillary Clinton's campaign continues to waver between the professional machine we've come to expect from the Clinton's and surprisingly stupid gaffs. The latest inexplicable stumble was in a recent New Hampshire rally. The rally was held in an auditorium with an overflow room set up nearby. The rally was not particularly well attended and there was plenty of room in the auditorium. But the Clinton campaign split the attendees, put a bunch in the overflow room, making them very disappointed and angry not to be able to see Hillary Clinton live. I guess the Clinton campaign wanted the press to report that they had to use the overflow room. Very silly.

But Hillary Clinton being able to take down her guard and be human certainly helped her with her female base. She will continue to be a formidable candidate with the biggest "machine" and a strong national ground game. In fact, I believe that the Clinton's ability to execute a superior ground game was the difference in Hillary Clinton besting Obama in New Hampshire when the polls predicted an Obama landslide.

Rudy Giuliani got off to a fast start but has faded. He has not done well in either Iowa or New Hampshire. He has much stronger positions in later state primaries, but I wonder how many losses he can absorb and still execute a "late state" strategy. Mike Huckabee dominated Iowa but was a distant third in New Hampshire. I believe the Mike Huckabee will struggle to establish himself as a national candidate. He is an excellent debater and extemporaneous speaker. But his record in Arkansas will ultimately be his downfall. He doesn't have a machine but Christian groups and homeschoolers have self-organized to Huckabee's benefit. I suppose if Jimmy Carter could do it maybe Governor Huckabee can too.

John McCain is the tortoise to Rudy's hare. His steady, straight-talking style has won over a lot of voters. His position that we must win in Iraq hurt him early but is looking prescient now. He has cleaned up some of his positions that were hurting him with the GOP base. He came across in New Hampshire as the "grown up" in a field of kids.

Mitt Romney is the manufactured candidate for the GOP, much as Hillary Clinton is the same for the Democrats. But he is smart, articulate and brings the joint credentials of success in business and in government. Governor Romney's positions are right in the sweet spot of the GOP base, but there are doubts about the strength of his convictions. Hillary Clinton has no convictions or policy principles - only the ambition to win at any cost.

As an aside, Mitt Romney has the best web site by far. It is well designed. It is easy to review the candidate's positions. It is easy to see what Governor Romney has said about critical subjects. Hillary Clinton's web site is a close second, but does not do as good a job at making her positions and policies crystal clear. John McCain's web site is uninspiring. Barack Obama's site overwhelms you with the sheer number of policy proposals. It is almost like Obama got together with MoveOn.org and brainstormed as many liberal items as they could come up with. In a word, it is less focused. John Edwards' site is long-winded, just like the candidate.

Unfortunately, I do not believe that Nicolas Sarcozy is eligible to run for President of the United States.

Postscript: as I wrote this blog entry, Bill Richardson dropped out of the race.

What Does Barack Obama Really Stand For?

2008-01-09T10:52:00.001-08:00

Barack Obama is an engaging and charismatic candidate for President and is without question one of the best public speakers in a generation. Some wonder if Senator Barack has the government and life experiences to truly be President of the United States. Even John F. Kennedy served full terms in both the House of Representatives and the Senate before becoming President.

But all that aside, what does Barack Obama really believe in? What are his answers for the challenges facing America? It is difficult to draw any conclusions from Senator Obama's stump speeches on the campaign trail. They are full of populist platitudes but short on specifics. Barack Obama does certainly get the award for using the word "change" the most.

There was a day when candidates for president put out thick books on their proposed policies. Today that has been replaced with the Internet, but often with less specifics. Nevertheless, I have taken the time to review Senator Obama's web site (http://www.barackobama.com/) to see what can be gleaned. Unfortunately the details on how exactly certain policies would be enacted is absent. But some conclusions can be made. There are too many topics to cover but a sample.

There is one part of the Obama campaign I find particularly amusing. A central theme of his stump speeches is that he will bring a new era of non-partisanship to Washington, D.C. But the policies advocated on his web site are highly partisan with a strong focus on populism and class warfare.

The "Issues" section of the web site is organized into a number of topics such as "Economy", "Fiscal", "Education", etc. Each of these topics has "The Problem" followed by "Barack Obama's Plan". The following are some highlights of Senator Obama's platform.

"Economy" is always a good place to start in understanding a candidate. The problem section states that wages are stagnant and that the Bush tax cuts favored the wealthy at the expense of the middle class. Neither of these statements are true. Real wages are increasing at a strong rate - much faster than inflation. Jobs have been created every month for 52 months - an unprecedented record. The Bush tax cuts benefited all Americans, wealthy and middle class.

Barack Obama's plan for the economy is to raise taxes on the wealthy and provide a tax cut to the middle class. When you raise taxes on one group and cut taxes for another group, that is not tax relief, it is a government mandated transfer of wealth.

There are another 35 proposals in the "Economy" section, almost all of which are on the far left side of the Democratic Party and either impose increased regulation and centralized government control of industries or are government mandated transfers of wealth. For example, regarding trade, Senator Obama advocates "fair trade" rather than "free trade". Of course this is liberal code for opposing free trade agreements - something almost every economist will tell you is a dumb idea.

Regarding labor, Senator Obama proudly highlights his co-sponsorship of the "Employee Free Choice Act". This is the bill that would eliminate the secret ballot for union organizing and replace it with signing a union card, or not, in front of the union boss and his goons. The secret ballot is a fundamental pillar of our democracy. What do you think is truly the best way to determine whether someone wants to join a union or not - secret ballot or not? The Democrats are pushing for this because unions, who are strong supporters of the Democrat Party, have lost much of their relevancy, and membership. Eliminating the secret ballot gives unions the upper hand to strong-arm prospective members to voting to organize.

Regarding housing, Senator Obama proposes allowing bankruptcy courts to unilaterally alter mortgage payment terms for borrowers. As I have previously stated, allowing the government to bust legal contracts between private parties is a frightening position. Barack Obama further advocates a whole series of proposals to punish so-called predatory lending practices. Again, per my previous posts, these "predators" were so clever that they loaned money to people with no money down who could not pay them back. Now the predators are going out of business and the borrowers are simply walking away from what was essentially a "rental".

Regarding health care, Barack Obama would imposed price controls on health insurance companies. His web site states the following:

"Barack Obama will prevent companies from abusing their monopoly power through unjustified price increases. His plan will force insurers to pay out a reasonable share of their premiums for patient care instead of keeping exorbitant amounts for profits and administration."

One of the largest insurers is United Healthcare (UNH). UNH has a profit margin of 6.16%. Cigna (CI) has a profit margin of 6.21%. Not exactly what I would call exorbitant profits. Scale in the health care industry lowers administrative costs. General Electric has a profit margin of 12.71%. Microsoft has a profit margin of 27.51%. The Coca-Cola Company has a profit margin of 19.83%. Should the government confiscate the profits of these company's too? If the health insurers are making exorbitant profits what about everyone else?

As President, according to his web site, Barack Obama would advocate the creation of dozens of new government entitlements. The proposals listed under the "Work/Family Balance" section offers some insight. Two thirds of these proposals create new entitlements or expand existing entitlements. All cost money.

Regarding foreign policy, Barack Obama would immediately begin removing troops from Iraq and would withdraw all troops within 16 months. Senator Obama does not acknowledge the success of the "surge" or the remarkable progress now being made in Iraq.

There are hundreds of proposals outlined in the "Issues" section of Barack Obama's web site. Most involve one of the following:

Imposing increased government control over the economy or society.

Transferring wealth between classes.

Increase government intervention and spending.

Create new government entitlements.

Barack Obama's self-described Presidency would be one of high taxes, anti-economic growth, increased spending and class warfare. He may be glib, he may promote "change", but his policies would hurt our country and our economy and move us further in the direction of socialism.

Disclosure: at the time of this posting the author was long UNH and MSFT.

The Rise of Populism

2008-01-09T10:13:00.000-08:00

No Presidential race in many, many years has seen the explosion in populist rhetoric and candidates than this one. Nor is this rush to populism confined to its usual party, the Democrats. In fact, many of Republican Mike Huckabee's positions, and clearly his record as Governor of Arkansas, are decidedly populist and liberal.

Populist positions most often target economic and business issues. The best case for the economy at this moment is that we are in a mid-cycle slowdown that will re-accelerate at some point. The worst case is that we will have a recession. Some are arguing that we are already in one.

When the economy is balanced on the edge of a knife is when populist policies are most dangerous. That is because economic populism further damages the economy in exchange for protecting a relatively small number of people. But when people are faced with economic uncertainty, the rhetoric of populism is at its most alluring. But while the rhetoric appeals to fear the policies are devastating.

Populist policies call for the restriction of free trade, government imposed price and wage controls, increased regulation on business, and retaliatory trade practices against our trading partners. The facts are rarely on the side of the populists. In fact, these policies either slow the economy further, and make recovery much slower, or in fact accomplish exactly the opposite of what they are meant to achieve.

The most virulent populist on the campaign trail is John Edwards. Barak Obama is close behind him. Hillary Clinton's obsession with seizing government control of the health care industry is well known. Mike Huckabee is a Republican Jimmy Carter - a folksy populist governor with a strong religious belief system from a southern state.

It has been 31 years since Jimmy Carter was inaugurated, and passed on to Ronald Reagan an economy that was in shambles and a military that was gutted. Hopefully next January will not be the inauguration of the next Jimmy Carter.

The United Nations Wants A Raise

2007-12-17T18:02:00.000-08:00

The Wall Street Journal reported today that the UN's Secretary General, Ban Ki-moon's final budget request totals 25% more than last year. Wow, that is quite a spending increase. Of course there are many needs around the world such as providing relief to Darfur.

Unfortunately 75% of the increases are for salaries to expand the UN's bureaucracy, and not to helping the world's people. This would constitute the single largest funding increase in the UN's history. And the UN has still not implemented all of the reforms specified by Paul Volcker's report after the corruption of the oil for food scandal.

For an organization that accomplishes so little, that is rich.

I'm Shocked, Shocked that the Mortgage Industry is Imploding!

2007-12-16T15:19:00.000-08:00

The liberals want to unilaterally bust selected mortagage contracts and freeze the teaser rates for 5 to 7 years. Leading Democrats are berating the loan company "predators". Republicans are trying to get the mortgage industry to "voluntarily" take similar actions. Homeowners, and I use the term loosely, who got into houses without documentation and without equity, are walking away from those houses. They were renters 12-18 months ago and they will be renters again.

So as defaults rise, many are asking, "How did this happen?" The only explanation that those on the left will offer is that predatory lenders tricked borrowers with poor credit to sign up for home loans that they could not afford to pay back. What other explanation could there be?

Well, let's see. The development and culmination of the sub-prime mess was pretty easy to see coming for those close to the industry:

Interest rates were so low for so long that anyone with decent credit who wanted to buy a home or refinance their home did.
Historically low interest rates fueled a boom in real estate investment.
Both #1 and #2 drove a higher than normal volume of mortgages. This higher volume provided substantial business to the traditional bank lenders. But is also spurred the growth of non-bank lenders who needed a greater and greater volume of loans to grow, or even maintain at a zero growth rate, their businesses.
As interest rates began to creep up once again the only way to sustain this expanded mortgage industry was to find a source of new loans. Loans originating from real estate investors slowed. As described in #1, the surge in loans from refinancing, or getting into a home via a prime loan, was over. The only source of new loans left were subprime.
These loans were packaged up and sold to greedy investors who were blinded by the yields without ever really understanding what they were buying in some of the lower rated tranches.

So it was not predatory practices that drove the sub-prime industry. It was desperation. Desperation to sustain an industry that was overextended. Most of the higher than usual defaults and foreclosures are from loans that were made in late 2005 and 2006. During this time, desparate to originate loans at any cost, many lenders offered deals that could never turn out well. In doing so, they sowed the seeds of their own destruction.

Many of the people who are now saying they don't know how this could have happened remind me of Captain Renault, the character played by Claude Rains in Casablanca. Captain Renault disenginuously declares, "I a shocked, shocked that there is gambling going on here!" Then he pockets his winnings.

Of course everyone knew there was gambling at Rick's, just as it was obvious that the mortgage industry would impode. The year's best performing hedge funds saw it coming and made giant money shorting the industry.

Liberal Power by Invoking Victimization

2007-12-16T13:07:00.000-08:00

By invoking victimization liberals justify government intervention and control of wealth, income and commerce. The most recent example is railing by the Democratic Party against "predatory" lending. Hillary Clinton has come out strongly for legislating a freeze on adjustable rate mortgages for 5 years - holding the interest rate at the low "teaser" rate. She has even hinted at a 7 year freeze.

What is the justification for the government of the U.S. illegally busting these contracts? The Democrats claim the borrowers are victims of unscrupulous lenders whose predatory business practices took advantage of sub-prime borrowers. Clinton states that people were, "lured into risky mortgages" and "led into bad situations".

This "predator" business model intrigues me. Apparently the argument goes that these sub-prime lenders loaned money to people who they knew could not pay it back. That means that the lenders made loans understanding that they were going to lose a lot of money when the borrower defaulted on the loan. That is some business model. Who took advantage of who?

Many of the sub-prime borrowers took advantage of all sorts of crazy offers which in many cases allowed them to get into a house without putting up any money. It makes perfect economic sense for them to walk away. They were renters before and now they are renters again. In his latest column George Will argues that in the case of no money down, interest only loans, the "borrowers" were really just renting anyway.

The interest rate freeze would be available for some borrowers but not others. If you can't afford the new adjusted rate then I guess the government would bust the mortgage holder's contract and maintain the lower teaser rate. If you lied about your income as part of a no documentation loan, and now cannot afford it you get a break so you don't have to go back to renting. But if your were honest about your income, and you've been able to stay current on your payments, then it is likely you will not get relief. You will have to pay the higher rate. How is this fair?

So who is the victim? The "predatory" lenders are losing huge sums of money and in many cases are going out of business. Large number of employees have lost their jobs. The homebuilders have excess inventory and are taking huge write downs. The holders of collateralized loan obligations are getting pennies on the dollar to unload their holdings, or are taking the obligations onto their balance sheets, damaging the capital structure of the firms. If you are a holder of a mortgage obligation and are legally entitled to a defined payment stream, the government's intervention to freeze teaser rates will deprive the holder of that payment stream. How is this fair?

In fact the only people who are not victims are the people that are walking away from the homes they lived in for a short time. But the Democrats, and even some Republicans, want to define these irresponsible borrowers as victims to justify the government expanding a central planning model of commerce. Never underestimate the Democrats' desire to create a new entitlement. Unfortunately, this newly proposed mortgage rate entitlement will only be available to those who acted irresponsibly.

Hillary's Kindergarten Caper

2007-12-16T08:55:00.000-08:00

Hillary Clinton's presidential campaign continues to careen wildly between professionalism and amateurism. She has the biggest political "machine". If she knows the question in advance, she can deliver a well-coached and well-rehearsed answer that you can time an egg with. Her campaign has raised an extraordinary amount of money.

But then comes the stunningly amateurish attack on Barak Obama's presidential ambitions. Barak has made statements that he has not had a long-term plan to be president. The Clinton campaign responded in a "gotcha" press release that referenced an "essay" Barak Obama had written in kindergarten about wanting to be president when he grew up. Wow, now that is really digging for dirt! Delving all the way back to when Barak was 5 years old to prove that Obama is a life-long schemer that is driven to capture the White House.

It sounds a lot more like Hillary is projecting her own view of destiny on Senator Obama. But even more, how silly does this make the Clinton Campaign look? Is Hillary's kindergarten caper and her attacks on Obama for his self-admitted experimentation with recreational drugs in his mis-spent youth really the worst "dirt" the Clinton's can dig up? I'd say Obama has nothing to worry about.

Iraq Progress Is Accelerating

2007-12-13T09:16:00.000-08:00

Steady progress continues to be made in Iraq. This is a problem for the Democrats who have to keep changing their story on why we are failing.

First we achieved a number of important benchmarks, including writing and ratifying a constitution and holding free elections. The Democrats argued that benchmarks were not meaningful and that the carnage on the ground showed we had no hope of success.

Recognizing that a political solution could not be achieved without a change in military strategy, President Bush re-made the team, now led by Defense Secretary Gates and General Petreaus.

General Petreaus engineered a radically different strategy to combating the insurgency. Previously the U.S. forces had been based in large, heavily fortified bases like the one near the Bagdahd airport. Bolstered by the additional brigades from the surge, General Petreaus sent the troops into the field, setting up local security stations in each neighborhood, manned by a joint Iraqi and U.S. team. Combined with Al Qaeda badly overplaying its hand this neighborhood security and policing strategy made all the difference.

Iraq is far from being a safe place. But the violence throughout the country has dropped farther and faster than anyone could have hoped. The Democrat's response? They now are insisting that achieving benchmarks is the most important measure of success. Sure, they say, the security situation has improved dramatically. But benchmarks that were set by Congress such as ratifying an oil revenue sharing plan have not been achieved.

But what the Democrats are ignoring is that in practice, if not in law, the spirit of the benchmarks is being achieved on the ground. The Iraqi legislature has not been able to finalize an oil revenue sharing agreement. But in fact, oil revenues are being distributed by the Maliki government to the provinces in a fair way. In many other ways the lack of legislatively achieving benchmarks is being offset by pragmatically achieving the same results on the ground.

In Southern Iraq, British troops have been able to completely hand over the administration and security of the region to the Iraqis. Rival Shiite factions that had been warring now have decided that it is better to cooperate and benefit from the riches of Iraq's most productive oil reserves.

In Northern Iraq, where sabotage to oil fields and pipelines has been rampant, oil production has steadily increased. Today's Wall Street Journal reported that oil production for Iraq as a whole now equals pre-war levels.

So first the Democrats were against benchmarks as a measure of success. Now they insist that only legislative benchmarks are a measure of success. And all along, they are blind to the practical progress that is happening every day at the grass root level.

Bank of America Is Taking Mortgage Market Share

2007-12-12T18:55:00.000-08:00

Now that many of the institutions outside of the traditional banking system have blown up who is going to be left to capture the lucrative mortgage market? I believe Bank of America is taking mortgage market share and will be able to use the disruption in the credit markets to benefit financially in the long run.

Bank of America has the geographic footprint and market scale to take advantage of the vacuum. They also have a strong deposit base which provides ample liquidity to make loans. With less competition they will have greater pricing power and can hold the line on mortgage loan fees.

Major disruptions and downturns can be a boon to the very best companies - they take market share while lessor companies go out of business. When the market improves the strong emerge even stronger. It may not be a smooth ride, but I believe that Bank of America will be a winner when the dust eventually settles.

Meanwhile, over at Citi, they have just promoted insiders to the CEO and Chairman jobs. This appears to be a board of directors affirmation that the current business model can be fixed. It cannot.

Citi needs to be taken apart and put back together again. Whole lines of business need to be divested. An outsider coming in could have wiped the slate clean in terms of taking all write downs possible. Promoting insiders just continues the pursuit of a business model that has already been proven not to work.

Disclosure: at the time of this posting the author was long BAC.

A Difficult Stock Market Continues - No Thanks to the Fed

2007-12-12T18:33:00.000-08:00

The stock market has remained highly volatile. Contributing to the instability this week is the Federal Reserve's bungling. First they cut rates by only 25 basis points, which means that the relationship of the Fed's target rate to the 10 year T-bill. This means that member banks are effectively being "taxed" a rate higher than the market rate. The banking system can not work if you can not borrow short and lend long. The inverted Federal Funds rate essentially assures that this frozen liquidity will not be unfrozen.

Second, they announced this coordinated plan with other central banks around the world to provide some additional liquidity into the global financial system. This is not going to hurt anything, but is not going to overcome the first problem.

The Federal Reserve must, at least temporarily, "float" the Federal Funds Rate to correct the rate inversion in the market. The Fed can not set a target rate that is disconnected to the market rates.

I'm not sure the Fed is able to see past academia to the practical reality of what is happening in the real world. This is dangerous. I hope they will come to their senses soon.

Defensive stocks and high growth big tech stocks will continue to be the safest bets while we wait.

Hillary's Class Warfare Hypocrisy

2007-12-12T18:06:00.000-08:00

Hillary Clinton just made a bold statement - that she opposes repealing the estate tax, aka "death tax" because it is un-American. Senator Clinton's rationale is that passing earned wealth goes against the principle of America being a meritocracy. The clear implication is that the government must confiscate this wealth to force each generation to start over in our merit-based society.

Let's be clear. Every penny of the money that remains in an estate when an individual dies, unless it resides in an a tax deferred retirement account (i.e., IRA, 401(k)), has been taxed at least once. Even though the money has already been taxed for income, capital gains, or dividends, when you die the money is taxed again at exorbitant rates. For money in an IRA or 401(k), it is taxed as income, and then taxed again at the much higher estate tax rates.

Now here is the hypocrisy part of this class warfare position. Where does the money go that is confiscated by the estate tax to promote a meritocracy? Hillary and the Democrats want to use it for income and wealth redistribution. In other words, the money is taken away from the people that earned it and given to people, through entitlements and other redistribution policies, and given to people that did not earn it.

How does this support a society based on merit? Of course it does not. It is simply disingenuous language to promote an increasingly aggressive redistribution of wealth.

Here is a question to ponder. Think about the proposals for domestic policies advocated by Hillary Clinton and all of the other Democratic presidential candidates. Is there a single policy proposal that does not involve income or wealth redistribution? Is there a single domestic policy view that instead of income redistribution creatively uses the power of the government to enable success without taking money from producers and giving it non-producers? If you can think of one, then it is the exception that proves the rule.

Bush Administration's Subprime Solution - Is it Legal? Is it Right?

2007-12-05T17:25:00.000-08:00

Secretary Paulson has been working on a number of fronts to address the credit mess triggered by excesses in the subprime market. My current concern is the plan to put a hold on foreclosures and to freeze subprime teaser rates - for as much as 5 years.

If the holders of a mortgage want to voluntarily work out new terms with the homeowner that is fine. I've seen some pundits that have argued that it is in the best fiduciary interest for the mortgage companies to "work out" a deal that will keep people in the homes rather than foreclose. If in fact it is in the best financial interest of the mortgage holder to make a new arrangement then I'm sure they will.

But I don't see how the government can mandate, or legislate, a freeze on interest rates. The government can not override a private legal contract between two independent parties. This would constitute an illegal seizure of property.

There is the added difficulty of how the many individuals risking foreclosure will be classified as being eligible or ineligible for the freeze on interest rates. The tort lawyers are licking their chops. Class action lawsuits are probably already being drawn up.

Individuals and mortgage companies entered into a contract. Loans were made to people that couldn't really afford a house and both the holders of the loans and the people living in the homes will be hurt. But the government muddling around trying to centrally orchestrate a "solution" will only make things worse. The "market" has the capacity to work this out without the government mounting a Katrinaesque "rescue" operation.

What is equally disappointing is the rhetoric from Hillary Clinton and others on the left that Wall Street is to blame for the mess and must be held accountable. In fact, the many securitizations that Wall Street firms packaged, provided large amounts of liquidity to the mortgage market, helping many people become homeowners who would not have been otherwise.

For years the Democrats railed against the mortgage industry about needing to be more aggressive in providing mortgages to lower income families. When they finally did the results speak for themselves.

Interestingly, housing prices recovering from the excesses of Greenspan liquidity, will make homes more affordable for a greater number of Americans.

Stock Market Bottom Continuing to Firm

2007-12-05T17:09:00.000-08:00

Last week was a strong up week. Monday and Tuesday this week were down but today was a very strong up day with good volume. The general "action" looked pretty good. The S&P 500 has closed in on major resistance of 1490, ending at 1485 today.

I continue to be optimistic on an improving market into year-end. The tech stocks have recovered and are performing very well. The financial stocks have improved but I think there will continue to be a lot of us and downs. I have added to my positions in the financials over the last week. One position I have increased is Bank of America. I believe that Bank of America will be a major beneficiary of the shift of mortgage origination and servicing now that all the non-bank players have been blown out of the water. Consumer staples are strong as many are looking for more defensive positions going into next year.

A major "tell" for the financial sector will be the brokerage and investment earnings, coming up in over the next several weeks.

A Case for Value in Freddie Mac

2007-12-02T20:13:00.000-08:00

http://www.kiplinger.com/columns/picks/archive/2007/pick1129.htm

Rich Pzena made a compelling case for Freddie Mac as a value play at last week's Value Investing Conference. Based on his Mr. Pzena's discussion, my own research, and my belief that a bottom is forming in the stock market, I took a position in Freddie Mac on Friday. I continue to be concerned with the lack of congressional reform of Freddie and Fannie but the upside potential after the correction is just too compelling. I also increased my position in Bank of America last week.

Disclosure: at the time of this posting the author was long FRE and BAC.

Activision - A Bit of Luck

2007-12-02T19:44:00.000-08:00

Activision is a company that has seen terrific growth year after year. The recent phenomenal success of Guitar Hero 3 has been a huge boost to the company. Activision just raised guidance for the quarter and the year based on its strong start to the holiday season.

Today it was announced that a majority stake is being purchased in Activision by Vivendi. A new company will be constituted that combines Activision with the gaming division of Vivendi, forming an $18.9B gaming colossus: Activision Blizzard. Vivendi will purchase Activision shares at a tender price of $27.50. Friday's close was $22.15, giving the deal a premium of almost 25%.

There is an old saying that good luck is when opportunity meets preparation. I purchased Activision calls a while back. The stock had not moved that much in response to the Guitar Hero 3 launch or the raised guidance - so I doubled down. I will book a very healthy profit when the market opens on Monday.

CNN - "Corrupt News Network"

2007-12-02T19:09:00.000-08:00

http://www.latimes.com/entertainment/la-et-rutten1dec01,0,4122002.column?coll=la-home-center

This article from the normally liberal leaning LA Times articulates the bias, incompetence and self-serving corruption of CNN that was highlighted in the recent GOP presidential "debate".

The author correctly points out that when 5,000 YouTube questions are submitted, and CNN chooses a small number for the event, they are really CNN's questions. What seems to be ignored by CNN is that this is a GOP primary debate. That means that the debate is for the benefit of Republicans and should explore issues that are important to people that are going to be voting in the primaries to choose a GOP presidential candidate.

Instead, the questions selected by CNN seemed to exclusively focus on issues that were less important, but also that would paint conservatives in a negative light. How else do you reconcile selecting questions on the infallibility of the bible, the confederate flag, gays in the military and the like?

To expand on the LA Times commentary, I'm not sure what to make of the whole debacle. There are certainly convincing arguements that can be made for both incompetence and bias. Frankly, I think it demonstrates how the liberal media outlets view conservatives. They think all conservatives are right wing extremist kooks. It is possible that this bizarre selection of questions and questioners represents CNN's view of "mainstream conservatives". One of the questioners looked like the Unibomber had been let out of prison and given access to YouTube.

The now infamous truth that questions were selected from committed Democrat voters can only be explained by a deliberate effort to support the Democratic Party or complete incompetence. There are no other choices. A simple Google search by whoever at CNN that was charged with vetting the questioners would have discovered the Democratic Party connections. But when you not only feature a question by a member of a Hillary Clinton campaign committee, but also fly him in to further challenge the GOP candidates, the denials by CNN that "we didn't know" ring hollow.

Not only has CNN confirmed the liberal agenda in their portrayal of the news but also that they are too incompetent to be viewed as a legitimate news source.

Stock Market Bottom Forming

2007-11-29T18:29:00.000-08:00

There are hopeful signs that a bottom is forming in the battered stock market. The market surged upward yesterday when the vice chairman of the Federal Reserve hinted that the Fed would be more open to additional rate cuts than had been previously communicated.

Perhaps most positive the market traded "even" today in spite of two big up days in a row. Tonight Chairman Bernake, speaking at the Charlotte Chamber of Commerce, more broadly confirmed that additional rate cuts are likely.

Other signs of a bottom is that several banks have received significant capital infusions. Other well regarded "big investors" are starting to take advantage of beaten down shares in companies like E-Trade. UBS made a decision to more their SIV's onto their balance sheet.

Financials have strengthened. Oil is backing away from $100, for now. Big tech growth stocks have quickly bounced back and are trading close to their previous levels.

There is still a long way to go, but signs are promising. Tomorrow's debate will be between those that are inspired by the prospect of rate cuts and those that fear that the need for more substantial cuts means we are headed for recession.

Hell Freezes Over

2007-11-29T18:25:00.000-08:00

http://www.post-gazette.com/pg/07333/837824-100.stm

John Murtha, Democrat Party thug in residence, just returned from a Thanksgiving trip to Iraq. Congressman Murtha has been one of the most vocal critics of the Iraq war and has led many of the behind the scenes shenanigans to undermine our troops.

Now he is reporting back that "the surge is working"! I never thought I'd hear those words from the congressman. Nancy and Harry have to be so disappointed.

Housing's Wealth Effect - I'm Skeptical

2007-11-25T16:53:00.000-08:00

There is no question that home prices are pulling back. This pullback is most pronounced in parts of the country that say the most rapid price appreciation, such as Florida and California. Many other parts of the "heartland" did not experience the same degree of price run-up and not see the same amount of depreciation.

There have been lots of stories in the media about how the run-up in housing prices, facilitated by record low interest rates, has fueled a wealth effect. In other words, people felt more wealthy due to the appreciation in their houses. There has also been a lot of commentary about homeowners using the increased equity as an "ATM", funding spending and lifestyle changes. Now that home prices are headed down, the worry is that consumers will spend less - pushing the U.S. into recession.

I am skeptical of the the whole wealth effect argument and the effect to which the majority has been using their house as a "piggy bank". This skepticism is purely anecdotal and based on my own musings. I have friends that made a lot of money flipping beach property during the bubble. I also have friends that made money but also got caught holding Florida real estate they cannot afford to sell.

But for the average family that was not speculating in an overheating market, I don't see the ATM argument - that surplus home equity was the driver of the consumer economy. Yes, if you bought a house in an inflated market in the last 18 months, it is possible to be upside down. But the majority of homeowners have held their homes longer, or sold a home at an inflated price and bought another at a similarly inflated price, the angst is just not there.

I just don't buy the fact that people are spending more or less based on home values being up or down. Plus, if you've had your home for a while it is likely that you have an equity line of credit that can be drawn on anyway - no cash-out refinancing required. More than half of all homeowners own their homes outright.

Yes, you can refinance and take cash out of your house. But homes are mostly illiquid. Jobs and rising income and stock market gains have a much greater impact in people feeling wealthy - and therefore the money they spend. In other words, if people have a decent job with rising wages, they are going to spend that money regardless of the value of their home.

It is the American way.

Year-end Market Resistance and Support

2007-11-25T15:36:00.000-08:00

The market bounced a bit Friday across the board in a holiday shortened session. The S&P 500 is close to the August lows. If it can build on Friday's boost then the next major resistance level is 1490. If it breaks below about 1410 there could be some real damage on technical selling. Between here and 1490, expect professional traders to by dips and sell into strength. In a solid breakout above 1490 expect more sustained buying into strength.

The Nasdaq bounced Friday after hitting almost exactly a 10% decline to 2575 from the highs. I believe that when stocks do begin a move up tech will recover the fastest - especially big tech that is leveraged to international growth. Certainly there will be some buying of techs if they stay above the 2575 level.

This week will contrast economic data confirming that the economy is slowing with the usual year-end optimism and holiday retail sales that appear to be off to a strong start.

Recessions typically occur when consumers significantly reign in spending or when credit markets seize up. We certainly have a long ways to go before the credit markets can regain a robust level of liquidity. The consumer is the wild card. However, Americans have an ability to spend any money they have and then some, regardless of the economic conditions.

The subprime mortgages that will default is not enough to cause a recession on its own. But if it causes the above to take place then it certainly can happen. Aside from the lack of fully functioning credit markets, the most important drivers of the consumer will be jobs and income. I will be watching these two items closely.

Disclosure: at the time of this posting the author was long SPY.

Why Are Government Schools So Expensive?

2007-11-24T19:26:00.000-08:00

One average, private elementary and secondary schools spend about a third less than government run schools while achieving superior education outcomes. Spending on public schools as a percentage of personal income has soared from 2.3% in 1950 to 4.5% in 1999. Why are the government-run schools so expensive?

First, the growth of personnel in the public school systems is nothing short of astounding. During the period from 1979 to 2000 student enrollment increased by 13%. But education personnel increased by 61%! Even worse, only 40% of school employees are actually teachers.

Second, government school employees are paid on average 35% more than private school employees. Government school teachers' benefits also far exceed their private school counterparts. These differences are largely due to the stranglehold the teacher unions have on our public school system.

Third, it is common to offer tenure to public school teachers. This tends to concentrate teachers in the highest salary levels. Private schools typically do not offer tenure and as such have a more normal distribution of salary levels and attrition.

Why Do Only the Wealthy Have School Choice?

2007-11-24T17:30:00.000-08:00

The elementary and secondary public school system remains the only exclusive government monopoly in America. Milton Friedman, a brilliant economist, strongly advocated abolishing the public school system in favor of private education funded through vouchers.

Liberals and the Democrat Party have resisted school choice for decades. The teacher unions (who largely vote Democrat) are one of the largest and most powerful unions in the U.S. They seem more concerned with preserving their monopolistic status and expanding their membership than on what is best for educating our children.

The liberal argument against school choice, whether facilitated through vouchers or through tax credits, can be summed up with three points:

Providing vouchers or tax credits to families who send their children to private school amounts to subsidizing private education at the expense of public schools.
There is a limited amount of money available to fund education. Our public schools are already squeezed financially and diverting money to school choice vouchers or credits means that less money can be spent for children in public schools.
Education is too important to leave to private enterprise.

First, providing vouchers or credits is not subsidizing private education. Not providing vouchers means that families that choose to send their children to non-government schools are paying twice. How is paying twice for your child's education fair? So school choice exists for those who are wealthy enough to afford paying twice. Wealthier families also have far greater mobility to relocate to an area with the best public schools, or where they can afford special bond issues to increase funding. Families with less disposable income are denied these choices. They can only send their children to the government monopoly schools.

Interestingly, a recent court decision mean that children requiring special education can move their child to a school that can best serve him. So the wealthy and special education children have school choice. The middle and lower class majority do not.

Unfortunately, like all monopolies, the government elementary and secondary school system provides results that are mediocre at a very high cost. The average cost per child has soared to more than $9,000 annually for government schools. Private schools on average spend far less than this - more on the order of a little more than $6,000. Success of Catholic schools in producing excellent educational outcomes while spending much less than government schools is well documented. This is especially significant because the demographics of Catholic schools includes a large percentage of lower and middle income students.

Providing 100% funding through vouchers for families to send their children to private schools would save money. The cost of the private schools would be less than educating the student in a government school - and the cost of educating the student in the public school would not be incurred. So if the government monopoly schools were shut down the cost of providing elementary and secondary education to America's children would be reduced by a third.

It turns out that there is a wildly successful model in the U.S. for 100% school choice. Our nation's higher education system of colleges and universities is the envy of the world. Students from all over the world strive to come to the U.S. to take advantage of this educational excellence. Students can choose to apply to any schools they desire. Hillary Clinton's current proposal to provide tax credits to help fund college educations is essentially the same as a voucher or tax credit to enable school choice for a larger number of students.

The requirement that all children of a certain age have to attend school should be retained. If schools choice was implemented in full, what would develop is a range of educational options with different price points and different special offerings. All schools would be accredited and would have to cover a certain core curriculum.

If schools execute poorly and don't meet minimum requirements, they lose their accreditation and eventually get shut down. Government monopoly schools are never shut down. They just continue to fail a new generation of students.

Education is too important to leave it as a government monopoly. The costs are too high and the performance unacceptably low. Providing a constant amount of funding per child for families to choose their schools would create a robust and diverse set of educational options just as our higher education system does today. Wealthy families could still chose to pay more for higher priced educational options. But at least they would not be paying twice. For everyone else a better education with options for all types of students and talents at a lower cost would be achieved.

The Triumph of Conservative Free Market Capitalism

2007-11-24T13:18:00.000-08:00

The age of monarchs and a peerage economy ended with the French Revolution. The age of empire was largely past by the end of WW II. The 20th century saw a fierce competition of economic and political models to determine the answer for our time. The three most prominent models were free market capitalism, socialism, and communism.

Communism is a rejection of the individual for total collectivism. All parts of the economy are owned collectively by "the people". As such, the representatives of the people, the "Party" and its government centrally planned and controlled every aspect of production and trade. Theoretically everyone shared equally in the success and failure, with no bourgeois capitalists to accumulate a larger portion of the country's wealth. Politically all discourse and commentary was completely controlled by the state. The implementation of Communism was a totalitarian state; individual civil rights did not exist.

Socialism favors heavy government intervention and control of key aspects of infrastructure and the economy. While not as centrally planned as Communism, there is a large degree of state ownership and control of key sectors. Socialism relies on heavily regulating companies and many aspects of production and trade to achieve social goals such as massive entitlements for the population. While typically democratic in nature, Socialism still favors collectivism over individual responsibility and success.

Free market capitalism promotes less regulation, low taxes on savings, investment and capital, and minimal government intervention in the economy. Free market capitalism is most often combined politically by political conservatives who favor individual rights and responsibility. When combined together an operating model emerges that encourages entrepreneurship and investment and rewards success. Capitalism relies on the fact that "markets" are more efficient that government planning to achieve economic success.

The failure of Communism's central planning model has been universal. One of the last holdouts, Cuba, is economically devastated. Buildings and infrastructure are crumbling. Most of the cars are patched together models from the 1950s that were there when Batista was overthrown.

But throughout the world conservative principals combined with free market capitalism are exploding. The world watched closely as America emerged from WWII as the greatest economic power ever known. As the 2oth century progressed the dominant success of free market capitalism as the surest path to prosperity became undeniable. The implementation and refinement of supply-side principles during the Reagan administration capped a century of economic and political success.

Today, this amazing phenomenon is transforming the world. Free market capitalism and conservative principles are being implemented in country after country. In fact, only in the U.S. are these conservative, free market principles not considered highly progressive.

France has elected a conservative President intent on reforming an economy and society that have stagnated for so long under the shackles of socialism, unionism and protectionism. Supply side tax policy is being implemented throughout the world. 18 countries now have a flat tax. Poland has announced its intention to implement a 15% flat tax. Germany, France and the U.K. have slashed their corporate tax rates. The "Irish Miracle" speaks for itself. A new National Bureau of Economic Research study has found that countries with low tax rates on business have statistically significant higher rates of new business formation, investment and income.

Capitalism is transforming Vietnam in a way that Johnson, McNamara and Westmoreland could not. China continues to be a totalitarian state, but capitalist reforms have resulted in an exploding economy that is building a middle class that is demanding greater individual rights. The market capitalization of the global stock market stood at about $13 trillion in 1994. Today, it is over $50 trillion! Free market capitalism has created a synchronized global economic boom that is unprecedented.

Conservative, progressive free market capitalism has become the greatest agent for positive change in the world. Let's call it "Market Liberalism". Only in the U.S., where the Democratic Party and its liberal surrogates wage war daily on prosperity and individual success, do we risk retreat from the most successful political and economic model ever seen.