Another Example of Silly Seattle Government

Just another post in the on-going chronicle of how silly Seattle and especially its city government truly are. I can't really do this article justice in the Seattle Times about how Mayor Nickels decided NOT to clear the roads during this week of snow and freeze-down. So, just read it.

Thousands of people were put at risk. The city shut down during the week before Christmas. Retail shops were empty. Offices were empty. A charter bus full of kids almost slid down a hill and fell over 50 feet onto I-5.

For what? Because supposedly salt on the roads might hurt the fish. But the fish live in the Puget Sound, which is salt water. Meanwhile, "environmentalists" debate whether sand or salt are worse for the environment.

The really fun thing about all of this is that, apparently, as soon as Nickels became aware that the Seattle Time would have an article about the this lunacy, he had the roads cleared. Last night, all of the roads in Seattle were a snowy, icy mess. This morning, the Seattle Times article came out about Nickels decision to not clear the streets. Today by mid-afternoon, downtown streets were almost completely clear of snow and ice. No, it did not warm up. Think it was just a coincidence that the city swung into action?

Just more of the illogical religion of environmentalism.

There's more! Click to read

The Coming Obama Hyper-Inflation

Yes, it is true that we are currently in the Obama Bear Market and in the middle of a recession, so it might be hard to believe the title of this post. But hyper-inflation is coming. Be prepared.

First, let's talk about the Obama Bear Market. The usual story (from the media, from the Obamiacs, the various leftists) is that Bush caused the market melt-down. You know - deregulation, free markets, and so on, are to blame. Well, the story of how we got into this mess has been told many times, but the media mavens that have the ability to hammer falsehoods into the reticular activators of the mostly mindless public refuse to repeat the actual history enough times so that a large number of people have heard it the required six times to absorb it. The media is just too busy with the work of drumming the wonders of the messiah into our heads.

But, anyone who reads this blog is smart enough to have heard the story... and remembered it. This mess is the result of the real estate bubble. The real estate bubble was caused by artificially low interest rates and a massive number of sub-prime mortgage loans funded by Fannie Mae and Freddie Mac (quasi-government agencies, though supposedly private) which were pushed along by Barney Frank, Pelosi, and the other Democrats who in turn received massive campaign contributions. Bush and other Republicans tried to put some constraints on Freddie and Fannie, proposing reform in 2005, but were shot down by the Democrats. If Busch and Co. had succeeded, it might have pricked the real estate bubble allowing a soft landing. But it was not to be, the bubble went out of control, and the toxic assets that resulted (packages of sub-prime mortgages packaged as securities) spread throughout the financial world. Those are the facts.

Where are we now? Well, we need to let the chips fall. The pain will be great, but its better to get it over with now rather than delay it. There is no free lunch. Even a trillion dollar "stimulus plan" will not solve the problem. Eventually the piper needs to be paid.

Financial markets anticipate. They should be looking forward to what would normally be an economy that adjusts and begins to grow again. But Obama and wack-jobs like Pelosi create too much uncertainty. We don't know what they are going to do. Are they going to increase capital gains taxes (the most direct effect on the value of the stock market)? Income taxes? Corporate taxes? Even scarier, how much politics are they going to infuse into the decision making of all of these companies that are now for the most part nationalized (banks, Detroit, AIG, and probably more to come)? And the trillion dollar "fiscal stimulus" that is nothing more than an opportunistic ocean of pork Obama, Pelosi, et al, want to use to make more of the country beholden to them?

All of these things create uncertainty. Markets hate uncertainty. That sounds like an oxymoron, because markets are inherently uncertain. But the reality is that the degree of uncertainty affect people's perception of risk. Increased uncertainty increases the risk premium, thus raising the discount factor applied to future earnings, which of course reduces the present day valuation of stocks. Conversely, remove some of the uncertainty listed in the previous paragraph, risk perception would go down, and the discount factor applied to future earning would be reduced, thus raising the present value of stocks.

OK, enough of that part of the economic lesson. Let's get to hyper-inflation. The uncertainty in the economy - much of it there because of the unknowns about Obama and crew and what they might do - has also caused companies to cut back investment. They are not just cutting back capital investment, but they are drastically cutting existing production capacity. Note that car manufacturers are shutting factories and idling others. Airlines are cutting back their routes. The same is happening in several industries.

Well, a certain extent of that would be normal in a recession. It's a healthy process of cleaning out the bad investments in production made during the latter stages of an expansion, which also come with efforts to improve efficiency and get back in touch with what consumers want. But the current cut backs are far beyond normal. And they are not just happening in the US, but globally and on to an unprecedented degree. Again, extreme uncertainty.

This process is combining with another fact. The Federal Reserve is printing money. In fact, it is flooding the system with new money. The ultimate result is easy to guess. Production capacity has been cut back just at a time when there is a flood of dollars. In short, there will be fewer goods available to spend this cash on. So, in essence, another bubble is created. Too much money chasing to few goods. The result: inflation. But not just a bout of higher than normal inflation. The unprecedented decline in production capacity combined with the unprecedented flood of money will cause unprecedented inflation. This will be exacerbated by the planned trillion dollar boondoggle with the misnomer "fiscal stimulus," which will distort markets and demand.

So, 2009 will be a sideways year in the stock market. 2010 might be more of the same. But come 2011, or thereabouts, the factors described about will combine to create an explosion in inflation.

Unless Obama surprises us, and I sincerely hope he does, we are in for a rough 4 years. Obama and crew will be able to get away with blaming it on Bush for 2 years. But Obama will have to own the hyper-inflation. Sarah Palin might have a future after all. In 2012.

There's more! Click to read

Obama in Wonderland

Obama in Wonderland. That is the only thing I can think of as I watch the CEOs of Detroit’s automakers beg for money from Congress. I am dumbfounded by how truly bizarre this spectacle is and what it portends for the future.

What if a year ago someone had told you that Nancy Pelosi would be in the business of reviewing the business plans of companies and deciding whether or not they would receive funding? I mean, Nancy Pelosi demanding a business plan? Harry Reid and Barney Frank as well? This is truly nuts!

It makes one wonder if perhaps the financial crisis were actually engineered to force the world of finance to go through federal gatekeepers. Such a strange world would allow the political class to make American business into an extension of political correctness. Want money? Well, first you have to have a labor union. Then you need to show us (Congress) how “green” you are. Your executives can’t make more than we (members of Congress) do. What has your business done about “social justice” lately? Prove to us that you do not have a gender pay gap. And on and on. Looks like the Soviet Politburo.

I mean, this kind of vetting of business for political motives can be the only purpose, because the idea that the political illuminati know how to evaluate a business plan is preposterous. Look at the demands, after all. While the price of oil has dropped to near $40 per barrel, Detroit is being told that they must produce more “green” cars. With the price of gasoline headed back down to $1.50 or less, does anyone seriously think that Americans will change their appetite for large and safe SUVs? If anything, Detroit should stick even closer to producing the type of cars in which they have a competitive advantage: trucks and SUVs. In a sane business environment, Detroit would be abandoning the sedan market altogether. And this is not to say that I think electric cars are a bad idea – I LOVE THE IDEA.

What about those green cars? Electric or otherwise? Well, who ever thought Detroit had a competitive advantage in producing these cars? The only way for Detroit to enjoy a market for such cars would be for Washington to protect the Big Three from competition – both domestic and foreign - in this arena. Not something unthinkable as Democrats would like to protect the UAW above all else.

In a sane business environment nobody would be looking to Detroit to produce disruptive technology. There are other companies, entrepreneurs, and boy geniuses that are better suited to usher in these exciting new products. Detroit’s competency is in producing gasoline powered large vehicles. It is also in lobbying for market restrictions that limit not only imports, but creating artificial barriers for even new domestic entrants (ever looked into what is required to get a car certified to be driven on public roads?).

I know this is hopeless, but in a sane world, our political illuminati would know something about disruptive technologies. They would have read Clayton Christensen’s “The Innovators Dilemma.” Christensen shows clearly in his landmark book that new technology that disrupts and replaces old technology, almost always at a lower cost, with increased efficiency, and greater capability, hardly ever comes from the powers-that-be in any particular industry. And trying to guess just where it will come from is a fool’s game; unless you are in venture capital, in which case you have a say in who will produce these new technologies. Of one thing you can be sure, it will not come from the oversized beasts that ruled the last era of technology.

Automobiles that are not reliant on the internal combustion engine, if the free market were allowed to prevail, would not come from Detroit and its massive bureaucracy. It would come from people and companies that understand these new technologies. Or that can dream up entirely new technologies. Did IBM invent the personal computer? Did AT&T create the Internet? Even though the answer to both of these questions is no, did true innovators that did create these incredible things cause a massive loss of unemployment in the computer and telecom sectors? No, quite the opposite. Thanks to these innovators, I am holding an iPhone in my hand that surfs the Internet wirelessly, makes incredibly cheap phones calls, takes photos, holds my entire collection of music, does all sorts of neat things that help me organize my life, and even provides a source of entertainment (in addition to music) when I’m stuck on a long, miserable flight (provided by another lousy government subsidized and unionized industry).

Unfortunately, it appears to me that the spectacle of the past few days is poised to increase, perhaps to the extreme that comparison to the Soviet Politburo is more than just rhetoric. I hope he proves me wrong, but I fear that this is the world that Obama feels he has a mandate to create. Congress and Bush appear to be doing the groundwork for him.

There's more! Click to read