2011 was full of challenges, including the continual financial crisis in Europe, the Arab Spring in the Middle East, natural disasters and political dissent in the United States. Markets don’t like uncertainty and thus a year of volatility across global financial markets.
As I’ve stated before, our problems revolve around policy, and sadly, I don’t see our current elected leadership making a significant departure from the futile Keynesian policies. Washington is completely inept at tackling our debt, and I believe we will see our debt limit raised again this year. Bureaucrats cannot spend money more efficiently than the people who earn the money, and politicians cannot make better investment decisions than private enterprise. Industrial policy has never worked anywhere, and we see multiple examples of its failure almost every day in the headlines.
Once the Great Melting Pot, the US has created a Great Dependency Pot that is now so entrenched that true reform is politically impossible. Our social welfare is an excellent example of how U.S. policy is driving into the abyss. Social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960. How about Federal wages? Since Obama took office, the number federal workers that make over $150,000 has more than doubled. On average, federal employees total compensation is TWO FOLD higher than private sector. Good luck reforming social welfare.
What’s in store then? High volatility will remain the norm. 2012 is a pivotal year for global politics and leadership changes in the U.S., China, Europe and others in the developing world. This will create opportunities and risks. The debt bubble will continue to threaten growth. Again, this is a game politicians here and abroad can stop playing and address. Will they? Probably not and that’s why November is so crucial.
I believe people are waking up to the fact that the trillions of dollars of wasteful government spending in the past several years hasn’t worked. There’s more main stream awareness, debate and admissions that government spending not only doesn’t stimulate, it in fact has hurt us by squandering precious resources. I’m hopeful that the presidential elections will focus the country’s attention on failed Keynesian policies and how to get back on track.
One of my daily readings comes from the Calafia Beach Pundit, Scott Grannis, who was Chief Economist from 1979-2007 at Western Asset Management. Scott is a supply side economist who has an excellent blog.
“It takes a Hungarian to help us understand why the U.S. economy is not creating enough jobs. Bottom line: taxes are too high, regulations are too onerous, you can’t fire anyone, it’s easy for employees to sue you, the law favors employees over employers, those who skirt the law have the advantage, the press vilifies success, and the tax code punishes success and rewards slackers.
Read this rant, translated decently from Hungarian. HT: John Cochrane, whose recently-started blog is off to a great start.”
Money Buys Policy…AGAIN
There’s no shortage of ways that lobbyist find to change policies to the detriment of Main Street. A great story in the Washington Post by Barry Ritholtz (http://www.washingtonpost.com/the-systemic-risk-revealed-by-mf-globals-collapse/2011/12/14/gIQAtrTI1O_story.html), who notes that in 2010, Jon Corzine, CEO of the now-infamous MF Global organization, successfully lobbied to prevent the Commodities Futures Trading Commission from imposing regulations against borrowing client assets to buy risky European sovereign debt.
Mr. Ritholtz reports that MF Global also successfully petitioned the CFTC to deregulate the rules covering customer accounts and segregated monies, and let commodity brokers perform “internal repos of customers’ deposits,”–an off-balance sheet maneuver that, among other things, eventually allowed Lehman Brothers to hide $100 billion in debts during the 2008 market meltdown. Before that, in 2004, the five largest U.S. investment banks successfully petitioned the SEC to waive their net capitalization rules. The ironically-named “Bear Stearns exemption” opened the doors to 40-1 leverage.
This Judge Couldn’t Be Bought
Judge Jed S. Rakoff challenged the SEC’s boilerplate language in its settlement of fraud charges against Citigroup. In case you missed it, the SEC charged that Citigroup had sold tranches of mortgage-based debt–the infamous CDOs from the 2008 Wall Street scandal–without disclosing that it was betting against $500 million of the deal in what internal e-mails were describing as “The best short ever!!”
This once-in-a-lifetime short bet, combined with selling the dog investments the company was shorting, resulted in $160 million in fees and trading profits to Citigroup’s bottom line.
The SEC’s proposed fine: $95 million.
In addition, the SEC settlement required that Citigroup neither confirm nor deny the charges in agreeing to the fine. The judge asked why the fine was so low and (this is the part that had me cheering) wondered whether there isn’t “an overriding public interest in determining whether the SEC’s charges are true.”
Wow! Maybe I Should Become a Stockbroker!
Some brokerage firms are now offering 330% bonuses to brokers who make the switch from another firm and come to them. This essentially means 330% of the trailing commissions earned by the broker over the past year. This is upfront money and the firm would not be investing in these new brokers if it didn’t expect the money to return to its coffers. John Lame, a former Merrill Lynch broker explains: “If you’re in a corporate finance department, in most cases, you’re requiring a 3-year break-even point on your investment. They expect to get to breakeven at least by the end of year three.”
This, in itself, is kind of astonishing. In other words, the firm projects that it will generate AT LEAST a 100% profit margin, per year, on the investment recommendations that its newly-recruited brokers will make to their unfortunate customers.
I do need a new truck!!
“The 10 Steps To Make Your Kid A Millionaire”
Forbes Magazine has a great article by William Baldwin. If you have children, this is a must read..
“We’re spending our children’s money. So goes the refrain from people appalled at the government’s deficits. As long as entitlement spending and tax collections continue on their present course, it’s an undeniable truth.
Instead of wringing your hands, do something about it. Make your children so prosperous that they can withstand the Medicare cutbacks and tax increases that lie ahead. Here are ten tactics for boosting the net worth of your offspring.”
Is Your Doctor Paid to Promote a Drug?
I found a very interesting website, thanks to Dr. Mercola’s website.
Doctor’s rely heavily on information from their pharmaceutical reps and from other ‘experts,’ i.e. doctors who are receiving significant fees to talk about drug treatments. Pharmaceutical sales reached a staggering $300 BILLION last year, up five percent from 2008. So how much does big pharma spend on marketing to doctors? According to a new database created by ProPublica, seven drug companies paid $282 million to more than 17,000 doctors during 2009-2010.
According to Dr. Mercola, prescription drugs are responsible for an estimated 700,000 ER visits a year due to adverse drug reactions. And adverse drug reactions from drugs that are properly prescribed and properly administered cause about 106,000 deaths per year, making prescription drugs the fourth-leading cause of death in the U.S.”
Check out the Dollars for Docs and see if your doctor is getting paid. http://projects.propublica.org/docdollars/