Wednesday, January 28, 2009

Conservative in Hollywood: The New Cool?

In case you hadn't noticed the changes in media over the last election cycle, the internet has become the new and most prominent battleground in the war of ideas. As print newspapers continue their descent into the ash heap of irrelevance, conservatives have finally begun to realize that the future of our movement lies in mastering the power of the internet to distribute ideas and promote communication on issues political, social, and economic.

One who gets it is Andrew Breitbart and Big Hollywood. Big Hollywood is a great new site dedicated to conservative thought in media and supporting conservatives in the liberal dominated entertainment industry (yes, surprisingly, they do apparently exist - that's the point). I find it wonderfully entertaining and demonstrative of the liberal bubble in Hollywood.

Big Hollywood is also a source for information you will find great difficulty seeing anywhere else. For example: If you haven't see this before you have to check out this new video by Macho Sauce Productions called "The Pledge?" It is fantastic:

Macho Sauce Productions was founded by Alfonzo Rachel. Alfonzo, where have you been?! If this keep up, conservatives are well on their way to competing for attention in today's pop culture. Edgy. Funny. Satirical. Potent. Right on target.

Could conservative be the new cool in Hollywood? Well, that might be a stretch, but, I continue to dream.

Tuesday, January 27, 2009

Stagflation Train Wreck

The Democrats in Congress, led by Nancy Pelosi and Harry Reid, are debating a stimulus bill that is, by definition, designed to stimulate the economy. This is pure Keynesian, demand side, economic theory: spend massive amounts of "government" money to stimulate demand in the private sector. The only problem is, however, that Keynesian economics never works and there is virtually nothing stimulative in the roughly $825 billion bill.

So, what is the probable outcome of passing a stimulus bill substantially similar to the one being debated right now? A bill that spends close to $1 trillion of taxpayer money, that we don't have and our children will have to pay for, that produces little growth? Just think about it: no growth and huge amounts of dollars pushed into inefficient government programs and projects? We have the makings of a massive stagflation train wreck! Think late 70's Jimmy Carter economic stagflation.

But how can we design a stimulus bill that promotes growth (government never creates growth), promotes job creation (government never creates jobs), and avoids stagflation? Well, quite simply you have to design the bill to address the problems in the economy. For example, we have a financial crisis that has led to a massive contraction of available credit. Any stimulus bill should therefore include measures to stabilize the balance sheets of the banks (get rid of mark-to-market accounting and institute mark-to-model accounting) and increase liquidity in the financial markets (zero capital gains rate for at least the next two years and double IRA and 401K contribution limits) (see December 9, 2008 post). It might also include measures to stabilize the housing market (reduce real estate transaction costs or provide house purchase tax credit). Measures to increase demand and promote productivity in the private sector (research and development tax credits, accelerated capital expense depreciation, and pass free-trade agreements) would also be a vital elements.

My point is you have to write a bill to take care of the real problems. Unfortunately, solving the problems with the economy comes a distant second to the interests of politicians who are more concerned with spending taxpayer money on their favorite pet projects so they can show up at a ribbon cutting ceremony or to pay back their favorite constituent interest groups. So keep in mind that the next time a politician says they are going to create jobs and grow the economy, they are either delusional because they think can (only the private sector creates jobs) or think you are stupid enough to believe them. Then do your own due diligence to see if the bill they are voting for actually promotes growth and long-term sustainable demand. Chances are, if the politician believes in Keynesian/New Deal economics, and most Democrats do, it won't do either. The current stimulus bill doesn't do either and will be an absolute train wreck and will lead to horrible consequences for our country.

Sunday, January 18, 2009

Some Common Truths About Trees

1. Man-made global warming is a fraud. The focus on curbing carbon dioxide emissions is a complete waste of time and fortune. Concern for the environment is totally legitimate, however, the taxing of fossil fuels and regulation carbon emissions will serve only to take money out of our pockets and give it to the government and those they deem more deserving of our money. It will do nothing to curb climate change. It will do nothing to help the environment. It will condemn billions of the world's population to eternal poverty. The world's temperature has never followed changes in greenhouse gasses. There is no legitimate reason to think they will in the future. Everything you have been told about man-made global warming is a lie.

2. Government run health care is an inevitable failure. The government never runs anything more efficiently than the private sector. The only way governments save money on health care is by rationing care. The result is always reduced services, less innovation, longer waits, and less accountability. If you want to pay less for health care, join an HMO and accept less access to specialized medicines and someone else making health care decisions for you, or, better yet, start a Health Savings Account (HSA) and buy a high deductible health insurance policy which gives you responsibility for minor health related issues yet protects you from catastrophic losses. Isn't that what insurance is for after all? The reason why third party insurance is so expensive is because it is really health care financing.

3. The U.S. Constitution is the foundation of America's greatness. It established in word, for all to see, our country as one made of law, not of man, and governed for, by, and of the people. When we stray from that ideal, when we cease to become a country governed my law but rather by man, we endanger the very future of our country and the uniqueness of American experiment. I believe that America is worth preserving for future generations. So, how do we endanger the constitution? When we neglect to interpret the constitution according to the words and their original intent. Words mean what they say. When we decide to ignore what they say because their intent is inconvenient or counter to what we desire, we are saying that the words don't mean what they say and, therefore, the rights the constitution enshrines for us, given by God, do not exist.

For example, the Second Amendment of the Bill of Rights gives all able-bodied individuals (understood as the militia) the right to keep and bear arms. That right was enshrined because the Founding Fathers were supremely suspicious of the power and authority of the countries from which they came, countries governed by the rule of man. They also understood that it was possible for the government to cease to govern according to its own constitution. They, therefore, recognized in the bill of rights the natural right of individuals to keep and bear arms for their own protection and, if necessary, to hold the government accountable if it failed to govern constitutionally. The Second Amendment does not exist so hunters and sportsmen can keep a shotgun to hunt or shoot skeet!

Many people quite reasonably believe that individuals should not have the right to own handguns. That is a legitimate opinion to have. It is not legitimate, however, to simply "reinterpret" the constitution to say that individuals should not have that right because the founders could not have envisioned they way we live in this day and age. The constitution establishes the means to change through constitutional amendment and it is appropriately difficult to do. If you want to change the constitution, change it. But when we say that the constitution may be reinterpreted to reached a desired outcome, we are in effect saying that the words don't mean what they say. If that is the case then none of the words mean what they say, they are not natural rights given by God, and our rights do not exist.

Thursday, January 8, 2009

Vaclav Klaus: A Profile In Courage

Vaclav Klaus, the President of the Czech Republic, is a man of great moral courage. Jailed by the communists for being an outspoken critic of the failed ideology, he spent many years in prison only to lead his country's break from the Soviet bloc and hasten the crumbling of the iron curtain. Because of his extraordinary leadership millions live in freedom. Yet, even as communism has diminished as a threat to the liberty of people the world over, it has been replaced by the voracious power-grab of those who wish to gain domination over the actions of others in the name of global climate change. Even as millions willingly forfeit their economic liberty to others in the name of saving the planet, Vaclav Klaus is one of the very few political leaders with the moral courage and integrity to voice his opposition to the myth of man-made global warming and the cult of environmentalism.

I encourage you to watch the following video:

I found it ironic that the BBC interrogator accused Vaclav Klaus of being arrogant. Who do you think came off as the arrogant one? So now it is arrogant to fight for freedom and liberty? It is arrogant to stand up to the ridicule and the contempt of the mainstream media and political power? It is arrogant to think outside the box? Mr. Klaus made a great point: Who is more arrogant than Al Gore and his demand that there is a scientific consensus that global warming is man-made (there isn't) and accelerating (it isn't), and all debate must stop?

I plan to post soon about the science that demonstrates that man-made global warming is a myth, but I thought this video was very illustrative of the political pressure the mainstream media, environmental socialists, and liberal politicians place on those that voice opposition to their new religion of environmentalism.

Climate change is the trees; more government control in the name of the environment is the forest.

Monday, January 5, 2009

Buy and Hold: Alive and Well

I find it interesting that so many stories have been popping up in on television, the internet, and investing magazines proclaiming the death of "Buy and Hold" as investing strategy. It is perfectly understandable after the horrendous performance of virtually all world stock markets. I assure you, however, that properly understood and implemented, buy and hold remains a viable and productive investment strategy.

First of all, buy and hold doesn't work for all types of investment assets. It works perfectly well with broad market index mutual funds and exchange traded funds as well as well-diversified and well-managed stock and bond funds. It does not work well with cyclical stocks that pay little or no dividend. It works very well with fundamentally strong companies in non-cyclical or defensive industries that pay good dividends. In fact, it is exactly times like these that make buy and hold work so well with the right kinds of assets.

How can buy and hold work well when the market goes down? Reversion to the mean. Let's look at a simple example. Say you buy 100 shares of company XYZ at $20 per share for a total investment of $2000. Let's also say that XYZ pays a 5% annual dividend, or $0.25 per quarter per share. After three months let's say that XYZ has lost 25% of its value. That would leave you with 100 shares of XYZ at $15 per share plus $25 in dividends reinvested at $15 per share for a total of 101.67 shares. Now let's say that XYZ continues to slide to $10 per share in a severe market downturn, yet it remains a fundamentally strong company. After reinvesting the quarterly dividend you would now have 104.2 shares of XYZ at $10 per share for a total value of $1042. In the second half of the year the market starts to recover bringing shares of XYZ with it back to $15 per share. Now after reinvesting the quarterly dividend you would have 105.94 shares of XYZ for a total value of $1589.10. And now by the end of the year the market has regained its original level bringing XYZ with it back to $20 per share. After reinvesting the dividend you would have 107.26 shares of XYZ at $20 per share for a total value of $2145.29 for a total return of 7.3% in a market that went nowhere in 12 months. Had you not reinvested dividends the return would have simply been the 5% dividend. Had you invested in a stock paying no dividend your return would have been zero for 12 months.

If you know the stock is going to go down, why not just wait and invest at a lower price per share? Well, that makes complete sense, but who knew before the fact that the stock market was going to be down so much in 2008? In fact, if you know a stock is going to go down, why not just short it? Hey, simple! But you know it is not really that simple. I know of no major investment analyst or columnist that knew that world markets were going to perform as poorly as they did in the last year (aside from a few gold-bugs that have been predicting armageddon every year for the last 15 years - even a broken clock is right twice a day). How about if you were a trader and set stop-losses or bought puts, etc.? Who knows? Depends upon your level of expertise, skill, timing, and trading strategy, however, studies show that the vast majority of traders under perform that market averages.

The above example shows pretty clearly why not all stocks qualify as good candidates. Stocks that pay little or no dividend do not present the opportunity to profit from reinvesting at lower levels. Stocks of companies that are not fundamentally strong reduce the likelihood that they will at least perform as well as the market over the long term. Financially strong, market leading companies with strong competitive advantages and good management can actually use severe market downturns to gain market share from weak rivals and may in fact benefit over the long term. And well-managed, defensive/non-cyclical companies tend to outperform the market in severe downturns and present stock patterns with more of an upward bias compared to deep cyclical companies.

So, does this mean you should never invest in non-dividend paying companies? No, not at all. It just requires a slightly different strategy. For example, I own Cisco Systems (CSCO), the large networking equipment company. I realize that technology companies are cyclical, but I still consider them a growth industry compared to, say, chemical companies, like DuPont or Dow Chemical. CSCO pays no dividend but they are fundamentally very strong with billions in cash on their balance sheet. In severe market downturns CSCO tends to use their strength to acquire competitors and take market share by offering financing to customers while continuing to invest in research and development. In the last 12 months, CSCO is down from about $27 to about $17, with a 52 week low of $14.20. While I have not benefited from reinvestment of any dividend as CSCO doesn't pay one, I have used the drop in the share price to add to my position in the stock. When CSCO recovers, which I believe it inevitably will, I will participate in its recovery. Could a trader outperform me? Sure, its possible. But statistics say it is tough. A better strategy might be to use options, but that doesn't come without a cost.

Have you heard the expression, "Buy when there is blood in streets?" What that is basically saying is that you make money in investing in the stock market when the market is so bad that nobody want to own stocks. In other words, the best time to buy is when the conventional wisdom is to sell. Well, right now might be the time to sell the idea that "buy and hold is dead" and buy "buy and hold."