The Prevaricator In Chief (PICUS) Part II--A PERFECT Example

The Dow lost 323 points (3.15%) today. Why? There are troubles in Europe for sure and the Euro is at an all-time low. China is making the usual strange noises that get everyone nervous. But the main culprit is the absolutely terrible employment report released today.

Economists had expected a 515,000 job increase and the numbers came in at a disappointing 431,000 but that's not the whole story. The private sector eked out a few new positions but the census bureau added 411,000 temporary workers which obviously accounts for nearly the entire 431,000 increase. At this rate, it will take more than 5 years to get back to normal unemployment levels around 5%, but we won't have another census for 10 years so we can't count on help from that quarter again soon.

So the employment data and its ramifications are bad enough already but what has me hopping mad is the PICUS's unfortunately predictable behavior. Earlier this week, Obama and his head henchman Biden were running around presaging Friday's report by saying things like "boy are these numbers going to look good." As late as today, the PICUS crowed about "job growth five months in a row" or some such drivel.

Does the PICUS believe that everyone else is an idiot? Wall Street saw through this charade and rewarded us with a precipitous market decline. Europe is laughing at us. China must be thinking that Americans are really bad at math. Sadly, our population isn't simply debunking all this lunacy, they are living the reality.

A Timely Update On Health-Care Benefits And Costs

Since I just posted a blog that (in part) questions the costs associated with the health-care legislation, I find it particularly interesting that two very recent articles seem to confirm that congress used very suspect figures and reports to justify their actions. Full disclosure compels me to openly admit that in all likelihood, I will personally benefit from the new health-care laws, as will I believe, millions of Americans. But that doesn't justify the chicanery and obfuscation that we've gotten on this topic from our friends in Washington and that is the point that I drive at in my prior posting.

The first article is an op-ed piece by Karl Rove who clearly is as partisan as one can be. Nevertheless, he almost always stitches together his facts better than Obama ever has, and according to Rove, the actuarial assumptions used by the health-care stalwarts are incredibly inaccurate. From my perspective, the signal sent by many giant corporations that rushed out with write-offs related to the new laws simply amplifies the message that all these new regulations will cost a ton. Here's Rove's WSJ editorial:


http://online.wsj.com/article_email/SB10001424052748703561604575282482320389198-lMyQjAxMTAwMDAwMzEwNDMyWj.html

So if one can't credibly assert that we'll save money with the new health-care legislation, then perhaps Obama, Reid, Pelosi and their cohorts can say with confidence that we will now get better care, and that they have unassailable evidence to support their conclusions. It turns out that the lawmakers did consult independent studies, including one from Dartmouth, but that this particular study is not only deeply flawed but also, it never intended to extrapolate health-care quality. Here's the opening paragraph from the NY Times article (of all places for this to be published!?)

"In selling the health care overhaul to Congress, the Obama administration cited a once obscure research group at Dartmouth College to claim that it could not only cut billions in wasteful health care spending but make people healthier by doing so."

And here's the bottom line as quoted:

"But while the research compiled in the Dartmouth Atlas of Health Care has been widely interpreted as showing the country’s best and worst care, the Dartmouth researchers themselves acknowledged in interviews that in fact it mainly shows the varying costs of care in the government’s Medicare program. Measures of the quality of care are not part of the formula."

If you want to read the full story (highly recommended) then follow this link:

http://www.nytimes.com/2010/06/03/business/03dartmouth.html?adxnnl=1&emc=eta1&adxnnlx=1275580827-zTrzfO8DzUD0ar1V7z93pA

Right now nobody knows whether the health-care situation will improve or deteriorate under the recent legislation, time will tell, I am not optimistic about it but I do hope for the best. But when elected officials, including the President use bogus and/or poorly vetted statistics to manipulate the results they are trying, a priori, to achieve, then we can properly impugn their motives and challenge their integrity, yet one more time.

Prevaricator In Chief

History dubbed Ronald Regan "The Great Communicator." I think that our President will in the future deserve a different moniker...Prevaricator In Chief. Here's why.

I listened to another endless monologue from President Obama this morning. He was at Carnegie Mellon University in Pittsburgh regaling the audience with all the fabulous progress we have been making in America, ostensibly under his (self-imagined) stellar leadership. I wondered why this guy so doggedly eschews press conferences while at the same time, he relishes making speeches like this by the dozen. Then it hit me. Obama isn't comfortable with the unstructured, open agenda that characterizes any president's session with the fourth estate. Media representatives have the nasty habit that they pester politicians with questions that one might rather not answer or that one may not have answers to. Obama absolutely loves to have answers, no matter how wrong-headed they are. Even more, he adores lecturing and moralizing on nearly any topic, no doubt with his trusty, able-bodied teleprompter in tow. However, more than anything, Obama cherishes that he can tell lies, distort facts, paint rosy pictures and in his "government is almighty" version of reality, pretty much get away with it all because of course, he and his minions know better than anyone how to fix everything.

Thank God that the President is a pretty poor prevaricator or he might actually be able to put one over on the American public. But his equivocation and dissembling are so overt that I suspect even his little daughter knows that her father is full of crap ("Daddy, did you plug the leak yet? No sweetie, but I'll stick my finger in it this morning, right after I'm finished shaving, I promise.")

Obama says the economy is getting healthier. Which parallel universe is he living in? Nearly 40 million people are now on food stamps for Christ's sake. The nominal unemployment rate is nearly 10% and the real one is almost 20%. Real estate foreclosures are through the roof to the extent that the courts are so congested that some folks just stop paying their mortgages and continue to live in the property for months if not years. The government is printing money and incurring debt at unprecedented levels, and if people don't understand that this is going to come back and bite them in the butt big time, then they deserve Obama's rhetoric. Check out 21 or so more reasons why the economy certainly isn't recovering by reading the following article:

www.blacklistednews.com/?news_id=8878

Senior government stooges (undoubtedly at Obama's behest) recently uttered that "The government is in charge of the oil spill situation in the Gulf," or some such poppycock. The truth is that there is no one who can control this catastrophe because such an operation has never before been attempted at such depths...something someone should have thought about before they started poking holes deep into the earth. I fear that the real scenario could be that the Gulf of Mexico is permanently destroyed, that the oil may not stop leaking for a long time (way past August) and that cleanup efforts will never succeed in restoring things. Rather than have some Washington lackey assure the world that the relief wells that come online in August will "almost certainly plug the leak;" a statement that no reputable scientist would dare to make, I would grudgingly respect a spokesperson who emulated the grotesque colonel in "A Few Good Men" and said, "You want the truth? You can't handle the truth."

Obama is mendacious about the economy and deceitful regarding the Gulf. His wars in the Middle East are an abomination, admittedly inherited, but shamefully continued during his administration. The President misled us about his position before he was elected and thereafter, he deflected like crazy in carrying out his own war escalation.

The dishonesty in Washington and in particular, The White House, continues to sicken the population. Did they offer Joe Sestak a job or not? Well, go ask that famous truth-teller Bill Clinton. Is the health care legislation going to save or cost money? It depends on whose figures one believes. Are Republicans blocking important legislation or saving us from congressional-induced perils? Who knows, and who would believe any opinion on this anyway?

People, tea-parties or whatnot are utterly fed up with this disingenuous nonsense; I hope that in the fall they throw all the bums out. There isn't any baby in this rancid bath water.

More Afghanistan Commentary

I've let this sit for a while, but the more I think about it, the more ridiculous the war seems to be. And my opinion is very well-supported by recent editorial activity.

For a comparison between our present efforts and those worked by the Soviets long ago, you can check out:

http://www.wsj.com/article/SB125831141804049337.html?mod=WSJ_hpp_MIDDLTopStories

Basically, what we should come to understand is that Afghanistan is not so much a country per se, but rather, various fiefdoms controlled by the local population and the applicable warlord. The Taliban is free to terrorize the enclaves, hide out among them or even, just stay quiet and out wait us...our recent troop commitments are either feeble, or else the administration is being hugely disingenuous with the American public. Either way, this war, conducted according to the published plans is a bad idea, and I suppose that we will spend years, untold resources and our credibility in achieving a result no more satisfying than what the Soviets did.

A better idea is to concentrate on building morale within the local population (which presently often sees us as unwelcome occupiers) by erecting schools, constructing infrastructure and showing them societal alternatives. The following article by Nick Kristof beautifully illustrates this point:

http://www.nytimes.com/2009/12/03/opinion/03kristof.html?_r=1&emc=eta1

If we proceeded as Mr. Kristof suggests, we would save money ($30 billion per year funds plenty of schools), preserve our integrity and quite possibly, actually do some good in Afghanistan.

This war effort now belongs to Obama, and in typical "waffling" fashion, he has somehow managed to immerse us in ambiguity. Are we committing troops for the long haul or is there a disengagement planned for 2011? Does fighting the Taliban in Afghanistan make any difference, or are they simply going to maintain their positions in Pakistan? For that matter, will either the Pakistan or Afghanistan governments really lift a finger to help us? There are so many questions and so few answers emanating from our government that it is positively disgusting.

The American people do not like this war. Those families who are contributing soldiers like it even less. I believe that we deserve better than to do what we are doing which is to "back into" an ill-advised military strategy in Afghanistan.

Let Them Have Oprah!

For years I have half-joked that if we want to solve the governance problems in Iran, Iraq, Afghanistan or any other backwards, belligerent country all we need to do is entice and enable all those nations' women to watch Oprah Winfrey. After such exposure, I surmised that the political scenario would change for the better, pretty damn fast.

Well what do you know? In reading SuperFreakonomics (SF) by Levitt & Dubner, I discovered that a very similar phenomenon actually occurred in India, of all places. It turns out that India (and China) are relatively inhospitable or even, downright cruel to women. Female fetuses are commonly aborted, and the prospects for those that survive are often grim. The Indian culture deprives women of higher education, tacitly supports wife-beating and generally, treats women in a sub-human manner. This doesn't happen everywhere in India but it manifests itself frequently enough to be well-known.

In SF they tracked areas where the situation had improved markedly for women and SF's findings traced the changes to television. It turns out that Indian villages obtained TV coverage and TV sets at different times. Those locales where TV became available showed dramatically better results with respect to a woman's treatment and human rights. I don't know if Oprah is on the air in India, but it seems that exposing people to what exists outside their enclaves does indeed foster behavioral changes in society...you can read the statistics for yourself in SF (incidentally, I really like the book.)

So if all this about India is true, and even making allowances for the fact that it is a democratic country, I think that if we plugged women in the Middle East into conduits like TV and the Web, that good stuff (by our standards) is bound to happen.

Periodically we have gone to war with troublesome nations like Vietnam, Afghanistan and Iraq, yet we pay little attention to the underlying sentiments that pervade the local population. We lost the Vietnam war simply because we did not understand how to oppose an enemy who hit, ran and used the countryside/local population as camouflage. Similarly, we do not comprehend Iraqis or the Afghans and we largely ignore their customs and tribal nature. After more than a decade of bellicosity, the Soviets were unable to conquer Afghanistan so what gives us the notion that we can do any better?

My Oprah quip is just a trivial expression for what I believe is needed in the Middle East. You can bet that when Obama soon explains his war escalation and exit strategies, he won't mention anything like educating the locals in western ways, using TV and media propaganda. Yet if it works in places like India, then isn't it worth a try in Iraq and Afghanistan?

Things Aren't Getting Any Better

Sorry that I have been absent for a while. Some medical problems got in my way but things are getting better now.

In the meantime, I have noticed that world affairs continue to deteriorate, and in the United States, issues such as unemployment, the Middle East wars, state and local financial troubles and such have reached disastrous proportions. In the link below, Bob Herbert, a NY Times columnist whom I admire greatly, explains rather pointedly how the unemployment situation has hit condition RED for those who are less than privileged, and especially those who aren't fortunate enough to work on (proverbial) Wall Street.

The financial community would have us believe that the salad days are here again, but who ever heard of the Dow topping 10,000 and gold besting $1,000 per ounce at the same time? Intuitively, that spells trouble to me. Meanwhile, the ill-conceived war efforts in Iraq and Afghanistan now look like they will take decades to bear the fruit we are seeking, provided that we have the fortitude and resources (money and personnel too) to persist, and this seems highly unlikely.

Our politicians from Washington to Chicago are lost in rhetoric and in a non-winnable race to the bottom. Municipalities are looking to monetize their infrastructure by selling off things like parking rights, tax items and even bridges. I pity both the cities and the financial organization who are participating in this chicanery; the money the local establishments receive has already been spent and it is beyond me how anyone can achieve a long-term profit from 70-100 year leases on all this stuff.

Do I have any answers? Not really. That's why I use a hurricane as the graphic for this post; it is the most powerful force on earth and it is unstoppable. I am afraid that this is precisely what we are facing in a social context. Perhaps the United States can borrow from Germany's playbook, or even China's since in both countries, they have managed to resume (paltry) growth and preserve jobs, although they both have other problems (China=pollution, Germany=economic stagnation) with which to contend; but in the USA, we don't have the gumption to upset the political status quo. If what I am writing about here is even moderately correct, then next year's elections will devastate incumbents, and without a better Middle East war strategy (stop the fighting) and a concerted effort to resurrect jobs for the many disadvantaged, Obama and his entire Washington crew will end up confirming that they are the feckless ideologues that I believe they are. My biggest fear is that even with the best practices, wonderful innovation (currently stifled) and terrific luck, it will still take ten years or more to pull out of this mess.

Geez this really sucks?!


Here's the link to Bob Herbert's article:
http://www.nytimes.com/2009/11/14/opinion/14herbert.html?_r=1&emc=eta1

Fancy Universities Are Bad At Financial-Market Math

Two posts ago, in one entitled "Do Economists See The Light About Their Crappy Math. I explained that Benoit Mandelbrot's (image above) work with fractals would suit them better.

Today in the WSJ there is a pretty extensive article (reprinted in its entirety below) about Harvard's loses in particular last year...nearly $10B. But Yale too lost big bucks from their endowment along with Harvard because of (1) market turmoil, (2) asset classes became (and remain) correlated with one another (3) some asset classes evaporated all together (4) both institutions (especially Harvard used too much leverage, sometimes even borrowing so as to remain 105% invested in often illiquid elements and (4)they both failed to protect against their catastrophic risks. Columbia which has a much smaller endowment (~=$5.5B) than either giants mentioned above lost about 16% which they claim was all about earlier, more active and more conservative risk management. Incredibly enough, Cooper Union, the tuition-free (if you can get in!) college down here in Greenwich Village says it actually managed to break even.

Now here comes the part that is filled with delicious irony. I believe that Benoit Manelbrot will eventually win a Nobel Prize either for Physics or for Economics and maybe for both; his work in these two fields has been more than seminal it has been a breakthrough.

Now these two schools might claim that they aren't familiar with Mandelbrot's work and advice which, if followed might have avoided $$$billions in losses. Yale shed only half as much as Harvard, but their endowment is only half the size so what's the big surprise in that?

Or they may say that they didn't read his book because it wasn't available soon enough. "The (Mis) Behavior of Markets--A Fractal View of Risk, Ruin and Reward" was published, for God's sake, in 2004. Their academics, students and administration must at least be partly interested in this stuff.

Maybe they couldn't locate him? That's hard to believe because he once taught at Harvard and until he retired in 2005, he was a tenured, endowed-chair mathematics professor at Yale.

So why did these schools put their constituents (thousands, including whole towns) at risk? Why didn't they phone up Benoit and ask him for his opinion about their portfolios? He might have taken up a deep-digging project bro bono for them and analyzed their market situations from a fractal-math perspective. Why didn't they ask Benoit? This is inexplicable to me, except for one obvious reason...hubris.

Money managers often get so confident that they don't listen to any others...not even Benoit Mandelbrot. The shame here as I see it is that innocent folks and even whole towns can get crushed by this behavior. If you don't believe me, just swim across the river from Cambridge and you won't see a pretty site at all.


Here's the article:


Harvard, Yale Are Big Losers in 'The Game' of Investing Yahoo! Buzz By JOHN HECHINGER It's a tie in the Harvard-Yale investment game. Both schools were thrown for colossal losses. The universities on Thursday said their endowments, higher education's two largest, each lost 30% of their value in the year ended June 30. Combined, the pair of investment pools shrank by a staggering $17.8 billion. Declines in the endowments have forced the two schools to cut budgets and delay plans to expand facilities and hire staff, as even the country's top colleges are being forced by the financial crisis to retrench. The pain is being felt widely across higher education. While many private colleges are getting less help from their endowments, public universities are suffering because of state budget cuts. Harvard University and Yale University, such fierce rivals that their fall football contest is known to both sides simply as "The Game," badly trailed the results of the typical college in the latest year. The dismal returns have exposed weaknesses in their exotic approach to investing, which after turning in chart-topping performance for years has proved to be highly risky. The schools were hurt by investments in assets that can't readily be sold, such as private-equity partnerships, which were pummeled in the past year after stellar results over the previous decade. In the category Harvard calls "real assets," including timber, commodities and real estate, annual losses neared 40%. Harvard was already budgeting for a 30% decline, but hadn't released a final tally. On Thursday, it said its endowment shrank to $26 billion on June 30 from $36.9 billion a year before. The decline also reflects spending from the endowment and donations. The Cambridge, Mass., university's investment loss itself was 27%, dwarfing the 18% drop in the median return for large endowments calculated by Wilshire Associates, an investment consulting firm. Yale said its endowment fell to $16 billion on June 30 from $22.9 billion a year before. The New Haven, Conn., university didn't break out its investment results. Yale had projected a drop of only 25% and Thursday warned of further budget cuts. In a letter to Yale faculty and staff, Richard Levin, the school's president, and Peter Salovey, its provost, said it now projects an annual deficit of $150 million each year from 2010-11 through 2013-14. Last winter, Yale cut staff and nonsalary expenses by 7.5% for the 2009-10 academic year and signaled it would ask for further cuts in nonsalary expenses of 5% for 2010-11. On Thursday, the university said it would ask for the 5% cut this year instead. The administrators pledged to preserve financial aid, but said otherwise "no area of expenditure will be immune from close scrutiny." Messrs. Levin and Salovey said most major construction would be halted until donor support could be found or financial markets recovered. They said Yale would also slow the pace of faculty recruitment. Facing a cash crunch last fall, Harvard has laid off staff, suspended some faculty searches and delayed a major expansion of its campus. Other wealthy schools, including Stanford University, Princeton University and Massachusetts Institute of Technology, have predicted losses similar to Harvard and Yale's. They all follow an investment model that de-emphasizes traditional stocks and bonds and instead loads up on alternatives unavailable to the average investor. Yale and Harvard pioneered the approach, arguing they could afford to take big risks, because they were investing for decades, even centuries. Many copied the schools, saying they had found a high-return, low-risk strategy. But Eric Bailey, managing principal of CapTrust Financial Advisors LLC, a Tampa, Fla., firm that advises college endowments, says, "If it looks too good to be true, it probably is." Mr. Bailey says typical colleges outperformed Harvard last year, because they stuck to a plain-vanilla approach, typically allocating 60% of their holdings to stocks and 40% to bonds. That strategy would have generated a loss of roughly 13% in the year ended June 30. Harvard aims to have only 4% of its investments in U.S. bonds, which were one of the few safe havens over the last year. It has cut by more than half its target for investments in U.S. bonds since 2005. The University of Pennsylvania's endowment, by contrast, loaded up on Treasury securities in 2008 and reported a more moderate 15.7% decline. In New York City, Cooper Union for the Advancement of Science and Art, which charges no tuition, ratcheted down the risk of its investment portfolio three years ago and expects its endowment to hold steady for the year. Yale and Harvard say their long-term results justify the strategy. Harvard's endowment remains the largest in higher education. In fact, the $10.9 billion it lost last year is bigger than the 2008 value of the endowments of all but six colleges. In Thursday's report, Jane Mendillo, Harvard's endowment manager, noted that Harvard achieved an average annual return of 8.9% over 10 years, three times its peers' -- adding $18 billion in value over what would have been earned by a 60%-stock, 40%-bond portfolio. Ms. Mendillo said the school is better off than it would have been if it had "pursued a more conservative investment strategy over the longer term." In Thursday's report, Harvard said its private-equity funds, which generally represent about 13% of its endowment model, fell almost 32%. Its real-asset segment, representing nearly a quarter of the endowment, lost 38%. Investments in "absolute return" hedge funds, designed to generate positive results in good times and bad, instead posted a 19% loss. The report showed Harvard trimmed its endowment's risk profile by raising cash, cutting by $3 billion its future commitments to invest in private-equity and other investment funds, and reducing its real-asset category to 23% from 26% of its model portfolio. Harvard also said the school now aims to hold 2% of its assets in cash. Previously, it targeted a negative-5% cash position, reflecting its use of borrowed money to expand its investments. Ms. Mendillo said endowment managers had learned to better reflect "the risk tolerance of the university." Ms. Mendillo pledged to manage more of the school's money in-house, giving it readier access to securities to sell for cash. Currently, 70% is farmed out to outside managers. That move could focus more attention on its managers' multimillion-dollar paychecks, which have provoked controversy on campus. Ms. Mendillo said "a substantial number of portfolio managers" had portions of their bonuses, awarded for past years, "clawed back" into the endowment because of poor performance. Harvard and Yale, like other schools, also signed contracts that committed them to huge future investments in private-equity and other funds at exactly the time they could ill afford them. In Thursday's report, Ms. Mendillo said Harvard cut its "uncalled capital commitments" to $8 billion from $11 billion.