Tulips. Tulips I Tell You

Prediction is hard, especially about the future.  But a quick glance at the Wall St. Journal’s Market Data page made my eyes pop.

I wanted to see if my general sense of unease around the financial markets had any quantitative basis, so I was looking up the price to earnings ratio of the major market indices.  The first number I noticed was the current p/e number for the S & P 500: 24.13.  That’s only a smidge up from a year ago, but is still historically pretty high.

It is, it should be noted, nowhere near the stratsopheric numbers achieved in the 2009, when earnings crashed so far and so fast that market prices couldn’t crash fast enough to keep up, but it is not far off those in the summer of 2008, just before the Great Recession became brutally obvious.

That’s got me generally a little concerned, as it doesn’t take much to spook “smart” money, and a high p/e is always a good excuse to sell.

But what made my eyes pop was the estimate of forward p/e: 17.65.  That is, in essence, a prediction that company earnings are going to improve significantly over the next year — enough either to ease the market into a soft landing, a return to more historically normal valuation, or (if you’re an ebullient sort) to keep the market powering upward for a while yet.

That’s all well and good, and as I’m a lot closer to retirement than my first day at work, I’ve got no objection to such an outcome.

But what has me antsy is that I don’t know the assumptions that went into that estimate, and known or not, I don’t trust ’em.  I’m writing now about the South Sea Bubble of 1720, and I’m continuously struck by how easy it was for very smart people — Isaac Newton, forsooth! — to persuade themselves the party would continue, even very late in the game.

All of which is to say that three hundred years of securities market adventures tell us that it’s always when, not if for unpleasant surprises.  I don’t know if one is imminent, but I do know two things: given current events, a big crash could produce true social and political ugliness in a hurry; and there are at least a few reasons to watch out for market hubris.

Any jackals got a similar feeling? Any actually knowledgeable types out there want to weigh in?

Necessary disclaimer:  I’m not a financial expert. I do not watch the markets closely.  Most of my retirement funds are in the most boring possible index funds I can find.  I have enough time — a decade-ish — so that I can ignore near term gyrations (ask me again around 2025 how I feel). And I’m certainly not an expert on company valuation, or the connection of or utility of macro- and political economics to something as fine-grained and context-dependent as a market investment.  I’m not a financial advisor, nor do I play one on TV.  I’m just a guy getting a little queasy.

Also too — a guy who thought we could use some more thread.

Over to you.

Image: A Stock Market Cleaner, cover of Puck, v. 15, no. 376,  May 21, 1884



The Company He Keeps

Look who Ted Cruz has recruited as his economic advisor:

If it’s true that a man can be judged by the company he keeps, what are we to make of the appointment of former Sen. Phil Gramm as economic advisor to the Presidential campaign of Ted Cruz?

Cruz made the appointment Friday, when he collected Gramm’s endorsement of his quest for the Presidency.

As Micheal Hiltzik points out in his coverage of this — what’s the word?– curious appointment, Gramm is exactly whom you’d choose if one global financial meltdown just wasn’t delicious enough:

Gramm left a long record as a dedicated financial deregulator on Capitol Hill, with much of his effort aimed at freeing up trading in derivatives. That’s why he’s often identified as one of the godfathers of the 2008 financial crisis, which was spurred in part by banks’ imprudent trading and investing in these extremely complex financial instruments.

JMWTurner_Sunrise_with_Sea_Monsters

Gramm himself is undeterred by his own disastrous record, and clearly Cruz is equally unbothered.  That would be why both men are ignoring Gramm’s last appearance as a campaign surrogate:

Gramm’s previous stint as a Presidential campaign advisor ended inauspiciously. That was in 2008, when he served as co-chairman of John McCain’s Presidential run.

Gramm’s most notable moment in that position came on July 10, 2008, when he dismissed the developing economic crisis as “a mental recession” in an interview–and video–released by the conservative Washington Times. “We’ve never been more dominant,” he said. “We’ve never had more natural advantages than we have today. We’ve sort of become a nation of whiners.” McCain immediately disavowed the remarks, and a few days later Gramm stepped down as his campaign co-chairman.

I’m assuming that Ted Cruz does actually hope to become president, and thus makes his choices in the belief that they will advance him to that end.  So I can only see two possible interpretations for this exhuming of one of the most egregious poster children for GOP economic failure.

One is that this is what epistemic closure looks like when it’s at home.  It takes a hermetic seal between you and reality to think the “nation of whiners” trope is a winner this year (or ever, really, but especially now).

The other is that this is just trolling, or rather yet one more instance of believing an action is simply good in itself, transcendently so, if it pisses liberals off.  Which lands Cruz — and the GOP — in exactly the same place as option one: doubling down on the crazy for reasons extremely clear only to those with the correct implants in their upper left second molar.

All of which is to say that I remain firm in my belief that the entity identifying itself as Senator Cruz is in fact one of these guys.

“Where are we going?”

“Galt’s Gulch”

“When?”

“Real soon!”

Image:  J. W. M. Turner, Sunrise With Sea Monsters, 1845



Problems of a certain subset

I saw this New York Times column by Frank Bruni on the overscheduling of kids and it struck a chord with me:

Scelfo wrote about six suicides in a 13-month period at the University of Pennsylvania; about the prevalence of anxiety and depression on college campuses; about many star students’ inability to cope with even minor setbacks, which are foreign and impermissible.

Those students almost certainly need more sleep. In a study in the medical journal Pediatrics this year, about 55 percent of American teenagers from the ages of 14 to 17 reported that they were getting less than seven hours a night, though the National Sleep Foundation counsels 8 to 10.

I went to a school for undergrad where the unofficial motto was “Choose two: sleep, friends, work”

The cultural expectation was people were expected to run themselves into the ground even past the point of negative returns on work.  People were in the computer labs at two in the morning on Saturday night trying to do homework that was not due until Wednesday as they created more errors than they solved.  If you weren’t zombie-eyed and involuntarily celibate, you were slacking.

I happened to be able to choose all three plus Paris plus a few other amazing adventures while graduating with honors and getting into a top graduate program in my chosen field.  I quickly realized that my best work did not happen at 11:00 at night. Quality went downhill dramatically by 1:00AM.  The one exception was a repeated science experiment which involved filling unused condoms with cheap beer and chucking them off the roof to see if drunk people liked beer from heaven.  Three years worth of data showed most people appreciated it although the campus cops weren’t cool with the non-IRB approved experiment.

There was also a spate of suicides on campus in my freshman and sophomore years.  The underlying cause was most of the people I went to school with were not able to cope with being normal within their immediate peer group.  They never were normal before then.  Not being locally exceptional (while still being globally excellent) was a massive shock to people’s self-conceptualization of worth.

I was lucky in that my neighborhood Irish Catholic parish school had a crazed nun running it.   She made sure 10% to 15% of her graduating classes every year went to Ivy equivilents.  My classmates were like me, the kids of the skilled blue collar tradesmen. The 80 kids who graduated with me plus or minus a year sent three to Harvard, another four to other Ivies, a pair to MIT, me to where I went, one each to Amherst, Stanford and Duke.  Most of us went on near half rides or better.  When we talked in our early twenties, we all agreed 8th grade English was probably the hardest class we had until senior thesis or master level synthesis projects.

I don’t know how to fix this problem, as I was lucky enough to be able to side step it personally but I saw too many of my peers, classmates and friends during undergrad be burned out, lose themselves and lose their passion and potential because they were exhausted eighteen years olds.

 



Marg Bar Banksters (edition ∞)

Via The New York Times an essential article on the ways Big Finance screws serving troops — and the rest of us:

Charles Beard, a sergeant in the Army National Guard, says he was on duty in the Iraqi city of Tikrit when men came to his California home to repossess the family car. Unless his wife handed over the keys, she would go to jail, they said.

The men took the car, even though federal law requires lenders to obtain court orders before seizing the vehicles of active duty service members.

Sergeant Beard had no redress in court: His lawsuit against the auto lender was thrown out because of a clause in his contract that forced any dispute into mandatory arbitration, a private system for resolving complaints where the courtroom rules of evidence do not apply. In the cloistered legal universe of mandatory arbitration, the companies sometimes pick the arbiters, and the results, which cannot be appealed, are almost never made public….

The kicker in that already insufferable situation:

Over the years, Congress has given service members a number of protections — some dating to the Civil War — from repossessions and foreclosures.

Efforts to maintain that special status for service members has run into resistance from the financial industry, including many of the same banks that promote the work they do for veterans. While using mandatory arbitration, some companies repeatedly violate the federal protections, leaving troops and their families vulnerable to predatory lending, the military lawyers and government officials say….

…The Government Accountability Office, for example, found in 2012 that financial institutions had failed to abide by the law more than 15,000 times.

V0017699 A fortune-teller reading the palm of a soldier. Oil painting

Efforts in Congress to block financial companies’ efforts to weaken any vestige of legal protection met the subterranean death favored by the scumsuckers for whom light is poison:

Last year, a bipartisan bill that would have allowed service members to opt out of arbitration and file a lawsuit met with opposition from the U.S. Chamber of Commerce and Wall Street’s major trade group, the Securities Industry and Financial Markets Association, or Sifma.

“While we remain very supportive of the troops, we see no empirical or other evidence that service members are being harmed by or require relief from arbitration clauses,” Kevin Carroll, a managing director and associate general counsel at Sifma, said in a statement.

Here’s what they mean by “support.”

In lobbying against the bill, several financial industry groups and a large phone company visited with the staff of Senator Lindsey Graham, Republican of South Carolina, who sponsored the legislation along with Senator Jack Reed, a Rhode Island Democrat.

The trade groups told Mr. Graham’s office that they were already working to make their arbitration procedure more accommodating to service members, according to a person briefed on those discussions who would speak only on the condition of anonymity.

“The message was, ‘Let us fix this internally,’ ” the person said. “Don’t upset the apple cart with a new law.”

Whether or not that line was believed, the result was as desired:

The bill never made it out of committee last year, though Mr. Graham plans to reintroduce it this year.

Committees:  where money talks so effectively — and almost silently.

This at once an infuriating abuse of people doing what their political leaders have tasked them to do, at risk to themselves and costs to their families — and a sign of how bad the system is rigged against all of us.  Realize this:  serving troops at least have some legal protection that, however abused can still be invoked.  Everyone else:  suck it up, face mandatory arbitration, and say “Thank you, sir, may I have another” everytime we have to bend over and take one for the greater good of modern American financial capitalism.

Also: kudos to Senators Graham and Reed for making an attempt.  But let’s be clear:  Republicans — the party that claims the flag and the troops as their personal property — control both houses of Congress and have unfettered control of the agenda there.  So this is a test:  if they can’t fix this — now — then it’s incumbent on those of us on the other side to hang their betrayal of the troops around every member.

Image:  Pietro Muttoni called della Vecchia, A fortune-teller reading the palm of a soldier, before 1678.  I can’t help but thinking the fortune teller is telling the soldier that he sees the future, and the his client is f**ked.



Back to School With Privatization

mpr2003-02cvrsml

This is an actual publication, BTW. I’m gonna read this 2008 issue just to discover what these two things might have in common:

Golf and University Privatization
MPR2008-01: Summer 2008
Published on June 17, 2008

Speaking of privatization, here’s another great education reform idea that is completely about kids and definitely not about racing to the bottom, privatization, or profit:

Michigan Republican Sen. Phil Pavlov, who chairs the state Senate’s education committee, is preparing legislation that would allow public school districts to hire teachers through private, for-profit companies. Privatizing the hiring process would presumably allow school districts to bypass compensation packages sought by teachers unions and let private companies compete for contracts with districts.
Pavlov didn’t respond to a request for comment on the teacher privatization plan. But Pavlov has publicly described his plan, which he said was still in the works, this way: “I look at it as offering options. If there is something out there that can offer school officials the same options at a lower cost, schools need to take a look at that. It needs to [be] part of the conversation on reform.”
Michigan Sen. Gretchen Whitmer, the state Senate minority leader, says she and the Democratic Caucus plan to fight Pavlov’s proposal if it is included in new education legislation. She describes teacher privatization as merely a continuation of Michigan Republicans’ education agenda. “Gov. [Rick] Snyder and Republicans have made no bones about it: they’re trying to dismantle public education in Michigan,” Whitmer says.

Ohio has been reforming schools much longer than Michigan. We’re well into the second decade of this totally new and innovative agenda here, so allow me to predict your future, Michigan. Reform means less funding for every existing public school, lower wages for local school employees and tests. Lots and lots of tests.