The President's yet another stimulus ?

While only 22% of the first stimulus (of USD 792B) has actually been disbursed, the President seems to be considering an another stimulus package. According to the remark made on last Friday in the Rose Garden, Mr Obama's economic team is looking at ideas such as -

1. additional investments in roads and bridges
2. incentives for making buildings more energy efficient
   
3. additional tax cuts for businesses to create jobs
   
4. additional steps to increase credit to small businesses
   
5. an 'aggressive agenda' to promote exports.
   

1. Investments for roads and bridges should have been maximised in the first stimulus. See 2.

2. NO MORE ENERGY EFFICIENCY. It is too much already. The President should consider re-allocating money in the first stimulus away from Mr Chu to roads and bridges.

3. Is this new hire tax credits/benefit? I think the economists in the administration are smart enough to advice the President how difficult it is to implement an effective tax credits for new hires.

4. This might be sensible thing to consider, if the administration does not care financial institutions' health.

5. Exports promotion... Good, if the President promotes trade in general - and if so, is this stimulus? and if not, White House might be thinking that the trade war can be stimulus.

The biggest question, however, is why the President had to talk about all these NOW. These measures will not do much for the economy in the short term other than adding to already-huge national debt. With the two defeats in the elections and unemployment data above 10%, the President might have thought that Congress might come up with something which would be difficult for him to oppose, further undermining his control (if any is left) on Congress, and that he needed to be ahead of the curve. Alas, he is already behind the curve, had he not thought about the possibility of this situation coming.

Japan : Where Are You Going To?

Japan had been driven by national socialistic policies with capitalist's cosmetics for long years. Even the defeat in WWII and subsequent US occupation could not dismantle the system completely.

Now with landslide win by the DPJ, Japan now seems to be moving away from social nationalist, well, toward plain socialist... Amazing.

Does Japan Want Real Banks or Not? (WSJ)

Russel Roberts on Bernanke

Russel Roberts wrote:

The Great Depression was caused, or at least greatly worsened, by too little liquidity. Bernanke has avoided that mistake. He has instead committed the opposite mistake of too much liquidity and too few failures. Obama has praised him. How history judges him will be the real test.

I agree, though, without hindsight, I would think Mr Bernanke did fine job overall and deserves the re-appointment.

Source: Will Time Prove Ben Bernanke Wrong?

Which War in Afghanistan?

LA Times reported that 'Afghan war poll triggers Obama political alarms'. Though I am no expert of foreign affairs, I believe there is one fundamental problem with the administration's handling of the war.

Mr Obama stated his objectives in March:

I want the American people to understand that we have a clear and focused goal - to disrupt, dismantle, and defeat al Qaeda in Pakistan and Afghanistan, and to prevent their return to either country in the future.

This seems to be a very limited 'search and destroy' mission. But Ambassador Richard Holbrooke and his team, the Obama administration’s special representative for Afghanistan and Pakistan, at the briefing at the CAP, talked about

'an agricultural development program aimed at restoring jobs and income, improvement of governance, reform of the justice sector and the rule of law, build up of the government’s capacity to promote economic development, and working with civil society'

This sounds very much like 'nation building' his party criticised so much in the past regarding Iraq. Of course the strategy is logical. After all, you will need 'well-governed' Afghanistan to defeat Al Qaeda. However, what the administration is doing seems to be selling one war while fighting another.

If Mr Obama needs additional troops and funding, he needs to tell the facts and make the case, even though it may subject himself to the same criticism he offered in the past. It might not help poll numbers, but will help him win the credibility he needs so badly.

Germany "did nothing" and its economy recovers?

This is interesting -

From Mises Economics Blog -

Germany 'did nothing' and its economy recovers

'Last year, according to the IMF, the U.S. pumped an extra 1.1% of GDP into the economy. Germany did next to nothing.' (WSJ)

'The latest figures showed German exports had grown at their fastest pace for nearly three years at 7%, with particularly strong growth in demand from rapidly-growing economies such as China.' (BBC)

I would add a quote from Japanese Prime Minister Taro Aso.

'Berlin had failed to understand why strong fiscal action was vital for recovery' (Financial Times)

Of course I am not saying the stimulus is useless (China's massive stimulus seems to have helped German too, after all) - but I feel this is a bit ironic. At the least, Frau Merkel only had to pretend to do something, while avoiding spending too much of their own money.

UK Economists' Letter to Her Majesty The Queen

The UK economists wrote a rather lengthy letter to the Queen, in an attempt to answer the question raised by the Queen 'why had nobody noticed that the credit crunch was on its way?'. - and the answer is:

'In summary, Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.'

'Collective Imagination Failure'? I know 'market failure' and 'government failure'.... but failure of collective imagination?. Simpler answer, though not politically correct of course, would be 'the Economics is not, at the least has not yet been, able to predict a course of such a complex phenomenon'.

No, it is not a shame. Suppose you put a certain pressure on a glass. Some physicists would be able to tell you the glass will break at some time, in some way in the future, but not exactly when nor how.

The Global Financial Crisis – Why Didn’t Anybody Notice?

Dr Barr Rosenberg on the current crisis

I don't know if this crisis is 'a little hardship', but I tend to agree with what Dr Barr Rosenberg (of AXA Rosenberg) has to say about the crisis...

Considering the positive aspects of this crisis, first of all, a little hardship is good for each of us. I think, of course, there is health in alternating good times and bad, in terms of our individual psyches. And it also makes us prudent and gives us experience.

From The AXA Rosenberg 'Advantage' - Issue 12.

The Fed : There is something you should never rush on...

The Fed seems to be in trouble. President Obama's proposals for strengthening the Fed's supervisory power to eventually turn it into the 'systemic-risk regulator' are, alas, threatening the Fed rather than enhancing it.

The proposal is, at the least, ill timed. The Fed is particularly vulnerable now. The proposals, by stirring up unnecessary anti-Fed sentiment, could trigger full blown assault against the Fed and undermine its independence.

The oppositions against the proposals are abound and there seems to exist little consensus about the Fed's expanded role. There are oppositions from agencies that would lose their supervisory authority and power or could be wiped out completely. So many people (not only libertarians and extreme lefties who are more than willing to wage crusade against the 'supra-legal entity') are now questioning wisdom of giving more power to the Fed that failed to foresee and prevent the crisis. Lawmakers are getting louder to push through 'auditing of the Fed' (but, audit what?).

To be clear, it is not the Fed's fault that they could not foresee the bubble and the burst. After all, the market could not foresee them, neither. The basic premise of the market economy is that there are few, if any, that can be consistently smarter than the market. If we expect the Fed should be wiser than the market, we should abolish credit market, nationalize all the private banks to integrate them into the Fed, and entrust the Fed to conduct all the allocation of the funds to businesses in the U.S.

The current administration's rushed proposal, if pushed prematurely, could blow up all the intricate and delicate fabric of arrangements and consensus around the Fed's independence, whether explicit or implicit, and damage the very idea of the 'independent central bank'.

There always exist something you should never rush. The reform of the role of the central bank is certainly one of them. Mr Obama should have heeded Volcker's advice not Summers's.

(To be very clear, I do not like the contents of the proposal itself, not just the timing of it - the idea of the market where the super-sized regulator governs a few super-sized gambling-banking conglomerates sounds just horrible).

Don't rush on US systemic risk regulator--Volcker (March 24, Reuters)

Fake or Real? S&P 500 Breaks Downtrend

Last week S&P 500 seemed to have formed beautiful 'head and shoulder', but this week the index shot up and broke upward the downtrend since June 12, rather than fell off the 'neckline'. We still do not know whether this bounce is real or 'fake'.

Yes, Q2 earnings are largely above consensus. However it should be noted that the consensus has been drastically revised down for several months - the consensus for second quarter operating EPS for the S&P 500 was $19.92 at the end of 2008, and it now stands at $14.06 (and this estimate is 5% below March when the market bottomed out). So, it seems that markets are still largely driven by sentiment rather than fundamentals.

Yet, it should also be noted that we saw industrial output in EMU turned positive (MoM) in June, and industrial output in the US also seems to be bottoming out. Thus, there should be more, not less, good news in coming months.

Japan: Ruling LDP Crumbled in Tokyo Local Election

The ruling Liberal Democratic Party seems to have suffered crushing defeat in the Tokyo metropolitan assembly. This could be a fatal blow to Taro Aso, the prime minister and the LDP as they are heading for a general election that must be held by October.

This is disturbing development. The opposition Democratic Party of Japan (DPJ) is promising heavy transfer payments and hand outs to various sectors of constituents (such as farmers), and (yet) more regulation on already rigid labour market.

The only good news is that Japan may finally be able to get rid of the incompetent prime minister (Taro Aso, having been unable to push through any meaningful reform, deserves this defeat) - but I am skeptical if the next one would be any better.

DPJ Set To Become Top Party In Tokyo Assembly After Election

UK ID card 'to be accelerated' (toward abolishment, that is)

The UK's Government seems to have reversed policy toward controversial national ID card program. The announcement claims 'ID card roll-out to be accelerated' (very much Brownesque ...), but states that ID cards will no longer be mandatory for UK citizens.

Well, UK citizens can still apply for card - but I doubt there would be many people who want ID tags for themselves. I believe, if the number of UK citizens who 'opt-in' is not large enough, the program is likely to be scrapped.

By the way, India is moving toward universal ID card scheme (for 1 billion people?, within 3 years?). Good Luck.

Japanese Equities：More Room to Run ?

Japan’s industrial output rose for a third month in May (by 5.9% MoM). The growth could largely be attributed to re-stocking of inventories that saw drastic decline in the wake of the financial crisis. Yet, total inventories fell 0.6 per cent month-on-month in May, according to METI (Ministry of Economy, Trade and Industry).

There still remain significant causes for concern (or even alarm), such as weak end-market demand (both domestic and overseas) and sluggish domestic investment.

However, as Japan is highly cyclical economy, Japanese equity market is expected to perform well with global economic recovery (well, it will recover eventually..), and industrial output is one of the most robust leading indicators for economic activities (while jobless rate typically lags for about 10 months to one year). Thus, I believe there still is upside for Japanese market in mid. term (unless global economy stalls badly in near term).

One caveat: Japan has structural issues such as rigid labour market, and these issues are likely to persist with the lack of political will to reform. Japan will remain 'pure cyclical play' that depends heavily on global demand for its capital goods. So, buy low and sell high with economic cycles - it is not for long term holdings.

Does Steve Jobs have to disclose about his health

Graham and Dodd Investor writes:

In SEC filings, top executives of corporations have to disclose their employment history for the past five years, in order for shareholders to judge their suitability for the posts that they hold. Perhaps a similar requirement should extend to certain other aspects of their lives.

This issue came to the forefront in connection with the pancreatic condition of Steve Jobs at Apple. Considering that one man represented the heart and soul of the company, his health was a serious concern for shareholders. Outlines, but probably not sufficient details, of his condition were disclosed on an ad hoc basis.

Should Mr Steve Jobs (or Apple) disclose his health conditions? YES. It is critical information for investors to make informed decisions. At the least, most people believe it is.

Should investors expect he will? Of course, NOT. He has a right not to disclose his privacy, and I believe such disclosure should not be imposed on anyone by any authority (after all, investors can 'own' Apple Inc. but NOT Steve Jobs). And - who do you think he is? He is STEVE JOBS. If you're a rational investor, you should never expect he will make full disclosure on anything (just for the sake of investors, in particular).

So, you have a choice. - You are prudent and choose not to invest in the company that has serious lack of disclosure on material information (and does not seem to think it is an issue), or you take certain (or huge, depending on your perception) risk on the company that has the incredible CEO and attractive products. You just cannot have it both ways.

Graham and Dodd Investor: What Should Top Executives of Corporations Have to Disclose About Their Personal Lives?

The ECB lent €442.2bn

This is interesting. The European Central Bank lent €442.2bn ($622bn) for 12 months to approx 1,100 banks at the ECB's current key rate of 1%.

What banks would do with this borrowed money? Of course, they will be buying government bonds. If they buy 10-year government bonds of Italy, for instance, they can get 350bp for 'free'.

Isn't this quantitative easing (or, queasing)? Yes. Isn't this same as the central bank buying government bonds? Very close.

What's the difference? The ECB still can claim they are more prudent than its peers (in a sense, they really are), while doing the same thing.

ECB Lends Record 442 Billion Euros for 12 Months

WYSWYG - Iran's Election

It is curious that American people nowadays sometimes seem to be far more "U.S. centric" than in the past. Some people have gone too far to attribute the results of the election in Lebanon to Mr Obama's speech, and the same people are now screaming at the "stolen election" in Iran.

So many people seem to have difficulty in appreciating the facts that there should be so many things for Iranian voters to worry about, other than things Americans worry about, and that the conflict with the U.S. or other countries could be of little importance for them.

Palestinian people could vote for Hamas, even if it might entail a war with Israel. Iranian people could vote for Mr Ahmadinejad, even if the world is very unhappy with it. (Of course, there might have been fraud, but the results you do not like do not necessarily prove that there was one, nor does it mean the results would have been different).

One more note: Mr Ahmadinejad is reported to have won 62.6 percent of the vote in this election. In 2005, he won 61.69% of the vote when he fought against Mr Rafsanjani (in the runoff).

What you see is What you get.

The Iranian People Speak

If Columbus Had an Advisory Committee...

From a recent report by Marc Faber

Arthur Goldberg

If Columbus had an advisory committee he would probably still be at the dock.

Marc Faber

Had he manned the ship with Ben Bernanke, Tim Geithner, and Larry Summers, the Santa Maria would have sunk right off the coast of Andalusia from where he sailed from the small port city of Palos de la Frontera.

From Monthly Market Commentary (Marc Faber)

Anemic as Chamberlain

National Security Advisor Jim Jones:

North Korea nukes "are not an imminent threat"

Defense Secretary Robert M. Gates:

Obama administration considered the test aggressive but not a crisis.

I do not know what these gentlemen are trying to achieve by downplaying the North's nuclear antics, except to signal (to North Korea, and neibouring countries including Japan) that the U.S. will not do anything meaningful until it is too late to do anything.

Anyway, if the U.S. wants to avoid confrontation with China (and I think it is the case), only choice for the U.S might be to accept North Korea as a nuclear power (albeit implicitly) and to force its allies to live with it. If at all possible...

Quote of the Day: Independence of the Fed...

Allan H. Meltzer (Professor of Political Economy, Carnegie Mellon University) :

Arthur Burns was not very independent. Paul Volcker was very independent. Alan Greenspan was rather independent... Current Fed.. has become an operating arm of the Treasury...

Source: McKinsey Executive Roundtable (with Anne Krueger)

Too Big, Too Late...

Why tech spending in the U.S stimulus bill does not help... (well, at the least during this downturn)

From Technology Review