Chronicle of the Conspiracy
Saturday, July 07, 2007THEY'RE JUST JEALOUS Now we know why politicians are always bashing China nowadays. Here's Senator Diane Feinstein, when the subject is fuel efficiency standards for US automakers:
"What the China situation, or the other countries' situation, shows is that these automakers, in all of these countries, build the automobile that the requirements for mileage state. And they don't fight it, they just do it."Thanks to Jameson Campaigne for the link.
Posted by Donald L. Luskin at 10:05 AM | link
Friday, July 06, 2007KUDLOW REPLAY Here's the YouTube video of Friday's appearance, in which we learn when a tax increase isn't a tax increase (when Jared Bernstein says it isn't).
Posted by Donald L. Luskin at 11:18 PM | link
BEARS ARE FULL OF BULL My SmartMoney.com column for today:
If you watch CNBC, you probably wonder how purported "experts" can disagree so sharply. Are we in a bull market or a bear market? Are interest rates heading higher or lower? Is the economy strong, or is it weak? There's always an expert to take any side of any financial question — and usually take it at the top of his lungs.
I'm one of those so-called experts. I appear on CNBC about once a week, usually on a panel with other experts.
We experts are chosen deliberately by CNBC's producers to have divergent opinions, so that viewers can see all sides of a question. Markets are made up of people with different opinions. They have to be, if you think about it, otherwise buyers could never find sellers and sellers could never find buyers. So I guess it's only natural that there should be disagreement on any given question.
But the sharpness of the disagreements that you see on CNBC might be a little misleading. It's in the nature of CNBC's fast-action format to require us experts to condense our views, which are often quite complex and nuanced, into simple sound bites. And just as important, we experts all know that sharp disagreements make for more exciting shows.
In fact, while we're on the air, and one of the other experts is talking, it's not unusual at all to have one of the producers whisper to us through our concealed ear-pieces, egging us on to jump in. Controversy is good for ratings, to be sure.
So we experts try to express our opinion in a lively and colorful way. But speaking for myself, I can assure you that I've never once expressed an opinion that I didn't sincerely believe. I'm pretty sure the same thing is true for my fellow experts.
Which leads me to my real question of the day: How can some of the experts on CNBC actually believe some of the outright wrong and patently ridiculous things they say?
"Belief" is a funny thing. In human psychology, belief is the intersection of logic and emotion. It's not always clear what irrational or non-rational factors cause us to accept, discard, overweight, underweight and otherwise synthesize the facts before us in a belief. Sometimes we sincerely believe things without facts. Other times we believe things despite facts.
And when it comes to markets, finance and economics, facts are usually in short supply in the first place. After all, we're usually talking about making forecasts, which means not only struggling to interpret today's ambiguous facts but, beyond that, extrapolating them into an unknown future.
Many television experts, it seems, have learned to be permanently bullish. It makes sense, in a way. Stocks tend to go up more often than they go down. In an efficient market, that virtually must be true because stocks will always be priced to deliver a positive return. So anyone who is agnostic or unsure about the facts should be bullish as a default position: The odds are with you. That's probably as sensible a belief as anything else.
There's a smaller group of television experts who seem to be permanently bearish. They are making a serious conceptual error by taking this stance. They will be right occasionally, but then again so will the permanent bulls. The permanent bears will, in the nature of things, be wrong more often than they are right.
I'm not permanently one way or the other. But I've been bullish for the last four-plus years, because the facts as I see them have supported that view. And, by the way, I've been absolutely right. So when I'm on CNBC I'm usually positioned against one of the permanent bears. Those people have been absolutely wrong. I don't want to name names. They know who they are.
In some perverse way I admire these people for their dogged determination. They're like door-to-door salesmen who drag their unwanted product around, rejected at every turn, yet never giving up. They always hope that they'll make a sale at the next door they knock on.
Or in the case of the permanent bears, they always hope that tomorrow will bring some terrible calamity that will make them (finally!) right. Actually, maybe I don't admire them so much. What's so admirable about someone who hopes that the world will come to an end, just so that they can have the satisfaction of claiming they predicted it?
What motivates these people? Some of them may be truly committed to the facts that they cite to bolster their belief. Over the last four bull market years, they've cited just about everything including high energy prices, government debt, consumer debt, overuse of financial derivatives, terrorism, the housing bust and the subprime loan crisis.
But if these facts are so compelling, then why haven't any of them added up to a bear market? Why are stocks within spitting distance of all-time historic highs? These things may indeed be facts, but clearly they aren't relevant facts. Otherwise, we'd be in a bear market, not a bull market. Isn't that a fact, too? Apparently not. The permanent bears recite this list of irrelevant facts every single time, over and over, as though it were some kind of voodoo spell that will eventually create the calamity they need in order to be right.
I think another thing that motivates the permanent bears, at least unconsciously, is a desire to stand out, to be different. In a world where most people are (correctly) bullish most of the time, being bearish is a way to distinguish yourself from the crowd. That way, if and when you end up being right, your prediction will have extra value because it was somewhat unique.
Don't underestimate the fan-mail factor either. One of the great satisfactions of being on television is all the email you get from viewers. My emails tend to come from people who are hopeful and independent. But the permanent bears must get emails from scared, dependent people who are huddled in fear that the world will end, eager to get the TV guru's advice on how to survive the pending catastrophe. If you want adoring fans to look up to you, then there's no better way to get that than to scare them out of their wits.
Then there's the book factor. Some of the permanent bears have written books, warning about this, that or the other pending catastrophe, crash, panic or Armageddon. And once you've written a book, you're locked in. You can't change your views until the book goes out of print. You're stuck on bearishness whether you like it or not.
So as you watch the experts on CNBC, keep all this in mind. We experts believe what we're saying, but sometimes our beliefs can be clouded by our all-too-human frailties.
Well, mostly. There is one exception. Me. And in my expert opinion, the bears — permanent and otherwise — are in for another big disappointment here. Consider the facts behind my belief. Earnings are cheap compared to interest rates, which are still low. The economy is re-accelerating and earnings are booming. Liquidity is plentiful. The Fed is on the sidelines.
And the best fact of all is the bears themselves. The very fact that they keep worrying fills me with confidence and optimism. They're always wrong, it seems. The only calamity they're going to get is the reputation damage of being wrong, once again.
Posted by Donald L. Luskin at 5:36 PM | link
MORE TIMES JOBS LIES The New York Times has to lie this morning to poo-poo a terrific jobs report. Reporter Jeremy Peters writes,
Wage gains for most Americans last month were slow, and are most likely still trailing inflation. Compared with June 2006, average hourly earnings for workers in nonmanagement jobs increased 3.9 percent, to $17.38, less than the 4 percent advance in May.But according to the Bureau of Labor Statistics, inflation is running at 2.7%. How is it that a 3.9% wage increase is "trailing" 2.7% inflation?
Thanks to reader Shawn Mercer for the catch.
Posted by Donald L. Luskin at 12:41 PM | link
TIMES CITES NON-EXISTENT SCIENTISTS Here's an absolute howler from the New York Times editorial page this morning:
According to most scientists, the long-term costs of doing nothing — flooding, famine, drought — would be even higher than the costs of acting now.Let's let the Times off the hook for saying "most scientists," when it really means the much smaller number of "most scientists who have opined on global warming at all." The key point is that those scientists who have opined on global warming have surely almost never considered the costs one way or the other. Their science, whether or not one agrees with it, or whether or not they agree with each other, has no "cost" or other economic dimension whatsoever in the vast majority of cases. Most scientists are not presuming to say that it would be more "costly" to, say, let the ocean level rise than it would be to curtail carbon use. They simply say that the ocean level will rise, and that there would be certain physical consequences of that.
So what we have here is the Times essentially making up facts, and putting those facts in the mouths of non-existent authorities.
Thanks to reader E. M. Schulze for the link.
Posted by Donald L. Luskin at 7:53 AM | link
Thursday, July 05, 2007KRUGMAN FAILS HEALTHCARE 101 Reader Steven Hales shares an exchange that he had with Paul Krugman on the New York Times website, concerning a recent Krugman column on health care "reform" (aka "nationalization"):
I have had an abiding interest in the economics of healthcare for years, predating Hilarycare. Since healthcare reform will be a hot topic in 2008 I wrote the following to Paul Krugman in reference to his column of June 3rd, titled “Obama in Second Place” to ferret out his true thoughts on several thorny issues:Steven Hales, Camden, S.C.: Hi - just a few quick questions. Insurance company overhead and administrative costs, processing claims and sending out payments are not areas of health care experiencing rapid growth in costs. Medicare has lower administrative costs, but should have a similar growth rate in these costs to the private insurer given diffusion of technology.As you can see Mr. Krugman made a misstatement about insurance company overhead costs (easily fact checked from financial statements) and failed to address the true drivers of healthcare cost inflation and he mistakenly believes that controlling the main drivers of healthcare cost inflation means rationing care. These kinds of fatuous statements by politically motivated economists need to be countered wherever they appear. I found CAHI’s paper, “Medicare’s Hidden Administrative Costs”, to be a partial rebuttal of Krugman’s statements. On examination of public company health insurer’s financial statements I found their overhead costs falling as a percentage of medical costs (benefit payments). If they were “the fastest growing component of costs” as Mr. Krugman states they would be increasing on a percentage basis with respect to benefit payments. This is really sad.
Posted by Donald L. Luskin at 12:41 PM | link
AND YOU THOUGHT THAT CARBON DIOXIDE WAS THE BIG ENVIRONMENTAL THREAT You poor fool. The real threat is Dihydrogen Monoxide (DHMO), "a colorless and odorless chemical compound, also referred to by some as Dihydrogen Oxide, Hydrogen Hydroxide, Hydronium Hydroxide, or simply Hydric acid." According to a website that tracks the threat,
Research conducted by award-winning U.S. scientist Nathan Zohner concluded that roughly 86 percent of the population supports a ban on dihydrogen monoxide. Although his results are preliminary, Zohner believes people need to pay closer attention to the information presented to them regarding Dihydrogen Monoxide. He adds that if more people knew the truth about DHMO then studies like the one he conducted would not be necessary.Got that?
Posted by Donald L. Luskin at 12:30 PM | link
I THOUGHT WE WERE GOING TO ABOLISH THE FED! The Federal Reserve has done such a lousy job historically of controlling inflation, it's hard to see how replicating its role in the virtual world will do much good. Here, Eyjolfur Gudmundsson, dean of the faculty of business and science at the University of Akureyri in Iceland, introduces himself as the economic guru of the virtual world of EVE Online:
Some of you may have read in various articles and interviews recently that CCP was bringing an economist on board to act as a sort of Alan Greenspan for the virtual world of EVE Online. That economist is me. So here comes a short intro and a bit about what I plan to do as a part of the EVE dev team...Update... Reader Matthew Cowie notes,
Believe it or not inflation is a serious problem in online games. Here's a link to the wiki on "mudflation."Update 2... Here an expert on the economics of virtual worlds apologizes for the factual errors in a New York Times article quoting him, and reveals that the global GDP of virtual worlds is -- wait for it --
...$28.215 billion—several ranks higher than Albania and Nepal, all the way up in the lofty precincts of Lithuania ($29.784 billion), Sri Lanka ($26.794 billion), and Lebanon ($22.622 billion).
Posted by Donald L. Luskin at 11:44 AM | link
IMMIGRATION IS AMERICAN I guess in 1776 it was easy to remember that America is a nation of immigrants. Now so many years later, some are trying to keep immigrants out of America in the name of America. Don Boudreaux notes,
...the Declaration of Independence...explicitly condemned King George III's restrictive immigration policy: "He has endeavoured to prevent the population of these states; for that purpose obstructing the laws for naturalization of foreigners; refusing to pass others to encourage their migrations hither."
Posted by Donald L. Luskin at 8:36 AM | link
Tuesday, July 03, 2007AL GORE IS FROM VENUS, REALITY IS FROM MARS From George Reisman's blog today:
In his July 1, 2007, New York Times Op-Ed piece, (“Moving Beyond Kyoto,” Al Gore states:...while the average temperature on Earth is a pleasant 59 degrees, the average temperature on Venus is 867 degrees. True, Venus is closer to the Sun than we are, but the fault is not in our star; Venus is three times hotter on average than Mercury, which is right next to the Sun. It’s the carbon dioxide.No, Mr. Gore, it’s not the carbon dioxide. If you take the trouble to do an internet search on Google for “carbon dioxide” + “Martian atmosphere,” you will learn that the Martian atmosphere is 95 percent carbon dioxide, yet the average surface temperature on Mars is -63° C (-81° F).
Posted by Donald L. Luskin at 1:02 PM | link
Monday, July 02, 2007KUDLOW REPLAY Here's the YouTube video of tonight's appearance. I've taken on some blowhard braindead permabears before, but here's the nastiest one yet. He's a guy who manages a non-US fund and has written an end-of-the-world book, and -- what do you know!? -- he's on teevee saying it's the end the world, and that the best way to invest is outside the United States. In fact, according to this shameless self-promoter, "America is a burden on the rest of the world." When he had the gall to tell me on-air I should read his book, I called a spade a spade (which you are not supposed to do on television).
Update [7/3/2007]... Economist Josh Hendrickson writes,
I do not know Peter Schiff, but what I saw of him on Kudlow disgusted me. First, he continued to fall back on the "we're not producing enough" mantra that is espoused by individuals who erroneously believe that there are some merits to a trade surplus. This rhetoric is a remnant of mercantilism and this insane belief that their is a fixed about of wealth and that the only way to increase our wealth is to sell more goods and services to others than they sell to us. This is preposterous.Update 2 [7/3/2007]... In the spirit of fairness (if it's "fair" to accept counterfeit money), here is Schiff's reply to me, unedited and in full:
First I do not manage a fund I own a broker dealer. Though I certainly could have invested my client’s money in U.S. stocks for the past eight years I chose to advise them to invest their money abroad instead. As a result they have averaged annual returns of between 20% and 30% for each of the past eight years. The Dow would have to be over 50,000 today to have produced similar results.I apologize if I erred on the "fund manager" characterization. Trivial, though -- he's giving clients investment advice, and it's immaterial whether that advice happens to be cyrstallized in the form of a fund or a broker/dealer environment. With his firm called "Euro Pacific Capital," it's hard to believe that his orientation -- whether in a fund per se, or not -- is not predominantly non-US (which is fine in principle -- it's just a question of objectivity when giving advice on television). Also, note Schiff's clever choice of "eight years" as his timeframe for comparing US to non-US investments. Starting the clock at the top of the US market bubble certainly skews the results. And let's not start back-pedaling about that book not being about the end of the world. Schiff himself describes it as a "...warning of a looming period marked by sizeable tax hikes, loss of retirement benefits, double digit inflation, even–as happened recently in Argentina–the possible collapse of the middle class." Okay, not the "end of the world." The physical planet will still exist (somehow Schiff overlooked the "looming" threat of global warming).
Update 4 [7/3/2007]... Reader Howard Seidler has some advice for the apocoplectic Mr. Schiff.
Update 5 [7/3/2007]... Reader Richard Ridgeway says,
Consider the hypocrisy and arrogance from Schiff: "...Read my book..." -- as if his book is the Holy Grail of truth that can't be denied. Oh, and I'm sure he only accepts non-US denominated payment for his biblical epic.
Update 6 [7/3/07]... Funny how the more beligerant the bully, the more thin-skinned he always turns out to be. Just got this from Schiff's brother -- yep, his brother, for goodness sake. It's like being back in elementary school -- "Shut up, or I'll have my brother beat you up!"
Donald,There's the threat. There's the sound of the jackboots. What class... what rhetorical maturity... threatening to defame me at CNBC because I was rough on little brother. And, uh, gee, by the way when exactly did I call anyone "a liar to his face"? Wouldn't that accusation itself be, well, a lie? And what do you call it when the first words out of Schiff's mouth on the show -- and he couldn't even wait for the host to call on him, so eager was he to attack me -- were that you'd lose money following my advice? I would suggest that this Mr. Schiff tell the other Mr. Schiff that it's time to grow up, and learn to take it if you intend to dish it out.
Update 7 [7/3/2007]... Here's a blogger who thinks the encounter was "an ugly draw." He's half right!
Update 8 [7/3/2007]... Reader Mark Spahn writes,
Peter Schiff refers to your "ad holmium attack" on him.Holarious!
Posted by Donald L. Luskin at 9:13 PM | link
HOW'S THIS... ...for the Democratic party's 2008 campaign slogan?
We have what it takes to take what you have.Thanks to reader "Z".
Posted by Donald L. Luskin at 8:02 PM | link
NOW WE KNOW FOR SURE THE SUBPRIME MORTGAGE CRISIS HAS PASSED Yep. Paul Krugman is writing about it...
Update... A reader (who I assume would prefer anonymity, considering the personal information he divulges) comments,
Surely ("Don't call me Shirley"), Krugman was *never* among that large group of Lefties yelling for easier loans for people who were being shut out of housing market back in the 90s, was he? I wouldn't imagine he could or would ever call for a policy that might turn out to have Unintended Consequences or be on both sides of a policy.
Posted by Donald L. Luskin at 10:37 AM | link
QUICK! DESTROY DETROIT BEFORE PRIVATE EQUITY CAN SAVE IT! My DC insider pal "Mick Danger" points out this story in Fortune:
If turned-off consumers, teed-off union workers and fired-up competitors don't kill off what's left of the U.S. auto industry, then proposed new fuel economy standards may finish the job."Mick" comments, "If an industry has been imperfect (but still has performed better than say the government) it shall be punished until death."
Update... Reader David Withington has this to say about Fortune:
In this week's Fortune there is a story on Mitt Romney. The title readsThe Republicans' Mr. Fix-itHow disgusting is it that one of our "leading" business magazines is using the word "filthy," -- i.e. dirty -- to describe someone very successful in business. Are we to assume then that Fortune thinks people should only aspire to be moderately wealthy, whatever that may be. It's time for Fortune to change their name, which they obviously no longer believe in, to something like, Average, maybe Middling.
Posted by Donald L. Luskin at 8:24 AM | link
ONE VERY STUPID WHITE MAN Our "public editor" Irwin Chusid notes an interview with Michael Moore in the latest US News:
For a man who claims to have researched healthcare around the world, Moore seems (in a figurative sense of course) such a lightweight.
Posted by Donald L. Luskin at 8:21 AM | link