Wednesday, February 20, 2019

The Defining Moment of Donald Trump's Presidency

Special Prosecutor Robert Mueller's report may be finalized as early as next week, according to a news story (see  The report presumably will address crucial questions about President Trump.  Did he collude (conspire would be the legal term) with Russian authorities to undermine American democracy?  Was he a Russian intelligence asset, as one former acting FBI director has speculated (see  Did he obstruct justice or suborn perjury?  Did he violate federal campaign finance laws?  Did he engage in money laundering?  Did he violate the tax laws?  These and perhaps many other questions could be encompassed by the Mueller Report.  The answers may go a long way to defining President Trump's legacy.

Will the report be released publicly?  The President has said he'll leave that up to newly installed Attorney General William Barr.  Barr has said he wants to be as transparent as possible and will release at least a summary of the report to Congress.  But there is a view in the Justice Department that "derogatory" information about uncharged individuals should usually not be revealed, and Barr may give weight to the this practice.  If Trump is not charged because he is the current sitting President, which is what traditional Justice Department thinking could dictate, then one might wonder whether Barr would engage in legal convolutions to reason that because the President hasn't yet been charged, derogatory information about him shouldn't be released.  Such a contorted line of reasoning would defy the logic of democracy.  If the President is a crook, the people need to know it whether or not the President is charged.  But only time will tell whether Barr is inclined toward something verging on a lawyer's trickery to protect President Trump.

In addition, Barr will have to think through the issue of executive privilege, a doctrine that often shields the President's conversations with other Executive Branch personnel from disclosure.  However, executive privilege is not unlimited, and a President's general interest in confidentiality does not override the needs of the criminal justice process (see United States v. Nixon, 418 U.S. 683 (1974)(a case in which the Supreme Court enforced a subpoena issued by Watergate special prosecutor Leon Jaworski for President Nixon's tape-recordings of conversations in his office).  Moreover, it is a time-honored tradition in American law that discussions concerning a crime or fraud cannot be protected by a legal privilege.  (See Alexander v. United States, 201 U.S. 117 (1906)).  If Mueller's investigation shows that Donald Trump was engaged in criminal conduct, release of that information cannot be blocked by a privilege.

How William Barr handles the question of releasing the Mueller Report will define his legacy.  Although he has had a highly successful career, nothing he has done thus far will compare in significance to his handling of the Mueller Report.  He will be well-remembered, or not, depending on what he does with the report.

If Barr disappoints the curious members of Congress and the public, remember this.  Many, and perhaps most, of the investigations into President Trump and his doings are outside the scope of Mueller's investigation.  The U.S. Attorney's Office in Manhattan is looking into activities of Trump's former personal attorney, Michael Cohen, in relation to various Trump matters and also activities of the Trump Inaugural Committee.  The U.S. Attorney's Office in Washington, D.C. and the main Justice Department in Washington are involved in some of the cases brought by Mueller's staff, and other cases (like the Maria Butina case).  The Attorney General of New York is looking into the Trump Foundation and some of Trump's activities as a landlord.  Trump's continued ownership in the Trump International Hotel in Washington, D.C. is the subject of litigation brought by the Attorney Generals of the District of Columbia and Maryland.  As these cases progress, we will learn more and more about Donald Trump.  Even if we don't learn everything in the Mueller Report, we will eventually learn a heck of a lot about Donald Trump.  And the totality of this growing tidal wave of investigations and litigation will define Trump's legacy.  Facing, as he does, a Democratically controlled House of Representatives, he won't have any more major legislative achievements.  And his erratic wackiness on the international stage make major diplomatic accomplishments highly unlikely.  It's a sad time when a President's legacy is defined by the legal investigations into his activities.  But Donald Trump has done what he has done, and the chickens are coming home to roost.

Saturday, January 12, 2019

Donald Trump Doesn't Want to Govern

The current federal government shutdown has now become the longest on record. Lots of folks are hurting, from furloughed government employees to furloughed government contractors to the beneficiaries of numerous government programs, such as farmers, small businesses needing SBA loans, prospective homebuyers seeking an FHA or USDA loan, and women seeking protection in one of the many domestic violence shelters that receive federal funds.  Although a lot of government leaders in Washington are creating the appearance of activity, there is no sign of a resolution.  The reason is simple.

President Trump doesn't want to govern.  He wants to win.  Winning, for him, is an imperative.  He looks at life as a competition, where there are winners and losers.  And he is obsessed with winning. 

Governing, however, requires magnanimity, open-mindedness, a concern for others, and an interest in the welfare of the polity as a whole.  In a democracy, governing involves a willingness to accommodate the wishes of those of differing views and compromise.  Leaders, to be successful, must forbear from pressing for the lion's share.  The people are the lion in a democracy.

Trump has shut down the government in a contest over funding for his wall on the border with Mexico, where he wins if the wall is funded and he loses if the wall isn't funded.  By turning what was a political issue that was quite susceptible to compromise into a zero-sum situation, he has pushed the newly empowered Democratic leadership of the current 116th Congress into a joust.  The Democratic leadership in Congress, now wielding majority control in the House and understandably feeling they have a mandate from the electorate not to do things the Trumpian way, see no reason to concede.

President Trump has set a record--for the longest government shutdown ever.  He's not winning.  He's losing.  His legacy, already tenuous, now careens toward abysmal infamy.  The government will re-open, because it must.  Americans, fed up with the dysfunction in Washington, won't accept non-function.  A little graciousness from Donald Trump would be all it takes to get the government up and running again quickly, without an inordinate amount of fallout.  But he's not a gracious man.  So the eventual re-opening of the government is likely to be as ugly as the shutdown.  Whatever the circumstances under which the government re-opens, Trump will have revealed a senseless pettiness that tarnishes his Presidency for the remainder of his time in the White House.

Friday, January 11, 2019

Apple's Dilemma

Apple Corp. is facing mortality--the mortality of the smart phone.  Not that the smart phone is going away any time soon.  It will be around in various iterations for decades.  But it's reached the point in the product cycle where it has become a commodity.  There are lots of different types of smart phones made by many different manufacturers at prices ranging from almost $2,000 to almost zero.  Competition has intensified immensely from the time the iPhone was introduced in 2007, and the iPhone is not always at the cutting edge of technology. 

Last fall, Apple announced that it would no longer report unit sales of iPhones, its most important product.  That was a bad sign, indicating sales were no longer exuberant.  Apple also significantly raised the prices of many products, and said it would endeavor to increase sales of services.  Then, at the beginning of 2019, Apple announced that sales in China were more disappointing than expected.  Not surprisingly, its stock has sagged. 

Apple is swimming against the current.  While it continues to make excellent products, it raised prices at a time when its prices were already at premium levels and the world's economy was slowing.  Even though its products include upgrades, none were astounding, must-have innovations.  Ten years ago, people were willing to pay premium prices for Apple products because they were superior to the competition, in terms of technical capability and quality of manufacture.  Today, other manufacturers turn out very high quality products, sometimes with better features than Apple has, at competitive or lower prices.  Apple seems to be betting that consumers will pay up for a brand name.  That's not ultimately a winning strategy.  Mercedes, which has never been a luxury brand in Germany, tried to do that in America by charging premium prices and creating an aura of exclusivity.  Although it succeeded for a while, its outsized prices attracted a flock of competitors.  Today, Mercedes is no longer a show-stopping dazzler, with some of its lower end models selling for less than many pickup trucks. 

Econ 101 teaches that when Apple raised prices, it shrank the pool of its potential customers because fewer and fewer people can and will pay escalating prices.  And hoping to sell more services is predicated on people buying more Apple hardware.  But if hardware sales are lagging because of price increases and a slowing economy, something has to give--and it has, in Apple's recent disappointing news announcements.

Most consumers don't use more than a few of the myriad features in iPhones and other high-end smart phones.  Indeed, most consumers don't even know what those features are.  When you can buy a smart phone for $100 or $200 that does the few things you care about well, there's no point to paying $1,000+ for a brand name.  Probably most millionaires in America drive ordinary cars.  You don't get to be a millionaire by burning up money on a brand name. 

Apple's dilemma is that it is a giant consumer products company trying to be a high-end luxury company.  That doesn't work.  Highly priced luxury products can only be sold in market niches that serve the wealthy.  Apple cannot afford to become a niche company, lest it lose most of its customer base.  The key to Apple's past success is that it appealed to a lot of middle class but aspirational people.  But those folks can't shell out thousands of dollars a year for computing devices plus wireless service plus other services.  Instead, Apple should take a close look at Toyota, another company known for excellent products made with very high quality of manufacture.  While Toyota vehicles are not always at the cutting edge of technology, they have a strong, loyal customer base because they deliver value--excellent quality at reasonable prices.  While Apple can try to use clever marketing to boost financial performance for the next quarter, or two or three, its long term prospects won't be well-served by hoping that consumers will embrace its cute logo and ever increasing prices.  

Sunday, December 16, 2018

How Donald Trump Could Create a Stock Market Crash

Stock market crashes, such as in 2008, emanate from inflated asset prices.  While economic recessions and other events, such as war, can trigger market downturns, large, sharp market drops (a/k/a crashes) are the result of artificially high asset prices that often have started bubbling.  In 2008, the asset bubbles resulted from overly generous prices being paid for real estate, the resulting mortgages, stocks that seemed like good bets in light of all the real estate activity, and stocks generally because market averages kept rising.  It didn't help that the U.S. government guaranteed almost all mortgages on a de facto or de jure basis.  The easiest way to get people to pay too much for an asset is to make it seem like a sure bet.  Con men know this and profit from it because, despite all the evidence that there is no such thing as a sure bet except taxes and death, people remain suckers for sure bets. 

Donald Trump bet the image of his Presidency on the rising stock market.  Stocks rose briskly right after Election Day in 2016 and maintained their upward momentum for over a year.  Trump noisily celebrated the huzzahs he thought he heard from the financial markets and wore out the fabric of his suit jackets patting himself on the back.

But Trump, despite decades as a New York businessman, hasn't absorbed a simple lesson that he should have learned about stocks a long time ago:   that stocks go up and stocks go down.  There is no such thing in the stock markets as continuing upward momentum.  There is no endless applause.

So, when the stock markets got tummy trouble in 2018, and began to burp, belch and make other inelegant noises, Trump became discombobulated.  He berated the Federal Reserve Board for raising interest rates, manipulated oil prices down by persuading the Saudis to keep pumping large volumes, and condemned American businesses that closed down domestic operations.  Sometimes, on down days in the market, he made statements about trade talks that turned out to be optimistic or premature.  He seemed indifferent to widening federal deficits, instead suggesting a further tax cut for the middle class.  All of these actions seem linked to a desire to support stock prices.  But stocks have remained gloomy.  So we can expect that Trump will keep searching for some way to boost the metric that he thought made him look so good.

Persistent efforts by governments to support and boost asset prices have tended to end badly.  There is no free lunch, and governmental distortion of asset prices inevitably leads to misallocation of capital and other resources.  Pushed far enough, this mispricing eventually becomes too much for investors to stomach, and they back away from the asset. Then, bad things happen to the asset's price. That happened with real estate and mortgages in 2008 and it may be happening with stocks now.  If Trump pushes too hard on maintaining and increasing stock prices, he could foster a bubble in the stock markets, and nothing good for him will result from that.  If you're an investor, don't bet on governmental action to make stocks great again.  Remember:  in the final analysis, stocks go up and stocks go down.

Sunday, November 11, 2018

The Best Asset in a Time of Volatility

All markets are volatile these days.  Stocks are gyrating, bonds are falling as interest rates increase, oil is bouncing up and then down, bitcoin has fallen all year, and even the real estate market seems to be going wobbly.  Gold and silver have been slipping away.  And foreign markets look even gloomier.

Investors naturally look for opportunities when prices fluctuate.  Whether you're a buyer or a short seller, price movements create the potential for profit.  Volatility is gut wrenching if you're taking losses, and can stimulate panicky selling when prices are low.  But it can be exhilarating if it looks like a lucky break.

That's why cash is often the best asset to hold in a time of volatility.  It gives you the means to take advantage of fortuitous price movements, while its stability insulates you from the emotional roller coaster that often drives people to sell when prices are dropping.  Don't think that you have to remain fully invested all the time.  What you have to do is remain unemotional, as emotion is the enemy of careful investing.  A nice, comforting cushion of cash can prevent an unwanted flood of adrenaline.

Cash may appear to have a low rate of return, with greedy banks still paying miserly rates of interest on deposits even though interest rates have been rising.  But cash also offers the potential to profit from price volatility.  You can dive into an asset when its price is low and make a bundle when it rebounds.   That potential makes the effective return from cash much higher.  So don't be afraid to hold a lot of cash in a time of volatility.  That's when it's an investor's best friend.

Friday, September 7, 2018

Donald Trump on the Orient Express

An anonymous senior official of the Trump administration has written an op ed piece published by The New York Times that depicts the Trump White House as a looney bin for an amoral, impulsive, unpredictable and seemingly crazy 70-year old child who somehow managed to get himself elected President.  The asylum is run by a staff of adults (a/k/a the President's Cabinet), a number of whom ignore the directives of the child President whenever he issues orders that are dumb, dangerous or incoherent.

By all indications, President Trump is beside himself trying to figure out who the author is.  A number of Cabinet-level officials have issued statements apparently intended to deny that they were the author.  Their statements make interesting reading, as the explicitness of the denials seems to vary somewhat among them.

The anonymous author says that a number of officials in the Trump administration (referred to as the "Resistance") are working to thwart the President's craziness.  Even if only one of them wrote the op ed piece, all who are in the Resistance are authors in spirit.

In Agatha Christy's gem of a novel, Murder on the Orient Express, a man is found murdered on a train.  Belgian private detective Hercule Poirot investigates, and discovers that the victim was a criminal who had murdered a young girl but avoided punishment due to a technicality.  Poirot also learns everyone on the train is connected to the young girl who was killed and has a reason to kill the man because of his murderous past.  Poirot hypothesizes that either a stranger came on the train and killed the man, or all the other passengers on the train had a role in the man's death.  One of the passengers admits to the second theory, but at the end of the book, the police are presented with the first theory.  Justice is done, albeit extra-judicially.

If President Trump wants to know who wrote the anonymous op ed piece, he should give Murder on the Orient Express a quick read.  In the final analysis, it doesn't matter who put pen to paper.  The authors are hiding in plain sight.  And it he gets rid of them, new authors will replace them.

Saturday, August 25, 2018

The Cryptocurrency Bust

Cryptocurrencies are down about 75% from the beginning of the year.  See  Many investors have taken losses in the range of 70% to 90%.  Those who borrowed to buy cryptocurrencies learned the hard way that investments may or may not work out, but debts have to be repaid either way.  There may be some winners, but clearly there are plenty of losers.

The problem with cryptocurrencies is that they basically have no intrinsic value.  They're only worth what someone else will pay for them.  If buyer interest falls, people holding cryptocurrencies end up holding the bag.  If you want to buy cryptocurrencies, that's your choice.  But understand it's a speculative choice and lots of speculations end badly. 

The reason why stocks, bonds, real estate and a few other things have stood the test of time as good investments is they generally have underlying value.  If you want to build wealth, invest in value.  If you want to speculate, hope to win but don't be surprised if you lose.  If you want a decent retirement, avoid wishful thinking and focus on the higher percentage plays.  See

Sunday, August 5, 2018

To Manage Your Money, Manage Your Emotions

Building up your wealth is simple:  spend less than you get.  But it's hard for many people even though it's simple.  Put a little money in their hands and it's gone as quick as a flash.  Put a lot of money in their hands and it's gone quicker than a flash.  This is no way to get rich.  If you spend everything you get, how will you put together a down payment for a house, college costs for your kid(s), or retirement?  Sometimes, you can borrow.  But loans have to be repaid, so you'll enrich banks, not yourself.  Retirement on just Social Security can be okay--if you move to Panama or Cambodia, places where your only option may be McDonald's if you want a taste of America.

Controlling your spending is the first and most important step to building wealth.  Don't begin by reading the vast array of materials that discuss how to invest.  It doesn't matter how you make money investing in ETFs, mutual funds, S&P 500 futures contracts, or covered stock options if you don't have any capital to invest. 

First, learn how to save.  This means getting control over your emotions.  Learn how to deny yourself immediate gratification.  Learn how to value long term rewards.  Learn how to ignore the latest trends.  Learn that keeping up with the neighbors could mean you're just as foolish as the neighbors.  Aside from basic spending for food, shelter, clothing and transportation,  essentially all spending decisions are driven by emotion.  The latest smart phone?  Designer clothes and accessories?  The trendiest restaurant?  A luxury nameplate on your car?  An extra 500 square feet in your house?   These things are marketed to people with impulse control problems.  Status won't give you a comfortable retirement.  You need money for that.

You've probably seen the news stories reporting that half of all Americans have no retirement savings and most of the rest don't have very much.  How could this be when America is one of the wealthiest nations in the world?  The hard truth is most people don't have the emotional composition to get rich.  And they don't have the willpower to get control over their emotions enough to begin the process of saving.  Sure, an illness or layoff can wreck your financial plans.  But they're not an excuse not to try.  If you don't try, you'll fail for sure.  Those who try actually succeed in many cases.  Give yourself a chance.  Get control over your spending impulses and save.  The only people who laugh all the way to the bank are people who have money to deposit in the bank. 

For more, see (a); (b); (c); (d); (e); and (f)

Thursday, June 28, 2018

Trump Defeated by North Korea

Notwithstanding President Trump's summit with Kim Jong Un early this month, North Korea has continued to make progress in building its nuclear arsenal (  Trump has abysmally failed.  He agreed to a no-conditions summit with Kim, a gesture that legitimizes Kim's standing in international diplomacy.  Trump also ordered the U.S. military to stop participating in war games with South Korea, which the North Koreans have whined about for years as a major provocation.  These were substantial concessions that Trump made, and he got nothing in return.  It's business as usual in North Korea, with strengthening their nuclear arsenal while the U.S. retreats.

Trump has done far worse with North Korea than Barack Obama did.  After taking office, Trump scared the North Koreans badly, and Kim accelerated work on his weaponry.  Now he has intercontinental ballistic missiles that can reach the American mainland and perhaps can or soon will be able to carry the hydrogen bomb he developed in response to Trump's belligerence.  While arranging for the no-conditions summit, Trump called Kim "very honorable" (   With war games halted and Kim diplomatically elevated, America is now weaker and North Korea is much stronger.  Trump was snookered by a kid tyrant.  And he thinks he knows something about the art of the deal?

We must be concerned about Trump's forthcoming summit with Vladimir Putin.  Putin is far more formidable than Kim Jong Un.  What could happen at this summit?  Will Trump surrender to Putin?  Will Western Europe become part of the new Soviet Union?  Will America become a province of Russia? 

Tuesday, June 26, 2018

Trump Nationalizes Harley-Davidson

President Trump has started a trade war in recent days.  He's imposed tariffs on imports that have been rejoined with countertariffs on American goods.  Among the ripostes delivered to Trump's tariffs have been countertariffs from the EU.  The EU measures led Harley-Davidson, the Milwaukee-based maker of iconic motorcycles, to announce that it would shift some production overseas.

President Trump did not take kindly to this news.  He declared in a tweet, "A Harley-Davidson should never be built in another country--never!"  Then he stated that if Harley-Davidson shifted production overseas, "they will be taxed like never before."  (See  Trump seems to be saying that he would impose stiff tariffs on Harleys made overseas when they are imported into the U.S.

Trump's message is clear:  don't move production overseas.  He is, in effect, trying to usurp the authority of Harley's management and board of directors to run the company and make decisions that they believe to be in the best interests of the company and its shareholders.  When the government takes control of a company, that's nationalization.  While Trump isn't trying make all the decisions for management; most likely, it's still up to them what brand of coffee to provide in the employee lounge and which employees get reserved parking spots.  But when it comes to crucial matters that could affect the survival of the company, Trump evidently has an office in the executive suite, and it may be the biggest corner office.

The notion of a Republican President dictating to a private corporation how to run its business is bizarre.  There was once a time when the Republican Party stood for the principles of free enterprise and the private ownership of property.  But no more.  America's businesses now seem to have a new purpose:  to make President Trump look good.  And they had better do it well or they evidently will be taxed like never before.