The Daily Cow

The NYT ran an article testifying to Germany's successes in managing the downturn, and their consequent pride in getting the "right economic model".

Of course, there are benefits to their "short work" program of reducing workers' hours instead of letting go of workers entirely--mainly that the workers' skills do not wither away. But fiscal austerity--the main economic model being touted--is the wrong reason to attribute Germany's relative success to.

Should every country embark on a direction of fiscal austerity, Germany's only source of success--export led growth--would not have been possible. In other words, Germany's relative success is a consequence of the spending of the rest of the world--Germany sucked hundreds of billions of dollars in demand from the rest of the world, and contributed none of its own.

Don't get me wrong--Germany is a great export economy. It produces the goods, like machinery, cars, and other feats of engineering, that are demanded everywhere. I just hope that it and everyone else can see that while tightening their purses may have positive individual impact, on the whole it just makes the downturn worse.

Any fiscal stimulus to counteract a large downturn like we recently experienced needs to be coordinated and have full cooperation among the large economies. Otherwise, the single country that chooses to veer off-course will suck the demand generated by everyone else, and render the plan useless as a whole.

Germany, please do not have the hubris to believe that what you did is "the" solution. It may only work for you because you choose to harm your neighbors for your own benefit. But it is wrong to tell the world that you have found the solution.

Because you have not.

This is the seed for the second wave of economic modernization in China, set to take over the declining role of dirty industry.

See below (I superimposed a best-fit normal curve on top of the graph):

How come we're off the target for June?

After costing taxpayers over a hundred billion dollars, AIG is already thinking about bonuses for next year. What the hell?

Goldman Sachs’s CFO said that running the company without government money “would be an easier thing to do,” by which he means "I want my bonuses, dammit!" (Keep in mind Goldman Sachs set a Wall Street record for pay last year)

From the New York Times:

Spurred by anger over A.I.G. bonuses, the House voted 328 to 93 to levy a [retroactive] 90 percent tax on bonuses paid by any company owing more than $5 billion in bailout money.
...

In a statement, President Obama suggested he was supportive of the legislation, urging Congress to deliver a “final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.”

Since this applies to every company owing more than $5 billion in bailout money, this would effectively eliminate the "keeping top talent" argument, the primary reason why exorbitant bonuses are tolerated, because every other company will be limiting its bonuses.

Cartels by nature are extremely fragile and sensitive to conflicts of interest. The members of OPEC cannot abide by their strict quotas and that hurts every member of OPEC. If OPEC were serious about reducing the supply of oil (and hence raise their revenues) it should solicit deposits from its members to be paid back each quarter with (a natural rate of) interest if they abide by their agreed-to quotas. When each country knows that every other country has the incentive to keep their own production in line, each country will have additional incentive to keep its own production in check. A country that does not control its level of production will not get back its deposit.

Since every oil exporter will reap benefits from this, they will be able to afford those interest payments to ensure loyalty and to attract new members. If a country recognizes that not only can it raise the price of oil but also receive interest payments (for good behavior) by participating in the group effort, it will be more likely to join.

Of course, this is what I believe OPEC should do to ensure loyalty if I were it. But I certainly want them to keep back stabbing each other so we get cheaper oil.

Why do regions that pretend to be "fiscally conservative" (Say, states like Louisiana, Georgia and Mississippi) send in so much less to Washington than more liberal regions like New York City and San Francisco? Maybe some states are fiscally conservative by necessity--I mean, if your population is a bunch of poor bums it's pretty difficult to raise taxes on them. But they should avoid complaining about the amount of spending that's planned. After all, although poor regions send in the least tax (Think of Mississippi), they're getting the most out of the stimulus.

Stop complaining, hypocrites. Otherwise we'll go by a state-by-state basis.

General Motors lost more money than its total revenue for the year--that is, its costs were more than twice its revenue. That's completely unsustainable. Even if the government pays it 30b per year, it will still be losing money. If you don't understand, take this example:

Suppose I have a store that sells widgets that cost me 61 cents to buy, and I sold a million of them for 30 cents apiece last year. That makes my revenue 300,000 dollars, but my cost 610,000 dollars, making my loss (negative profit) 310,000 dollars, which is slightly greater than my revenue. Yes, that means my net profit margin is negative 103%. (That's bad, by the way)

GM fails. It needs a complete restructuring. It needs better management. And most importantly, it needs free workers--not brutal Unionized workers

Legendary investor Warren Buffet's Berkshire Hathaway corporation reported that its entire portfolio value fell 25% last quarter, which is a significant amount. Contrary to his own assertions in the New York Times about how now is the time to buy stocks (a philosophy I believe he follows for his personal portfolio because, let's admit it, he can afford to lose some money), his firm is buying fixed-income securities: Preferred shares and debt at various firms such as Goldman Sachs, General Electric, Tiffany's, Harley-Davidson (etc) each paying his firm 10%, 10%, 10% and 15% a year.

Those are immense return rates from solid American firms (except maybe for Harley-Davidson) that only he can negotiate (the rest of us are lucky to get half of that). The fact that he's going for 10-15% safe return vs. potentially 40-80% (if the economy recovers in a reasonable amount of time) suggests that he thinks the chances of a fast recovery are extremely low.

I don't know what that says to you, but to me, if Buffet believes that recovery will be delayed and slow, I am inclined to believe him. For those of us with lots of money in equities (stocks), it might be time to shift to fixed-income.