I am grateful that a reader recently suggested to me the idea for this post about Anthony Weiner and I will carry over his sentiment. One thing I find particularly funny and stupid is when people with no marketable skills, ability to generate wealth, who lack prognostication skill and have a terrible record of managing their personal situation think they should babysit those with marketable skills, the ability to generate wealth, who are skilled prognosticators and have an excellent record of managing their personal situation.
All I can think is, seriously, you have rocks for brains making idiotic decisions resulting in stupid consequences and yet you want to tell me what to do? I suppose the only reasonable response is: Leave me alone and don’t touch my stuff, you idiot.
ANTHONY WEINER BEARISH ON GOLD
On 27 May 2010 I wrote about the Congressional Critter Anthony Weiner who decided to attack Glenn Beck and Goldline. While I did not defend Beck or Goldline’s assertions, I would use a different bullion dealer like Apmex with lower premiums, what I did defend was their ability to engage in consensual transactions with voluntary customers at mutually agreed upon terms unlike Mr. Weiner’s congressional salary which he extorts through violence from federal taxpayers.
On 18 May 2010 CBS News reported,
Weiner accused Beck and other conservative spokespeople (among them Mark Levin and Fred Thompson) of using “their shows to prey on the public’s fears of inflation and socialist takeovers while actively promoting the purchase of gold coins as insurance against this purported government overreach.”
WHAT ANTHONY WEINER BOUGHT INSTEAD OF GOLD
Assuming Anthony Weiner actually has excess capital, inquiring minds may want to know where he allocated it instead of gold. Thanks to Open Secrets we can easily access the Anthony Weiner 2009 financial disclosure form. Due to the form being out of date and containing generalized amounts we will have to estimate his actual financial position. It appears he had about $170,000 of net worth with about $12,500 of credit card debt. Mr. Weiner owned 3M (MMM), CR Bard (BCR), DOW Chemical Co. (DOW), McGraw Hill (MHP), Questar (STR), Rowan Companies (RDC), Sony (SNE), Teco Energy (TE), Zimmer Holdings (ZMH), Calpine Co. (CPN), Hewlett-Packard (HPQ), Micron Technology (MU), New York Times (NYT) and Wells Fargo (WF). I warned against buying McGraw Hill or the New York Times, Hewlett-Packard and Wells Fargo.
Although unlikely, we will assume on 31 December 2009 that his portfolio was worth $170,000, or about 154 ounces of gold, and equally allocated among the 14 companies listed on his disclosure form. From 31 December 2009 until 2 October 2010 this shows a decline in Mr. Weiner’s net worth of about $10,398 or 6.1%. But if we are consistent with RunToGold’s practice of using gold as the numeraire, then the loss is even more staggering going from 154 to 121 ounces of gold or about 21.2%.
So Mr. Weiner, how is not buying gold working out for you? Scoreboard. Look, losing over 20% of your net worth in a mere 10 months may be suitable for you but it is not suitable for me so leave me alone, don’t touch my stuff and stop trying to babysit me because obviously you are completely incompetent at even babysitting yourself.
Of course, Mr. Weiner is not the only one. After seeing the record and the numbers I chuckle at some of the Establishment ‘financial professionals’. For example, in January 2009 on my article ‘How the Treasury Bubble Will Burst and Why‘ at Seeking Alpha I received a comment from Alan Brochstein, CFA of AB Analytical Services and fellow Gold Standard Contributor who provides analytical services for hire. He said, “Trace, sorry, but this makes absolutely no sense…” This is not surprising considering his 8 Dec 2008 article, when gold was about $772 per ounce, ‘Own Gold? Time to Fold‘ where he stated, “Gold remains a sucker’s bet…”
ANTHONY WEINER’S DAILY SHOW APPEARANCE
On John Stewart’s Daily Show Mr. Weiner makes an incredibly funny comment, “Yeah, but considering that I don’t have a lot of marketable skills I am like one of the jobs Obama created so I get to keep doing this. (1:41)” Well, I guess it would be funny but it isn’t. Fortunately, it appears Mr. Weiner is not intentionally exacerbating the greater depression but just doing it through sheer stupidity and lack of marketable skills, the inability to generate wealth and a really bad prognostication ability which has led to a massive decline in his net worth.
As the United States moves into election seasons keep in mind that almost all those on the ballot, in federal, state and local elections, are like Mr. Weiner. Not only are they unable to adequately manage their own financial and personal circumstances but in almost all cases they lack marketable skills and foresight. Like Mr. Weiner their portfolios when measured in gold have sustained heavy losses.
Unfortunately, misery loves company and they want to extend the pain to those with marketable skills, the ability to generate wealth and have properly prognosticated which has resulted in increased net worths. So protect yourself from these incompetent looters and moochers which is easier to do at the state and local level through state income tax optimization. By all means, please leave your opinion in the comments about these Congress critters and other looters and moochers!
The Eurozone has its “does not compute” moment
First, it was there, then it left and then suddenly the Spanish prime minister Zapatero assured us that it was gone, but somehow the lingering European crisis of confidence in relation to the status of sovereign and private debt sustainability in key membership economies never seem to have gone away.
Now, please don’t think that the headline above is in any way related to the flurry of whether Spain has been faking its GDP numbers. FT Alphaville ran the story, got cold feet and took it down (although I reckon you can easily find the report if you try). Now, the flurry was real and the questions asked by the report fair I think. Clearly, if it was such nonsense it should be easily refutable and while some of the explanations I have seen for the the sudden dis-correlation between the Market Services Gross Value Added (GVA) and the Indicator of Activity in the Service Sector (IASS/SSAI) make sense (especially the import component point) the Spanish statistical office is still mute and the ministry of finance is just playing the part of an insulted child. So, if those of us who are skeptic are so stupid then really, now is the chance for those much more clever than us to give us a lecture.
But I digress.
Moving on, Ireland has recently been at the center stage of things and the latest number from the finance ministry is that the butcher’s bill for bailing out Anglo Irish amounts to more than 30% of GDP in the form of a running deficit in 2010. That is a almost unbelievable number by any standards and I would take very little comfort here in the fact that Ireland remains fully financed until mid 2011. What really matters here is that with this amount of debt overhang that needs to be transferred to the government’s balance sheet and ultimately over to the private sector in the form of taxes Ireland is being played straight into the hands of the IMF and the European Stability Fund. But this is not only about Ireland since the all the fundamental questions are still left unanswered.
- How do you correct external competitiveness deficiency from within a currency union at the same time as implementing fiscal austerity without risking debt levels to spin out of control?
- How long should Southern Europe and Ireland endure deflation relative to the core to restore external competitiveness (will Germany accept a lower external surplus as result)?
- How might a sovereign restructuring in a Eurozone economy play out?
The last one is particularly important since no official inside the Eurozone has even begun to voice an opinion on this even if it is blatantly obvious that this is where we are headed. I mean, I am not talking about the entire stock of PIGS bonds being wiped out and marked to 0, but merely of a reasonable and fair estimate of the haircut we all know that is coming. Yet, so much water has gone under the bridge that it is difficult to see how such a memo would look. For starters, the stress tests carried out recently on Eurozone banks would have to be, uhm, redone with proper assumptions of haircuts and impairment in the context of real sovereign stress in the Eurozone.
However, what really clinched it for me and what leads me to note that we have now had one of (several to come) those does not compute moments was Wolfgang Munchau’s basic bond arithmetic of the the European Stability Funds lending conditions and the means with which it allows access to its funds. From FT Alphaville …
Münchau comes up with a rough estimate that borrowers could end up paying a total interest rate of about 8 per cent — far above and much more than the 5 per cent Greece paid when it tapped its €110bn European Union emergency loan back in May.
BarCap’s back-of-the-envelope calculations has the total borrowing cost above 8 per cent. That’s about 80bps (3m Euribor) + 300bps (EFSF mark-up) + 150bps (due to the fact that the interest has to be paid on the whole loan) + 300bps (service fees). As BarCap also note, requesting EFSF funds would also likely entail some strict policy conditions, similar to IMF conditionality.
Now, let me be quite clear here. 8% or even anything in that vicinity makes the whole exercise quite pointless since there is no way that any of the Eurozone economies would be able to pay off their debts at these conditions. So, if one or more Eurozone economies were to find themselves in a situation where they could no longer tap international bond markets due to the yield on offer, the alternative would be no better. I called this a catch 22 recently and even wrote a paper, in part, about it. However, Munchau’s article makes it all so clear. Whatever funds that are paid out of the stability fund at these conditions would in itself be subject to a haircut in the context of an inevitable sovereign debt restructuring and thus it is really and ultimately a question of on whose balance sheet the final loss will be put. One would only hope that this soon will come to compute a little better with the agenda that will and has to emerge in the Eurozone at some point.
Some (academic) food for thought
As many of you might have noticed I am about to start my research degree here in the UK and while I am in general surprised and disappointed about the utter lack of creativity on the part of the economic faculty in terms of constructing a curriculum with the sole purpose of testing your abilities in math (rather than you know, uhm economics!) I hope and believe it will be fun. On that note and while the cracks have clearly not yet transcended to the way underlings such as myself are treated, I found the following paper (The Dahlem Report) interesting and important (thanks Scott for sending it over).
The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the profession’s insistence on constructing models that, by design, disregard the key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in the research economists undertake, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models.
Now, as an immediate testament to the importance of this paper and echoing my points above I can say for certain that my generation of economists will be trained no differently on a PhD level than they were, I suspect, 30 years ago. Same old axioms, same old models, same booring (and often stupidly difficult) math problems. Two of the co-signers of the paper are David Colander and Alan Kirman and I recommend readers to have a look at their work if you want a good critique of the way we (still) do economics today (don’t forget James E. Hartley too). I don’t want to be a cry-baby, but surely; running through the proof of why a utility function should and might exist (in mathematical terms) is not only waste of good time, it is an insult to any serious economist eager to get on with some real work. But now, I really(!) digress.
To balance things a bit I did actually find much enjoyment in Oded Galor’s recent synthesis of what really kicked off the demographic transition back in the days of the industrial revolution.
This paper develops the theoretical foundations and the testable implications of the various mechanisms that have been proposed as possible triggers for the demographic transition.Moreover, it examines the empirical validity of each of the theories and their signi
cance forthe understanding of the transition from stagnation to growth. The analysis suggests thatthe rise in the demand for human capital in the process of development was the main triggerfor the decline in fertility and the transition to modern growth.
Here in the 21st century such a paper essentially reads as a piece of economic history as the demographic transition never really ended and whereas some form of the quantity/quality tradeoff might have started the whole process, we are now dealing with a much more complicated process in which both a quantum and tempo effect acts as a driver of the fertility decline (and eventual or potential(?) catch-up as the tempo effect fades). However, Galor’s recent paper provides an important finetuned representation of the way we think about the quantity/quality trade off and as such it is important.
I also take more than a passing interest here since it is after all my field and while I eventually opted for the original quantity/quality model by Becker and Lewis in my thesis I have almost been turned to Oded Galor’s theory with this recent paper. Yet, the two theories are still ultimately very close to each other and for laymen the finer grained theoretic subtleties of the trade-off are not important.
Perhaps you should read Oded Galor first and then the Dahlem paper afterwards. Actually, yes you definitely should!
At 7:45 AM EDT, the weekly ICSC-Goldman Store Sales report will be released, giving an update on the health of the consumer through this analysis of retail sales.
At 8:55 AM EDT, the weekly Redbook report will be released, giving us more information about consumer spending.
At 10:00 AM EDT, the ISM non-manufacturing index for September will be released. The consensus estimate is that it increased 0.5 points last month to a value of 52.0, but will continue to signal economic growth as it remains above the mid-point of 50.
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