Chronicle of the Conspiracy
Saturday, February 14, 2004
Q. What about the editorial page and the columnists? You never write about them.And who's that other fellow who must not be named... the one who "has crossed the line from acceptable or at least standard partisan nonsense to actual irresponsible journalism"? As that person himself might say, "One wonders..."
Posted by Donald L. Luskin at 10:52 PM | link
Friday, February 13, 2004WE, THE PEOPLESOFT Here's my SmartMoney.com column today. More on the PeopleSoft/Oracle deal.
When I started out as an investment professional 25 years ago, my mentor told me something I've never let myself forget. He said, "As an investor, you're like a boat. If you've got a leak, the water will find it."
What he meant, of course, is that if you make a mistake if you betray any weakness, permit any sentimentality, harbor any illusions you will lose money. And there are millions of smart people out there just waiting to take full advantage of you when you do make a mistake (collectively, they are "the market"). So to protect yourself and to make money you have to be a bit tough-minded.
I thought of what my mentor told me so long ago as hundreds of emails from readers flooded my inbox after last week's column about PeopleSoft's efforts to use antitrust laws to fend off a hostile acquisition by Oracle. I was accused of selfishly wanting to see PeopleSoft's employees thrown out of work, its headquarters in the city of Pleasanton, California, turned into a ghost town and its customers left high and dry with nobody to support their software all just to make a few extra bucks on my PeopleSoft stock (I had disclosed that I'm a shareholder). A couple of folks even accused me of taking money from Oracle for writing the column (yeah, right I wish!).
It's not that people are worried for no reason. When Oracle chief executive Larry Ellison first launched the takeover attempt last June, he made some pretty harsh statements about what Oracle would do with PeopleSoft's employees and products. So lots of people who sent me emails lectured me that PeopleSoft CEO Craig Conway had a duty to protect his employees and customers, not just to maximize the company's stock price for shareholders.
Funny thing, though. Most of these emails came from PeopleSoft employees probably not regular readers of this column, but people who saw it posted on an investing message board. According to them, I'm a greedy capitalist pig because I insist that the CEO watch out for my financial interests. Yet somehow these employees are noble and selfless when they insist that the CEO watch out for their financial interests.
How can people be such hypocrites? Is it because there's something sacred about money earned by labor, and something profane about money earned by investing? Some people certainly feel that way about jobs. Just ask N. Gregory Mankiw, the head of the president's Council of Economic Advisors, who has been pilloried in the press this week for publicly stating the self-evident economic truth that the relocation of American jobs to lower-wage countries is for the best in the long run, even if it involves short-term dislocations.
When jobs are done by the most efficient workers that is, the lowest cost ones wherever they may be in the world, the overall efficiency of the global economy is maximized. Workers who are dislocated when they lose their jobs to overseas competitors certainly suffer in the short term, but a more efficient global economy will create new opportunities for them. And Mankiw spoke explicitly of policies to help them through the transition. But that didn't stop the administration's opponents from acting as though destruction of US jobs were a part of President Bush's economic program. And it hasn't stopped PeopleSoft employees from arguing that their own jobs are more important than any other economic consideration.
But I think it's actually simpler than that, and it gets back to what my mentor taught me about how important it is not to make mistakes as an investor. The PeopleSoft employees are simply looking out for their own best economic interests as they perceive them. So they want me to make a mistake to let some water into my boat by making me feel sorry for them. They want me to think that their money should take precedence over my money and to should stop saying things in print that would help the acquisition move forward.
I have absolutely no doubt that if our roles were reversed, these very same people would see it my way. Visualize this: Suppose I asked them whether they'd want to deposit their money in a bank that makes loans to companies based simply on whether they would use the money to keep people in their jobs without even thinking about whether the money would be paid back. Believe me, all of a sudden jobs wouldn't seem so important. "Not with my money, you don't," they'd say.
And that's precisely the attitude you have to take as an investor. Be tough. Sentiment be damned.
Take this little test. Let's say you really believe in some important cause such as clean air. There are three companies you can invest in: Two are polluters, one isn't. But the one that isn't spends so much money on antipollution equipment that it's not profitable. Which should you invest in?
The correct answer to the test is "none of the above." If your principles prohibit you from investing in polluters, then don't. But for heaven's sake, don't throw your money away investing in a company that's destined to go out of business just because it doesn't pollute.
But, of course, the company that's destined to go out of business won't tell you that. It will tell you that it's noble to support the cause of clean air, and that there are things that are more important than money (yet it is precisely your money that they are asking for, so it must be pretty important to them).
The best investment of all would be in a company that can become wildly profitable by inventing some new gizmo that controls pollution at low cost. By all means, invest in that company. You'll do well and do good at the same time. But if for one minute you think you can change the world by throwing money away on noble failures, then the water will find your leak and you'll go down with the ship.
That's why I want CEO Conway to fulfill his legal duty to his shareholders and sell PeopleSoft to the highest bidder. If he has various legal obligations to his employees, so be it but lifetime employment isn't one of them. If he has contractual obligations to his customers, so be it but not getting bought by Oracle isn't one of them.
At the moment, it looks like Conway's strategy is working. The Department of Justice staff recommended this week that an injunction against the Oracle takeover be filed just the way Conway wanted it. The means that even if Oracle were to bid a million dollars a share for PeopleSoft, the DOJ would keep the deal from getting done.
If that happened, I and other shareholders would be out millions. But all of those people who sent me emails accusing me of being selfish would have their jobs.
Or would they? Did it ever occur to them that there's a reason PeopleSoft's stock is so cheap that Oracle wants to buy the company? In a couple of years, after Oracle and SAP have bludgeoned PeopleSoft some more in the market and after Microsoft comes in as a new competitor, turning Conway's flimsy antitrust theories on their head what will be left of PeopleSoft, and what will be left of those jobs?
So, dear readers, if you want to be sentimental, contribute some money to charity. That's terrific that's what charities are for. But if you want to be a successful investor, don't be sentimental, and don't make the mistake of thinking that a company or its employees are a charity.
Invest to make money. Think about it this way: If you make money investing, you can give more to charity.
Posted by Donald L. Luskin at 3:49 PM | link
JOKE OF THE DAY
Posted by Donald L. Luskin at 9:03 AM | link
REYNOLDS ON GREENSPAN DEFICIT MYTHS Must reading from Alan Reynolds:
The idea is that government borrowing must be subtracted from an otherwise fixed amount of saving. Proponents of this idea imagine that if tax collectors would simply take more money from the private sector and give it to the government, the sum of both public and private budgets would be magically improved. It is on the basis of this sort of imaginative bookkeeping that Greenspan and others once predicted that moving from deficits to surpluses would greatly increase the "national savings rate" (public and private saving as a percent of GDP).Thanks to Ed Rombach for the link.
Posted by Donald L. Luskin at 8:48 AM | link
Shots across the bow, coming up? Let's hope.
Posted by Donald L. Luskin at 12:04 AM | link
Thursday, February 12, 2004DELONG DEFENDS HIMSELF Here's how Brad DeLong has been answering the people who've written to him protesting his serial fraudulent misrepresentations of my view on Bush's economic plan. Note that he started out challenging us to sign up again for Bush's "economic plan." Then he claimed it was signing up for Bush's "budget." Now he's turned it into signing up for Bush's "domestic agenda." Look what DeLong wrote to one of my readers,
How he could have interpreted a post titled "Sign Me Up, DeLong" as "no" is beyond imagination. Another reader asked him why he refused to link to my posting so that his readers could judge my view for themselves. DeLong snapped back,
As someone who pays DeLong's salary -- I'm a California taxpayer -- I'm outraged that this fatuous fraud lounges at the public trough all day churning out these lies. But I suppose that's better than doing what I actually pay him to do -- corrupting the youth of Berkeley by teaching them his bogus brand of the pseudoscience of economics.
Posted by Donald L. Luskin at 11:38 PM | link
Here is the full text of the latest version of DeLong's lies:
FURTHER UPDATE: Donald Luskin protests that I have misinterpreted him: that he is in fact an enthusiastic supporter of the proposed Bush 2005-2009 budgets.Let it also be noted that I posted a comment on DeLong's site respectfully protesting these lies, and providing a link to my original post. In under an hour, DeLong had removed it. All you bloggers out there on both sides of the political spectrum who seem to automatically link to DeLong as some kind of unquestionable "authority" on economics -- you might want to think about the quality of person you are endorsing.
Posted by Donald L. Luskin at 2:21 PM | link
Here is what I originally wrote:
SIGN ME UP, DELONG Brad DeLong is asking for economists who signed a public letter last year endorsing Bush's "economic plan" to declare whether they would sign again now. As of this moment he says only Larry Kudlow has stood up to be counted (perhaps that's because of all the busy people who signed the letter, Kudlow is the only one who took the time to glance at DeLong's excruciatingly boring website... who knows... I just happened to see it tonight looking for something else). At any rate, DeLong can add my name next to Kudlow's. I signed the letter last year, and I'd sign it today. But let's be clear about what I'm signing. I'm signing up for a supply-side tax cut. That's the "economic plan" being referred to here. I'm not signing up for steel tariffs or a farm bill or Medicare prescription benefits or abstinence counseling in Baghdad anything else. All those things have economic impact, but they are not part of the "economic plan." But if the question is cuts in marginal tax rates on labor and investment income, then bring 'em on, DeLong.Here is DeLong's fraudulent version:
UPDATE: Not even Donald Luskin will sign on to the Bush budget plan: "...let's be clear.... I'm not signing up for steel tariffs or a farm bill or Medicare prescription benefits or abstinence counseling in Baghdad." But it is the same administration with the same policies that it had last year (better policies, in some respects: the free-trade forces within the administration are stronger than they were), when he signed on gladly. But I'm glad to have him aboard.
Posted by Donald L. Luskin at 12:58 PM | link
READERS RESPOND ON SPENDING A brave reader temporarily adopts a clever Dennis Kucinich disguise...
I've decided you are the most brilliant blogger, because I agree 100% with you. Particularly on Andrew Sullivan. Here's a response to his taunt yesterday.Andrew, Dennis Kucinich here. I looked at the first graph, which shows spending as a percentage of GDP. I'm not an economist, but I think this is a useful measure of whether spending is exploding. Cato's graph, compressing the range, is truly misleading, and only by looking at the numbers can any conclusion be drawn. It seems the Republican majority inherited a spending rate of 20.75%. They reduced that to as low as 18.4%. Today it is at 19.9%, projected to go to 20% next fiscal year, and back down to 19.9% the following year. The rate indeed jumped from its low in 2000. (Could something have happened in 2001 to affect this?) But, over the period selected by Cato, it has not exploded, nor has it even grown a little bit. It has gone down by nearly a whole percentage point and continues downward. Peace, Brother.John L. Primmer
Posted by Donald L. Luskin at 11:43 AM | link
JOKE OF THE DAY
Posted by Donald L. Luskin at 11:37 AM | link
Posted by Donald L. Luskin at 12:19 AM | link
Wednesday, February 11, 2004OKRENT: BLOGGER New York Times "public editor" Dan Okrent has a blog, of sorts, now. Thanks to reader Jameson Campaigne for pointing it out.
Posted by Donald L. Luskin at 5:14 PM | link
Give up? Okay, here's the answer. The last one is different. The first one refers to "David N. Siegel, its chief executive"; the second refers to "Joseph Volpe, general manager of the Metropolitan Opera"; and the third refers to "Clive Davis, the BMG record executive." But the fourth refers only to an anonymous "chief investment officer."
Gee, I wonder why the Times didn't want to say, "chief investment officer, Donald Luskin"?
Posted by Donald L. Luskin at 3:21 PM | link
JOKE OF THE DAY
Posted by Donald L. Luskin at 3:01 PM | link
Of course it was on outside "op-ed contributor" who made the goof, not a Times columnist (or there would have been no correction). Same order of magnitude as Graydon Carter's error that moved the federal debt from trillions to quadrillions. And, naturally, the error was in a direction unflattering to the Bush administration. If this same kind of error had been made and corrected with respect to Iraq policy, Andrew Sullivan would have been all over it. So where is he now? Nowhere -- because spending and deficits are issues where he agrees with the Times, and is content to let them err as they will and make all manner of errors himself.
Let me be clear here. I basically agree with Sullivan on spending, and I agree with him on Iraq, too. Hey, I even agree with him on same-sex marriage (and it's fine with me if he wants to write about it a lot). I shouldn't have to say any of that. I think I've been on record plenty as to my opposition to the expansion in government spending (and the associated expansion in government itself) on Bush's watch. My point was never to defend the spending, but only to highlight the sloppy, ill-informed and ad hominem nature of Sullivan's critique -- even though I agree with his general view on this. I'm not even trying to pick on Sullivan, in particular. He's just another example of how pundits start with a set of priors about some issue, and then reflexively defend to the death any politician who embodies that point of view or, conversely, savagely attack any one who doesn't (calling him a liar, etc.), whether or not the pundit clearly understands the facts or has any idea how to qualify the sources he cites in the attack or the defense. Sullivan's record of howlers on this issue speaks for itself, and are especially disturbing considering that he plays both sides of the fence with Bush -- praising him on Iraq as though he were a genius and a sincere man and protecting him against all critics, and damning him on spending as though he were a lying imbecile and embracing even the most wrong-headed critiques. One man can't be both things, and that's the problem with ad hominem analyses of issues -- and a problem when pundits get into areas requiring domain expertise they don't really have. What does Sullivan really know about public economics? Nothing. For that matter, what does he know about military affairs? Nothing. But that's the pundit game, I suppose. Sullivan is not an especially egregious example. Happens all the time.
With all that as background, I was distressed to get this stinging letter from my colleague Bruce Bartlett in response to my post clarifying what President Bush meant about spending on "Meet the Press." I've reminded Bruce of my bona fides on this issue, but I thought his letter made a lot of great points, so I will run it here anyway:
Update...Reader Steve Melancon adds:
The Times wrote in its correction:Update... Econopundit weighs in."An Op-Ed article on Saturday about President Richard M. Nixon's management of the economy misstated the amount of the projected budget deficit for 2004. It is $521 billion, not trillion."They'll have to run a correction for that correction, since Richard M. Nixon hasn't projected any budget deficits for quite some time. Certainly none since his death in 1994, and not many after 1974, either.
Posted by Donald L. Luskin at 2:49 PM | link
ANTITRUST: CAPITALIST TOOL PeopleSoft seems to have succeeded in using the Department of Justice as a cat's paw in preserving the executive prerogatives of CEO Craig Conway against a hostile takeover by Oracle. DOJ staff has recommended blocking the merger. From the WSJ:"The staff's recommendation is a victory for PeopleSoft Chief Executive Craig Conway, who has relied heavily on antitrust concerns to fight the deal from the beginning. "
Posted by Donald L. Luskin at 9:55 AM | link
Tuesday, February 10, 2004JOKE OF THE DAY
Posted by Donald L. Luskin at 10:55 PM | link
GET ME REWRITE If Howell Raines' New York Times had written this headline Andrew Sullivan would have been all over them. Can anyone explain to me why the following quotation from a Rasmussen poll justifies Sullivan's headline "Kerry Beats Bush on Spending"?
"[O]nly 60 percent of Republicans say their party leader is better at controlling government spending than the Democratic contender. Democrats and unaffiliated voters say that Kerry is better. Fifty-three percent (53%) of conservative voters say Bush is better on controlling spending while 21% name Kerry. Among moderates, 20% think the President is better while 54% name Kerry. Self-identified liberal voters overwhelmingly say Kerry is better."I don't know what's got Sullivan's head so twisted around on this issue. He continues to make the most egregious errors when this topic is concerned, and I've never seen him correct a single one.
Posted by Donald L. Luskin at 4:26 PM | link
"WE DON'T KNOW" ...why the Department of Labor's household survey shows more jobs being created than its establishment survey, says Paul Krugman in today's column. Or, is the real point that "we don't want to ask, because we like using the more pessimistic version?" Unfunny Politics has more.
Posted by Donald L. Luskin at 1:39 PM | link
But let's take the same lofty view on this matter that Sullivan takes when it comes to another matter where he is in agreement with the administration -- the war in Iraq. Let's not parse words, and worry about who said or didn't say "imminent" or, in this case, whether there's an important difference between "budget authority" and what really gets spent. The real issue isn't in the arena of discretionary spending at all. It's in the arena of entitlements -- the massive new entitlements that have been adopted with bipartisan cooperation during this administration, such as the Medicare prescription drug benefit. Get real, all you spending hawks. Bush campaigned in 2000 on this one. Don't get all huffy now that your "compassionate conservative" has simply done exactly what he promised. Did you expect him to change his mind and grant your wishes to the contrary of his campaign promises once elected? And let's not have any fantasies that Bush would have gotten elected in 2000 without taking such positions, or that John Kerry is going to do a better job in this domain if elected in 2004. We're all just getting the spending we voted for.
Posted by Donald L. Luskin at 12:51 PM | link
NOW HERE'S A NEWSPAPER OF RECORD The Tri-Valley Herald can get it right. Why can't the New York Times?
"'They [PeopleSoft management] are simply going to make a deal impossible, period,' said Donald Luskin, an unhappy PeopleSoft shareholder and chief investment officer of Trend Macrolytics in Menlo Park."
Posted by Donald L. Luskin at 10:06 AM | link
But here's the best part. They're going to have to do it twice. Because the "newspaper of record" f**ked this one up. The name of my firm is Trend Macrolytics, not "Trend Macroanalytics."
Look for me on the corrections page. I'm afraid that I'm going to have to insist. Let's see how long it takes them this time.
Posted by Donald L. Luskin at 1:45 AM | link
Monday, February 09, 2004RATING BUSH, RATING ONE'S SELF Has it occurred to Andrew Sullivan that he liked Bush's "Meet the Press" performance when Bush agreed with him (war), and hated Bush's performance when Bush disagreed (spending)? Same president, guy... same performance...
Posted by Donald L. Luskin at 7:48 PM | link
ATKINS LIVES An AC Nielsen poll reports that 17% of American households have at least one member on a low-carb diet.
Posted by Donald L. Luskin at 2:18 PM | link
JOKE OF THE DAY
Posted by Donald L. Luskin at 11:30 AM | link
FRANKEN VERSUS THE POST Now someone on the left knows what it's like to be called a stalker.
Posted by Donald L. Luskin at 11:28 AM | link
Sunday, February 08, 2004BUSH SIDES WITH KRUGMAN On "Meet the Press," the president echoes Paul Krugman's opinion of how conservative think tanks see federal spending:
RUSSERT: But your base conservatives -- listen to Rush Limbaugh, the Heritage Foundation, CATO Institute -- they're all saying you're the biggest spender in American history.
Posted by Donald L. Luskin at 4:16 PM | link
EXPORTING RADICALISM TO THE CARIBBEAN Here's a cute little online edition of a cute little Jamaican newspaper, complete with cute little button ads for Foska Oats -- "The Healthy Way Everyday". Too bad its editorial consists entirely of quoting US editorials attacking Bush. Including, of course, Viva Paul.
Posted by Donald L. Luskin at 12:56 PM | link
"Callahan invokes a lost age of corporate altruism. He quotes Krugman that before the deregulation of the 1970's, 'America's great corporations behaved more like socialist republics than like cutthroat capitalist enterprises, and top executives behaved more like public-spirited bureaucrats than like captains of industry.' Even if this portrait were accurate, who would want our economic engines to follow socialist republics, given the way things worked out? Callahan's proposed remedies -- an $8.50 minimum wage, affordable health care, increased financial aid for college, ethics curricula in professional schools, a tougher S.E.C. -- are bigger than the problems they're meant to fix..."
Posted by Donald L. Luskin at 11:55 AM | link