Seven Miscellaneous Notes

1) I am proud of my two middle children, Peter and Jonathan (#4 and 5 out of my 8 ) who have started an “odd jobs” business in this environment, doing yard work, pet sitting, etc.  As other neighbors in our area have seen their good work, all of a sudden, they are gaining a lot of new business.  They are both workers, and hard work pays off.

2)  I appreciate this article in Barron’s where the thoughts of Doug Kass are featured.  I have very high respect for Mr. Kass, because he marries two qualities: he has a keen sense of market timing, and yet a sense of relative value also.  I agree with him the intermediate-term returns should be blah, because it is more difficult to lever up at present.

3)  The states are in more trouble than the US Government, because they have to run balanced budgets, and can’t print money.  California can send out IOUs, which aren’t a currency (yet).  Philadelphia can stiff vendors for now, but what of the future?  California may come to some sort of short -term agreement that postpones real troubles until next year.  Same for Philadelphia.  And, true for many municipalities that are finding cash to be short, because capital gains, sales, and real estate taxes are flagging.

Unlike Gregor (bright man that he is), I do not think that the US Government will bail out California.  Why?

  • Every state will ask for a bailout.
  • States have no bankruptcy code, so those pressing them for money have few options.  (That said, say goodbye to the municipal bond market.)
  • The US Government has enough problems as it is — if you want help, take a number and get in line.

As it is California is a basket case, with dysfunctional politics from the referendum process.  Let California get its own house in order, and reform its government, including the initiiative process.  If it still has problems once it is in as good a shape as other states, fine, let it petition the Federal Government.  It won’t get there anytime soon.

4) Regarding the Fed, I’m not the only one suggesting that there be more regulation.  You can listen to Allan Meltzer, or William Greider.   I give Dr. Meltzer more weight here, but one thing is clear — the Fed is an undemocratic institution with few avenues for accountability.

5)  Will we have robust growth soon?  Former Federal Reserve Governor Laurence Meyer, thinks we won’t see full employment until 2015.  Truth is, with aging demographics, we may not see full employment for a longer time, as baby boomers that can’t afford to retire continue to work.

6)  Aside from regulatory sloppiness, why does Goldman Sachs get a free pass on their VAR calculation (and also here)?  What is VAR for, except to constrain risk?  No one should get exemptions.

7)  My view is that derivative and cash positions should be treated the same in a regulatory sense.  But derivatives were unregulated compared to cash positions.  Investment decisions with the same economic result should be equally regulated.  Much as I am not crazy about government regualtion, with regulated institutions, derivatives should be decomposed into their cash equivalents, and regulated the same way.