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Chronicle of the Conspiracy
Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!
Friday, December 13, 2002
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As your forecasts, opinions and views accumulate over the years, how do you reconcile what you are saying today (or failing to say) with what you said last month or three years ago? If you once said a kind word about investing in Microsoft, are you forever obliged to track it, and let your readers know when your opinion changes? If so, then you are obliged to always have an opinion about every subject on which you ever had an opinion -- at least until you officially "drop coverage" on an opinion (such as, "okay, I give up on Microsoft now").
The best reporters and commentators that I talk to are aware of this issue, and try to deal with it as I do -- as best we can, albeit inevitably imperfectly. But difficult issues of accountability and scruples don't seem to trouble very many of the pundits out there. And it's not exclusively their fault, either -- the financial media audience wants its fantasies, and is all too eager to forget last year's fantasies (and this week's realities). The natural evolutionary response is the rise of a class of financial media whores, who shamelessly give the customers whatever fantasies they want. That's the business they're in, and they know it.
What better example than James Cramer? He churns out so much fantasy day in and day out for so many different media outlets that he couldn't possibly keep track of it all -- the only way he could possibly function is to wipe his memory clean every night and start over fresh the next day.
Here's what Cramer was telling his customers on March 18, 2000 on TheStreet.com. The context: it was within days of the all-time peak of stock market prices and valuations. Wharton professor Jeremy Siegel, author of Stocks for the Long Run, had recently written an op-ed in the Wall Street Journal warning of dire valuation excesses. But it was a time when the fantasy that the customers wanted was momentum, not value.
"I really have no use for theoreticians of the market. They make you no money. We are in a casino-like market and I want to game the casino. The absurdity of a Jeremy Siegel from Wharton coming out with some statement about valuation and how he thinks it's wrong is just poppycock. Valuation is what it is. If you could sell only thousands of dollars worth of stock at these prices, then I would be wrong. But you can sell trillions of dollars worth. So what does it matter if an academic says the prices are wrong. They are the prices. That is the hand you are dealt, so figure it out or get lost."Now flash forward to the present. Here's what Cramer was telling them on November 18, 2002.
"Jeremy Siegel is one of the great ones. Anyone who has read Stocks for the Long Run knows that Siegel didn't succumb to the craziness of the late 1990s. From his desk at the Wharton School, this towering financial professor penned a piece that ran the week the Nasdaq hit its high in 2000.This memorable piece said that while Siegel remained a believer in the long-term value of stocks, the prices of the Ciscos and the Nortels had just gotten too nutty and he wanted everyone to sell tech. It was one of the most stark and prescient calls I have ever seen.There's the usual trademark Cramer self-aggrandizing anecdotal tidbit -- Cramer making Cramer seem towering by his proximity to people Cramer says are towering. But nowhere in the 2002 column is there the slightest reference to the 2000 column. There's no explanation for the total 180."That's why I paid extra close attention to Professor Siegel's words as I shared a panel with him Sunday at Philadelphia's Society Hill Towers as part of a fundraiser."
But why should there be? It's obvious, isn't it? Another day, another fantasy. Today's customer wants you to whip him with a feather boa. What's the point in telling him about the customer three years ago who wanted you dress like a dog and crawl around the bedroom?
Thanks to my informant "Irrational Exuberance" for pointing out and providing the text of these columns.
Posted by Donald L. Luskin at 6:29 PM |
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Thanks to a pseudonymous informant who calls himself "Irrational Exuberance" for pointing out that even the statistics can't be relied upon, even in (or perhaps especially in) seemingly very highly produced media such as CNBC. Check out this howler from CNBC's website, in an article by the no doubt appropriately named Steve Liesman. Better hurry if you want a laugh (and a lesson) -- at some point they may correct it (but I wouldn't bet on it).
"The Japanese stock market looks already to be pricing in disasters for some of the nation’s biggest banks. This year alone, shares of UFJ Holdings have fallen 163%; shares of Mizuho Holdings, the nation’s second-biggest bank, have plunged 112%."
Posted by Donald L. Luskin at 12:03 AM |
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Thursday, December 12, 2002
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Believe me, I know how this works -- I'm one of those economic "experts." I get calls from reporters every day trying to get me to say what they've decided they want me to say before they even pick up the phone -- and I know that I don't get quoted unless I can sense what they want me to say and give it to them (they don't usually make it hard -- they'll put the quote right in your mouth and say, "don't you agree?" then quote you in print as having said just that).
That's bad enough -- but the worst of it are the little interstitial "explainers" that the reporters and columnists throw in between the "expert's" quotes. At least the quotes have quote-marks around them, so any alert reader will understand that they are just opinion (even if "expert" opinion). These "explainers" are positioned in deliberate contrast to the quotes -- as though they were facts, little elements of background that the writer thinks the reader needs to know in order to fairly evaluate the opinions. And here's where it gets tricky, because those "facts" are almost invariably just more opinions -- but they're not labeled as such.
In Altman's column today -- a "consensus" of "experts" on how difficult and costly any economic stimulus programs will be -- includes this little interstitial "fact" from Altman:
"When expectations for the government's borrowing in the future rise, according to economic theory and some history, long-term interest rates in both the public and the private sector tend to rise as well."It sounds innocent enough, doesn't it? But this isn't a fact -- it's a political opinion, nonchalantly disguised as a fact. This single sentence sums up the core argument of what became known in the Clinton years as "Rubinomics," named after Treasury secretary Robert Rubin, who was famous for using it as a drop-dead argument to block any talk about tax cuts.
Altman repeats this opinion of Rubin's -- but with no quotes and without naming Rubin, simply offered by way of background, a favor to the reader as it were, as though it were an established fact that the reader needed to know. Altman bolsters this fact as being supported by "economic theory" (as though there were just one economic theory, as though this were it, and as though this one economic theory were an axiom or a law of nature rather than just an argument used by a particular politician) and "some history" (as though "some history" were enough to prove a proposition in economics or anything else -- it never is).
In point of fact, it's simple to demonstrate "some history" -- indeed, lots of history -- that points to exactly the opposite conclusion. For example, those who are obsessed with government debt (and dead-set against tax cuts) are quick to point out with alarm that the Federal budget has swung back to deficit after several years of surplus, and that there are now deficits "as far as the eye can see" (as the saying always seem to be). Yet long-term interest rates are lower than they've been in 40 years -- exactly and utterly the opposite of what Rubinomics would predict. Isn't that "some history"?
And take a look at Japan. Japan's budget is a deficit sinkhole, and its debt as a proportion of its GDP is by far the largest in the civilized world. Yet Japan's long-term interest rates are the lowest in the civilized world -- with a 10-year government bond rate of about 1%, they make our historically low rates look positively high. Again, exactly and utterly the opposite of what Rubinomics would predict. Isn't that, too, "some history"?
Sure it is, but that doesn't make the point that Altman wanted to make, so he didn't mention it.
Economics is the only discipline that calls itself a science that seems totally immune to the scientific method. In any truly scientific inquiry, an hypothesis is subjected to experimental test, and if the test refutes the hypotheses even a little bit, then the hypothesis is wrong. In the classic example, if the hypothesis is that "all swans are white," then finding a single black swan out of billions of white ones proves the hypothesis wrong. In this case, a billion black swans are wandering all over the front lawn, and yet they are utterly ignored by the politicians and the pundits who wish to promote the political consequences of Rubinomics.
They figure that the people who read the New York Times aren't well informed enough to spot a lie when they read it, positioned as fact amidst a consensus of expert opinion. Maybe there's "some history" to support that belief, too -- after all, how are they to become well informed if they get their "economic analysis" from the New York Times?
Posted by Donald L. Luskin at 11:09 AM |
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Tuesday, December 10, 2002
CRAMER BUYS THE O'NEILL IPO AT THE TOP It's one thing to be wrong -- pundits often are. It's an occupational hazard. But it's another to be wrong when the pundit has ventured into subject matter about which he has utterly no expertise -- and has papered it over with sheer overconfidence. That's just arrogance -- and disrespect for the audience.It's typical of supreme media whore James Cramer -- and this December 21, 2000 celebration in TheStreet.com of Paul O'Neill's nomination as Treasury secretary is an example too hilarious not to share with you. It's classic Cramer -- all gonads and no brains -- all surface and no substance -- a stream of unqualified opinion and self-aggrandizement shouted at the top of his lungs. And... so very, very wrong.
Here are the first three paragraphs:
The headline said it all: "Outsider O'Neill Has Wall St. Wary." That's right out of Thursday morning's New York Daily News about the appointment of Paul O'Neill as Treasury Secretary. I heard it around the trading desks, too. "Who is this guy, O'Neill?" the kind ones said. What's Bush doing naming the Yankees' excellent right fielder to the Cabinet, said the more sarcastic of the crowd.It just gets more surreal from here. Click on the link above if you can stand more. You'll find that Cramer never gets to his second credential (clearly nobody proofreads this stuff -- who at TheStreet.com would dare cross Cramer?). Why the claim that he is "no suck-up" serves as a credential in the first place -- beyond giving him the opportunity to name-drop Al Gore -- is a mystery. Then again, why anyone would want to name-drop Al Gore is a mystery, too.To which I say: STOP WORRYING! This guy's the real deal. He's one of the good guys, one of the best industrial managers around with super financial and people skills and we should be thrilled that he is even interested in taking the job. He'll be terrific.
What are my credentials that I can praise this guy so easily? First, I am no suck-up. As an outspoken supporter and friend of Al Gore, I probably could have been expected to knock this guy. No way.
It's kind of like buying TheStreet.com at $71.25 in May 1999 when it first went public, writing this paean to O'Neill when he first went public... I trust you know what happened to TSCM since -- pretty much the same thing that happened to O'Neill.
Thanks to blogster Robert Musil at Man Without Qualities for being willing to sully himself by digging through the Cramer archives on TheStreet.com in order to find this.
Posted by Donald L. Luskin at 8:14 PM |
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IS THIS ANY WAY TO RUN A RAILROAD? ...or the US Treasury? Forbes reports that the shares of Treasury secretary designate John Snow's company, CSX, "trade for 47% less than they did five years ago. Over that period, CSX shares trailed three of the four other major railroad stocks, beating only Kansas City Southern. Over the past year, CSX is dead last in terms of share-price performance. In that year, the company paid its CEO $10.1 million."
Posted by Donald L. Luskin at 1:40 PM |
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In political terms, a Friedman appointment would be absurd on the face of it. Treasury secretary Paul O'Neill was forced to join America's 6% unemployed precisely because he was not a consistent public advocate of Bush administration economic policy. This problem would only be worse with Friedman. Nominally a Republican, he and his family have been contributors to the campaigns of several Democrats who have stridently and fundamentally opposed Bush's economic agenda -- notably Senators Charles Schumer of New York, Joseph Lieberman of Connecticut, and Jon Corzine of New Jersey.
Think he can put that behind him? Hardly -- those Democrats won't let him. Today Senator Corzine -- who worked with Friedman when both men were at Goldman Sachs -- told the Washington Post, "I would think Steve will think long and hard about whether he wants to be in the position of selling supply-side economics…I can't imagine that he is going to find comfortable the fiscal structure that [Bush] has put in place."
Indeed he would not. Friedman is vice-chair of the Concord Coalition, a self-styled "grass roots" organization dedicated to root-canal federal budget discipline -- and one that has vehemently opposed all initiatives by the Bush administration to cut taxes or stimulate the economy.
Not that Bush would ever go on record as favoring budget deficits -- but deficits per se are not the issue. The issue is the interaction of tax rates and deficits. The Concord Coalition's analyses consistently treat every proposed tax cut as a deadweight "cost" to the budget -- ignoring the reality that tax rates affect incentives. According to the Concord catechism, if tax rates were cut in half people would work no harder and invest no more -- and if rates were doubled people would work just as hard and invest no less.
If you believe that -- and you oppose deficits and debt -- then tax cuts are simply out of the question.
If all this sounds eerily familiar, it should -- it's called Rubinomics. Indeed, Friedman may be the separated Siamese twin of Clinton Treasury secretary Robert Rubin -- the two men shared the helm at Goldman Sachs, and seem to share most of the same economic policy convictions -- including the demonstrably false belief that deficits cause high interest rates.
Perhaps that association with Rubin gives Friedman a certain totemic charm -- after all, when Rubinomics reigned the economy was booming and the NASDAQ was at 5,000. But Rubin and Rubinomics had nothing to do with that. Rubin didn't invent the technologies that set off a productivity boom (Al Gore takes credit for that one), he didn't conquer inflation (Alan Greenspan slew that dragon), and he certainly didn't cut the capital-gains tax in 1997 (a Republican Congress did that).
No, Rubin didn't cause the 1990s boom, and his clone Friedman is going to do nothing but prolong the 2000s bust. With someone like Friedman working the inside to block tax cuts, the only way the federal government can try to stimulate the economy is with one form or another of direct subsidy or intervention. That's a recipe for bigger government and slower growth -- and in the last analysis, growth is the only way that the deficit will ever get cured.
Let us congratulate President Bush for having the good sense to let the market vet Friedman before the appointment became official. Now, Mr. President, let's go with what the Washington Post is already reporting -- that there are some "complications" with Friedman's financial holdings -- and let this little mistake fade into memory. One Robert Rubin was entirely enough, thank you.
Posted by Donald L. Luskin at 1:14 PM |
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UN-FACT OF THE DAY: TAX EVASIONS Citizens for Tax Justice -- an inaptly named advocacy organization dedicated to socking it to "the rich" -- put out a press release yesterday claiming that CSX Corporation, whose CEO is Treasury secretary nominee John Snow, is a "champion corporate tax dodger." The evidence is that "In three of the past four years, Snow's company, CSX Corporation, paid no federal income tax at all," despite showing profits each year. Further, "CSX supplemented its $934 million in pretax U.S. profits over the four years with a total of $164 million in tax rebate checks…"
What Citizens for Tax Justice doesn't tell you is that in each of the last three years, CSX has accrued significant deferred tax liabilities -- which get counted against pre-tax earnings on the company's income statement to arrive at reported after-tax earnings, and which will eventually have to be paid to the government. In every year examined by Citizens for Tax Justice, CSX's total tax expense, including deferrals, swamps whatever rebates they were able to collect. In fact, in 1999, taxes paid were more than 100% of U.S. pre-tax profits because taxes deferred in prior years had to be actually paid out in that year.
Accounting for large, complex companies involves many deferrals through time -- both of income items and expense items, including taxes. Companies typically carry deferred tax assets or liabilities -- assets if they have had net operating losses in prior years that can be applied against taxes in the future, or liabilities if they have recognized income for financial reporting purposes in the current year that will not be recognized for tax purposes until a later year.
The Citizens for Tax Justice press release has deliberately ignored CSX's deferred taxes as though they don't exist, in order to create the misleading impression that the company has found a way to never pay any taxes. Very simply, this is a lie of omission. But nonetheless, a lie.
Posted by Donald L. Luskin at 3:48 AM |
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Monday, December 09, 2002
CORRECTION RE: STEPHEN FRIEDMAN This morning I reported that Stephen Friedman, the man widely rumored to replace Larry Lindsey as President Bush's chief economics advisor, was a political contributor to Hillary Clinton. According to the Center for Responsive Politics, early reports of Friedman's contributions to Clinton were in error. The Center now says:"Most of the Dems that reported contributions from the Friedmans are lawmakers based in and around New York City, where the couple lives. They include Sens. Charles Schumer ($14,000) of New York; Joseph Lieberman of Connecticut ($5,000) and Jon Corzine of New Jersey ($4,000), who worked with Friedman at Goldman Sachs. In 1999, Friedman contributed $1,000 to former New Jersey Sen. Bill Bradley, who was seeking the Democratic presidential nomination."
Posted by Donald L. Luskin at 9:27 PM |
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UN-FACT OF THE DAY: NO CAP GAIN, NO PAIN One of my tactics in fighting the conspiracy to keep you poor and stupid is going to be to make you fully conscious of the overwhelming volume of opinions, guesses, wishes, errors and lies that pass as facts in public discourse about the economy and investing. Every day -- or at least every couple of days -- I'm going to try to come up with an Un-fact of the Day, an opinion disguised as fact, an analysis masquerading as news, a political position camouflaged as an economic principle, or just a plain old fashioned error in a place that ought to know better. I hope that readers will help by sending in their own candidates for this recognition -- if you see an Un-fact, email a link to stories@poorandstupid.com.
Here's today's Un-Fact of the Day, which was sent in by a reader. I'm delighted that the inaugural award goes to the New York Times.
In an analysis story yesterday headlined "If Tax History Is a Guide, the Poor Are in Trouble," Daniel Altman makes the following statement:
"The other part of most investors' return -- how much their stocks increase in value -- is cut by 20 percent by the tax on capital gains. By taking a share of gains and giving credits for losses, the tax also guards speculators from stocks' full riskiness. Ending it could encourage saving and help expose investors to the market's true fluctuations."It is a fact that capital gains taxes cut 20% from an investor's upside. But what Altman doesn't seem to know -- and that no editor or fact-checker seems to know either -- is that net capital losses can only be deducted from ordinary income up to $3,000 in any one tax year. That means that for capital losses greater than $15,000, "speculators" (and everyone else, as well) are exposed to "stocks' full riskiness." The government's position through this tax is effectively little better than share the upside with us, and take the downside yourself.
Is it possible that among Altman, his editor and his fact-checker, none of them has ever taken a capital loss large enough to learn first-hand about the loss deduction limit? If so, then it's about time that these self-appointed investing gurus wade in there with the rest of us in the real world, take a little risk, and get some experience in the domain they write about every day. Or is it just that this first-ever kind word about ending capital gains taxes in the pages of the New York Times could only be supported by an egregious blooper?
Posted by Donald L. Luskin at 4:21 PM |
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SNOW CRASH My worst fears are coming true. Last week when Treasury secretary Paul O'Neill and White House economic advisor Larry Lindsey had their names added to the list of the nation's 6% unemployed, I wrote, "...we could end up with the worst of all worlds when they are replaced -- people with bad policy convictions who are more politically capable of getting their bad policies implemented."
Now the Washington Post is reporting that CSX Corp. CEO John Snow is going to be our next Treasury secretary. Okay, it's too early to be sure. But if President Bush wanted to send a message that economic growth were going to be a priority, he shouldn't have gone with yet another Cheney-picked Old Economy big business type with ties to the Ford administration. Snow's been a staunch advocate of deregulation -- and that's to his credit. But he's a PhD in economics, which is practically a guarantee that he wouldn't recognize a pro-growth policy idea if it bit him on the nose. His most salient feature? He's a major lobby lizard -- a former chairman of the Business Roundtable, and according to the WaPo, "a successful schmoozer of lawmakers." Now if only he had something to schmooze them about.
And somehow I can't take a lot of comfort from the prospect that Lindsey is likely to be replaced by Robert Rubin's separated Siamese twin Stephen Friedman. Other than vice-chairing the tax-cut-phobic Concord Coaltition and contributing money to Democratic candidates of all types including Hillary Clinton, what are Friedman's pro-growth policy credentials? You guessed it -- according to the New York Times, he's "a consensus builder and strong manager."
On the economic front, Bush continues to prove the old saying... "A" players hire "A" players, and "B" players hire "C" players.
Posted by Donald L. Luskin at 12:42 AM |
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Sunday, December 08, 2002
SPIKED NYTIMES COLS PUBLISHED -- AND WHO CARES? The infamous spiked New York Times sports columns -- which critics say were suppressed because they differed with the Times' crusade for the admittance of female members to the Augusta National Golf Club -- are in print today. Unless the columns as they appear today have been heavily revised, it's hard to see why Times executive editor Howell Raines and managing editor Gerald Boyd bothered to spike them. Both Harvey Araton's column and Dave Anderson's column are solidly on-side with the Times' point of view.Yes, Anderson differs with the Times editorial page by arguing that Tiger Woods should not have any obligation to boycott the Masters Tournament at Augusta over the issue of women members. But he's clear -- repeatedly -- that both he and Woods do in fact believe that Augusta should admit women.
Araton uses the Augusta issue as a first-paragraph hook to pick up where the editpage left off, and extend the Times crusade from Augusta to the wider worlds of the Olympics and collegiate athletics. Other than a seemingly gratuitous snipe at Augusta as "a world-famous golf club for corporate shakers and cranky old men," Araton barely mentions it.
Far more significant is this uncharacteristically critical letter from an assistant professor of journalism, also published today:
The New York Times should be embarrassed for censoring the column by Dave Anderson, a man whose views were worthy of a Pulitzer Prize. A newspaper is intended to offer many perspectives and to cultivate an open exchange of ideas. But, suddenly, The Times owns the only valid opinion. And, suddenly, The Times is spiking columns by the most respected sports columnist in the country. As a reader, I am disgusted that The Times would try to manipulate my point of view on a topic that, frankly, is not that important. This is not an issue of national security; this is about sports. And, even less importantly, this is about women trying to play a game (golf) at a private club. As a result, The Times, which prevented its readers from learning another point of view, impugns its reputation. As a professor, I can no longer offer The Times as a bastion of true journalism when the newspaper destroys its good faith and stomps on free speech."Great to finally see a scorcher like this on the letters page, but... What exactly is this "another point of view" the professor is talking about? Araton and Anderson seem just to have found their own paths of words to the same old point of view. And I have to chuckle when the author objects that the Times is trying to "manipulate my point of view on a topic that, frankly, is not that important. This is not an issue of national security..." Howell Raines will be delighted by this implicit attaboy -- the professor applauds the manipulation of his point of view on subjects that are really important. National security? Sure. Big business and Wall Street corruption? Got it. Just don't mess around with golf!
Posted by Donald L. Luskin at 3:47 PM |
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