Commentary
December 22, 2008
By: Zachary Michaelson
World trade |
Barriers to entry | The Economist
In the 21st century world of easily
transferable technologies, nations no longer trade primarily for Ricardian
comparative advantage. Yet the words of The Economist in 1930 upon the passage
of Hawley-Smoot will still hold true: “Protection, meant to be a good servant,
becomes a dominant and costly master.” The imbalance today is no longer as much
in marginal product of capital as it is in capital flows. Without import of
goods we can’t export our assets, namely our debt. Further constricting our
access to debt finance in a liquidity crisis as we attempt expansionary fiscal
policy could be a disaster far worse than a reduction in the gains from trade.
December 19, 2008
By: Zachary Michaelson
Drs. say killer
knows right from wrong
Has neuropsychology research
made society perversely more comfortable with killing? How strange it is when a
court and jury of average individuals holds session on whether to take man’s
life and simultaneously renders a verdict on a state’s moratorium on the
practice of state administered killing. Even more bizarre, though, is that the
accepted jurisprudence is to weigh the relative merits of the causes of his
personality and neurological disorders. Did no one step back and contemplate
this new moral calculus – a rubric whereby a man’s life can be spared if his
mother’s pregnant drinking was sufficient to create FAS in him, but if his
illness is the result of trauma from abuse as a child then society is entitled
to kill him? I don’t for a minute debate that cop killers deserve harsh
punishment. My question is whether modern science makes juries and broader
society more comfortable with antediluvian justice.
December 18, 2008
By: Zachary Michaelson
PBGC Releases
Annual Management Report for Fiscal Year 2008
The PBGC alleges they are in a
strong position, proudly reporting their deficit now stands at only $10.7B.
They achieved this only with $8.25B in favorable actuarial credits this year.
And they report that their portfolio only declined 6.5% in the first 3Q. Given
that their entire business model is to be fundamental underwriters of credit
protection and they apparently failed to hedge as such, I don’t know why this
is laudable. Miraculous though, given that they shifted from 15% stocks to 45%
in February, taking ill-timed risk to address earlier internal estimates of a
mere 50% chance of meeting long-term obligations. This was the year they were
supposed to print money on the left side of the balance sheet. Because if the
whole auto industry goes Chapter, who knows what kind of A-bomb it’ll drop on
the right side of their ledger. The PBGC reports that it insures almost 44
million Americans with no funds from general tax revenues. We’ll see how long
that lasts.
December 16, 2008
By: Zachary Michaelson
FRB: Press
Release – FOMC statement – December 16, 2008
Now they've said it in their
statement: the Fed will print USD in order to bailout holders of residential
debt and is looking at printing money to fund the government's increasing
deficits. I think we all agree that they have to address the mortgage problem,
but they could instead sterilize their purchases, essentially setting up as unlimited
receivers of the mortgage passthrough basis. Either way it comes down to
purchasing Treasuries and whether they allow the government to just create
money to finance its wars and wealth transfers. Why that is even perceived as
beneficial right now, when UST yields are at record lows, is beyond me. First
we build a militarized empire with no regard for history. Now we have to
self-destruct it in the same way every other one has? Overextend the military,
overstay the welcome, overreact to extremist attacks, then debase the currency
to finance burgeoning debt. Is there only one formula in history? How will this
not play out the same way it always has?
December 12, 2008
By: Zachary Michaelson
Inner City
Press: Investigative Reporting from the United Nations
Thanks to those who helped me
host some of the founding members of Burma's opposition NLD party this week and
attended our film premiere and speaking event. You can read the article about
it in the above Inner City Press link.
November 27, 2008
By: Zachary Michaelson
America's
unorthodox economic policies | Plan C | The Economist
Unorthodox policy, indeed! It
scares me when The Economist suggests that the Fed should print money to
purchase long-dated Treasuries for the purpose of bringing down borrowing rates
for the government if deficits push bond yields too high. Now we're going to
take our monetary policy from the failed attempts of third-world dictators?
What scares me is that if The Economist can suggest it casually, maybe the
slope is just that slippery for what the Fed might do next. Better hope no
asset class comes along for a long time to supplant the world's marriage of
convenience with the USD. The Fed buying UST if no one else wants them will be
pissing into the wind. Then you have high rates, trouble issuing debt, and a
failing currency. It's the opposite today, but if there's any alternative to
USD and we're profligately printing money to finance government fiscal
mismanagement, I think, Mr. Bernanke, you'll regret it. Maybe not today. Maybe
not tomorrow. But soon and for the rest of your life.
November 21, 2008
By: Zachary Michaelson
Editorial -
Flunking the Electoral College - NYTimes.com
Abolishing the Electoral
College would be great. But while they are drafting amendments to the
Constitution, how about reforming a broken legislature? My pet idea is getting
rid of congressional districts and making members of the House elected at-large
by the state (as senators currently are), and making members of the Senate
elected at-large by the country. Put it together with a voting system more
sophisticated than 'one person, one vote', as they already do in most other
democracies, and we might actually start getting functioning representation.
November 17, 2008
By: Zachary Michaelson
Wealth -
Weirdly, Tips yields point to deflation - FT.com
It's true that the value in
TIPS is ostensibly compelling. But caveat emptor. Liquidity has always been poor
and the number of market players few. “Flight to quality” has always in fact
been better termed as “flight to liquidity” and TIPS are the ultimate
off-the-run. Of course, CPI has been for almost 15 years the best government
conspiracy going. And the asset class never really got off the ground. Auctions
would tail 10bp when times were good! The value is probably most attractive for
buyers like pensions that can buy with cash and mature the paper. Maybe a TIPS
I-Share for the 401(k)? Because they might be a good buy, but it'll be a bumpy
ride. Ironically, the best thing that could happen to the asset class would
probably be for the Treasury to stop issuing them. Projected ‘09 issuance is
down to 56 yards. Almost there.
November 1, 2008
By: Zachary Michaelson
Companies and
human rights | Test case | The Economist
If the US really wants prevent
allegations of human rights violations abroad from interfering with business
and foreign policy, what better way than to give suits an impartial venue at
home under Alien Tort Claims? Not to mention that in so doing the US could
regain some relevance in shaping international human rights law.
October 27, 2008
By: Zachary Michaelson
How long can a
bear market last? | The big bear | The Economist
Equity investors in 2000 may
not have any real returns for at least two decades. I remember saying it back
then (and have thought it ever since) and a lot of people have written about
it, starting around the late 90s. Current events make it more believable. And
the persistent redemptions of retiring baby boomers have always been waiting
for the markets and are approaching quickly. Whether it's because of bubbles,
business cycles, or demographics, the question remains not fully answered (and
understudied): why have equity markets seemed to move in generation-long
patterns?
October 19, 2008
By: Zachary Michaelson
Sudan Arrests
Militia Chief Facing Trial - NYTimes.com
Will a Sudanese show trial (or
mere investigation) satisfy the Rome Statute's complementarity clause? Even if
it must be allowed to, the ICC is more powerful and successful for having
launched its investigation into Darfur – against the odds.
October 17, 2008
By: Zachary Michaelson
World - IMF
ready to help stabilise Ukraine - FT.com
I was inclined to say that
the suprasovereigns would have a marginal role in this global financial
redress. Concern about that possibility no doubt contributed to the glum mood
at their annual meeting in Washington this past weekend. Any country that can
use their own sovereign powers to save their banks surely will and global
integration will be formed by a coalition of the willing, not a transnational
organization. But what about the Ukraines and the Hungarys out there, who were
budgetary basket cases in the best of times? They simply might not have the wherewithal
to avoid a banking collapse without creating a fiscal collapse. The question is
whether Strauss-Kahn's IMF will turn a new leaf and move away from the bitter
medicine policies. The duplicitousness of the G7 world would be too great and
it would probably defeat the purpose of the assistance. But then again neither
obstacle has stopped the G7 and Bretton Woods institutions in the past.
October 7, 2008
By: Zachary Michaelson
The
International Currency Crisis - John Mauldin's Outside the Box
Monetary unions collapse when
fiscal problems are asymmetric. They are not in the EMU. The Austro-Hungarian
Krone survived decades of budget deficits, even into the war... just not the
Allied Entente. The EMU will soon take financial rescue measures similar to
those in the US; they have operated in near lockstep thus far, excepting
moments of fleeting political schadenfreude. And whether by deliberate
collaboration or "beggar-thy-neighbor" duress, they will coordinate.
Sure bailouts may be long term inflationary, but there as here, they will have
lots of time to admire their lack of inflation during a decade of deflation.
The path of least resistence is always printing money, and reluctantly, the ECB
will have to print away. So the euro will survive its first crisis, despite
Milton Friedman's warnings, and the take away lesson is that fiat currencies
are bad long term investments, despite the best intentions. That lesson, at
least, is hardly newsworthy.
September 29, 2008
By: Zachary Michaelson
Haste Makes
Waste - John Mauldin's Outside the Box
Treasury could have done a
much better job with what they were proposing. They should have defined a more
clear mandate about what they would buy. They should have declared their
primary if not exclusive focus to be mortgage loans and not securitized pieces
and derivatives. They should have been clear that they would do their best to
maximize value and profit potential for the tax payer. You think your assets
are kosher and you want to sit with them considering the price Treasury is
offering? Great. Best of luck. These losses are real, not just accounting
fictions. They should have been more clear about the priority to minimize
foreclosures and their proposed methods for doing it. They should have stated
their intent and methods for getting the mortgage basis down and origination
up, particularly on conforming loans. And they never should have attempted to
insert unconstitutional clauses preventing any checks and balances.
September 29, 2008
By: Zachary Michaelson
Leadership
Lapses That Fueled Wall Street's Fall - Knowledge@Wharton
I think this is more on the
mark than any analysis that I've read yet. I think anyone who has worked in the
industry knows well the culture of "leadership lapses" on Wall
Street. And it's the only explanation that could explain why these corporations
would bet the ranch on a single new business, not even fully realize that they
were doing it, and have no perspective on the big picture issues around them.
And it all comes back to culture. Hire "smart" people, then don't
lead them or manage them, just demand long hours and short term performance.
Great business model.