Power And Dollar

Will Haiti Lead 2010 Legislation Agenda: Immigration?

 

One week after Haiti earthquake, CNN finally talks about Haiti refugees, not that there is any yet.  Washington Post started this thread on the 5th after the earthquake.  Obama spoke of “unwavering support” to Haiti exactly because of the cost of refugee management.  Will Haiti refugee make the border security or immigration issue any easier? 

One certain outcome is that support to Haiti will be proportionally to the risk of refugee exodus from Haiti.  Will this be pushed into a fiscal policy management issue instead during the 2010 mid term election?

January 19, 2010 Posted by | Barack Obama, Current Events, Election 2010, obama, opinion, politics, US politics, wordpress-political-blogs | Leave a comment

Massachusetts Is Pushing Up Your 401k

As Massachusetts comes to a close to their choice US Senator, investors from the rest of world are approving their expected result: Republicans will win this election.  How does a local election affect your 401k?  Is that the only factor that drives up your 401k value?  No, certainly not.  However, the spike of not only a few companies (Aetna, NYSE:AET; Johnson and Johnson, NYSE:JNJ), but also industries’ stock value and the appreciation of US dollars against most currencies and in particular against Chinese yuan (CNY) is a good indication that this fluctuation is not due to some company quarterly earnings but some political event (Cadbury is the exception, NYSE: CBY).

NYSE and S&P500 are going up today.  What is the top concern of investors these days?  The future US fiscal deficit.  What will be the greatest contributor to future US fiscal deficit?  Health care.  Obama’s health care reform will have a direct impact to US fiscal deficit.  Not having an one-sided US Senate also means banking reform will have to have greater compromise.  Rumor has it that Consumer Financial Protection Agency may be dropped. 

Are investors disapproving Obama administration?  Investors probably will donate to his re-election campaign as well as his opponent’s in 2012, not to mention both parties’ 2010 congressional election funds.  Investors simply see that the new policies do not provide more values.  Investors like risk management tools that enhance certainties of any kind.  Risk certainty is what helps investors choose their company ownerships (i.e. how your mutual fund manager buys stocks for you).  Therefore, one cannot assume investors hate governments at all times. 

Health care reform in the States will create a higher demand for health care products, such as health care insurance, drugs, and equipments.  The list will be endless.  Financial industry reform will provide greater risk control or at least monitoring over systematic risk.  However, health care reform is so broad that no one can understand while financial reform favors the establishment of the financial industry and not the investors (you, a typical 401k or IRA investor).  

Obama’s options?  House (Nancy Pelosi) will have to pass the legislation at its current form or suffer a longer and more arduous negotiation between House and Senate for any bill senate passed, including the health care bill.  Divert attention from anything unpleasant to immigration legislations.  Haiti will induce refugee problems.  Mexican border violence will induce debate about border security, for instance border fence.

January 19, 2010 Posted by | america politics, banking, Barack Obama, Current Events, health care reform, obama, opinion, politics, US politics, wordpress-political-blogs | Leave a comment

Obama’s Another Banking Show

Taxing on banks is politically convenient since people are angry against the financial crisis.  Thus, it is a populist solution.  Furthermore, a mid-term election is coming up where the incumbent party is expecting to lose seats.  What is interesting about this item is: who will (and will not) get taxed among these banks?  What other options does government actually have to achieve the stated goals?

Community banks will get excluded.  Community bankers are still very influential in the local communities, i.e. they affect a lot of voting behavior in the congressional districts.  The key about this where is the cut-off point for community banks or non-community banks?  There are more than 8,000 banks in the country.  Of those, the top 3 banks take up about one third of the assets, more than $3T altogether.  About 100 banks are over $10B in asset.  If $10B is the cut-off, then we have 100 banks for this tax.  But is it $10B or $1B for a bank to be considered a community bank?  How much room is there?

The government says it wants to not affect consumers and investors.  That is rhetoric.  We all know it will get passed on to consumers AND investors.  It’s just who gets more of it. 

If eliminating fat cat is the goal, are there options?  There are always options.  The only question is: what kind of trade-offs are there?  A company is able to pay huge sum to executives (still employees) is that there are so few companies occupying the market space that investor have no choice but to part the profit to these critical employees.  Making the profit margin among these companies thinner by taxing is only one way to minimize the profit.  The more market oriented approach is to introduce more competitors in the market, for instance,

1)      Enable smaller banks to eat into the market share of the big markets;

2)      Disable banks from entering too many different markets, such as the old law that says a retail/mortgage bank cannot enter investment banking;

3)      Banks cannot perform house trade with depositors’ money.

Are these above new and bright ideas?  No.  These are all recycled ideas America has already tried and ditched or tried in other industries.  The first one is congruent to the anti-trust law.  The second one is Glass-Steagall Act.  The third one is from insurance industry and pension industry.  Obama can achieve the goal without being overly creative.  This creation simply tells us he is on another political show.

January 11, 2010 Posted by | america politics, banking, Barack Obama, 美國, Election 2010, legislation, obama, opinion, politics, Regulation, wordpress-political-blogs | 2 Comments

Did Centrists Republicans Just Defeat Obama-Care?

Democratic Senator Baucus is presenting a compromise health care bill in the Senate without public option whereas CNN reports that Obama is finally drafting his own version with a trigger for public option.  The Gang of Six has three Republicans.  They are: Enzi, Snowe and Grassley.  Grassley says in CNN that public option is Obama Care.  Now that Baucus proposal does not have it, Grassley and the like may actually have a way to claim victory that they will have defeated Obama Care.  If so, then health care will pass a giant step. 

 

With the sections 2701 to 2703 and 2706, 152, Baucus essentially creates an analogous health care version of Equal Credit Opportunity Act.  The impact of this idea will be long lasting, much more profound than Equal Credit Opportunity Act not because of any anti-discrimination, but because insurance business is completely centered on selecting good risks, i.e. choosing the less risky applicants, in any kind of insurance product.  One example is that insurers give a different price of life insurance based on occupation of applicant.  If you are a fireman, then your rate is higher.  If you are in the army, you rate is higher.  That is the reason insurance companies are not allowed to use DNA to determine price of health or life insurance.  Similarly, if you are younger, your auto insurance is higher.  While your age can be a factor in auto insurance application, your age cannot be a factor in your credit application, as prescribed by Equal Credit Opportunity Act.

 

This piece of legislation is about health insurance.  Therefore, life insurance can continue to legally discriminate life insurance applicants based on existing conditions. 

 

Health insurance companies underwriting procedures will have to change, industry wide, nationally.  Health insurers are Cigna, Aetna (NYSE:AET), Humana (NYSE:HUM), UnitedHealth (NYSE:UNH) Blue Cross Blue Shield (http://bcbs.com).  Here is an example: Just like some life insurers give better rates for their life insurance policies, some companies may have been marketing well among smokers for health insurance policies.  If Baucus proposal goes through, all health insurance companies may have the same application procedure to underwrite a smoker.  Smokers market is now thinner than before for this smoker specializing insurer.  We do not quite know if discrimination against occupation is covered by Baucus, or age or anything else.  However, a lot of compliance work will get involved in the future. 

 

How will it enforced?  Is Baucus planning to have Department of Labor to have a stronger role in health care enforcement?  Insurance is completely state regulated, for now.  Will this kind of enforcement be incorporated in Treasury? 

 

We will know by the time our speech entertainer Obama gives another performance tomorrow.

September 8, 2009 Posted by | activism, advocacy, Barack Obama, Current Events, 美國, health care reform, opinion, politics, Regulation, US politics, wordpress-political-blogs | Leave a comment

Is Obama To Re-Start The Nuremberg Trials Next?

Is Obama ready to re-start the Nuremberg Trials?  Or forget Dufar trail in ICC?  His decision of not prosecuting CIA officers employs the “I am only following orders” argument which is the exact defense employed during the Nuremberg Trials.  Obama’s goal is to protect the civil servants, i.e. to preserve their loyalty to his administration, future Democratic presidents, future presidents in general.  Obama transferred a legal issue (defending the officers in court) to a political issue and may in fact undermine these officers’ defense.

During the Nuremberg Trials, war crime defendants like Wilhelm Keitel  used this “following an order” line.  However, Allies pre-empted those arguments by Nuremberg Charter, created before the Nuremberg Trials. 

Obama’s interests are to assure the civil servants to work for him.  Therefore, Obama is spending his political capital to shield the legal liability of those officers.  Employing the “following an order” line now gives legitimacy of the war crimes, thus weakening the authority of Nuremberg Trials.  Is Obama increasing the doubt from the Jewish voters? 

Obama is eroding his extreme left base.  Will Obama gain any votes from the defense hawk voters in 2012 as a result of this?  If not, he is making an electoral loss out of this.

Obama is also weakening the International Criminal Court since ICC mainly prosecutes war crimes.  A legal event is now not only an electoral factor, but also a political risk premium to the international community, which Obama claimed during campaign to want to. 

Obama could have chosen to use state resources to defend them in United States courts.  Does Obama consider the defense to have a poor chance?  By not prosecuting, Obama cedes the initiative to choose the court of battle.  The federal government can still provide defense wherever the trail will take place since the officers’ conduct were by the state.  Any country can choose to prosecute them in any court, whose legal proceedings will be unfamiliar to the defendants.  Would arguing the case in an American court provide better legal defense than in a foreign court for these officers? 

Obama probably does not gain any vote from defense hawk voters, alienate his left base, make Jewish voters more doubtful, breaks his promise to mend the international community’s trust toward the States, weakens ICC and future trials (say Sudan’s Dufar trial), weakens the defense of the officers by provoking the case to be argued in a foreign rather than a domestic court.  All for buying 4 (or eight) years of honest work for Obama?

April 20, 2009 Posted by | activism, advocacy, Barack Obama, 美國, Democrats, obama, opinion, politics, Republican, wordpress-political-blogs | Leave a comment

Veto The Pork? Thought About The Cost Of Business?

Fourteen Senators are calling Obama to veto the budget (until 2009.09).  Will Obama veto?  If these 14 Senators are truly against the pork, they could eliminate the bill themselves.  They would rather say they are against it, rather than calling the President to veto it.  

 

Polosi says it is less than 1% of the bill.  If CNN’s $8B figure is correct for this $410B bill is correct, then it amounts to 2% (1.95%, if you really want 2 more decimals).  

 

Let’s check back on the bailout bill.  $787B.  How much was the pork there?  According to Republicans, it was 19.05B.  That would make it 2% again (2.42%, 2 more decimals). 

 

From 2.42% to 1.95%, that is 1/5 reduction!  Do you have to pay your real estate agent for commission?  Is this the commission for legislators?  Cheaper than our real estate agent!  The only problem is that if it were an annual ritual, then this is pretty expensive.  

 

Are these 14 Senators going to go through the process to vote against the $410B?  Maybe they did not get their proper share in that bill!

March 5, 2009 Posted by | activism, advocacy, Barack Obama, Current Events, 美國, Democrats, legislation, obama, opinion, politics, Republican, wordpress-political-blogs | Leave a comment

Gimmick? What Difference Does It Make?

Obama did not actually ask for pay limit.  Obama pretty much asks for pay through options: exercise to sell the stocks when you pay back the money to the government.  Obama also asks for more say for the shareholders.  Some will say such an ask is ridiculous.  Some will say if you want the money this badly, then this is the price to pay.  

 

Obama will likely get his way, not because of media bias, but because he is likely to get the votes for this one.  

 

Ideologies aside, what is really at stake?  This proves American economy is increasingly political.  Very soon, America will have a government with hands so full in the operations of the economy that it is not too different from China or India.  

 

Pay limit takes the headline.  However, if you read the content, the other point is the more important one: “bank shareholders will have a greater say about the salaries paid to company heads.  The measures will put in place greater transparency for costs such as holiday parties and office renovations.”  This actually follows the same concept of SOX. 

 

Obama is actually addressing quite a few things here.  

 

In large corporations, small shareholders never get a say.  The big shareholders usually end up being mutual fund companies.  Mutual fund companies tend to be silent partners.  So, they do not say much.  In fact, they do not even want a seat on the board.  Boards are still running the way it used to be 50 years ago, 100 years, old boys club.  However, the number of shareholders these days is: way too many.  However, 100 years ago, a large corporation did not have hundreds of thousands of shareholders.  These days, if you count the mutual fund holders, you easily have millions of shareholders.  Large shareholders get ways to take care of themselves, preferred shares or even board compensations for the lucky dozen.  The theme of transparency in this issue is actually consistent to one of his campaign messages.

 

Annual reports are informative.  For a large publicly traded company, say 100 million operating budget or 1000+ employees, tucking in ridiculous expenses on executives is too easy.  Even though SOX asks for any small thing that is “material”, what is half a million to a 100 million?  Obama essentially is having one stepping further: SOX is about relative to the nature and complexity of the business, let’s have it relative to ordinary people.  

 

Impact on economy?  For people who have >500k, do they spend all the money and let the money circulate in the economy and create jobs?  No, they tuck half of it in their 401k anyway.  In a way, Obama is actually tying up all their 401ks into their own company’s stocks.  Now, since these executives will have no diversification of the assets, they now have complete vested interests in the survival of the company.

 

So, political gimmick or not, this move actually does make a difference. 

February 4, 2009 Posted by | activism, advocacy, banking, Barack Obama, business, Current Events, 美國, Democrats, economics, legislation, obama, politics, wordpress-political-blogs | Leave a comment

Obama Administration Begins! (Or ?)

Obama settled on his economic team late Friday afternoon, sending Dow 400 points higher, just above 8,000 points.  Then, news about Citi’s (NYSE:C) bailout came about.  This news probably marks the beginning of Obama administration.  Here is also why this signal is important.  

 

A plan like Citi is facing must have been laid in advance.  What has been in the dark is if the plan gets proper continuity through its execution.  Therefore, the first priority is people.  The people had to be properly identified.  The team had to understand what is involved.  Geithner’s appointment had a lot to do with his familiarity in the financial crisis as well as the solution already in place.  He probably had a hand in the solution as well.  For an announcement that spans through two administrations, Obama had to approve.  Bush had to approve this plan as well since Obama is doing to take the credit for its success but Bush will take the blames if it fails.  Geithner’s appointment is an additional (in addition to James Jones’ appointment) indication of the desire for smooth transition. 

 

Of course such a “smooth” transition means a blend of old and new, ie some more of Bush people, and some of Bush ideology gets carried over.  However, media is very willing to forget about these things, when it is done by Obama.  

 

The importance of the news, in addition to sending DJ and S&P up another 3% in the first 2 or 3 hours of a Monday morning, is this: Obama already replaced Bush; expect more consequential news from now on.  Obama’s administration is not going to begin on 2009.01.20.  His administration starts now.  Therefore, if you thought your decisions could wait until 2009.02, then you may want to re-juggle your vacation schedule.  Your Q4 board probably is going to get busier than usual, not only the economic news and your company financials matter, but also Obama will deliver statements earlier than previous presidents.  Decisions about your public relations firm, lobbyists, policy research contracts will have to be revisited now rather wait after Christmas.  

Fund managers have to get busy too.  Just look at Citi’s stock this morning: 2 hours and 66% increase.  Obama’s statements will make big swings.  So, don’t slack. 

November 24, 2008 Posted by | banking, Barack Obama, business, Current Events, 美國, Democrats, economics, obama, politics, Republican, wordpress-political-blogs | Leave a comment

Who Just Financed The Auto Bailout? What Do They Really Want To Buy?

How much money are GM (NYSE:GM), Ford (NYSE:F) and Chrysler asking?  $25B.  What if someone already lent more than that $25B money to America 2 months ago?  Should America use that money for the auto industry or something else?  Like the new stimulus people talked about? 

 

Back when Treasury Secretary Paulson was having his stunt show of $700B domestically and internationally, China became the largest lender to the largest debtor (from the second largest).  While most (16) of the reported 29 markets shrank their lending to America, China actually made the biggest increase in lending this year in September (the latest data available) both in dollar amount as well as in proportion of the portfolio.  

 

China lent an addition of $43.6B, from $541.4B to $585B, largest in the year for China, as well as the largest increase in the world.  This is 8.1% increase for China.  China is actually taking a much larger portfolio risk on America.  If China had any portfolio risk management, China must have broken all their portfolio risk controls by now.  

 

China is of course serving its own interest at the same time.  Propping up US economy for a while will assure that US currency slows down its decline, slows down its decline in imports, that the pressure on currency exchange rate is dampened.  

 

This is another angle to this irony.  Competitors or not, China and America are dependent on each other.  If America is indeed in decline, as CNN reports and National Intel Council finds, then America may want to learn a lesson from England.  

 

UK has been experiencing a decline for a long time.  However, they continue to enjoy a greater influence than their economy can support.  They managed to find a buyer for their asset, political asset.  This is no different than a retiring accountant (doctor, lawyer, real estate brokerage owner) selling his book of business to a younger partner through an earn-out model.  

 

When you sell your business, you can sell the whole business up front, in cash.  Say 2 years, 3 years of the profit.  However, the buyer may have a hard time to take everything in one go, especially we are talking about a young business partner.  The young business partner needs a certain time to get acquainted with the clients to prevent client attrition, especially if the business is a relationship heavy business, like politics.  So, have two partners in the firm at the same time, the young partner gradually increase its shares over the years as the old partner reduces his work load and introduces the younger partner to the existing clients.  

 

This is what England did.  England maintained a “special relationship” with America by serving American interests since WW2, transforming its political assets to the benefit of America, re-aligns its own interests at the same time.  England did not suffer the decline France had.  If America perceives this “decline” as reality (rather than another ploy from the intelligence and military community to get more budget), then the next question is: Who will secure our future interests?  Who is the buyer?  What is our inventory?  At what price?  Who is our rep? 

 

 

With that in mind, how consequential is Sudan or Tibet or even Taiwan in this bilateral relationship?

 

 

November 21, 2008 Posted by | Barack Obama, Current Events, 美國, Democrats, economics, obama, politics, Republican, wordpress-political-blogs, 中國 | Leave a comment

How Long Can You Wait For A GM Bailout?

GM (NYSE: GM), Chrsyler and Ford (NYSE: F) are asking for a nagging for an auto industry bailout.  This is what should have been expected once the $700B bailout flood gate is open.  After the auto industry will be the steel industry, the building industry.  If you bailed one, you need to bail all. 

 

Obama said the auto industry is important.  That may be an electoral language.  It may be too early to tell if he will deliver or break the promise.  However, one thing is certain: he should focus more on transition than governing.  For that reason, he is likely to remain mute on this issue.  

 

What about Bush?  Bush already said he will not bail out.  Some think Bush is using that to bait Senate to rectify trade treaties.  It is more likely Bush is being a prudent and a responsible out going president – do nothing.  This is best described by Treasury Secretary Paulson’s article on NYTimes.  During a transition period, the stunt show could have been to advocate for McCain (“who else can steer us through this mess?” Not that it worked).  Once the election is (or was) out of the equation, the job (Paulson’s job) is make sure the ammunition is available for Obama and hope that Paulson does (did) not have to use the ammunition or use all the ammunition.  Here is why: Paulson’s reputation will be the first for crucifixion under the Obama administration when Obama is up for a recovery failure.   The best Paulson can offer is to recommend the best talent he can find.  

 

The starting point to any bailout is the House.  Will House give the money?  Even if Pelosi wants it, she is unlikely to get the ammunition to push it through, given the controversy of the $700B and the margin that vote had.  Suppose it passes, it does not have enough votes to override Bush.  

 

Will Obama ask for it?  Who will take credit for the bailout?  Or the blame?  Who will have to be accountable to the execution of the bailout, if the money actually goes through?  Obama administration or Bush administration?  Obama wants no ambiguity.  Bush is unlikely to want to create another potential mess for a Democrat to manipulate against him.  The $700B stunt show is already enough for both Bush and Obama.  

 

So, the story is then: forget about trading auto stocks based on political news or even the hearing.  No matter how appeal the hearing will turn out to be, the earliest possible actionable news is after Obama’s cabinet becomes clear, if not after inauguration.  

November 19, 2008 Posted by | Barack Obama, business, Current Events, Democrats, economics, Investment, legislation, Money, obama, politics, Republican, stock, wordpress-political-blogs | 1 Comment