VA Land Tax Credit

This is really a great idea. The guys at DT Enterprises really have it figured-out.

Piece-Out!

Eric Cantor & Pork

I was disgusted to see that the Republican Leadership failed to appoint anti-pork Rep. Jeff Flake to the open seat on the Appropriations Committee. Here's my letter to my Rep., Eric Cantor:

I was very disheartened to learn that the Republican leadership in the House chose Jo Bonner over Jeff Flake for the open seat on the Appropriations Committee. Rep. Bonner has a very low rating on the Club For Growth's RePork Card (2% rating!) and I believe the Party missed an ideal chance to prove it's commitment to eliminating wasteful spending by nominating Rep. Flake.

The Party's lack of leadership on this issue has been nothing short of embarrassing and I expected more of you as my Representative. You'll have my vote, but you have failed to capture trust & respect.

Disappointed,

(my real name)

Recession Risk

John Hussman runs a mutual fund (Hussman Strategic Growth) that I own. He's an Economist by training and he's proven to be a very good fund manager. The best thing about John is that he publishes a weekly market commentary that explains his current take on the market and the economy as a whole.

In the last 18 months he's been pretty cautious due to high equity valuations. That said, his weekly columns are always quick to point out that his observations are not predictions and he's very good about disclosing the futility of short-term market forecasts.

Not anymore (emphasis added by me)...

In short, the financial markets are at a critical point. It's possible that investors will somehow adopt a fresh willingness to speculate, but my impression is that in the weeks ahead, investors will be forced to recognize that recession risk has tipped. That's not to say that this realization will produce one-way market movements. Seasonal factors tend to buoy the market a few trading days before holidays and a few days around the turn of each month, and as I noted last week, oversold conditions lend themselves to “periodic short squeezes and spectacular but short-lived rebounds” (which we observed on Wednesday before quickly eroding). So we will almost certainly observe advances driven by investors frantic to “buy the dip” and “catch the rebound.” Overall, however, the return/risk profile on both stocks and the economy as a whole appear increasingly lopsided toward bad outcomes.

As I emphasized last week, my intent here is not to encourage investors to depart from carefully considered investment strategies. The real issue is that investors tend to overestimate their ability to stick with large (often inappropriate) exposures to equities during significant market downturns. I hope to encourage investors to carefully consider their ability to withstand a standard, run-of-the-mill 30% bear market loss (which has historically occurred once every 5 years or so) without deviating from their investment plan. Investors who can't believe that that sort of decline is, in fact, standard and run-of-the-mill are probably already in trouble because they haven't bothered to look at the data. None of this requires that we forecast or necessarily expect such a decline. But investors emphatically should not rule out such a decline in considering their investment exposure.

Run away!

Income Inequallity & Twisted Ankles

For example, the most frequent solution to income inequality, and the one advocated by Krugman in nearly every interview about his book, is higher taxes on those at the top of the income scale.

While this may give the appearance of lessening inequality, in actuality it does very little. Essentially, it is equivalent to twisting
the ankle of the fastest runner in the world in an attempt to make other runners faster. In no way does this make other runners faster.

Indeed. Read the whole article

Africans join lobby for lower farm subsidies

More greedy corporate stooges shilling for free trade.

Africans join lobby for lower farm subsidies

When Good News is No News

Where has all the Iraq news gone? Hmm... could it be that the media has no interest in positive news from the front lines?

When Good News is No News

The Great Elite Back-Down

The Corner on National Review Online

It's us, buddy, the great unwashed. This is still a democracy we have here. Try to keep that in mind, eh?

Heh.

The Skeptical Optimist: Deficit Watch thru Oct 2007

The Skeptical Optimist: Deficit Watch thru Oct 2007

The total 12-month deficit is a 1.2% of GDP and revenue is still growing at a faster pace than federal outlays (yes, my friends on the left, even including the GWOT).

Where's the huge deficits predicted by the Dems? Bush cut taxes, the economy has flourished and tax receipts are up. The Left often miss the fact that tax revenues are based on two factors... the tax rate and the tax base. Isn't it better to spend our time focused on the base?

Cash Flow, Credit Cards and Pay Day Loans

Cash flow is often the difference between solvency and bankruptcy for many businesses... especially small ones. You can have a great product, excited customers and even fantastic sales - but if the cash is leaving faster than it's coming in, most businesses either pack-up or go to a commercial bank for a line of credit. This line of credit allows them (for a cost) to smooth-out the differences between expenses and cash income. Very few businesses could survive without this assistance.

When we look at the smallest of businesses, the household, this same cash flow issue arises more often than most of us would prefer. For higher-income folks like me, we can simply use credit cards and cash savings. For those on the lower end of the income spectrum, however, credit cards and big savings accounts are a non-starters. What's left? Pay-day loans! Hooray! Yes... yes... I know... these high interest loans are one of the favorite punching-bags 'consumer-protection' advocates and journalists. I would argue, however, these negative feelings are misplaced.

Pay-day loans, much like credit cards, HELOCs and alcohol, are best used in moderation. Most critics point to two separate issues: 1) the high interest rates and 2) some borrowers who take multiple loans from multiple lenders and enter into a debt death-spiral. As for the interest rates, they are driven by the high risk nature of the loans. Having had several sub-prime Prosper.com loans default, I can personally testify to the likelihood of loss. Note to all my lefty readers: if you don't like the interest rate, I suggest you loan some money to folks living paycheck-to-paycheck and let me know how it turns out.

The second concern, the debt death spiral, is more of a comment on the poor level of financial education in the US than on the pay day loan folks. There are a whole host of personally destructive activities that negatively impact both the rich and the poor. A dynamic and free society carries with it both the freedom to succeed and the freedom to fail.

Magnifying the Trivial

Hussman continues to be bearish or, at the least, hes not convinced there is any compelling reason to have market risk in is holdings.

Hussman Funds - Weekly Market Comment: September 10, 2006 - Magnifying the Trivial: "Think of it this way. Suppose that there was a high 80% chance that the market will rise 10% over the coming year, and just a small 20% chance that it will decline 15% over the coming year. Sound like good odds? Well, given those odds, the expected return would be [.80(10%) + .20(-15%) = ] 5%, which is the same as you'd get in risk-free T-bills. A risk-averse investor wouldn't take the bet. "

Time to check your credit... for free

The three big credit reporting agencies are required by law to let you see your credit report once every 12 months for no charge. You can turn this law into a free credit monitoring service by spacing-out your requests on a schedule. Since I'm married, I alternately check my wife's and my credit every two months.

This morning, I checked my Equifax report. Here's the remainder of the schedule...

11/1 - check wife's TransUnion
1/1 - check my Experian
3/1 - check wife's Equifax
5/1 - check my TransUnion
7/1 - check my wife's Experian

This schedule allows me to stay on-top of the three credit agencies and each of our credit histories. Here's the link to the free on-line service: AnnualCreditReport.com

Bend It Like (Yogi) Berra

Nice analysis of soccer and it's lack of popularity in the US (hat tip to my friend Scott)...

Allen R. Sanderson, Bend It Like (Yogi) Berra: Library of Economics and Liberty: "Throughout the entire 2+ hour ordeal, I kept asking myself: Why would anyone waste good time or money watching this sport? Ignoring for a moment the lack of scoring, the ubiquitous flops that would make an NBA player jealous or incredulous, and 'unnatural acts' such as not being able to touch the ball with your hands or arms, I began to apply basic economic principles to the sport, and tried to understand why 6 billion people, including my graduate teaching assistants from Milan, Rio and Barcelona, seem to care passionately and a few hundred million, mainly in the United States, don't. "

The Skeptical Optimist: Trade deficit? Or trade surplus?

Great post from the Skeptical Optimist... read the whole thing and then read the research paper (don't worry... it's short and easy to read).

The Skeptical Optimist: Trade deficit? Or trade surplus?: "Ever wonder why economic doomsday hasn't arrived yet? I've been hearing that economic calamity or collapse is only a decade away - for at least the forty years I've been paying attention, anyway. Fifteen years ago was when I started looking at the other, more optimistic side of the argument (...the side that still never gets any airtime), and started finding the growth and prosperity arguments that predicted economic outcomes far better than the doomsday folks had.

Specifically, why hasn't the trade deficit cratered our economy and standard of living yet? Is all that survival gear, canned food, and bottled water we were supposed to sock away going to rot, while doomsday keeps us waiting, waiting, waiting? "

Hussman Weekly Commentary: Data Dependent

Hussman Funds - Weekly Market Comment: August 21, 2006 - Data Dependent: "Despite the market's reaction, the hope that inflation is slowing is hardly supported by the data. The 'great news' on the CPI wasn't even outside the bounds of rounding error, while the PPI figures were actually of significant concern. Sure, the prices of some volatile items like eggs and fish fell steeply, but the improvement in the PPI for 'finished goods' was overshadowed by continued pressure in the PPI for 'intermediate goods.' Here's the picture that concerns me.



Over the past year, consumer price inflation has clocked in at 4.15%. Producer price inflation (finished goods) has been a similar 4.12%. But if you look at intermediate goods, we're currently at an inflation rate of 8.83%. That's the most abrupt widening in the spread between intermediate and finished goods since the 1973-74 oil crisis. Moreover, if we look at points in history when prices for intermediate goods have outpaced prices for finished goods over a 6-month period, we've also seen, on average, an acceleration in the PPI finished goods inflation rate over the following 6 months."

Hussman Weekly Commentary:Premises & Implications

Yikes!!

Hussman Funds - Weekly Market Comment: August 7, 2006 - Premises & Implications: "In short, we should not be surprised to observe stagflation, falling stocks, weak profits, flat bonds, and a dollar crisis in the months ahead."

Hussman Weekly Commentary: Anatomy of a Punch Line

The punchline is that the economy and the market are due for a sustained downward trend. Hussman is bearish and, once again, I hope he's wrong.

Read the whole thing.

Hussman Funds - Weekly Market Comment: August 31, 2006 - Anatomy of a Punch Line:

"As of last week, the Market Climate for stocks remained characterized by unfavorable valuations and unfavorable market action, holding the Strategic Growth Fund to a fully hedged investment stance. On a shorter term basis, the market is again overbought. There are few times that I have any sort of opinion about short-term market action, but overbought conditions in unfavorable Market Climates (and oversold conditions in favorable Market Climates) are among the exceptions.

Some of the worst market outcomes on record have followed on the heels of overbought rallies in periods when both valuations and the overall quality of market action have been unfavorable. In my view, Friday's rally on a distinctly stagflationary GDP report represented a good opportunity to do some lightening up of stock market exposure for investors who have not already done so, and would not easily tolerate a decline of 30% or so in the major indices."

Hussman Market Commentary: Independent Thought

Hussman Funds - Weekly Market Comment: July 24, 2006 - Independent Thought: "It continues to astonish me how much power investors appear to ascribe to the Federal Reserve. The institution can do nothing but purchase debt (mainly U.S. Treasuries) and pay for it by creating bank reserves, or sell debt and receive payment by reducing bank reserves. When you realize that the total volume of bank lending has virtually no link at all to bank reserves (since the majority of monetary aggregates other than checking accounts have had zero reserve requirements since the early 1990's), and that foreign purchases of U.S. Treasuries have swamped Fed activity in Treasuries three-to-six times over in recent years, this whole focus on every word, syllable, and inflection from the Federal Reserve is just preposterous."

Hussman Weekly Commentary: Tornado Warnings

Hussman Funds - Weekly Market Comment: July 17, 2006 - Tornado Warnings:

"In short, until we observe an improvement in the quality of internal market action (which we don't observe here) we shouldn't be surprised to see news - economic as well as political - having a generally negative tone.

For example, since the 1960's, when our measures of market action have been favorable on balance, the ISM purchasing managers index has increased an average of +0.46% over the following month. In contrast, when market action has been unfavorable, the index has declined an average of -0.68% over the following month. Likewise, surprises to the prevailing inflation rate have averaged -0.23% when market action has been favorable, and +0.30% when market action has been favorable. Similar results hold even if we lag the news by an extra month to ensure non-overlapping periods.

We also know that news affects sentiment measures such as consumer confidence and the percentage of bearish investment advisors. These measures give us "summary statistics" of the various concerns influencing consumers and investors in a given month. Historically, when internal market action has been favorable, consumer confidence has increased by +0.64% over the following month, while unfavorable market action has been followed by an average decline of -0.84% in consumer confidence. Similarly, favorable market action has been followed by a contraction in the bearish percentage by -0.38% during the following month, while unfavorable market action has been followed by an average increase in the bearish percentage by +0.46%. Again, similar results hold even if we lag the data."

Hussman Weekly Commentary: There's No Such Thing as Idle Cash on the Sidelines

Hussman dispels the often used case for an impending bull market: there's so much cash on the sidelines. Once again, Hussman presents a compelling case...

Hussman Funds - Weekly Market Comment: July 10, 2006 - There's No Such Thing as Idle Cash on the Sidelines: "One of the hurdles in thinking properly about the financial markets is to understand the idea of "equilibrium" - that all securities issued must be held; that savings must equal investment; that every share bought by someone must be sold by someone else.

... and that there's no such thing as "idle cash on the sidelines."

Prosper.Com Review

I have been playing around with Prosper.Com in the last few months and I want to give my initial impressions. First, Prosper.com is a peer-to-peer lending company... think eBay for unsecured lending. Borrowers submit their loan requests including: amount ($1k - 25k), maximum interest rate (up to 29% or state maximums) and various auction variables. Prosper takes their loan application, runs a credit report and assigns a 'credit grade'.

Lenders, such as me, deposit money into Prosper and then 'bid' on different people's loans by specifying how much they want to lend (from $50 up to the total loan amount) and the minimum interest rate they are willing to accept for that particular loan (every funded loan is comprised on one borrower and many lenders). As lenders bid on the loan, the interest rate stays at the borrowers maximum interest rate until enough money has been bid to fully fund the loan. Once fully funded, the auction starts... as new lenders bid, the interest rate starts dropping until the time limit of the auction expires.

Once the loan is funded and the auction is over, Prosper manages the receipt of monthly payments for borrowers (all loans are amortized over 36 months) and credits each lender's account with their fractional share of the payment.

Here's my editorial...

Pros

• Great business model
• There's a pretty tight and cooperative lender community
• Website is well designed
• My returns, so far, are exceeding my expectations. I am a lender participating in 107 loans with an average interest rate of 18.3%. I have received payments on all of the loans (87) where a payment has come due.
• I should expect a 5% default rate based on the credit ratings of my loan portfolio. No defaults so far... but time will tell.

Cons

• Prosper does not pay you interest on your unloaned money sitting in your Prosper account.
• The cycle time to deposit money to my prosper account (both for my deposits and loan payments) is gut wrenchingly slow.
• Once you win a loan bid, Prosper goes through a rather slow verification process that should take place before the loan gets listed.
• Borrowers have complained about Prosper making various mistakes with payment posting.

Overall, I'm cautiously optimistic. Making 13-18% on my money while participating in a pretty interesting internet start-up is pretty exciting (yes, it doesn't take much to make me happy).

Please join my group on Prosper...

Here's a link to my loan portfolio. (Not completely accurate, but it's directionally correct.)

Hussman Commentary: July 3, 2006 - Fedwatching - Just Say No

Hussman Funds - Weekly Market Comment: July 3, 2006 - Fedwatching - Just Say No: "The financial markets continue to have what I view as an unhealthy and pointless obsession with the Federal Reserve. Unhealthy because it detracts attention from the significant risks posed to the stock market from rich valuations, and to the economy from an enormous current account deficit, weakening housing, and flattening employment conditions. Pointless because the monetary policy is now, and always has been, the gopher of fiscal policy. The Fed can do nothing but decide whether government liabilities held by the public take the form of money (currency and reserves) or Treasury securities. It has no power to determine the total quantity of those liabilities (Congress does that). Whatever influence the Fed ever did have was largely removed in the early 1990's (see Why the Fed is Irrelevant)."

Hussman - Recession Risks are No Longer Dormant

Hussman Funds - Weekly Market Comment: June 26, 2006 - Recession Risks are No Longer Dormant: "In the context of slowing employment growth, a stall in aggregate weekly hours, an emerging widening in credit spreads, and other factors, my impression is that recession risks have increased considerably.
That said, we are still not at the point where I would view a recession as imminent. The main factors that would create that expectation would be a further flattening in employment growth (not necessarily a downturn, just growth in non-farm employment of less 0.5% on a 6-month lookback - which would require employment growth to average about 100,000 jobs per month or less over the next quarter or so), a weakening of the ISM figures toward or below 50 (not all declines below 50 indicate recession, but at present, such a decline would be a strong confirmation of negatives in other indicators already suggesting caution), and a further widening of credit spreads, particularly between 6-month commercial paper and 6-month Treasury bills.
For now, suffice it to say that recession risks are no longer dormant, but aren't yet acute. While we don't yet have enough evidence to anticipate a significant and impending economic downturn, the trends are continually turning in that direction, so it is becoming more a question of 'when' than 'if'."

Hussman Weekly Commentary: Recession Risks are No Longer Dormant

Hussman Funds - Weekly Market Comment: June 26, 2006 - Recession Risks are No Longer Dormant: "In the context of slowing employment growth, a stall in aggregate weekly hours, an emerging widening in credit spreads, and other factors, my impression is that recession risks have increased considerably.
That said, we are still not at the point where I would view a recession as imminent. The main factors that would create that expectation would be a further flattening in employment growth (not necessarily a downturn, just growth in non-farm employment of less 0.5% on a 6-month lookback - which would require employment growth to average about 100,000 jobs per month or less over the next quarter or so), a weakening of the ISM figures toward or below 50 (not all declines below 50 indicate recession, but at present, such a decline would be a strong confirmation of negatives in other indicators already suggesting caution), and a further widening of credit spreads, particularly between 6-month commercial paper and 6-month Treasury bills.
For now, suffice it to say that recession risks are no longer dormant, but aren't yet acute. While we don't yet have enough evidence to anticipate a significant and impending economic downturn, the trends are continually turning in that direction, so it is becoming more a question of "when" than "if".