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Saturday, January 19, 2008

KUDLOW REPLAY   Look, mom, he made a rhyme! "Subprime slime." "Subprime slime." "Subprime slime." If Gary Shilling says that one more time on CNBC's "Kudlow & Co." I'm gonna hurl. He thinks he's so clever with his little inventory of dopey slogans like that one (another rhyming favorite of his: "phony baloney," an all-purpose refutation tossed patronizingly at anything he disagrees with, in place of logical argument). After year upon year of costing his clients billions if they followed his broken-clock bearish advice, finally, after all that time, we get a couple months with stocks down and Treasuries up, and he can barely keep himself from shouting "I told you so" no matter what the topic or who is supposed to be speaking. Memo to Kudlow's producers: from now on, when you book Gary Shilling, that's a day I'm not available. You can't have a debate with someone who doesn't listen, never shuts up, interrupts, patronizes his opponents, isn't honest about his own track record, and makes his points not with facts but with silly little rhyming slogans.

Update [1/21/2008]... correspondent "Irrational Exuberance" reminds us,

Yale economist Owen Lamont wrote about Gary Shilling in a 2002 paper evaluating economic forecast accuracy: "...One practice is the "broken clock" strategy, which consists of always forecasting the same event. An example in the sample is A. Gary Shilling, a well-known recession-caller. Throughout the 1980s, Shilling continually predicted recession. In 15 out of 18 Wall Street Journal surveys in which he participated 1981–1992 (data which are not used elsewhere in this paper), his year-ahead long-bond yield projection was the lowest among all forecasters. Fig. 1 shows GNP growth forecasts published in Business Week (various issues). As can be seen in the figure, 8 out of 10 times his forecast is below consensus, and he is often the extreme pessimistic outlier (when he is optimistic in his forecast for 1972, he is also the extreme optimistic outlier). Keane and Runkle cite Zarnowitz's (1969) finding that in a survey including non-professional forecasters, "a number of the occasional forecasters submitted extreme and rather unreasonable predictions" as an example of "inaccuracies due to lack of proper economic incentives" of the forecaster. Yet it is hard to describe Shilling's forecasts as anything, but "extreme and rather unreasonable"..." Shilling, who still makes quite frequent appearances as a pundit on CNBC, had forecasts that were so inaccurate that Lamont had to remove them as outliers from the study.
I've been trying to understand precisely what it is that bugs me so much about the way Shilling acted on the show. I don't like truimphalism in any form, especially when he's been so wrong for so long. But I think the thing that makes him really intolerable is the way he apparently thinks it's so funny that markets are falling, and that people are so stupid for holding stocks. Even if he'd called the top precisely, which he didn't, the reality is that all stocks have to be held by someone at all times, so something in excess of $1 trillion has been lost in the last month or so, and there was no way for everyone to avoid it all at once. Is that funny? Do people who have lost money deserve to have him smirk at them, to ridicule them, to falsely congratulate himself, while he makes his dopey little rhymes about it? No -- in fact, it's disgusting.

Posted by Donald L. Luskin at 2:30 PM | link  

WE'RE QUOTED IN THE WASHINGTON POST   In a terrific op-ed by Kevin Hassett on recession myths:
2. The stock market tanks during recessions.

Not so. With the economy heading south during recessions, the conventional wisdom is that stock prices drop as well. Stocks usually drop before a recession, something that may be happening now. However, the market tends to look ahead and starts to respond favorably to the expected end of a recession long before it occurs. Influential economist Donald Luskin of Trend Macrolytics recently ran the numbers and found that stocks have produced an average return of 12.1 percent in post-World War II recessions. This is only slightly below the average return outside recessions.

Posted by Donald L. Luskin at 12:26 PM | link  


Posted by Donald L. Luskin at 11:31 AM | link  

Friday, January 18, 2008

MICK FEELS McCAIN'S PAIN   My DC-insider pal "Mick Danger" says "I am still neutral in the Republican presidential race." But he makes some good observations about McCain and taxes:
Taxes are a pain and not just to John’s McCain’s claim to be Reaganesque on domestic economic policy.

As for "stimulus," every politician in Washington and/or running for President feels the need to have the best plan. They are responding more to polls than to economic analysis. Give credit where it’s due; this is a wildfire first lit by Larry Summers and Chuck Schumer.

McCain’s stimulus borrows heavily from Rudy’s. I suspect it was rushed into production by his staff.

But, when McCain speaks for himself, he wants something very different; namely, he says he’ll appoint Greenspan, dead or alive, to create a new tax structure and to restrict Congress to only an up or down vote on whatever.

So... that’s leadership?

President Bush was smart to speak in general terms about what he wants on "stimulus" today, and to mention a few things he won’t support. Behind the scenes, there are serious talks underway about the various ingredients of a stimulus package. This is mostly good because it’ll stop the mostly bad ideas.

Stay tuned. All roads in Washington are rocky. I don’t predict a happy* ending. Nevertheless, it’s possible.<> *Happy means “not bad” or “better than expected.”

Posted by Donald L. Luskin at 1:24 PM | link  

Thursday, January 17, 2008

WHO LOSES IN THE NEVADA DEBATES? THE VOTERS!   The Columbia Journalism Review talks about the unintended consequences of the legal wrangling over whether or not Dennis Kucinich must be included in MSNBC's televised debate among presidential hopefuls, ahead of the Nevada caucuses. As always, the New York Times misses the real story.
Yesterday’s final, late-day court decision upheld the FCC’s equal-time rule, which mandates (reasonably) equal air time for major political candidates. But that rule doesn’t apply as readily to cable TV networks…so the MSNBC debate—which, in excluding Kucinich, effectively broke the equal-time rule—could air on NBC’s cable channel, but not on its local affiliates.

So the very people who were its supposed audience—the people who will actually be voting in Saturday’s primary in Nevada—got to see the debate only if they had cable. (Cox Cable, the sole provider in the Vegas area, charges $45 per month for its expanded-basic cable package, which includes MSNBC. Not cheap.) In other words: the largely middle-class workers whose “issues” the debate was supposed to address—the very people who might not want or be able to spend over $500 a year on cable—got screwed.

Which seems, you know, worth at least a mention in the coverage of yesterday’s legal squabble. But several reports—from the AP, in particular—either missed or ignored that element of the story. And one of the few outlets that didn’t, The New York Times (its mention buried in its A19 piece), framed the debate’s lack of local airing as a loss for …the candidates:

An unintended consequence of the ruling was to restrict the debate from being broadcast on the local NBC affiliate here, KVBC-TV. Anchors on the local station said the ruling limited the broadcast to cable. The campaigns of Senator Hillary Rodham Clinton of New York, Senator Barack Obama of Illinois and former Senator John Edwards of North Carolina were hoping for local exposure in advance of Saturday’s Nevada caucuses.
Fair enough. But what about the voters?

Posted by Donald L. Luskin at 10:44 AM | link  

SCHIFF AND HIS THUGS JUST WON'T LET IT GO   Of all the hostile confrontations I've had on CNBC's "Kudlow & Co.," without a doubt the strangest one was my run-in with Peter Schiff. Here's a link to the YouTube replay of my July 2 appearance with Schiff. Here's what I wrote about it at the time:
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).
As you'll see if you follow the link above, you'll see that following our teevee confrontation Schiff wrote me an angry email about it -- which was followed by one from his brother designed to intimidate me. Since then, Schiff has written me several more times over the months, still insisting that he's right and I done him wrong (and still hocking me to read his damn book). What's up with this guy? Just let it go!

It's still not over. Yesterday I got a voice mail from some guy who sounds like a character on "The Sopranos," who identified himself only as "Michael over here in Jersey." He went on for quite a while about how I owe Schiff "an apology," and ended up threatening to send an email to "1600 to 1700 clients" linking to the YouTube replay if I didn't "step up and publicly apologize to Mr. Peter Schiff." I'm not sure why that's supposed to be such a threat -- after all, I proudly post that replay right here on this blog. If he wants to send it around, feel free. But apparently he regarded it as a threat, perhaps because of what he intended to say in his own words in the same email. I have no idea if he ever sent it. But shortly after I got two emails of the hate-mail variety from two people I've never heard of before. From one of them:

I find your comment to be the height of American arrogance. In some way, it exemplifies why our country is going downhill so fast.

By the way, you owe Peter Schiff an apology.

Two out of 1600 isn't a very good response ratio for "Michael over here in Jersey" -- but it's not a nice experience to get a call from an anonymous thug threatening me (nor, for that matter, to hear the same thing from Schiff's brother). Thankfully my disagreement with Schiff from six months ago isn't quite as salient in most people's minds as it is in Schiff's, his brother's, or his thug's.

Why won't Schiff let this go? Maybe because his investment thesis, which he backs up with so much bluster, hasn't really been working? As markets have been turbulent and difficult in the US, they haven't been any better in the rest of the world on average. For 2007, the MSCI World Index without the United States returned 1.7% in local currency terms (that is, accounting for each country's gains or losses in its own currency, as opposed to translating everything back to the dollar or any other single currency). The MSCI US Index did better -- returning 4.1%.

The only way for Schiff to claim he was right would be to look at all non-US returns in US dollar terms. If you do that, then the MSCI World Index minus the US returned 9.9%. That means that the one and only thing that rescues Schiff's thesis at all is the fact that the US dollar declined last year -- actual stock performance was the opposite of his forecast.

From the perspective of the US investor who thinks in dollar terms, here's a way to think about last year's results. If you invested in the whole World Index including the US, you made 7.1%. If you left out the US, you made 9.9%. So the very most that all Schiff's angry fulminating was really worth was the difference -- 2.8%. Is that really worth all the hate?

Update... He really won't let it go. Shortly after this post went up I got an email from Schiff, saying:

Sorry for the threatening emails and phone calls. I certainly did not intend that to happen. I will do my best to discourage this type of behavior in the future.
Isn't that pretty much saying, "I didn't do it -- but I'll never do it again?"

Update 2... The intimidation and the self-aggrandizement continue. Another email from Schiff:

You have absolutely no class what so ever. Again I sent you a personal email and you posted it one [sic] your web site. Of course you conveniently left out the part where I corrected your mistakes with respect to my investment strategy and the success my clients have enjoyed over the years. I will forward my emails to you and your posts to my attorney in the morning to see if your conduct is in any way actionable [sic]

Posted by Donald L. Luskin at 8:46 AM | link  

TAX RISK, TAX OPPORTUNITY   The Wall Street Journal's lead editorial this morning sums up the terrible risks facing US taxpayers as Bush-era rates automatically revert to higher ones in 2009-2010 -- and how this is a great opportunity for real reform as we deal with that risk:
It is fashionable in some media quarters to proclaim that this GOP tax message is tired. And it is true that cutting income tax rates has lost some of its political punch now that nearly half of all Americans pay no income taxes at all. This is due in part to the victory of cultural conservatives who've pushed the child tax credit and want to use the tax code as social policy. We've been willing to accept such credits as the price of passing something in Washington. But they are no substitute for the pro-growth rate cuts most of these candidates are proposing.

With Democrats insisting on a giant tax increase, taxes will be a major issue this fall no matter who wins the GOP nod. And if a Republican does win the White House, a tax reform showdown is inevitable in 2009. The AMT continues to swallow more taxpayers, the death tax is due to expire for a single year in 2010 and then rise back to 55%, and the Bush tax cuts expire after 2010. This is a perfect storm that means the next President will have no choice but to make taxes a political priority.

It also presents the best opportunity for major tax reform since the 1980s. Even if Democrats retain Congress, Charlie Rangel will run House Ways and Means and he seems open to lower tax rates in return for a broader tax base. Republicans are right to make tax reduction and reform a major campaign theme, and voters who really do want to shake up Washington should consider who'd be best for that job.

Posted by Donald L. Luskin at 8:34 AM | link  

Wednesday, January 16, 2008

HILLARY THE GLOBAL ECONOMIC DIPLOMAT   My DC-insider friend "Mick Danger" seems horrified at the prospect of Hillary Clinton making it up as she goes along as president in the new global economy. Especially when it comes to sovereign wealth funds (SWFs), the massive investment pools maintained by Asian and Middle East nations to make global investments. Those funds have been key players in helping troubled US banks and brokers get through the subprime credit crisis with their balance sheets intact. To when Hillary rattles her protectionist sabre about them, it raises real risks. Here's "Mick":
By any chance, did you catch Hillary CNBC just a few minutes ago? A performance worthy of a Whirling Dervish.

She’s doing her Clintonian act on her proposed stimulus package and SWFs; on stimulus, she’s got a plan. She blah-blah-blahs on that.

On SWFs, she’s got enough talking points to fill up an entire day, but nothing that sounds like a plan -- or even ones in support of a plan. She just wants to be seen as being concerned about the lack of “transparency” of SWFs, their comingling of political power and investment and that she’d like to see an “international solution” (to what? with what authority? to stop SWFs from buying US assets?).

She’s downright dastardly because as soon as she gets all those rehearsed lines out of her mouth, she lets her voice trail off as she says, “the World Bank and the IMF” (!) but without any spelling out a specific role for them but leaving an impression that they’d have a role (otherwise, why mention them? does she think they might be potential facilitators or regulators? or are they just big words to say?)

Golly, I want a professional narcissist President who sees every potential issue primarily as it affects her but also opinions of her.

Oh, she finishes up by bashing the Countrywide CEO and mentioning a little person by name who is a victim of greed.

If she’s president, the volatility of the markets will set new records.

I'm horrified by the prospect of Hillary, too. But I have to say I prefer her contentless narcisssism to the very specific activist protectionist agendas of other Democrats like John Edwards.

Posted by Donald L. Luskin at 2:43 PM | link  

PAUL KRUGMAN CAN'T PREDICT WHEN RECESSIONS WON'T HAPPEN, EITHER   He's not always bearish and always wrong. He's just always wrong. Greg Mankiw reminds us that Paul Krugman was saying in February 2001, just a month before recession struck, that everything was fine (and that Bush and Cheney were being pessimistic about the economy for "political advantage"). Sound familiar?

Thanks to "Irrational Exuberance" for the link.

Posted by Donald L. Luskin at 12:24 PM | link  

STIMULATE ME!   Politicians seem to be agreed that we're in a recession -- but then again they always see the worst when it gives them an opporunity to be the heroes with a "solution." The problem is that most of the "stimulus" proposals we've heard are worse than worthless. Here's our friend Brian Riedl at Heritage, with some important warnings about that.
President Bush may offer a stimulus package, and congressional leaders are discussing a proposal centered around tax rebates.

Tax rebates, however, don't stimulate the economy...

tax rebates fail because they don't encourage productivity or wealth creation. No one has to work, save, invest or create any new wealth to receive a rebate.

Critics contend that rebates "inject" new money into the economy, increasing demand and therefore production. But every dollar that government rebates "inject" into the economy must first be taxed or borrowed out of the economy (and even money borrowed from foreigners brings a reduction in net exports). No new spending power is created. It is merely redistributed from one group of people to another.

Posted by Donald L. Luskin at 9:22 AM | link  

Monday, January 14, 2008

KRUGMAN'S PRODUCTIVITY REVOLUTION   Used to be that months had to go by before Paul Krugman would make a statement flatly and shamelessly contradicting one he'd made before. Now, in our new world of just-in-time inventory, months have been compressed into days. From Krugman's blog on Friday:
The signs point increasingly to an imminent, or perhaps already begun, recession.
From Krugman's blog today:
So far, there are very few hard numbers showing a recession underway.

Posted by Donald L. Luskin at 4:43 PM | link  

Sunday, January 13, 2008

THANKS, CLARK   New York Times "public editor" Clark Hoyt thinks it over real hard, and ends up deciding it was a "mistake" that conservative Bill Kristol has become a Times op-ed columnist. But he says the Times will "survive" it. Hoyt forgives Kristol for his heresey on the war, saying
Today, the public widely sees the war as a mistake, but Kristol remains its aggressive, unapologetic champion. In his first column last Monday, he warned against electing a Democratic president who would “snatch defeat out of the jaws of victory in Iraq... That is not why I think Sulzberger and Rosenthal made a mistake...”
Why, then, a mistake?
Fox News Sunday on June 25, 2006, Kristol said, “I think the attorney general has an absolute obligation to consider prosecution” of The New York Times for publishing an article that revealed a classified government program to sift the international banking transactions of thousands of Americans in a search for terrorists.

Publication of the article was controversial — my predecessor as public editor first supported it and then changed his mind — but Kristol’s leap to prosecution smacked of intimidation and disregard for both the First Amendment and the role of a free press in monitoring a government that has a long history of throwing the cloak of national security and classification over its activities. This is not a person I would have rewarded with a regular spot in front of arguably the most elite audience in the nation.

How can Kristol, a mere media commentator, be seen as "intimidating" the New York Times? Why is it disregard of the First Amendment to believe that revealing classified security information is wrong? No justification is offered -- it's just Hoyt's view. That's enough apparently.

Posted by Donald L. Luskin at 11:24 PM | link  

THAT'S KRUGMAN, ALL RIGHT   "...gratuitous and wrong and, we think, worth correcting."

The source is a little surprising, though. That was said by the Barack Obama campaign.

Update... Megan McArdle does a little Krugman-bashing, too. Nothing too, original, but oh well...

Posted by Donald L. Luskin at 11:16 PM | link