Power And Dollar

Powell, What Makes A Good Endorsement?

An endorsement is similar to an advertisement.  The endorser would want to make a difference.  What is the difference to an election? Win or lose.  You can win by 1 vote (W) or by a landside.  They all give you the presidency.  An endorsement that takes a black horse to the main field is a good endorsement.  An endorsement that pushes the last block of voters to tip the scale is a good endorsement.  Anything after it is tipped over is an accessory.  Measuring the impact of an endorsement is to measure the size of votes it affects.  For that reason, you and I probably can save the time, in terms of endorsements.  

 

Analysts give their opinions about what Powell’s endorsement means.  An endorsement can mean a lot of things.  “What is the meaning” is a fun question to ask by media.  It is an interesting content.  It is not an important question to ask.  The good question to ask is: is this endorsement consequential?  is this endorsement relevant?

 

Is Powell’s endorsement a good endorsement?  Did Powell push Obama to the main field to compete against Hilary Clinton?  Oprah did that.  If the race is already tipped over, then this endorsement is an accessory.  Therefore, the impact of Powell’s endorsement is very questionable.  Powell may end up merely making a public statement about his differences with Republicans rather than making an impact to the race, or grabbing a 3 second media attention for no self gratification (I do not believe Powell has that self gratification need), or showing his political misjudgement or miscalculation (not knowing that the race may already be over).  Powell’s endorsement may end up being no more powerful than John Edwards (Edwards endorsed after it was crystal clear that Hilary Clinton was going to lose).

 

Powell may not have had polling results to inform him the value (votes) of his endorsement.  Therefore, he is unable to draw a dividend out of this endorsement effectively.  

 

The only thing that can make such an endorsement into an incentive is to secure a political appointment in the back room.  However, Powell does not need that, even if Powell were to cleanse his past actions.  

 

Is Powell making this endorsement to reach a resolution for himself before the world (repentance is between Powell and God.  No one else can have that privilege to know)?  What is to gain by exposing Powell’s own differences with Republicans?  

October 20, 2008 Posted by | Barack Obama, Current Events, 美國, Democrats, election, Election 2008, Electioneering, John McCain, mccain, obama, Palin, politics, Republican, Sarah Palin, wordpress-political-blogs | 2 Comments

Market Concurs Pollsters

It is now less than 3 weeks to the voting day.  Electoral vote spread is 128 (Obama vs McCain : 286 vs 158).  Even if McCain takes the rest of the toss up states, he is still 34 votes behind (94 toss up).  Short of Osama (not a typo) surprises, opposition dramatic tricks and voting irregularities, Obama’s path is fairly clear.  In fact, Obama has to tell his supporters not to be “cocky.  

 

Obama’s searches at google are already double of McCain’s.  Of course the news volumes of the two are about the same.  People are already expecting the result. 

 

The market seems to suggest the same.  Yesterday was the final debate.  Today would be a check to see if the market likes what the pollsters are saying.  Pollsters are saying Obama won.  Market finally went up for a bit.    

 

The next check is November 5’s market closing.  What industries go up on that day?  What industry do down on that day?  These would directly reflect the market sentiments regarding the new administration’s policies.  

 

However, given the state the economy is in, everything should go up, not only because of Obama, but some sense of certainty.  

 

A lot of commentators gave out long to do lists for the next administration.  This is only an example.  However, I have not seen one mentioned about America’s future creditors.  What future creditors, you ask.  Well, someone has to finance the $700B.  Half of the US bonds are bought by foreigners.  China takes 10%.  Gulf states take another 8, 9%.  With the saving rate close to 0% in America, these foreigner lenders will work like credit card companies.  How much flexibility will the next administration have? 

October 16, 2008 Posted by | Barack Obama, Current Events, Democrats, election, Election 2008, Electioneering, John McCain, market, mccain, obama, politics, Republican, wordpress-political-blogs | Leave a comment

Financial Crisis Now Carries A Political Premium

The financial crisis in America has over rode the presidential election to carry the most political risk in the global economy.  While the American presidential election is a cyclical event and its political risks are more within control than many other political events, such as change of leadership in China.  However, the risks associated to the financial crisis have not only spoiled into arena of political risk, but its impact is immeasurable yet.  This is because its impact is now beyond the financial impact.  

 

The first impact is the presidential election.  This financial crisis is now driving the voter emotion, which is of course in favor of Obama.  The scarcity of information coming out from the candidates implies the candidates are literally clueless – They do not even attempt to own the issue.  This scarcity of information by itself carries a risk premium to any organization that has a budget to be executed in, revenue or input driven from America.  

 

The second impact is American financial industry is now so dependent on the government that its operational independence is questionable.  How far are they from being a “for profit organization”?  Why would a company’s compensation be political for it not because its owner is now a government?  AIG is the perfect example.  How much time will it take for these organizations to get political appointments?  These are unlikely events within a foreseeable future.  However, they are at least academic questions at the table rather than unimaginable.

 

The third impact takes even a longer horizon.  Who is financing the bailout?  Do you think this $700B is coming out from cash?  This money is financed.  Who is lending the money?  Japan, China, Taiwan, Middle East oil producing countries are all big lenders to America.  All exporting countries will take a beating, however not because of their control weaknesses in their financial industry but because the demand in America is weakened.  A smaller pie in America will make the rest of world economy larger in proportion to the States.  Countries like China have a big domestic economy that can sustain a good hit.  Bush asked “Is UN relevant?”  A post 2008 financial crisis world may start to wonder “Is US relevant?”  How much influence from America will be reduced not only by the reduction in moral authority of Bush Administration but also by the scale of US economy in relation to the rest of the world.

 

A corollary of this impact is the influence of global institutions.  A lot of the existing global institutions are founded on the premise of asserting American influence.  A good example is G7.  Who were the G7 countries?  The non communist Security Council holders of WW2 and the losers of WW2 plus the most American loyal country Canada.  This set was to assure that the strongest industrialized nations can be voted to affirm America’s wishes.  World Bank continues to take the most money from the States, not that no other country is willing to offer more.  And money drives the votes in World Bank.  Head of UNICEF is appointed by America to an American citizen because of budget contribution.  All these institutions will see an erosion of America influence.  

 

 

October 10, 2008 Posted by | banking, Barack Obama, Current Events, Democrats, economics, election, Election 2008, John McCain, politics, Republican, wordpress-political-blogs | 1 Comment

What Is The Price Per Vote To Pass The Bailout Bill?

CNN says more banks are likely to fall.  It seems like that 700B will get plenty of asset to buy.  Now, how much did the additional votes cost to get the bill?

 

Taxpayers For Common Sense compiles a list of 15 pet projects within the bailout bill ().  It would be difficult to determine which provision actually got tucked into the bill to exchange for votes.  However, we can see where the most direct beneficiary of the provisions and see the incentives of the votes, especially the switch votes.  

 

Of the 15 listed there, 10 of them are costed out.  They total price tag is $26,396 M.  

There were 60 switch votes: 58 No-to-Yes, 1 Abstain-to-Yes, 1 No-to-Yes.

 

If you cross out the direct beneficiary of the provisions listed in the website and plus 2 guesses I have for the research provision (301) and racetrack provision (317), then you get the table below:

 

Provision

Cost

Votes

Cost/Vote

States

601

3300

1

3300

OR, ID

301

19000

9

2111

TX, IL, WA

201 Sales Tax Deduction

3300

7

471

TX, FL, WA, WY, NV

325

148

1

148

NY

502

478

7

68

CA

317

100

3

33

MI

211

10

1

10

OR

503

2

1

2

OR

602

9

7

1

OH, PA, KY, VA

504

49

0

 

AK

 

This is a total of $26.4B for 30 votes (some of these votes above are the same votes).  This is a total of $890M/vote.  These 30 votes cover 51% of all swtiched votes.

 

The famous archery provision is provision 503.  That provision, jointly with 211, gave the bailout bill 1 vote.  Together, those 2 provisions cost $12M.  The interesting thing is that the House Representative who district covers the biggest beneficiary company Rose City Archery, which is located Mytle Point of Oregon, voted against the bill twice.  The original House sponsor is actually Representative Kind from WI (Yes twice).  By far, the most cost effective provision is 602 (Transfer to abandoned mine reclamation fund).  $9M for 7 votes, $1.3M per vote. 

 

The most expensive provision is 301, $19B.  I only identified TX, IL, WA.  However, I am sure there are more states which would be benefited because of it.  This one so far got 9 votes (and very likely more). 

 

The most cost ineffective is 601, $3.3B for 1 vote.  It benefits OR and ID.  However, ID completely voted against the bill.  I guess they did not exactly want the money. 

October 7, 2008 Posted by | activism, advocacy, Current Events, Democrats, economics, election, Election 2008, John McCain, mccain, obama, Palin, politics, Regulation, Republican, wordpress-political-blogs | 1 Comment

Who Won? The Republicans Who Changed Their Votes!

A 3 page rescue package became 400 page rescue package.  A lot of improvement?  A lot of pork barrel?  Are the lobbyists now worth the money of the clients?  Who Changed the vote?  Who did not?  Anyway, the bill passed!

 

There is 1 vacancy in the House.

 

There are 46 House seats who had a margin of <10% in 2006.  Of the ones who had a margin of greater than 10%, I would consider them as safe seats.  There was 1 abstain in the first vote who had a safe seat. 

 

The Representatives who are in close contests have no little choice.  They have to respond to their constituents’ pressure of the day. 

 

If you think the Republicans were dissatisfied about spending money to bailout, you may expect them to continue to vote no.  Or even some of them would change from YES to NO.  Well, this is not quite the case.  They are the ones who really changed their vote this time.

 

WHAT HAPPENED?

 

The Republicans held the biggest swing block.  Either voters’ sentiment alone was unable to swing these safely seated Republicans to change their vote or these Representatives were actually following their constituents’ pressure to vote NO.  So, the only way to get them change was to buy them over.  Thus, the new spendings.  Since House majority belong to the Democrats, less incentives were provided to the Democrat Noers. 

 

The biggest losers are the Democrats who were on safe seats and voted YES initially.  They had nothing to gain whatsoever. 

 

The biggest winners of the second vote are these NtoYer Republicans.  They are the ones who made the difference, either by the new spending or they suddenly “realized” the importance of the bailout.  Ideology is great, as long as you are ready, able and willing to compromise your ideology!

 

October 3, 2008 Posted by | activism, advocacy, banking, Barack Obama, Current Events, Democrats, economics, election, John McCain, opinion, politics, Republican, wordpress-political-blogs | Leave a comment

Bailing Out Van Gogh Traders?

The senate has passed Bailout bill, an important bill by itself and even more so during an election season.  Simultaneously, Americans are debating about the next President as well as the centennial financial crisis.  The debate will continue: about what sweeteners ought to be in and what to be tossed out (mainly the idea of buying toxic assets from the banks), even after this implementation.  However, this bailout probably provides an excellent stage for a third debate: what is fair market value?

 

Part of this mess has something to do with the accounting rule about the value of an asset.  Currently, the valuation of an asset goes by the rule of “mark-to-market”.  Politicians (French Sarkozy for now) is ready to bend the “mark to market” rule .  However, plenty of accountants can explain to you why “mark to market” is important.  

 

No one can argue against accountant accounting, although plenty of people can win arguments against lawyers about laws.  Accountants will tell you that it is about liquidity in the market, it is about protecting shareholders, etc.  Ask yourself this: can you put all your money into a box that you may not be able to open and retrieve your money?  Accountants are saying you should put the money into something you can always retrieve.  Mark to market makes the box transparent to you.  Even though you are not retrieving the money at this moment, you can still see what you got in the box.  Liquidity gives you transparency.  However, you still have to sell the asset in order to see the value.  With mark to market, you can see the money, based on the current market conditions.  

 

It comes back to the market design.  Financial institutions put the money in market(s) where the products are thinly traded (not much liquidity).  Thus, if everything is mark to market during the good times, everyone and everything is fine since every asset value is growing.  However, once it falls, liquidity vanishes quickly.  Who is ideal to take the role of market design? Regulating bodies.  Regulating body does not have to be the government.  American Bar Association is a self regulating body.  Accountants used to be a self regulating body.  However, in centennial financial crisis, there was no regulating body for these asset backed commercial papers.  

 

 

Let me give an example of a market that has a similar liquidity as the situation we are in: fine arts.  

 

When the economy is in boom, paintings (or whatever else Sotheby auctions) sell well, both in quantity and in price.  However, once the economy goes down, both quantity and price go down.  When quantity goes down, there is no market and thus no market value for anything you hold.  

 

In a sense, all these financial institutions were trying to make money out of trading Van Gogh.  That makes this bail out like a Van Gogh traders bail out.

October 2, 2008 Posted by | Barack Obama, Current Events, Democrats, economics, election, Election 2008, John McCain, mccain, obama, politics, Regulation, Republican, wordpress-political-blogs | Leave a comment

Did You Want A Rejection?

The bailout plan got voted down: 205 vs 228.  The House still cannot get a full house for such an important vote.  Someone please check if those 2 seats are vacant.  Are you upset that it got rejected?  Some people are upset (S&P has fallen >6% already), some not.  NYSE is certainly down.  Is there any good out of this rejection?

 

Some economists and financial guru may say why this bill would not work anyway.  Some people (say Bush, Paulson, to name a few) may also say why we must pass this legislation (not that this bill will work.  Interesting, huh?). 

 

At least democracy works.  Main Street is not too happy about this bailout.  The Representatives listened and voted accordingly (if not for their re-election is in a few weeks).  

 

Yes democracy is slow.  Democracy could be an emotional device as well.  This vote is more of an emotional vote rather than a vote of competing proposals.  This is the kind of occasion that time is of essence and some may argue democratic mechanisms are just road blocks.  

 

This same emotional body delivered an emotional vote last time to appropriate a budget for PATRIOT Act and Iraq war.  This emotional body again delivered an emotional vote, this time to reject another big budget item, although this item is again in a time crisis for the good of the people.  Is it a simple distrust of Bush or is democracy actually at work?

 

September 29, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, election, Election 2008, John McCain, mccain, obama, politics, Republican, Sarah Palin, wordpress-political-blogs | 3 Comments

Don’t Get Too Excited About $700B Bailout

How consequential is this bailout plan?  For intra day trading activity, it matters.  For anything beyond ½ year time frame, it is doubtful.  

 

$700B is about 6% of total US mortgage market ($12T).  

 

Paulson’s announcement did stop the sinking of equity.  That gave everyone an opportunity to think a bit, save themselves from a panic sell off.  However, once this news wears out, will there be any supporting news?

 

Even if all sides agreed on a deal, how much does it take to make it operational?  What will happen to the market in the mean time?  Every sticker listed on the NYSE board freezes the price and wait for Paulson?

 

Paulson and Bernake have been talking about confidence all along, i.e. a Prozac.  Therefore, the core is about make belief – believe in your counter party being clean of toxic assets – and so you think you can lend money again.  

 

What about the reverse auction?  I suggest you to read half of the story here .

 

It works, if there will be buyers who want to compete against the government in buying toxic assets.  If not, kiss $700B good bye.

 

That article is half of the story.  The other half is that sellers have asymmetric information about the asset.  There is only one buyer.  Worse, this buyer is eager to buy using someone else money with no accountability.  Have you ever hired a merchandiser with no accountability?  If a seller cannot sell the asset to the government but someone else did, once there are transactions, the assets now have new prices to be modeled.  Thus, the mark to market rule helps the asset to be re-priced.  Thus, unloading the asset immediately is all too necessary for some of the sellers.  For that reason, a good portion of the banks are just waiting for others to sell.  

 

How successful can this plan be?  And the House Republicans are already placing traps for Pelosi already: their non-participation gives them the opportunity to fire at Democrats when this bailout plan fails (hold the Democrats accountable for bad decisions).

September 26, 2008 Posted by | banking, Barack Obama, Current Events, Democrats, election, Election 2008, John McCain, politics, Republican, wordpress-political-blogs | Leave a comment

McCain: Statesman? Coward?

Obama now has 228 electoral votes versus McCain’s 174, after a month of conventions, bailouts, bankruptcies and an announcement of $700B bailout plan.  With only 40 days to go before the voting day, McCain suspends his campaign to work on a solution.  Is he looking for a distraction?  Is this statesmanship? 

 

The answer to that will be determined by the reasons of those 90 Representatives who are opposed to it.  Are they opposed to having a bail out at all?  Are they having a problem with the “principles”?  Are some of them looking for a pet project into this legislation?  If their reasons are spelt out, then that will decide if any thing can be done to have a bail out.  Only when that is determined could McCain (or anyone) be shown to be statesmen (or coward for running away from the debate).  Whereas, Clinton’s position is much safer for her political career.  At least, McCain got more attention now.

 

McCain could not have known those 90 different reasons when he suspended his campaign.  Therefore, he is gambling. 

 

The only up-side of this is, even if he loses the race, this gutsy move can be a nice chapter in his legacy.  

 

Now, what does it matter to us?

 

The generally agreement principles (GAP) among the two houses are good principles.  The devil is in the details, of course.  However, it does not appear that anyone in the 2 houses is playing games here.  Most of them, 66 out of 495, of them are not running for re-election this year.  They really have to think it through what their positions are.  When we scan through the news headlines, we can see that most commentaries are mostly in line with what the GAP is asking, regardless of the ideological spectrum.  

 

Seidman and Cooke take one side while Kessler take another, all in WSJ.  Editorial of Investor’s Business Daily is “For the Rescue to Work, It Must be Clean.”  Even the big money is cautious about the approach Bush administration is taking.  

 

This reservation is great.  But time is running out for this administration to work (not necessarily for us).  Someone has to give.  The danger we need to observe is:

1)       Is it wise to give money when this administration has very little time to administer the program?  This can be translated to: how much of this proposal is workable and not a bomb for the next administration?

2)       Is it wise to decide something of this magnitude at election time?

3)       Can this wait for post election?

4)       What if Bush is being his typical self – unable to compromise?

 

Looking back, why didn’t America react to the Patriot Act the way it is about this $700B?  Answer: Patriot Act (or the terrorist acts at the time) stroke an emotion; This is felt in terms of dollars.  Dollars dictate the power brokering.

September 25, 2008 Posted by | Barack Obama, Current Events, Democrats, economics, election, Election 2008, John McCain, mccain, obama, politics, Republican, wordpress-political-blogs | Leave a comment

$700B buys a Wall Street PATRIOT ACT

Warren Buffet has called the credit derivatives the “financial weapons of mass desctruction”.  To combat this financial weapon of mass destruction, Bush administration is getting another Patriot Act with a price tag of $700B.  Pentagon runs about $500B.  Paulson is essentially asking to run the biggest show now.  The best part of this proposal is that Paulson left out the oversight part.  Even McCain is screaming about oversight now.

 

$700B of spending without oversight.  Hm… does it sound like the No-fly list created by PATRIOT Act?

 

Patriot Act was the last option before the Al Qaeda Armageddon.  Paulson now delivers the rescue of last resort (the latest?) before the financial weapon of mass destruction.  A nice parallel.

 

Forbes gives a good article about all the major points of the Paulson proposal here.

http://www.forbes.com/home/2008/09/20/banking-bailout-paulson-biz-wall-cx_lm_0920questions2.html

 

The foreign participant part is just special interest (executive compensation too), no different from any other legislator who wants a dip.  The interesting part is, so far, this plan seems to only focus on bailing the banks and leaves out the individual homeowners.

 

Working off these assets is a huge task.  If this bail out effort has the budget constraint of 700B, then prioritizing the assets itself is highly political, especially during an election year.  

 

The unfortunate part of this story is that he only gets to stage the show, not really running it since he will be leaving office by the time everything is running.  Is this thing going to be cost effective?  Is it going to be worth the money?  Or is it another gig of pork barrel and plum jobs?  Remember how the contractors got nice deals out of the war against terrorism? And somehow quite a good amount of them are friends of Cheney?  Is this the Paulson version now?

Fear is the best friend of politicians.

September 22, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, election, Election 2008, Investment, John McCain, mccain, obama, Palin, politics, Regulation, Republican, Sarah Palin, wordpress-political-blogs | 5 Comments