Category Archives: Economy

Insider Trading

I have a thought on insider trading.  And this pertains to politicians as well as corporate executives.

See, we want to be able to know as much about a company as we can, right?  The allocation of capital to the successful at the expense of the incompetent is crucial to the success of capitalism.  As such, any input we can get to the potential success or failure of that company is welcome; indeed, desired.

Given that, would we rather have a condition where the people who “know” must keep quiet so that the rest of us may invest foolishly or would we rather have that condition where we all know equally and fully the risk we are taking?

I would think that watching how a CEO spends his money would be desirable, not something we wanna suppress.

The Deficit: Why It’s a Spending Problem

You can pick any significant number of consecutive years you want.  Any, say 10-15 years.  And compare the receipts from one year to the prior year.  See what ya get.  For example, I’ll pick the most recent set of years; 2000 through the estimates for 2016.  Look:

There are 16 possible opportunities for receipts to go up or down.  Of those 16, they go up for 12 of ’em.  The time frames when they are going down is after the recession of 2000 and the shock of the 9/11 attacks.  The second time frame is during the most recent recession.  Other than that, the tax receipts increase.  In fact, if you go back further than 2000, the next most recent decrease in revenues comes in the 1982-1983 year.  That’s 17 consecutive years of tax growth.

So, what does this tell us?

It tells us that those who are calling for tax increases in order to satisfy the “increase revenue” meme aren’t looking at the full picture.  Left alone, taxes will deliver year over year growth.

In fact, if you take the historic annual tax receipt increase since after the war and assume that going forward, you can easily balance the budget.  For example, if we allow the budget to GROW, that is no cuts, but only grow by 2%, we have a balanced budget in 2023:

Easy.

Limit spending.  Don’t raise taxes.  Balance the budget in 12 years.

It’s spending people, spending.  W do NOT have a taxing problem.

Debt Super Committee

So, the bi-partisian debt committee Has admitted to failure; they are unable to reach an agreement on the gap they were to address. A couple of things:

1. There is no one that seriously thinks we have a revenue problem. If they say that they are died in the wool Statists or they are lying.

2. The committee was never really considering realm cuts to spending. They were talking about cutting the amount they were gonna increase spending. Never, ever, was the idea to spend less next year than this year.

3. Failure to reach an agreement isn’t the end of the world; we still get 1 trillion in cuts.

4. Republicans running around claiming they can’t cut the Pentagon’s budget are acting like Democrats.

5. With that said, defense spending IS called for in the constitution. Food stamps and section 8 are not.

Cost of Separation

Consider eating out.  Going to a restaurant and having dinner–lunch would work, breakfast too.  The way it works today is that a small short term “contract” is enacted.  You sit down and order, the joint brings you food and you have to pay for it.  This is understood to be a contract because if the place doesn’t bring you what they said they would, you have legal recourse.  Ina similar manner, should you choose not to pay, they have recourse as well; it’s illegal to d”dine -n dash”.

And this works well.  Based on this arrangement, I’m willing to try new places as often as I’m moved.  If something opens near me, I almost always try it.  Further, in a quest to find more and better restaurants in a specific genre of food, I’ll expand my radius and drive further to experiment.  However, what if it didn’t work this way.  What if the arrangement was different.

Suppose that if you wanted to try a new eatery you had to commit to eating there once a week for a year.  In short, by agreeing to eat there just once, you were legally bound to eat there 51 more times.

Do you think you would try more or fewer new restaurants?

It’s obvious.  We would all eat at fewer new restaurants.  Not only that, but we might find that as a result of such a restriction, fewer new restaurants would be opened in the first place.  In other words, the general overall “eating out” experience would be diminished.

The exact same is true of jobs.

As it becomes harder and harder for me separate from my labor, I’ll buy less and less of it.  It’s pure and simple.  It’s as true of labor as it is of restaurants as it is of cars.  And it’s being demonstrated around the world:

(Reuters) – Employers burned by the cost of laying off workers in the last crisis are uneasy about taking on permanent staff amid faltering economic growth putting pressure on the current workforce, a staffing industry executive said on Thursday.

Demand for temporary workers often acts as a leading indicator for overall economic growth, as firms hire flexible workers at the start of a recovery and cut staff ahead of a downturn.

Staffing firms Randstad, USG People and Manpower have warned of slowing jobs growth in Europe as the region’s debt crisis hammers consumer and business confidence.

“What has happened in this recession is that the psychology of hiring has completely changed,” said David Arkless, president of global corporate and government affairs at Manpower Group.

In the past firms hired temporary workers at the start of a recovery and gradually took on more permanent staff. But now, even in sectors and companies that are growing, employers are mindful of the huge costs of downsizing in the last recession and reluctant to take on permanent staff, he said.

“Employers are saying this could kill my company if I do the wrong kind of hiring now and it turns into a double dip recession,” said Arkless. “They are stretching the human element of their company to breaking point because they are so scared of hiring any more people right now.”

We all wanna make sure that our workers have it good.  However, when we mandate too much good, they get nothing.

California Facing Revenue Shortfall

It’s an old adage but I think it’s important to point out how often people tend to overlook it:

If you tax it, you’ll get less of it.

Politicians forget this all the time.

A case can be made that raising income tax rates at the state level won’t force people, en mass, to move.  Or, that if you reduce state income tax rates, people will move in.  I agree with this; people fundamentally chase jobs, not tax rates.  This is for people however, not corporations.

When you tax corporations at a rate that is so high that businesses begin to move to avoid those taxes, people will move too.  Further, the higher the “income” chain you go, the more able that individual is free to move.

Own your own internet widget company and live in CA.  Pay too much in taxes?  Move to Nevada, or Texas.  Are ya a gazzilionaire and just live off dividends?  Pay too much taxes?  Move to Florida.

The point is, the higher the income stream, the greater the desire to tax it.  And the greater the ability to avoid it.  These people did not amass great wealth because they are careless or foolish.  And they certainly didn’t amass that wealth in order to have it stolen from them.

They’ll move.  And when they do, the revenue expected from them will be less:

LOS ANGELES — California’s budget problems show no signs of abating.

A report released by state budget analysts on Wednesday forecasts a sharp decline in revenue for this fiscal year, which could set off more than $2 billion in new cuts in state spending in January, including a seven-day reduction in the school year for public school students.

The report by the Legislative Analyst’s Office projected that the state would fall $3.7 billion short of the $88.5 billion in revenues and transfers that was anticipated in the 2011-12 state budget approved in June. Under the terms of that budget, automatic reductions — known as trigger cuts, and specified in some detail in the budget — go into effect if revenues fall $1 billion or more short of projections.

California is a state blessed by weather and geography.  And people are fleeing the place.

OWS: Chapel Hill Edition

I continue to make the point that the OWS protest crowd is spinning into lawlessness and soon to be violence.  We’ve already seen rape and assault in New York and then murder in Oakland.  The proof isn’t open for debate.  Larger rallies involving Tea Party folks didn’t have even a HINT at violence.  They rallied on the day and time they said they would, they registered for permits, and when the time came to end, they went home.  But not before cleaning up after themselves.

OWS is seen urinating in public and even defecating in public.  There is no respect for private property.  These people vandalize shop keepers who refuse them restrooms.  Restrooms where they not only go to the bathroom, but wash and bathe themselves.  It’s as if they feel the world owes them.

And now, the gentle Left and it’s slow descent into chaos has come to Carolina:

Blue [Chapel Hill Chief of Police] said that officers tried to confront the crowd inside the Yates Motor building on Saturday but found some wearing masks and hoods and acting in a threatening manner.

“This was a reaction we had not encountered in any of our interactions with the ‘Occupy Chapel Hill’ group,” he said.

The “Occupy” group has been protesting peacefully for weeks outside the Chapel Hill Post Office. Supporters said the seven who were arrested Sunday were part of the group that has been at the post office.

Police said the group inside the Yates Motor building had obscured windows with large banners, and some members were posted on the roof as lookouts. Anarchists use such strategies to take over buildings and destroy property, police said.

Inside the building, police said, they found flammable material, a bag of rocks and pamphlets that discussed the number of people needed to overturn a police car.

Private buildings being “occupied”, covered windows, bags of rocks and “how to overturn a cop car”.

But this is a peaceful movement made up of young thoughtful individuals bent on a genlte revolution.

John Galt: Occupy Wall Street

It’s only going to be a matter of time before the producers go on strike.  In some ways, I think, some have.

The OWS folks are protesting some valid stuff; no one wants to bail out Wall Street banks and investment houses.  However, their message is getting lost in a mess of non-message nonsense.  We live in a society that is the envy of the world.  Our poor are richer than most country’s middle class.  We have it good.

But they continue to protest and occupy.  What they don’t realize is that this is being done only by the “tolerance” of others.  At some point, we’re gonna tire of this and they are going to have to leave.  In some cases, this is already occurring:

Small business owners and local residents fed up with the “Occupiers” at Zuccotti Park in New York City are planning a counterprotest and news conference of their own Monday, to make clear the crowd has long overstayed its welcome — and that businesses will not survive if the “occupation” continues.

In recent days, shopkeepers, restaurant owners and others with small businesses located near Zuccotti Park have been quietly meeting to share stories of the damage they say has been caused by Occupy Wall Street: theft of property, vandalism, threats, violence and even incidents involving the throwing of fecal matter.

The producers are tired.  And they’re starting to protest.  They are going to weigh in and demand their time.  It’s one thing for young impressionable kids to take to the streets for an afternoon to protest some social wrong.  It’s who we are and helps build an internal compass that we’ll use as we continue to build life experience.  It’s another thing altogether to just sit and be pissed that people aren’t throwing $100k money at’cha for a freakin’ degree in Women’s Studies*.

And it goes further than just the business owners; it’s hitting the people who feel they have a responsibility to deliver:

The flyers were printed out by a 46-year-old unemployed teacher named Leslie who has spearheaded the counterprotest efforts. She asked her last name not be used out of concern the protesters would retaliate against her, and that her involvement in the counterprotest might negatively affect her job search.

“It’s time for them to go,” Leslie said of the Occupiers.

Leslie makes no effort to conceal her disgust.

“They say they are the 99 percent. Let me tell you, I’m unemployed and I lost my unemployment benefits after 99 weeks. I had to move in with my mother—I’m a true 99 percenter,” she said.

A police officer who was posted at the perimeter of the park for seven days said he would be attending the Monday event out of uniform, “as a protester and fed-up New Yorker.”

“After speaking with many of them, I realize they are unemployable takers,” he said, asking that his name not be used. “They just want to be able to tell their friends, ‘Hey, I was there.’ There is no leader, no voice. They have money in the bank but can’t agree on using it and no one knows who controls it.

“I’m sick of it. Fed up like everyone else.”

They’re losing the unemployed and the cops.  It won’t be long now.  John Galt is going to speak up and when he does, this is all over.

By the way, an illustration of the civility and respect these animals have:

These protesters—they’re not even protesters, they don’t know anything—they are horrible. They break things, they steal, I have to close my bathrooms and bring customers downstairs [to employee restrooms],” he said.

“You should see what they have done to my gate, what they do every night when we are closed,” he said, referring to vandalism and damage to the exterior of his restaurant.

One of his employees said the urination and fecal matter in the neighborhood are among the worst of the problems. A construction worker who works nearby said he saw someone defecating into a newspaper, which was then rolled up and thrown across the street.

“What they do is horrible, it is just horrible,” Corstales said.

Classy.  Not one time, not ONE time ever, did you hear of a Tea Party protester shit in a newspaper and throw it in the street.  Ever.

* Don’t get me wrong.  There’s nothing WRONG with women’s studies, there isn’t.  However, no one hires people because they are a Women’s Studies major.  When I hire people, I’m looking for applicable skills to fill the position.  And to be honest, I like to see soft science minors or focuses and I’ll even direct significant time of the interview on that.  However, that is a component of study that rounds out a candidate, not defines that candidate.

Jobs and Unemployment

I know.

I KNOW that a professional used to making North of 80k isn’t interested in hearing this.  Hell, someone making 30k doesn’t wanna hear this either.  But the fact is, there are jobs out there.  The problem is, the government is making it impossible to fill ’em.

When a potential worker is faced with working 40 hours a week in order earn 8-9 bucks an hour [$320-$360 a week] vs. not working at all and making $310 in unemployment, it doesn’t take a rocket surgeon to figure out what’s gonna happen.

By the way, McDonalds is offering 401k, insurance, cheap food and scholarships.

There are jobs.  That doesn’t seem to be the problem.  We need people willing to work.

OWS and North Carolina

The movement has been active for nearly 2 months now.  We still don’t know what they want, but we know they’re mad.  We know who they’re mad at, but we don’t know what they’d do different if the they were the they.

Some of us resonate with some of the anger:

  • Bank bailouts
  • Auto industry restructure
  • Government involvement in causing the housing crisis

The difference between the 53% and the 99%, however, is that we’re out there gettin’er done day in and day out.  And when we ain’t doin’ what we do, when we DO decide to petition our government, we are clear in our goals, we make those goals known and then we go home.

Anyway, what does North Carolina think of the Occupy movement:

Of those familiar with Occupy Wall Street, 45 percent hold an unfavorable opinion of the movement, and the same number reported a favorable opinion. Thirty-two percent of respondents consider themselves supporters of the movement, and 26 percent consider themselves opponents.

I’d say it’s evenly split.

And for my own prediction?  I’ll go on the record to say that this number will continue to fall.  It’ll fall until the movement collapses and they’ll be no more movement.

Mortgage Refinance Program: Part II

The current economic condition was brought about by housing.   Housing costs and a housing bubble.  The result is that we find an enormous problem with hundreds of thousands of people facing foreclosure. And until that problem is cured, we may never truly begin to see a real path to recovery.

These people are suffering.  They’re going to bed at night with that pit i their stomach wondering how they’re gonna make the next payment.  How they’re gonna avoid having the phone shut off.  How they’re gonna make winter.  There is fear and apprehension and stress.  I get it.  And I don’t wanna diminish it.   But those feelings are never, ever, really gonna go away until they’re addressed.  Not just contained, but addressed.

I went to school in Marshall, MN, home of Schwanna’s Ice Cream and Red Barron pizza.

I met Mr. Schwann by the way.  He dropped out of school in the eighth grade before founding his company.  I tended bar at the hotel he liked to have his Christmas Parties at.  His favorite thing was to tell me to watch how his executives would “run on the bar” in an effort to drink what he was drinking.  The worst was when he landed on CC and water with a rind of lemon.  I never cut so many lemon rinds in my life!

My major was Mathematics.  Not math, but Mathematics.  In calc I found myself in class with a bunch of non-math majors.  And they were struggling.  Some just wanted to pass and get the req out of the way.  Others were earnestly interested in learning calculus.  I gravitated towards those kids.

We would study forever.  I’ve found that math is learned in a series of ramps and plateaus.  That is, forward progress is made steadily until such a time as a specific concept is hit that prevents further and deeper understanding.  And until that plateau is addressed, not contained, further learning can not occur.  The gifted teachers have a grasp of plateau identification and remediation.  Anyway, the same process holds true in other aspects of life.

And home finances are one of them.  Which is my very long way of saying that just giving someone the answers to the calc exam isn’t going to help them understand calculus.  And neither is forgiving mortgages going to help people address their home finance situation:

WASHINGTON — The federal government’s expansion of a mortgage refinancing program could reduce the monthly payments of up to one million homeowners, but analysts said the modest scope of the plan meant it would probably do little to heal the housing market or help the broader economy.

The effort, built on sweeping voluntary agreements with the mortgage industry to let people refinance even if their homes have declined in value, reflects a new White House emphasis on economic measures that do not require Congress to overcome its bitter partisan divisions.

It also maintains a choice President Obama made in the early days of his administration to focus on reducing monthly payments rather than on the amounts that borrowers owe, the latter being what a growing number of liberal and conservative economists consider necessary to resolve the problem.

I resonate with the plight.  I get the desire to help.  But this isn’t helping.  This is enabling.  And until true and serious lessons are learned, nothing will change:

Treasury has publicly estimated that the redefault rate on HAMP permanent mods will be 40% over five year. Now, just one year into permanent mods, we have already reached a 21% redefault rate. There is no indication that the redefault rate is plateauing, and no reason to think that it will.

In other words, the default rate on refinanced mortgages is very high.  If you are failing to meet the payments of your current mortgage, there is little reason to believe that you will suddenly be able to make the payments on a restructured mortgage.

Not only does this program fail to help the problem it sets out to fix, the secondary impact is that it artificially keeps the home market from clearing.  The price of a home remains artificially high.  And this prevents true recovery.

Let the market work.  Accept the pain and allow these homes that are over leveraged to go into foreclosure and the market will heal.  It always does.