Ya gotta love stock advice

Bloomberg breathlessly reports

U.S. stocks are behaving like Japanese equities in the 1990s, meaning the Standard & Poor’s 500 Index may return 40 percent in the next year, according to Bank of America Corp.

...A “melt-up” rally in the U.S. may be triggered by central bankers keeping interest rates near record lows, an economic recovery or an undervalued dollar, Bank of America strategists wrote in an Aug. 26 report.

Sounds like a great time to be "all in," right?

Well, maybe not so much. Paul La Monica, editor of CNNMoney.com, writes

The market keeps chugging along. But with speculative stocks like AIG and Vonage leading the way, you have to wonder if the rally won't soon go off the rails like Ozzy Osbourne's Crazy Train. Ay-Ay-Ay!

La Monica writes that during the light trading sessions of the summer, day traders may have pushed the prices of weak financial companies and other speculative issues. He cautions

...once big institutional investors return, many of the hot momentum stocks could plummet. Some fear that could bring the whole market down.

Ah, what's a poor investor to do?

Vitter-nomics

At a recent town hall meeting, Sen. David Vitter, tried to rationalize his free-market views with his seemingly hypocritical support of reimportation of drugs from Canada and other countries with price controls.

Why is Sen. Vitter's position hypocritical? Drug prices are lower in Canada than in the U.S. because Canada has the decidedly anti-market policy of imposing price controls. In Sen. Vitter's view, it's okay for U.S. consumers to benefit from price controls, so long as some other government applies them.

Rather than admit this hypocrisy, however, Sen. Vitter argues that the reimportation policy is really a means of making the system of price controls collapse.

My ultimate goal in terms of reimportation is causing that system to collapse.

Sen. Vitter tries to make an economic argument that consumers in the U.S. and other countries without price controls are subsidizing drug costs in countries with price controls. He says that if you cause the price control system to collapse, forcing people in other countries to pay more, subsidies here would end and drug prices here would decrease. However, there are a number of problems with the Senator's logic.

First, suppose that price controls in other countries did collapse. A profit-maximizing firm is going to charge the highest price that it can in each market given the demand it faces, its production costs, and any regulations in those markets. If we ignore the possibility of reimportation, eliminating price controls in other countries doesn't affect the conditions in the U.S. and shouldn't change firms' pricing behavior here. If we account for reimportation, a collapse in price controls might actually lead to an increase in demand in the U.S. market causing prices here to go up.

Second, in supplying an existing drug, a firm is constrained by its marginal costs. Most of the cost in supplying a drug is the up-front development cost. For drugs that have already been brought to market, the marginal costs of each additional pill or shot are miniscule. Firms are able to charge well in excess of their marginal costs for new drugs because they get patent protection which gives them a temporary monopoly. Monopolies can be regulated down to their marginal costs. If we assume that the price controls exceed the firms' marginal costs, there would be no collapse (there might actually be an increase in supply if regulators managed to find the competitive price).

Where things could collapse is in the development of new drugs. Removing the excess monopoly mark-up that drug companies could charge would reduce the incentives for new drugs. So, the "cost" of a reimportation policy is reduced innovation.

For those of you keeping score, Sen. Vitter has now shown that he's willing to abandon his free-market principles and his family values. That doesn't leave him many conservative virtues to fall back on.

Political philosophy of insurance reform opponents

Opponents of insurance reform continue to equate the Obama administration's plans to Naziism. A letter in this morning's News-Record is a great example. The letter criticized Rabbi Fred Guttman's call for protestors to stop using the "Nazi" label so carelessly. The letter begins

Rabbi Guttman declares he is offended by a health care reform protester carrying a sign that equated the proposal with National Socialism. But a federal takeover of our health care system — 8 percent of the U.S. economy, according to Guttman — would be both national and socialistic. So, the protester has a point.

This is a clever parsing of words. However, what would happen if we used a similar parsing to examine the political philosophy of the reform opponents?

First, despite their mob tactics and their insistence on bringing guns to protests, the opponents do claim to be on the side of democracy.

Second, the protestors appear to be people, as far as I can tell.

Third, most appear to be Republicans. In fact, some of the protests have paused to pledge allegiance to a republic.

When you put these elements together, it's abundantly clear that the opponents are expressing support for a Democratic People's Republic, possibly along the lines of North Korea.

Not convinced? Have you asked an opponent of insurance reform his or her opinion of the U.N.? Isn't it uncanny how they mindlessly ditto the expressions of their self-obsessed and paranoid leader? By opposing reform, don't they want many of us to be Il?

Yes, but we're telling the truth about climate change

In response to a Congressional investigation, Bonner and Associates, a lobbying firm hired to get breaks for coal companies into climate-change legislation, has acknowledged mailing more than a dozen fraudulent letters to members of Congress.

The letters claim to be from seniors centers, local NAACP chapters, and other groups. They express concerns about the effects of energy price increases on elderly and poor people's budgets. However, the letters were never sent by those groups.

The revelations make you wonder what else the paid opponents of climate-change legislation will lie about.

It just goes to show that if you can't astroturf nicely, you shouldn't astroturf at all.

Limits of free speech?

What are the limits of free speech? The Washington Post writes about a schmuck who has stepped right up to the limits and crossed them.

Internet radio host Hal Turner disliked how three federal judges rejected the National Rifle Association's attempt to overturn a pair of handgun bans.

"Let me be the first to say this plainly: These Judges deserve to be killed," Turner wrote on his blog on June 2, according to the FBI. "Their blood will replenish the tree of liberty. A small price to pay to assure freedom for millions."

Threatening judges is bad, but Turner didn't leave it there.

The next day, Turner posted photographs of the appellate judges and a map showing the Chicago courthouse where they work, noting the placement of "anti-truck bomb barriers." When an FBI agent appeared at the door of his New Jersey home, Turner said he meant no harm.

He is now behind bars awaiting trial, accused of threatening the judges and deemed by a U.S. magistrate as too dangerous to be free.

Providing a road map for the judges' assassination is definitely jailable.

Astroturf energy protest coming to Greensboro?

Ed Cone has a post this afternoon about astroturfed events that are being planned this month by the American Petroleum Institute to protest pending energy and climate protection legislation.

The events are described in a memo that was posted by TPM. From the memo

API is coordinating a series of "Energy Citizen" rallies in about 20 states across the country during the last two weeks of Congress's August recess...

The objective of these rallies is to put a human face on the impacts of unsound energy policy and to aim a loud message at those states' U.S. Senators...

Just in case this isn't enough astroturfing for your tastes, the memo continues

To be clear, API will provide the up-front resources to ensure logistical issues do not become a problem. This includes contracting with a highly experienced events management company that has produced successful rallies for presidential campaigns, corporations and interest groups. It also includes coordination with the other interests who share our views on the issues, providing a field coordinator in each state, conducting a comprehensive communications and advocacy activation plan for each state, and serving as a central manager for all events.

Keeping with the "astroturfers of the world unite" and "from each according to his ability" themes, the memo goes on

We are asking all API members to assist in these August activities. The size of the company does not matter, and every participant adds to the strength of our collective voice.

The memo concludes by listing tentative sites for the rallies. Among the sites is Greensboro, NC (where Senator Hagan has her office).

Insurance reform costs defined too narrowly

When Congress returns from its recess, the hard work of crafting a final insurance reform bill will resume. A key sticking point is the need to rein in costs. The Washington Post reports

Although town hall meetings across the country have pitted fears of government intrusion into the medical system against hopes for expanded coverage for the uninsured, the fate of President Obama's health-care initiative might depend just as heavily on a very different issue: its ability to dig the nation out of debt.

Insurance reform absolutely does need to consider costs. However, dollars spent by the Federal government, as important as they are, are neither the sole metric of costs nor the sole determinant of effective social policy.

First the definition of costs. Although the Federal government spends an enormous amount on health care--$754 billion in 2007 or about $2,500 per person--this is only about a third of total health care expenditures (source). State and local governments spent $281 billion, and private expenditures, including private insurance reimbursements and out-of-pocket payments, totaled $1.2 trillion. Altogether, the U.S. spent $2.2 trillion on health care in 2007, or just under one-sixth of its GDP.

In terms of costs, policy makers should consider the $2.2 trillion figure and not just the $754 Federal share. A reform that reduces Federal spending by $1 billion but shifts that burden to the states or to private citizens changes incidence of spending but not the social burden.

Similarly, the explosion in care costs have affected public and private spending nearly equally. The health cost problem isn't just a matter of public expenditures going up. In 1980, the share of public expenditures was 42 percent; by 2007, it was 46 percent. Increased third-party payments under Medicare (our national health insurance program for the elderly), which rose from 14 to 18 percent of total health expenditures, account for that entire increase. Policies that moderate the growth in public spending but allow private spending to continue spiraling out of control aren't much of a solution.

Beyond the costs, the benefits of possible spending also have to be considered. Insuring up to 46 million more people would undoubtedly lead to those people receiving more health services. That means increased costs, but it also means increased health. Some of those health benefits will be reflected in economic statistics, such as increased productivity and output from a healthier workforce. However, the direct, personal benefits of good health itself are harder to quantify (the quality-adjusted life year, or QALY, is one controversial metric), though even more important.

Reductions in total spending that contribute to even greater losses in total benefits would be short-sighted and socially harmful. We might narrow the Federal deficit only to cost society more.

The insurance we have

CNN has a story about a former insurance executive, Wendell Potter, who is now working for a health care advocacy group.

He describes some of the "heads we win, tails you lose" practices that the "just say no" mobs are defending.

Potter described how underwriters at his former company would drive small businesses with expensive insurance claims to dump their Cigna policies. Industry executives refer to the practice as "purging," Potter said.

"When that business comes up for renewal, the underwriters jack the rates up so much, the employer has no choice but to drop insurance," Potter had said.

In June, Potter testified on insurance practices before the Senate Commerce Committee.

To help meet Wall Street’s relentless profit expectations, insurers routinely dump policyholders who are less profitable or who get sick. Insurers have several ways to cull the sick from their rolls. One is policy rescission. They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment. ...

They also dump small businesses whose employees’ medical claims exceed what insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year’s premiums so high that the employer has to cut benefits, shop for another carrier, or stop offering coverage altogether–leaving workers uninsured.

The testimony describes other skeevy practices, such as selling essentially worthless "limited-benefit" insurance.

You can read more from Wendell Potter at his blog.

Rationality takes a hit in NC

Some days it's hard to hold on to that very dear belief in rationality.

Exhibit A is a poll conducted during the last week in North Carolina by Public Policy Polling that asked people, "Do you think Barack Obama was born in the United States?"

26 percent of respondents answered that he wasn't; another 20 percent weren't sure. Among Republicans in our state, 47 percent answered that he wasn't, and an additional 29% weren't sure. Less than a quarter of Republicans answered that our President was born in the U.S.

Democrats did better only in comparison--only 75 percent said that the President was born in the U.S.

There's bad news for Hawaii. Only 88 percent of Republicans provided positive responses to the question, "Do you consider Hawaii to be part of the United States?" For Democrats, the figure was 92 percent.

In response to a post last week about the "birthers" now throwing "temper tantrums," Sam Spagnola commented

The goal is to discredit a whole movement by identifying it with some on the fringe or some other group that can be isolated.

And later...

The whole "birther" linkage is proof enough. They represent a clear minority, yet you want to tar the entire GOP by linking them with the fringe.

The poll indicates that the "fringe" among conservatives and Republicans is the minority that rejects the "birther" argument.

In fairness, the poll has a standard error of plus or minus 3.6 percent. So, it may be that only 28 percent of North Carolina Republicans are so grossly misinformed.

Virginians didn't fare much better in a similar poll; there a third of Republicans got the President's nativity correct.

An exceptional woman

Eunice Kennedy Shriver was an exceptional woman who worked tirelessly, selflessly, and effectively on behalf of exceptional people. She reminds us what is best in humanity.

Good job news? Not so much

In its monthly jobs report, the Department of Labor reported this morning that the nation's unemployment rate fell slightly in July on a seasonally adjusted basis to 9.4 percent. This represents the first drop in the unemployment rate since April 2008.

A fall in the unemployment rate is good news and a sign that the economic downturn is nearing its end. However, it masks the fact that the overall employment situation continues to deteriorate.

The unemployment rate is defined as the ratio of those who are out of work but looking for a job (unemployed people) divided by the civilian labor force, which includes employed and unemployed people. The DoL estimated that the number of unemployed people fell by seasonally adjusted 267,000; however, this was accompanied by a fall of 155,000 in the number of employed people. Overall, the civilian labor force fell by 422,000, meaning that the number of people who have elected neither to work nor look for work has grown.

A better indicator of the strength of the labor market is the proportion of the adult population that is employed. As shown in the graph below, this number dipped to 59.4 percent, the lowest percentage in 25 years.

U.S. employment-population ratio 01/1969 - 07/2009 (Source: BLS)
From a different data series, the DoL also reported that the number of non-farm jobs fell by 247,000. Although this indicates continued deterioration, it is a signficant moderation in the trend--it was the smallest decrease since August of last year (in addition, June's job loss figure was revised downward). Nevertheless, the number of jobs lost since the beginning of the recession in December 2007 has swelled to 6.7 million.

We won't be in a full recovery until the number of jobs and the number of people working increases. That part of the recovery still appears to be some way off.

Ex-Rep. Jefferson convicted on 11 counts

Good riddance.

After the "birthers" come the tantrum throwers

Much like the child in the condom ad, the Party of No has embarked on a new strategy to obstruct health care reform--having mobs throw temper tantrums at public meetings where reforms are being discussed.

Some choice bits of the strategy:

The objective is to put the Rep on the defensive with your questions and follow-up.

You need to rock-the-boat early in the Rep's presentation, Watch for an opportunity to yell out and challenge the Rep's statements early.

The goal is to rattle him, get him off his prepared script and agenda. If he says something outrageous, stand up and shout out and sit right down. Look for these opportunities before he even takes questions.

Of course, the tantrum throwers themselves expect to be treated courteously.

When called on, ask a specific prepared question that puts the onus on him to answer. It can be a long question including lots of statistics/facts. You will not be interrupted from reading a solid question.

How does this strategy play in practice? Rep. Lloyd Doggett got a taste of it inside and after a recent town hall meeting.



As did Sen. Arlen Specter and Secretary of Health and Human Services Kathleen Sebelius...

The Party of No has a right to express its views; however, it does not have a right to shut down (or more to the point, shout down) all dialog. If the Party of No continues with its tantrums, the public will soon see it in the same light as the child in the condom ad.

Risks of tanning

A new study indicates that lying in a tanning bed carries the same cancer risk as smoking cigarettes or breathing asbestos.

The International Agency for Research on Cancer (IARC) had previously classified sunbeds as being a "probable" cause of cancer.

However, the agency is now recommending that tanning machines should be moved to "the highest cancer risk category" and be labeled as "carcinogenic to humans".

It followed a review of research which concluded that the risk of melanoma -- the most deadly form of skin cancer -- was increased by 75 per cent in people who started using sunbeds regularly before the age of 30.

The IARC also says there is evidence of a link between eye cancer and the use of sunbeds.

Given the current policy trend of taxing harmful activities to both promote better health and raise revenues, legislators should immediately consider a special tax on tanning beds.

Once that is done, they can also consider taxes on skimpy swim suits and on the sun.

Housing market stabilizing?

There's growing evidence that the housing slump may have finally bottomed out.

Yesterday, the Commerce Department reported that new home sales in June increased 11 percent over the previous month and were at their highest level since November.

The Case-Shiller 20-city housing price index edged up half a percent in May, the fourth consecutive monthly increase.

Despite the recent increases, sales levels and prices remain at very low levels. The new home sales levels are still 21 percent below where they were a year ago, and the price index is 17 percent below where it was a year ago. And, of course, last year's figures were depressed far below their highs from a few years earlier.

Don't look for a boom anytime soon; the weak economy and high unemployment are likely to continue to exert a drag on housing. Indeed, the Conference Board reported that its index of consumer confidence fell in June, mostly on concerns regarding unemployment.

The good news, though, is that housing itself doesn't appear to be pulling the economy down.

Another "expression of regret" may be in order

Last month, the Greensboro City Council took the courageous step of formally expressing regret for the killings at the 1979 Death to the Klan march.

It now appears that another, bigger crime may haunt our collective history--an alleged genocide of Neanderthals by humans.

Squat, rugged, and well suited to cold, Neanderthals dominated Eurasia for the better part of 200,000 years, surviving an ice age, but the species mysteriously disappeared around the same time modern humans spread out from Africa into their habitat.

What about it city council? Do you have it in your hearts for one more expression of regret?

It's time for Rep. Murtha to go

It's time (past time actually) for Rep. Murtha to go.

Maybe the Murtha Twins' song can lure him out of Washington and into retirement.

Update: It turns out these are the Mothra Twins and not the Murtha Twins (note to self...next time look things up when the eyes are a little fresher). Regardless, Murtha should still go.

Unsafe in any mode

More and more covered-up government science keeps emerging from earlier this decade--science that could have saved lives. This time it's research by the Department of Transportation on the dangers of driver distraction. The New York Times reports

In 2003, researchers at a federal agency proposed a long-term study of 10,000 drivers to assess the safety risk posed by cellphone use behind the wheel.

They sought the study based on evidence that such multitasking was a serious and growing threat on America’s roadways.

But such an ambitious study never happened. And the researchers’ agency, the National Highway Traffic Safety Administration, decided not to make public hundreds of pages of research and warnings about the use of phones by drivers — in part, officials say, because of concerns about angering Congress.

Data, we don't need no stinkin' data. BTW, that would be the then Republican-controlled Congress and especially the House Appropriations Committee headed by Rep. Bill Young.

Researchers at the time estimated that cell phone use was responsible for nearly 1,000 traffic deaths per year and almost a quarter of a million accidents.

Perhaps even more importantly, researchers were concluding that "hands-free" devices were about as unsafe as regular cell phones.

As cell phone use has grown and the number of distracting features has multiplied, the safety problems have likely increased. Moreover, research was squelched at a time when behavior might have been easier to change.

Readers who are interested in the documents that were too dangerous to see can find them at the Times web-site. Those who want to cut to the chase can go to the last two pages where the DOT concludes

A significant body of experimental research indicates that both hand-held and handsfree cell phones increase the risk of a crash. Indeed, there is little if any difference between hand-held and hands-free phones in contributing to the risk to themselves
and others.

Limiting use to hands-free phones while driving will not solve the problem. In either operational mode, we have found that the cognitive distraction is significant enough to degrade a drivers’ performance. We therefore recommend that drivers not use wireless communication devices, including text messaging systems, when driving, except in an emergency.

Moreover, legislation that only forbids the use of handheld cell phones while driving will not be effective since it will not address the problem. In fact, such legislation may erroneously imply that hands-fkee phones are safe.

Pros and cons of a "local currency"

A local group, the Greensboro Currency Project, is pushing a local currency. In an op-ed this weekend, Signe Waller Foxworth, a co-chair of the group touted the possible benefits of this idea.

Imagine everyone in Greensboro, particularly those chronically short of money, being able to meet many more of their basic needs.

Imagine a thriving community, with small and medium-sized local businesses supplying many goods and services to city residents and able to employ more workers. This attractive vision represents the real-life potential of a local currency in Greensboro.

The obvious John Lennon allusions are nice. Nicer still would be a cogent explanation of how a local currency might be implemented or how it might achieve the listed benefits.

Let's take a stab at those benefits. A local currency can take several forms, but a common feature is that it serves as a medium of exchange in a particular--usually geographically defined--market. Thus, it has some, but not all, of the features of regular currency.

Because it is only accepted within a defined market, a local currency promotes trade within but not outside that market. You could view the currency as a form of trade barrier. It promotes local goods over goods in the next community over. Local goods effectively become less expensive, leading to greater purchases by local residents. At the same time other communities' goods become relatively more expensive, leading to less external trade. If local currencies are adopted by a few communities, those communities might enjoy positive effects, but they are adopted by all or many communities, they could actually reduce economic activity by hindering trade.

A local currency may stimulate the economy in other ways. Opportunities for financial intermediation are likely to be limited or absent. Because of this, there would be few rewards for using the currency to save or invest. Instead, people would get their primary reward from spending the currency. This would give local currency purchases a bigger multiplier than regular currency purchases. This effect, however, would be offset to the extent that people substitute use of the local currency for local shopping and use of the national currency for other transactions.

Another stimulative effect could come from simply boosting the amount of available currency--that is, increasing the money supply. Increasing the supply too fast, however, will end up devaluing the currency.

Some additional positive effects of the currency are to promote awareness of local producers and merchants and to increase social cohesion.

Unfortunately, as the foregoing discussion suggests there are a number of drawbacks. First, a local currency does not help--and may hinder--trade outside the region. Greensboro boasts a number of "exportable" industries, including logistics and financial services. Second, the goodwill that may be produced locally may be offset by ill will from surrounding communities. The currency sends a message to other communities that our businesses are important while theirs are not. Third, there are overhead costs because new institutions will have to be created to implement and manage the currency. Fourth, there will be inefficiencies from having to exchange currencies to trade externally (electric bills and merchants' payments to suppliers are examples) or make external payments (sales tax bills).

Fifth, there is the whopping question of how the currency is put into circulation in the first place. A local group could "sell" the currency, but this would reduce the stimulative impact by taking regular currency out of circulation. Alternatively, if the currency is distributed it represents a windfall to whomever gets it or uses it first. How will that windfall be distributed?

Finally, do we expect that the currency will circulate forever? If not, how do you address the problems faced by the last people stuck holding the currency? One solution to sell the currency and then maintain reserves of the regular currency to back it up. Again, however, taking regular currency out of circulation defeats some of the purposes of the local currency. Also, maintaining the necessary reserves is a tremendous responsibility.

In their quest for something exotic, the backers of a local currency seem to have overlooked simple alternatives that are used in numerous cities--local merchants' cards and coupon books. The cards or books can be sold, with the proceeds going to local development or advertising/promotion campaigns, or they could be given away. The discounts (price reductions) would encourage shopping. The discounts could also be time limited, giving them a use-it-or-lost-it quality.

It's fun to imagine ways to play games with "monopoly money," it's more practical work to with things that work.

Congress trying to prop up car dealers

The House of Representatives approved an amendment in an appropriations bill last night that would interfere with the restructuring of GM and Chrysler by requiring them to keep their dealerships open. Similar legislation is being considered in the Senate.

Legislators are rightly concerned about potential job losses at dealerships and about the loss of many small business; more than 3,000 dealerships appear to be facing closure. However, the legislation are risks the ultimate viability of the automakers and delays cuts that are as inevitable as they are painful.

By doing so, legislators are setting the stage for even greater job losses.