The Ignorant Investor

On the news this morning: Starbucks cutting stores domestically as company official states that the consumer "in recession" already.

Canary in the debtors coal mine.

From The New York Times.

WASHINGTON — The stock market plunged again on Thursday on bad economic news, taking little comfort from reassuring words by the chairman of the Federal Reserve or an emerging consensus about a stimulus plan that many worry could be too late.

On a day when stocks were pushed down another 3 percent on reports of more weakness in housing and manufacturing — bringing the decline this year to a stomach-churning 9 percent — all the major players in Washington agreed on the need for putting extra money into people’s hands quickly.

Signs of panic in Washington. When the dogs and cats start talking about living together, mass hysteria can't be far behind.
Even though there is talk of a slowdown, here in my town I have not seen evidence of it in falling prices or less activity at the local stores so far. I don't hear anyone complaining about job losses or tragic stories of people being put out on the street. If we're slowing down, it's from a fever pitch to something approaching a normal economy.

Back in November of 2005, I wrote about REITs after seeing a story about all the market professionals who were piling into the asset class even though it seemed overvalued:

I'm sorry I missed the boat on commercial property REITs, and I've been thinking of dropping money into the sector for the long term. But they're trading at a significant premium over the market value of the properties they own, and the estimated yields on these ETFs are at a bond-like 5% or so (I say estimated because apparently actual yields on REITs depend on end-of-year accounting and won't be known until January 2006 at the earliest). In other words, they're pretty darn expensive, we likes to buy our preciouses when priceses are low when compared to historical averages.

At the time, the iShares Dow Jones US Real Estate ETF (IYR) was trading at around $61. Over the next 13 months, the price rose steadily, eventually reaching a high of around $90. I probably kicked myself a few times since then, but I always figured it was going to come back down to Earth. And it did. After a brutal year, it's back down to $61. Just shows that investors can pile out of an asset class as quickly as they piled into it.

IYR is now 30% off its Jan. '07 high. It might be time to start buying it. One worry: the yield is still only around 4.3%. P/E is 23x earnings. It's not valued into the stratosphere like it used to be, but it's not dirt cheap yet.

Headlining America's favorite bastion of yellow journalism, The Drudge Report, this morning:

RASMUSSEN: Clinton leads Obama among white voters 41% to 27%...
Obama leads Clinton among African-American voters 66% to 16%...

Surprise, surprise.

DETROIT - General Motors Corp.'s top finance executive said Sunday he doesn't see the subprime mortgage mess spreading into auto loans at the company's former credit arm, GMAC financial services.

Auto loans are held by a wider spread of the consumer base than home loans, so chalk this up on the "non-doom" side of the ledger. Provided he's being truthful.

Josh Marshall writes:

We seem to be at the point where there are now two credible possibilities. One is that the Clinton campaign is intentionally pursuing a strategy of using surrogates to hit Obama with racially-charged language or with charges that while not directly tied to race nonetheless play to stereotypes about black men. The other possibility is that the Clinton campaign is extraordinarily unlucky and continually finds its surrogates stumbling on to racially-charged or denigrating language when discussing Obama.

It amazes me that Marshall is so naive about the nature of racial politics in this country, particularly in regard to the Clintons (they of the Sistah Soulja controversy).

The Clintons want to stoke the flames with Obama on racial grounds. As counter-intuitive as that sounds, there's a very smart tactical reason for this move: black candidates cannot win national office or operate at the highest level of government when tagged as "one of those black people who are always complaining about race." No, for a black candidate or official, using the race card is an invitation to Mr. Angry White Guy coming for a little visit and a backlash.

Colin Powell, Condi Rice- they know they're free to say anything they want as national figures, as long as they don't accuse anyone of racism. Obama knows this, too. He's not stupid. Out of the 43 presidents we've had in this country, not one has been black. One never will be black by playing the race card. At the national level, playing the race card just doesn't work.

The same can't be said for white candidates. For white people, playing the backlash is a part of politics when facing a black candidate. Bill and Hillary may lose some votes among the African-American community by playing racial politics, but that won't bother them. They know that they can replace the lost black voters with middle class white voters who will vote only for a black person if the black person is "one of those kind" of black policians. What the Clintons want to do is keep dropping provocations until Obama responds, then they'll tag him as a radical and wipe up the floor with him in the big state primaries.

I'm wondering at what point guys like Marshall stop ascribing the comments coming out of the Clinton camp to poor wording or pure stupidity and recognize that there is an intentional effort underway to make Obama's race a part of the campaign?

UPDATE- I sent a shorter version of this post to Marshall as an e-mail, not expecting a reply. To my surprise, he did respond with the following message:

"You don't seemed to have read what I've written."

So Josh Marshall is not convinced by my arguments. What can I say? If I did misunderstand him, my apologies. But I continue to read his blog thinking that he's overly reluctant to find fault with the Clintons on this issue.

Connect the quote with the candidate. Is this Obama, John Edwards, or Hillary Clinton talking about working the stump as a candidate?

"I spend my time out on the campaign trail — it’s usually about what I can do for somebody else. I’m very 'other' directed — I don’t like talking about myself. ... For me, it’s always about, ‘What can I do for you? How can I help you?’ And I was very touched when that woman said, 'How are you doing? How do you get up in the morning?'"

Turns out this is Hillary talking. I was thrown at first by the phrase "I don't like talking about myself," because every time I see footage of her speeches, the most frequently used words in every line are "I" and "me."

I'm tempted to say she's self-delusional. But she might have decided that the most outrageous claims are the most likely to be believed by voters.

I'm starting to think that democrats don't like Barack Obama's promise of a new tone in Washington.

The democratic bloggers I've been reading are sounding militant and the polls favoring Clinton indicate that what they want is a partisan warrior. Someone who can take the democratic agenda and cram it right down the republicans' recalcitrant throats. We've seen this approach over the past 7 years as Bush has used his razor thin majorities in the elections he's won to impose radical right-wing and business friendly policies on the rest of the country.

Believing the republicans party to be weaker than it's been in decades, the democrats aren't eying the White House with thoughts of moderation and bipartisanship. Obama's song of new beginnings and working together isn't connecting with many democrats even as it rallies independent voters. They want political blood. Revenge and vindication.

Hillary is offering to bring it to them.

From the New York Times:

A Republican familiar with the administration’s thinking said Mr. Bush would present ideas to stimulate the economy, most likely in the form of tax relief, in his State of the Union message on Jan. 28. Mr. Bush will not decide on the details until he returns from the Middle East next week.

Democrats and Republicans on Capitol Hill are also suggesting that they might be able to put aside longstanding partisan differences and work on a stimulus measure, lawmakers and aides said Friday.

In a fresh sign of the possibility of an agreement on a roughly $100 billion package of tax cuts and spending to spur the economy, Nancy Pelosi of California, the speaker of the House, and Senator Harry Reid of Nevada, the majority leader, wrote to President Bush on Friday saying, “We want to work with you.”

Everyone has an interest in keeping away a recession. The one belief that the leadership of both parties share is we can always borrow money to cover lost income or to buy some of the things we otherwise can't afford right now. It's a government designed and built by the consumer. It can't stop borrowing until people start refusing to lend it money.

Saw this in the news today:

WASHINGTON - The U.S. trade deficit in November surged to the highest level in 14 months, reflecting record foreign crude oil prices. The deficit with China declined slightly while the weak dollar boosted exports to another record high.

And thought of this from South Park's Wal-Mart episode:

Stan: Dad, how come Wal-Mart is able to sell everything so cheap?

Randy: It's simple economics son. I don't understand it at all. But God I love it.

I keep hearing that trade balances will eventually even themselves out though the operation of economic forces. I've been hearing that for years. Why does that never happen? Or, an even more important question, what is going to happen when it does?

Josh Marshal of the hugely popular blog Talking Points Memo posts a message from a reader named DB:

Based on what I was feeling, there were two turning points for Clinton in the past week. One was a report that people were chanting "Iron my shirt" at her during a rally. The other was John Edwards' idiotic statements about Clinton tearing up at an event. Mix that in with the subtle media digs at Clinton's gender in recent months (descrptions of what she's wearing, how she "emasculates" men, etc.), and I think you had a tremendous push back from women, and men, who are tired of the misogyny underlying this campaign. It swayed me toward Clinton the past few days, even as I cheered for an Obama coronation.

Now put aside the silliness of the idea that this person is, as he or she claims to be, an Obama supporter. One of the commonest rhetorical tricks in the comments section of political blogs is the claim that, "I actually am a supporter of X, but in this case Y is getting a raw deal" or "Up til now, I support X, but Y has really gotten my notice with this new [insert speech, talking point, crying jag here]. The point is to give the commenter the appearance of distance and impartiality. It's against my interest to admit this, the commenter appears to say, so you can't just dismiss my view as partisan. It's a tired old trick that I wish would go away.

DB claims to be pulling for Hillary here, in part because of a single guy yelling "iron my shirt" at a Clinton rally. Not her health care proposals. Not her record on Iraq. Just because one guy yells at Hillary during an event. Because John Edwards didn't react in the right way. Because the media was mean to her. Picking a president for the next four years, and the key details this person focuses on are trivialities.

That's the nature of the political market. The Hillary Brand has a lot of loyal customers. They love the emotional moment delivered with a big helping of hokum. They don't like the authenticity of such a moment to be questioned.

I read this with the thought that modern credit card companies occupy the same position that loan sharks used to occupy in the old neighborhoods of Little Italy:

WASHINGTON - Consumer borrowing rebounded in November as credit card debt shot up by the largest amount in six months. The Federal Reserve reported Tuesday that consumer borrowing rose at an annual rate of 7.4 percent in November, far higher than the 1 percent rise in October.

The category that includes credit card debt surged at an annual rate of 11.3 percent, a six-month high, reflecting the fact that shoppers are continuing to rely heavily on their credit cards to finance purchases since home equity lines of credit have become harder to get.

The use of 6-7% home equity loans to fuel consumption was bad enough, financial wise. It was like a man gradually selling off his organs in order to buy a new watch or a new set of clothes. But the higher rates of interest credit card companies make ongoing consumption far worse. It's like voluntarily contracting a particularly fast-spreading and deadly form of flesh-eating disease in the assumption that a doctor can come in a fix the problem with yet another injection of antibiotics.

Well, the democrats in New Hampshire have spoken, and as I always thought they would, they went with the Clintonian wing of the party. Hillary polled about 45% of the democrats voting in the primary, while Obama won among independents.

Obama still has a chance, but he's going to be swimming upstream. Rationally, I kind of knew he was going to get ground down by circumstance, but I can't resist the pull of the big dreamers. What can I say? I must have a thing for the underdog.

A sizable number of democrats want the Clintons back in power. The desire to recreate the 1990s is palpable. I don't think this will happen, because the Clintons benefited from unique economic forces that drove a very strong economy. We had a huge market runup that fed government coffers with capital gains taxes and income taxes. We didn't have any big security concerns. It was a singular decade, I suspect.

Meanwhile, on the investment front I've had good luck with gold. This kills me, because gold is a just a dead hump of metal. It doesn't make anything or employ anything. It can't be used to finance new enterprises or research innovative new products. To watch as it keeps climbing in value while my stock holding falter is depressing. I'd rather be giving money to a business that can use my money to make more money. With gold, I feel like we're just feeding off the slowly dying patient that is western civilization. It's the carrion of investment vehicles. But with my other investments languishing, I've got to eat something.