Friday, August 26, 2011
Implications of the Dysfunctional Political System in the U.S.
Experts have been pronouncing on the subject every week yet no commentator has pointed out one of the main reasons for dysfunction in the US political system. One-third of the members of the House and the Senate are due for election every two years. These lawmakers are fighting either the Primary race or the election itself over most of this period. They are in no position to support unpopular decisions no matter how important these are to the country. That is why there are never any meaningful cuts in expenditures and no increase in taxes. Add the lack of party discipline to the mix, you have a recipe for the economic disaster the country is facing now and has little chance of avoiding.
Earlier this month, three wings of the U.S. government cobbled together an agreement at the last moment which increased the debt limit and averted the disaster but did nothing to solve the basic problem. A bipartisan committee with no authority to enforce its conclusions has been given the job of identifying savings. In the meantime, the TEA party republicans are as determined as ever to hobble the government by opposing any meaningful legislation to increase the revenues. With industry in doldrums, growth near zero, unemployment high and the citizens scared to spend on things most of them don’t need and a President too weak to stare down the belligerent opposition it will take a miracle to solve fundamental problems in the economy which have persisted for some time.
The system of government with three evenly weighted wings was designed to neutralize the prospect of any region or community dominating others in the eighteenth century for a widely dispersed agrarian society with no means of rapid communication. It served the country well for a long time but it does not meet the demands of an industrial society with a population a hundred times larger and infinitely more diverse than it was in the days of the Founders. It is the failure of this antiquated system still venerated by much of the population and paid lip service to by those who know better that has got the U.S. into such a mess. The recent events show that the government is unable to take strong unpopular steps that are needed and therefore has become ineffective and is incapable of even trying to solve serious problems. United States is a great country in so many ways and is blessed with many natural resources and incredible human talent much like the other Super Power of not so long ago. The situation of President Obama may not appear as serious as that faced by Secretary Gorbachev in the Soviet Union in the late eighties but it is not much different. The capitalist system is more flexible than the communism was and it is possible that the U.S. would emerge stronger from the crisis. Still, as the situation stands today, we may be looking at the beginning of the end of the United States, much as the end two decades ago of the other great Federation that brought its economy to near collapse by spending more than its means allowed. The emergence of a strong anti Federation Tea Party candidate in Rick Perry, whose support in the disgruntled former Confederate states seems to far exceed that for President Obama, could hasten the process as Yeltsin’s obduracy did in Moscow.
Leaving aside the politics and focusing on the U.S. economy, is it possible that the consumerism is hitting the ceiling? There is only so much one can consume before the pills for indigestion fail to work. This has been the case with many developed economies for a while. Rather than a stronger medicine to fix the sickness, there is a need for a change in the life-style. We should devise a new economic system that does not demand growth every month but is based on stability – permitting a stable or declining population of workers to produce what is needed for comfortable living without suffering from over indulgence. Such a system will be consistent with ecological limits of the planet, emphasis on reduction of human population to a sustainable number and the long term survival of all life forms Mother Earth gave birth to. There will be no need of Super Powers, Economic Engines, Wall Street and other destructive paraphernalia we can’t seem to manage without at present. Although the likelihood of it happening is perhaps miniscule, one can only hope that the current system can gradually evolve to achieve these ends without a major catastrophe.
A new profession
Doormatologist: Helps in dealing with the psychological issues of subservient spouses.
A new Definition
Freezer: Storage for leftover food till you don’t feel guilty throwing it out.
Friday, August 19, 2011
Flight of Fancy
Shots scare me, those fired by members of the gangs to remove competition as much as those given by a nurse to keep some future calamity at bay or given by a dentist to alleviate the pain she would inflict a little later. That is why I avoid vaccinations and get the altogether unavoidable dental work, even root canals, done without freezing. To cope with the discomfort I let my imagination take wings. Giving free rein to the only cell in my brain in order to minimize the anticipated suffering is a trick I learnt at school when our short and stout teacher took out a long thin cane from his desk to teach me a different lesson than he had expected me to learn from the book, if not from his guttural speech. That ploy comes in handy on occasions, especially when my mouth is wide open and a naughty tooth is being subjected to a dentist’s whip. That was about to be my situation one morning last week. Waiting for some deep drilling in my wisdom tooth, I was lying on a chair, comfortable even by the high standards of classy dental clinics, looking out of a raised window at the chirping birds and the blue sky with silvery clouds floating by languorously. The footsteps of the dentist brought me back into the room and my eyes moved down to a framed photograph about two feet long and a little more than one foot wide hanging on the wall below the window. It showed the reflections of the downtown office towers on the gleaming black trunk of a Bentley with its insignia prominent at the centre of the photograph. The car was parked on the road side with no driver or passenger in view. This was the ideal starting point for the brain cell to work from and carry me painlessly to the point of facing the bill for an hour in the chair.
This is where the flight of fancy took me.
The car as expensive as a new Bentley with the gold insignia can not be driven by the owner; there has to be a chauffer, who was perhaps smoking a cigar just out of the scope of the camera or polishing the hood to remove the speck of dust only he could see. If one can afford a Bentley, he (wealthy women prefer Rolls Royce) couldn’t live in an ordinary house, not even a big one. He must live in a mansion with indoor swimming pool and two hot tubs, dining room to seat fifty, ten bed rooms, twelve 'powder rooms' and a six car garage to accommodate the friends of his pride and joy. There must, of course, be well manicured gardens with roses, blue bells and chrysanthemums in the front and on the sides and an orchard with apple, peach and pear trees, raspberry bushes and grape vines at the back. To maintain them there must be a head gardener with at least two assistants. And of course there must be staff of ten to manage the household – a butler, a chef, some maids to help them, and not to forget a special assistant to the butler for jobs like polishing ornaments and to answer the door bell. It is not the nineteenth century; one can’t expect any one to work more than regulation thirty five hours a week. Even with careful management of schedules at least two shifts are required at a minimum. Once you have got it all organized, or some business you hired has done it for you for a suitable fee, wouldn’t life be grand. You wake up not to the harsh sound of an alarm clock but the musical tinkling of the tray butler is bringing to your bedside before setting out the apparel appropriate to the activities planned for the day and running the bath. You spend the morning in meetings with your asset managers before a leisurely lunch with one of them. Depending on the weather the activity for the afternoon is a few holes at the golf course or bridge at the club. When you return to your relatively humble abode after a gruelling day, chauffer opens the door of the Bentley and takes the not quite empty flute from your hands. You get out, nod to the doorman as he holds the front door open and slump on a sofa. There is the butler to pour you the cup of tea just as you like it – its colour matching the back of your hand - when his assistant is taking your footwear off to soak the tired feet in hot water enriched with soothing potions prescribed by your naturopathic practitioner and then dry and massage them. Enter the chef with a slice of freshly baked pecan pie with a dollop of whipped cream on the side. Ah! This is the way to live. “Thank you Grammie for making all this possible” I say to no one in particular becoming the owner of Bentley for a short but glorious moment.
The flight over, the brain returned to Earth. I handed my overcharged credit card to the receptionist. Unpleasant formalities thus looked after, I took a bus home. When I arrived, my wife was at the door ready to leave for a day in the mountains with her hiking club. Without asking how the visit went – she always has a lot on her mind - she said “I am so glad you are back before I left. You must not go to work with a sore mouth, you need to rest at home. I would suggest a couple of things you could do to while away the time. The lawn needs a cut and the trees along the fence need pruning. Don’t leave the clippings for me to clean up; I have enough to do as it is. When you have done them, you may not have noticed but the laundry is piling up, mostly with your clothes. Oh yes. There is a list of odd jobs on the kitchen table. It will be nice if you made a start on them. You will perhaps be asleep when I am back. Have a good day.”
I have been lucky in my wife who, thoughtful as always, arranged my schedule to make sure there was no spare moment to feel the pain in my mouth but not so in my grandmother. Why couldn’t she leave it all to me?
Shots scare me, those fired by members of the gangs to remove competition as much as those given by a nurse to keep some future calamity at bay or given by a dentist to alleviate the pain she would inflict a little later. That is why I avoid vaccinations and get the altogether unavoidable dental work, even root canals, done without freezing. To cope with the discomfort I let my imagination take wings. Giving free rein to the only cell in my brain in order to minimize the anticipated suffering is a trick I learnt at school when our short and stout teacher took out a long thin cane from his desk to teach me a different lesson than he had expected me to learn from the book, if not from his guttural speech. That ploy comes in handy on occasions, especially when my mouth is wide open and a naughty tooth is being subjected to a dentist’s whip. That was about to be my situation one morning last week. Waiting for some deep drilling in my wisdom tooth, I was lying on a chair, comfortable even by the high standards of classy dental clinics, looking out of a raised window at the chirping birds and the blue sky with silvery clouds floating by languorously. The footsteps of the dentist brought me back into the room and my eyes moved down to a framed photograph about two feet long and a little more than one foot wide hanging on the wall below the window. It showed the reflections of the downtown office towers on the gleaming black trunk of a Bentley with its insignia prominent at the centre of the photograph. The car was parked on the road side with no driver or passenger in view. This was the ideal starting point for the brain cell to work from and carry me painlessly to the point of facing the bill for an hour in the chair.
This is where the flight of fancy took me.
The car as expensive as a new Bentley with the gold insignia can not be driven by the owner; there has to be a chauffer, who was perhaps smoking a cigar just out of the scope of the camera or polishing the hood to remove the speck of dust only he could see. If one can afford a Bentley, he (wealthy women prefer Rolls Royce) couldn’t live in an ordinary house, not even a big one. He must live in a mansion with indoor swimming pool and two hot tubs, dining room to seat fifty, ten bed rooms, twelve 'powder rooms' and a six car garage to accommodate the friends of his pride and joy. There must, of course, be well manicured gardens with roses, blue bells and chrysanthemums in the front and on the sides and an orchard with apple, peach and pear trees, raspberry bushes and grape vines at the back. To maintain them there must be a head gardener with at least two assistants. And of course there must be staff of ten to manage the household – a butler, a chef, some maids to help them, and not to forget a special assistant to the butler for jobs like polishing ornaments and to answer the door bell. It is not the nineteenth century; one can’t expect any one to work more than regulation thirty five hours a week. Even with careful management of schedules at least two shifts are required at a minimum. Once you have got it all organized, or some business you hired has done it for you for a suitable fee, wouldn’t life be grand. You wake up not to the harsh sound of an alarm clock but the musical tinkling of the tray butler is bringing to your bedside before setting out the apparel appropriate to the activities planned for the day and running the bath. You spend the morning in meetings with your asset managers before a leisurely lunch with one of them. Depending on the weather the activity for the afternoon is a few holes at the golf course or bridge at the club. When you return to your relatively humble abode after a gruelling day, chauffer opens the door of the Bentley and takes the not quite empty flute from your hands. You get out, nod to the doorman as he holds the front door open and slump on a sofa. There is the butler to pour you the cup of tea just as you like it – its colour matching the back of your hand - when his assistant is taking your footwear off to soak the tired feet in hot water enriched with soothing potions prescribed by your naturopathic practitioner and then dry and massage them. Enter the chef with a slice of freshly baked pecan pie with a dollop of whipped cream on the side. Ah! This is the way to live. “Thank you Grammie for making all this possible” I say to no one in particular becoming the owner of Bentley for a short but glorious moment.
The flight over, the brain returned to Earth. I handed my overcharged credit card to the receptionist. Unpleasant formalities thus looked after, I took a bus home. When I arrived, my wife was at the door ready to leave for a day in the mountains with her hiking club. Without asking how the visit went – she always has a lot on her mind - she said “I am so glad you are back before I left. You must not go to work with a sore mouth, you need to rest at home. I would suggest a couple of things you could do to while away the time. The lawn needs a cut and the trees along the fence need pruning. Don’t leave the clippings for me to clean up; I have enough to do as it is. When you have done them, you may not have noticed but the laundry is piling up, mostly with your clothes. Oh yes. There is a list of odd jobs on the kitchen table. It will be nice if you made a start on them. You will perhaps be asleep when I am back. Have a good day.”
I have been lucky in my wife who, thoughtful as always, arranged my schedule to make sure there was no spare moment to feel the pain in my mouth but not so in my grandmother. Why couldn’t she leave it all to me?
Thursday, August 11, 2011
Retirement and Market Gyrations
The turmoil on the stock exchanges all over the world has caused a lot of anxiety, particularly among retired or nearly retired people. Unless one has a guaranteed pension of a senior civil servant or corporate executive, the savings play an important role in how comfortable the retirement is going to be. A drop of 50% in the lifetime saving, as looked likely last week made a lot of people feel quite poor, though not to the extent of giving up dining out or cancelling the cell. A recovery since then has put a smile on some faces but there is a worry behind the smile - what is coming next week; week after that?
There are several issues to be addressed here which may impact on how one feels about the stock market gyrations. First and foremost, it is the governments of the United States, Greece, Spain, Italy and others whose credit rating is being downgraded, not the public companies. The companies will be impacted by the downgrades of government debts only if the tax rates were hiked excessively. But given the globalisation of industry this is out of the question. By and large, as is clear from most recent financial reports, the companies are making money, they have hordes of cash and many are increasing dividends. The drop in their stock prices is a sad commentary on investors' nerves, not on their management or their prospects. After all, even in the most desperate Western countries, ninety percent of the population is employed, most of the rest has support of social welfare agencies and no one is starving unless she is trying to lose weight. Restaurants are busy, cash registers in stores are tinkling, not many maids or butlers have been laid off. In this situation, the investors will return to market sooner rather than later and price recovery is weeks away, not months or years.
Second issue of vital importance is the state of heavily margined accounts. At least some of the fall last week was due to desperate sells to meet the margin requirements - i.e. pay back the broker money borrowed when price was higher. Pensioners do not believe in margin accounts and their balances may be diminished but are not wiped off. Except for the 'nervous Nellies' who sell at the bottom, most invesstors live to collect their dividends and reap the gains as the markets improve. They don't really have any reason to lie awake at night waiting for the other shoe to drop in the form of opening bell of the exchanges.
One should consider the savings as the capital which will provide income for a certain period. If you have a hundred thousand dollars and expect to live another twenty years, you can draw ten thousand a year (assuming modest gains over the duration)for the period. During these twenty years there will be several boom and bust cycles; no one knows when, how long or how severe; only that these cycles are as certain as death, hopefully not before twenty years are up. The bust occurring right now has no different impact on the account than that two, four or eight years later. Similarly, if it were a boom time, the daily growth should not influence your decisioon to retire or how much to withdraw. These are determined by the actual value of the savings and your life expectancy. Only thing you can be reasonably confident of, from the history of last two hundred years, is that a well-constructed portfolio will double every seven to ten years with ups and downs over short time frames.
There is a temptation to sell off when the indices are trending downwards with an expectation to buy back at the bottom. By all means do this if you can divine the trends and the bottoms. I have no crystal ball and my only judgement on buy and sell is based on a company's stock price vis a vis its revenues, income, dividends and prospects. If I suspect that the price has run far ahead of those factors, it may be time to sell. Similarly, if the price has dropped below that indicated by revenues etc. it may be time to buy even if there is selling pressure (that is why the price is down).
One final comment: Don't get caught up in individual stocks - evaluate the whole portfolio. Individual stocks will fluctuate much more than their total value which should be your focus. Remember: The biggest losers of today are the biggest winners of tomorrow.
The turmoil on the stock exchanges all over the world has caused a lot of anxiety, particularly among retired or nearly retired people. Unless one has a guaranteed pension of a senior civil servant or corporate executive, the savings play an important role in how comfortable the retirement is going to be. A drop of 50% in the lifetime saving, as looked likely last week made a lot of people feel quite poor, though not to the extent of giving up dining out or cancelling the cell. A recovery since then has put a smile on some faces but there is a worry behind the smile - what is coming next week; week after that?
There are several issues to be addressed here which may impact on how one feels about the stock market gyrations. First and foremost, it is the governments of the United States, Greece, Spain, Italy and others whose credit rating is being downgraded, not the public companies. The companies will be impacted by the downgrades of government debts only if the tax rates were hiked excessively. But given the globalisation of industry this is out of the question. By and large, as is clear from most recent financial reports, the companies are making money, they have hordes of cash and many are increasing dividends. The drop in their stock prices is a sad commentary on investors' nerves, not on their management or their prospects. After all, even in the most desperate Western countries, ninety percent of the population is employed, most of the rest has support of social welfare agencies and no one is starving unless she is trying to lose weight. Restaurants are busy, cash registers in stores are tinkling, not many maids or butlers have been laid off. In this situation, the investors will return to market sooner rather than later and price recovery is weeks away, not months or years.
Second issue of vital importance is the state of heavily margined accounts. At least some of the fall last week was due to desperate sells to meet the margin requirements - i.e. pay back the broker money borrowed when price was higher. Pensioners do not believe in margin accounts and their balances may be diminished but are not wiped off. Except for the 'nervous Nellies' who sell at the bottom, most invesstors live to collect their dividends and reap the gains as the markets improve. They don't really have any reason to lie awake at night waiting for the other shoe to drop in the form of opening bell of the exchanges.
One should consider the savings as the capital which will provide income for a certain period. If you have a hundred thousand dollars and expect to live another twenty years, you can draw ten thousand a year (assuming modest gains over the duration)for the period. During these twenty years there will be several boom and bust cycles; no one knows when, how long or how severe; only that these cycles are as certain as death, hopefully not before twenty years are up. The bust occurring right now has no different impact on the account than that two, four or eight years later. Similarly, if it were a boom time, the daily growth should not influence your decisioon to retire or how much to withdraw. These are determined by the actual value of the savings and your life expectancy. Only thing you can be reasonably confident of, from the history of last two hundred years, is that a well-constructed portfolio will double every seven to ten years with ups and downs over short time frames.
There is a temptation to sell off when the indices are trending downwards with an expectation to buy back at the bottom. By all means do this if you can divine the trends and the bottoms. I have no crystal ball and my only judgement on buy and sell is based on a company's stock price vis a vis its revenues, income, dividends and prospects. If I suspect that the price has run far ahead of those factors, it may be time to sell. Similarly, if the price has dropped below that indicated by revenues etc. it may be time to buy even if there is selling pressure (that is why the price is down).
One final comment: Don't get caught up in individual stocks - evaluate the whole portfolio. Individual stocks will fluctuate much more than their total value which should be your focus. Remember: The biggest losers of today are the biggest winners of tomorrow.
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