Memories Live On

Today, April 26, is our fourth Wedding Anniversary. I can’t say what we would have done. Something special for certain – every day was special.

We went out in Monterey on Jeannie’s sixtieth birthday, her last. We were back at Paddy’s at Chateau Elan in Braselton Georgia in October, one of Jeannie’s favorite places. That same weekend, we met friends – Martin, Mike, daughter Courtney, Murphy was there, too – after Petit Le Mans. That was the last time Jeannie was well enough to go out.

I’m thinking today of what was. But I can’t help thinking, too, of what could have – would have – been.

Many years ago, Jeannie gave me a book called “Love in the 90’s” about the love between a couple who were able to grow old together. It was inscribed in her hand in the flap.

“Tom, my love – Merry Christmas,” she wrote. “I am looking forward to growing old with you. Someday there could be a book about us like this one. Your Jeannie.”

Of course there won’t be that book, but there are – and will be – others. There were only three anniversaries together after our wedding in Las Vegas, but there were many stories, many wonderful times.

The stories and times began years before this scene from that April day in 2004; the memories will go on forever.

Out of Whack

A friend in the investment business called on Friday. “I'm not dead yet,” he said, “in fact, I'm feeling better.” (Sorry, that’s a bit of an inside joke – and a reference to medieval Europe – so a bit offbeat, too.)

“I've had a glass of wine – or two. Ruffino Cianti Classico Riserva.
Unfortunately, the bottle was too small.”

“Good wine,” I said.

“Si,”

“Too early here," I observed.

“Ha,” he laughed. “Is there such a thing? It's after lunch, no?”

“So it is,” I agreed. “What’s the celebration?”

“I'm just about finished moving my clients to cash. I have a few who haven't returned calls, but they should be out by mid next week.” “I started moving them in December. I think we are in real trouble here.”

I thought about that, and added, “This is a time when commodities are no refuge either – that looks like a bubble.”

“Agreed. I don't think they are in a bubble, but I think they need a near term correction,” he said. “They are ahead of themselves.”

“When we get a true correction – a bear market – there is nowhere to hide in equities.

“I’ve arranged for healthy lines of credits for my clients For the purpose of investment, "if" we get a large correction But I don't intend to use them, unless we drop 20% or more

“This is the second time in my career that I've felt the markets were out of whack, out of synch... the other was in 1999 into early 2000.

“I have a cartoon from that time on my desk at work. A smiling commentator says, ‘Alan Greenspan noted that the glass was half full... markets rose on the news.’”

“Was the GE news today a wake-up,” I asked?

"Tom, there have been so many wake-ups at this point. I just laugh at the general apathy."

"So, there’s a correction looming?"

"I'd like another month and a half. But if I was confident I had a month and half, my clients wouldn't be in cash already. I'd like more time to call prospective clients, to tell them I'm moving clients to cash, while their broker is pitching the ‘we are long term investors BS.’"

So, there it is. A point of view. A professional point of view. One I’m inclined to take seriously.

John Maynard Keynes, Milton Friedman, and that Check from Uncle Sam

I keep reading references to a “tax rebate.”

That check you’re expecting is not a "tax rebate." It's cash from the government (congress and the administration) to make you feel good. They hope you’ll conclude that they are doing something about “the economy.”

The trouble is that this distribution of nearly $150 billion won't stimulate a damn thing if the government then cuts spending by the same amount, as they – particularly the congress – claim they will. They must be counting on the voters to be economically illiterate.

It’s simply Keynesian. (1) Here’s why. A net surplus disinvests in (takes funds out of ) the economy, slowing economic growth. It also deflates the currency, given neutral monetary policy. A deficit invests in the economy, (puts funds into) stimulating a higher rate of growth. Given neutral monetary policy, it inflates the currency. So, if the government mails out $150 billion, then “pays for it” by raising taxes or cutting spending elsewhere (it makes little difference which) the net effect is zero. $150 billion in, $150 billion out. In fact, if it takes the money from productive uses (repair of transportation infrastructure, for instance) in favor of Joe Schmoe buyng a new (Sony) television set at Walmart... Well, I suspect that nothing could be worse in the long run.

Monetary policy - owing much to Milton Friedman (2) - is what the Federal Reserve does, and its current policy is stimulating – to lower interest rates, and pump more liquidity into the domestic economy. To the extent that the lowered interest rates are below those available in other currencies, that weakens the dollar. A weaker dollar increases our price of crude oil (one example) and reduces its price for those using other currencies to buy energy (the Euro, and Asian currencies).

Most of the recent run-up in the price of crude in the US is not "real" but rather simply follows the drop in the value of the dollar.

Right now that formula is very simple. Interest rates down = dollar down = oil (and other fungible energy sources) up.

The trouble is, both party's candidates are busily promising more of exactly the same or worse. , What would be worse? Two simple policies, which together are exactly what Herbert Hoover and the Republican congress gave us in 1930.

Hoover’s big economic fix for the recession of 1929 (form which the country was already recovering in early 1930)? A budget in surplus. Of course that – as we have seen – pulled money out of the economy at a time when stimulus was required.

Then along came the congress, which in June passed the Smoot-Hawley Tariff Act. This greatest blunder in modern economic history prevented a recovery from the 1929 recession when many countries retaliated with their own increased tariffs on U.S. goods, American exports and imports plunged by more than half, and massive layoffs resulted.

Consider the most popular economic themes of the current presidential campaign: one, “fiscal responsibility” (a balanced budget), and two, protection from “unfair trade practices” (tariffs against imported manufactured goods).

Those who don't learn from history will repeat it. Which we're about to do.

(1) John Maynard Keynes (1883 – 1946) British economist who advocated government fiscal and monetary measures to mitigate the effects of economic cycles. Keynes is generally recognized as one of the fathers of modern macroeconomic thought.

(2) Milton Friedman (1912 –2006) American economist who made major contributions to macroeconomics, and in particular, monetary policy. In 1976, he was awarded the Nobel Prize in Economics. "Friedman's monetary framework has been so influential that in its broad outlines at least, it has nearly become identical with modern monetary theory," said Federal Reserve Chairman Ben S. Bernanke recently.