Time for "change"? We ain’t talking small change.

One of Barack Obama’s top recruits is former Clinton FCC Chairman Reed Hundt. Just the other day, he ripped into Senator McCain. Among his many mud balls, Reed is evidently still mad about how McCain ran the Senate Commerce Committee almost a decade ago.

If there is a pantheon of special interest buffets in the food court which is Washington, the Senate Commerce Committee is the Ritz. McCain made no secret that he didn’t like the way the Senate Commerce Committee game was played. McCain may have his faults, but he’s not fibbing when he says he loves to resist the usual pressures of Washington interests.

What exactly does Reed Hundt want? He just wants what he deserves, a few billion dollars worth of spectrum -- the "D"-block of spectrum reserved for "first responders," for which Hundt's venture-backed start-up has special plans (provided he can get his spectrum for free). See, poor Reed, smart as he is, hasn’t really gotten in on the money side of the action, only the policy-setting side. Let’s go back to those crazy days of the Clinton years, when Reed ran the FCC, and there was tons of action all around him.

It was Al Gore who got him the spot as FCC Chairman. Reed was aggressive. He wasted no time in getting control of FCC telecom policy.

He steered it to the benefit of the “competitive carriers” – a.k.a., CLECs – requiring that the established phone companies lease their facilities at deep discounts to the CLECs under the highly dubious theory that the government could create competition. His rules were quite specific and numerous. The idea was to take away incumbent phone company market share and place it on a platter for the CLECs to claim at the FCC’s “Will Call” window.

The CLECs had a brief, glorious political life but were killed once they had to face actual competition in the market.

The rulemakings Reed rushed through the FCC were “too good” for the CLECs. Instead of helping to boost the few existing small CLECs, they instead inspired Wall Street to start a brand new bubble. Within months, hundreds of CLECs were being formed. At its apex, an estimated $90 billion was pumped by investors (induced by the biggest houses on Wall Street) into various CLECs. This was an amazing achievement, given that most of them had no customers, very few of them had any assets and some of them only had payrolls.

Just a few names will jostle memories – Global Crossing, Net2Phone, E-Spire. More than a few famous corporate frauds arose from these FCC rules, although Reed had no responsibility for illegal behavior just because he created the pot of fake gold and its frenzy. After the dotcom collapse in 2000, most of the easy money for CLECs dried up. Without fresh additional money, most of them folded tent.

Then along came George W. Bush with a market-oriented FCC which concluded – correctly – that Reed’s rules inhibited investments in broadband. Then came the courts. First, the federal Court of Appeals for DC affirmed the Bush FCC’s action undoing Reed’s rules. Then the U.S. Supreme Court in 2004 let that ruling stand. Sanity was restored. Reed’s dream was dead.

Looking back, a few individuals made millions, most investors lost billions, some went to jail and Reed wrote a book.

More recently, Reed suffered another loss when his company Frontline was dissolved; a victim of its failed plan to get billions in government spectrum for a box of promises about serving police, fire and emergency medical crews. Reed doesn’t blame his business plan, or lack thereof, he blames FCC rules he says were too vague.

So, what Reed’s third act? Endorse Obama and attack McCain for being so McCain-like.

Once Obama gets in, bet ole Reed will have some new ideas for some FCC rules. Ideas which won’t be vague.

Years ago (10-15), when I wrote research -- on special situations -- Herb Greenberg used to phone me up and ask questions about certain stocks, and stories. He was a good reporter. He asked insightful questions. He wrote interesting and thought-provoking stories. Now he is asked to have opinions of the broad market and the economy of which he has no background in experience or training upon which to base such opinions. This is the mistake of television news and opinion broadcasting, where reporters and journalists interview other reporters and journalists. From a substantive perspective, it is really quite boring -- even if some producers believe they're presenting entertaining programming. Larry Kudlow has paid his dues in the relevant education, training and Wall Street experience, while he has an affable personality that converts quite well as a TV business news and opinion show host. The reverse --reporters opining on the economy -- doesn't work.

Between the lines, Herb seems to being saying he's got an option ARM on a 1.5M 2 year old home, that will reset in two years. He's underwater and will need gills by then. Just sayin' is all.

When I have spoken with Herb, or read his columns, he is brilliant when he sticks to his core competence -- forensic sleuthing, breaking the company scandal-in-waiting. Sadly, this reinvention of himself -- when I've watched him on CNBC talking about topics outside his forte -- such as a recent forecast on oil markets -- I am uncomfortable and embarrassed for him. Perhaps he should assume a nom de plume, wear a mask like Zorro, when he starts frothing at the mouth.

When I was sitting there last night in the little studio I use in San Diego, doing Larry Kudlow’s show on CNBC, all that kept going through my mind was Ethel Merman singing, “Ev-uh-rything’s com-ing up ro-ses…”

The high point, for me, was when Don Luskin, frustrated with my use of the word “maybe,” asked me what I really think will happen in the future, and I told him something like, “Unlike you, Don, I wasn’t blessed with the gift of a crystal ball.”

Don’s a smart, VERY opinionated guy who was chatting up gold years ago when everybody else, including Cramer, thought he was a crackpot. A lot of people think he still is, as they do me. As is the case with all of us who have strong opinions, he eventually will be proven right.

But the bullishness, at this stage, for some, has hit the giddy stage as if everything that just happened, and continues to happen, doesn’t matter.

As one reader with a sense of history wrote:

All you had to say was what would have happened if you’d listened to the market/economy bulls in October 1930. The Dow was 164 having declined 52% from the July 1929 high of 343.

Sounds like a good time to be bullish right?

Problem is it took almost six years for you to get even (July of 1936) and in the interim you would have watched your Dow investment decline by 74% (to 43 in July of 1932).

These blind bulls are crazy. They make it sound like bank earnings are irrelevant. Who do you think put money in the hands of the consumer and businesses to create the business EPS growth? Problem is that the bank implosion wont impact the businesses that quickly as many still have decent liquidity and few are paying of their Auction Rate Securities.

You are right that the consumer is toast and if the bulls think eliminating their access to credit is OK wait till they find out that banks are now taking away unused credit lines. That should shake them up a bit.

I want to know from the bulls who is going to replace the $600 billion in liquidity provided by sub prime loans last year. The answer should be really good.”

Bulls? The floor is yours….

Look at Herb's blog post, above. His idea of a strategic insight is to claim that sentiment has become "giddy" -- hard to justify against virtually any traditional measure of sentiment at this point (for instance, the consensus of economists for this week's GDP and jobs reports is quite pessimistic). His idea of an argument against the self-proclaimed giddiness is neither original or authoritative, but rather the anonymous reproduction of a letter he got from some reader, spouting all the same tired cliches about the economy we've heard from the decidedly ungiddy consensus for most of the last two years. Does Herb actually possess an opinion, himself?

And how about his critique of me. He calls me a "crackpot," but without taking any real accountability for such a strong term -- he just claims that "a lot of people" think so. Does he think so? Who knows? Again, no opinion expressed -- at least not directly. He then goes on to soften the "crackpot" accusation by branding himself with the same label. But he then dismisses the entire realm of strategic ideas by saying, "As is the case with all of us who have strong opinions, he eventually will be proven right." In other words, "a broken clock is right twice a day, so who cares about opinions?" But wait -- he gives the example of my out-of-consensus call in 2001 to buy gold, which turned out to be spectacularly right. But that wasn't a case of "eventually." It was spectacularly right from the very beginning, and just got more and more right over the next six years. What ideas of Herb's, expressed then, or ever, have that kind of result behind them? For that matter, what idea is Herb expressing even now that could "eventually" be right? He has no ideas at all.

When, on Thursday's show, Larry showed Herb some evidence of improving financial conditions, here was Herb's response:

Larry, what we know is, look, things, we're on the roller coaster, we're on the fall, we're down on the fall, we haven't come back up yet, the roller coaster's going to continue, there's more to come, what it is I don't know. You're looking at the charts and you're-- that's great, Larry. That's great. But when it falls, you're going to say, "Wow, I didn't expect that." I mean, come on, Larry.

Later, trying to elicit something substantive from Herb, Larry asked, "How worried are you. Serious question. Honest question" (in other words, "Herb -- please say something this time"). Herb's reply:

Well, Larry, I think the risk remains, and suddenly to hear so many people just turning around and saying "Hey, the recession's over." And you know, by the way, by the way, the recession hasn't been declared, and by the time it's declared, of course, it may be over. It may be on it's way to being over. But we haven't even see it declared yet, and we know it's coming..."

In another segment, Larry again tries to get Herb to consider the bull case. Herb's response,

I'm looking at...the CIBC World Markets forecast for oil. $200/barrel by the year 2000 [sic], $7 a gallon gasoline -- don't you think, now..."

Here's the YouTube replay. See for yourself. The more I think about this, the more I'm coming to the conclusion we should be thankful that Herb never has an opinion.

Posted by Donald L. Luskin at 12:25 AM | link  

Sunday, April 27, 2008

Posted by Donald L. Luskin at 11:15 PM | link  

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