Bernard Baruch

The subtitle is The Adventures of a Wall Street Legend and the author is James Grant (1983, 1996).

I knew of Baruch as a successful investor and advisor to FDR, but that’s where my knowledge ended. This biography served to broaden that understanding. In truth, while a very wealthy man because of his investing prowess, the legend was a bit overstated – for example, he was bullish at the 1929 peak and still buying stocks up until the crash (to his credit, though, he managed to make money through the turbulent 1930s). And his political “career” spanned presidencies from Wilson to Kennedy, both in formal and informal advisory roles. He was an affirmed Democrat, but was flexible in terms of the particulars, going back and forth from supporting price controls in one instant to hands-off government in another, depending on the time and audience. He also rejected Keynes and his ideas from the beginning, but again stayed nimble in his representation of that fact. Generally, he was a shrewd operator.

Two interesting, albeit trivial anecdotes from the book: (1) Baruch was Jewish and from South Carolina, and his father was actually a member of the KKK, and (2) the famed Dakota building was named as such because it was located way far away from where Manhattan ended at the time on 59th street.

Links

I think Alasdair Macleod provides an interesting take on the taper announcement. To wit:

-The reduction was a token amount and the fact that it sliced away at MBS and Treasuries equally suggests that the decision was one to “pluck a figure out of the air”

-Even if the QE policy was reduced in scope, the commitment to ZIRP remains. And, therefore, implicitly a commitment to providing as much liquidity as needed to keep rates suppressed. Doesn’t that make the two policy announcements a bit contradictory? Or, better yet, QE meaningless in the context of whether or not the Fed must continue to be out in the market buying and selling lots of securities?

Here’s another interesting link – the gold ain’t there.

Speaking of Obamacare, one more requirement has been waved by fiat – namely, the deadline for people who had policies cancelled to sign up or else endure a penalty. This thing is becoming the disaster that keeps on giving. But, the best part is the closing line of a very snarky article: “And the punchline: With only days before the Monday deadline to sign up for coverage that starts Jan. 1, insurers are facing a much smaller, and sicker, pool of customers than hoped for. Like we said: anything that can go wrong... oh look, over there, the Stalingrad & Propaganda 500 just hit a new all time high!”

In Mark Hanson’s latest, he lays to waste the idea that housing is more affordable now than it was during the bubble years since rates are lower and prices are still beneath the highs. The reality is that the exotic financing of yesteryear that allowed people to buy with no money down and no income is gone. Today, the great majority are doing 30-year fixed terms, and the monthly payments are about as high as they have ever been. Factor in at least 20% down, and you should ignore the prior highs on Case-Schiller as to where things could go.

The Taper

A few thoughts:

-Even after a $10Bn monthly decrease, the Fed is still on pace to grow its balance sheet by $900Bn per year

-My view is that this move was really a token gesture, so that Bernanke could exit office having done something that resembles prudence

-The reaction of the stock market, to shoot upwards, is only emblematic of the goldilocks crowd, detached from the realities of hard data. Rates went down but then crept back to 2.89%. That trend continues to be up and the disconnect between equities and fixed income will not last indefinitely

-People like to say that QE has not been inflationary, and that all those newly-created reserves just sit at the Federal Reserve doing nothing. If that’s really the case, then why not start to unwind, since they have no impact. But, obviously, their existence has some significance. Clearly, not only can no unwind occur, but it continues to be important to grow the volume of those idle dollars

-Eventually what has been done today will be undone, and in magnitude greater than $10Bn

And, no, I’m not in denial about where things are. I’m just convinced that the majority is.

Be the Change You Wish to See

“Even if you’re on the right track,
You’ll get run over if you just sit there”

-Will Rogers

“If you can fill the unforgiving minute
With sixty seconds worth of distance run,
Yours is the Earth and everything that’s in it
And – which is more – you’ll be a Man, my son”

-Rudyard Kipling

Some time earlier this year, I expressed a bit of optimism that my career would change for the better. However, in the months that followed, despite the efforts that I was making, the doors that I tried to open were either locked or stuck. And confronted with the possibility of being somewhere that I did not want to be, I decided to try something different.

I recently teamed up with a friend to pursue a career in real estate on my own terms. Actually, that might be overstating it. There is always someone you have to answer to. And, for us, it will be potential investors as we try to get deals done. But, be that as it may, we are trying to be our own bosses, focusing on the markets that we want to focus on, and operating as entrepreneurs not bound by a rigorous mandate.

In other words, we’re trying to have fun.

Now, it is still very early days and far from clear that we will succeed. But, the tenor (at least for me) has changed. I feel re-invigorated and excited about the possibilities. That’s a good start. And it happened because I agreed to do something that seemed more risky than my straight and narrow demeanor typically goes for. I’m sure there’s some sort of moral in there – maybe that the only route to success is one where your nerves get a little frayed along the way. And no doubt that will be the case. But, that’s alright.

I guess these words are really meant to memorialize a turning point then. So, to bring it home with one more quote, here’s the incomparable Ellis Boyd Redding:

“I find I'm so excited that I can barely sit still or hold a thought in my head. I think it's the excitement only a free man can feel. A free man at the start of a long journey whose conclusion is uncertain…get busy living, or get busy dying. That’s goddamn right.”

More on the health care mess

Perhaps I seek it out, but I found this piece from Charles Hugh Smith to be a well-done criticism of Obamacare. Not that it necessarily covers new ground, but it does include some anecdotal evidence of how costs are not going down for consumers for the same or an inferior product. He basically compares his own plan currently, as a self-employed individual, with the equivalent on the exchange and finds higher premiums, out-of-pocket caps and co-pays for the ACA offering. And in looking at the cheaper options, deductibles march even higher.

Next I take you to John Goodman’s blog (he of the book Priceless that I read last year) where he notes that the people signing up for the exchanges are weighing heavily towards the elderly and higher risk profile candidates. Remember, the ACA requires young, healthy people to sign-up in order to keep the program’s costs down. So far, it isn’t working out that way. The upshot is that the government will have to pay out more to the insurers to cover losses, and the insurers themselves will be motivated to raise premiums over time.

Ruh Roh

I thought this Bloomberg article on Japan was pretty interesting. Basically they are getting inflation without wage growth – cost push, not demand pull, the very issue that we were concerned about months ago. So much for those wonderful theories by Keynesians and Monetarists.

Odds & Ends

-Albert Edwards (h/t Zero Hedge):

“…a recession seems a distant prospect in the minds of most investors. Yet one key precursor for a recession has now fallen into place. Slowing productivity growth means that unit labour costs are now running well ahead of output price inflation. This means a margin and profits downturn is now about to unfold. That typically is a key precursor of recession.”

“That confidence in a long cycle comes partly with a high level of certainty that the monetary authorities remain in control of the economic cycle. The doomsayers who predicted that this recovery was on the verge of faltering have been proved wrong, and like the boy who cried wolf, can be safely ignored by the market. Yet that is exactly what happened in 2006 with the US consumer and housing boom, where the voices of caution had been so wrong, for so long, that their Cassandra-like utterances were ignored. Cassandra’s forecasts may have been ignored, but they proved to be correct. Investors demand a sign of when to get out and that trigger may have just arrived.”

-Exhibit A for why banks continue to be black boxes and there is no way to feel comfortable about their balance sheets and respective valuations.

-Given my views on Japan, this article demands further research.

-Over the holiday weekend I spent time with family and friends at different gatherings. In that setting, I have always seen myself an outlier in terms of political and economic views. And in talking about both this past weekend, nothing has changed. What is also abundantly clear, though, is that most of these people (and bear in mind that I care about them) take their views from the mainstream media, and only seem capable of regurgitating the usual recycled talking points. Beit the healthcare law, Iran or the state of the U.S. economy. The contrarian voice holds few in its ranks, and a great many have capitulated to the majority. I see it in the newsletters that I read, and it is definitely prevalent in the people that I interact with. All of which is to say, be mindful when everyone is on the same side of the trade…