Wednesday, December 16, 2015

Fed Raises Rates, Civilization Ends

Today, the Federal Reserve raised short term interest rates a quarter point.  Stock up on food, water, blankets, toilet paper and ammo.  Barricade your doors and windows.  Civilization is ending.  Massive hordes wielding pitchforks will rage through the streets.  Entropy will increase.  Chaos will reign.



in all likelihood, not much will happen in the near future.  A quarter point really isn't a lot.  If the typically usurious credit card interest rate were increased a quarter point, you'd barely notice it, unless you're so deep in debt that bankruptcy is a more realistic option than minimum monthly payments.  If a quarter point increase on your mortgage rate knocks you out as a buyer of your dream home, you were probably about to pay too much for that house.  Money market funds and bank money market accounts have been paying almost nothing in interest.  If they now start paying a quarter point, you won't see a stampede from stocks to money markets.  The only thing that will happen is that savers will start thinking they can add one four-dollar cup of coffee per year to their budgets.

Will the rate increase exacerbate the fallout in the junk bond market?  Maybe by a bit.  Mathematically speaking, higher interest rates imply lower bond prices.  But, again, a quarter point won't greatly change bond prices.  The junk bond losses are, to a large degree, a result of the oversupply in the energy markets (oil and natural gas).  That's not the result of Fed policy.  It's because the energy markets were overstimulated by rapid growth in some parts of the world (especially China) which has now abated. 

The key question is how fast the Fed will raise rates over the one, two and three years.  Rapid increases will, indeed, significantly change the relative values of assets.  But Fed Chair Janet Yellen is signaling that the Fed will be kinder and gentler with rate increases than it has been in the past. 

Could the Fed be making a mistake?  As one former vice presidential candidate would have put it, you betcha.  The Fed has made many mistakes in the past and some of them were egregious.  Stay alert for trouble--the junk bond market, the manufacturing slowdown, China's slowdown, falling commodities prices and who knows what else could signal the next economic dislocation.  But the market was expecting a quarter point increase today, and if the Fed hadn't raised rates, it would have probably created more market turmoil than raising rates causes. 

Friday, December 11, 2015

A Chill Wind For Hillary Clinton

Hillary Clinton's campaign for President may be in big trouble.  Because of Donald Trump.  We're not talking about polls concerning a hypothetical contest between her and the Donald. We're talking about the fact that Jeb Bush's support is running around 3% in the most recent polls.

Jeb Bush is the GOP's Hillary--from a Presidential family with tons of connections, well-qualified to be Chief Executive, thoughtful speaker, intelligent person.  He is also backed by shiploads and shiploads of money, far more than any other Republican candidate.  With this humongous war chest, he was supposedly going to scare off competing candidates tout de suite and waltz into the nomination.

But Jeb is getting his arse kicked a mile and quarter.  By the Donald no less, a guy who has done only limited fundraising.  Looks like b.s. (at least Trump's b.s.) talks and money walks.

Like Jeb, Hillary has a campaign war chest that was supposed to scare the gym socks off potential rivals.  It hasn't scared off Bernie Sanders, who is running a feisty campaign that gives him poll numbers a seriously underfunded candidate shouldn't have.  That should give Hillary pause.

But Trump's success over Jeb is the red flag that should be setting off huge alarm bells in Hillary's campaign headquarters.  Money is turning out to be relatively inconsequential in this campaign.  Plain talk, speaking from the heart and to the heart, and charisma are carrying the day.  As much as the Establishment media doesn't want to believe it, the truth is that Trump is quite charismatic to a lot of people.  His numbers are growing as the primaries draw near, and his lead may soon become insurmountable.

Hillary's campaign seems utterly confident they can beat Trump.  This is how she lost in 2008--overconfidence.  In actuality, much of Hillary's support is pretty flimsy, and if she faced the Donald, he might shift toward the middle and draw off many of the moderate working class voters she is counting on.  She's already lost the hearts of much of the liberal left; even if she prevails over Sanders, many of his supporters may stay home during the general election.  When it comes to charisma and plain talk, the Donald has Hillary beat by a country mile.  And all her campaign funding can't change that.

Hillary Clinton reminds us of a high school valedictorian--smart, ambitious, headed for bigger and better things.  But people generally don't like high school valedictorians.  They may respect and even admire them.  But they can't connect with them.  Any contest between Hillary and the Donald would probably be close.  But, if she means to win, Hillary needs to look beyond the bank balances and focus on convincing people they want to vote for her. 

If the prospect of a Trump Presidency or another Clinton Presidency has you down, remember that this is America, the land built on hope and dreams.  There's always hope; there's always another dream.  Forget about what dodo is in the White House.  Follow your dreams.  Tomorrow (Dec. 12) is Frank Sinatra's birthday.  Here's what Frank had to say (or sing) about hope and dreams:

Friday, December 4, 2015

Obama's Illusion

Yesterday, President Obama said that the United States is safe from attacks by ISIS.  (See

Today, we have news that the female San Bernardino shooter, Tashfeen Malik, pledged allegiance to ISIS.  (See

The President looks like a fool.  He's been snookered repeatedly by ISIS.  Apparently, until recently, he believed that the U.S. had contained ISIS in the Middle East.  He was then shaken by the Paris attacks, which he described as a "setback."  If he'd had a realistic view of ISIS, he wouldn't have seen those attacks as a setback.  They were simply part of ISIS's obvious strategy of cross-border expansion, and something that was likely to happen.  Before the Paris "setback," ISIS had already spread its tentacles into Asia and Africa.  Why would Europe and North America be immune from ISIS's metastasis?

President Obama is living an illusion.  ISIS is not contained and, as recent events graphically demonstrate, we aren't safe from its attacks.  Obama is now in the seventh year of his Presidency, and is understandably concerned with his legacy.  He seems to want to be able to claim that, while in the White House, he contained ISIS.  This apparent desire seems so strong it may have, in his mind, overwhelmed his capacity to accept the truth.  Human beings are notorious for not letting the facts interfere with their strongly held beliefs and the President seems all too human.

If Barack Obama wants a strong, positive legacy, he has to come to grips with reality.  He can't blame America's intelligence services.  He can't blame all the yes-people with whom he's surrounded himself.  He can't blame gun control laws--gun control (such as France's very strict regulations) won't stop a dedicated enemy like ISIS which couldn't give a rat's left ear about the law.  He has to blame himself.  He is the one who has failed.  His foreign policy legacy is in tatters.  He won't begin the process of recovery until he's hit bottom--and he's laying in the gutter now.  He has to face the fact that ISIS is much tougher than he is.  They've outwitted and outmaneuvered him.  They're winning. 

Obama may still have time to turn the tables.  Even though ISIS is a lot tougher than he is, he has much more power--military, diplomatic, technological, financial and moral.  If he comes to grips with reality, he might turn the tide.  This doesn't mean that hundreds of thousands of U.S. troops need to go back to the Middle East.  It doesn't mean that the NSA should be allowed to trample all over Americans' Constitutional rights.  It does mean that the President has to realize that this is war, and you don't win unless you commit to winning.  Wars aren't won by containing the enemy.  They are won by defeating the enemy, and perhaps in this case, destroying them.