POST OF THE DAY
Free For All Economics
So Long, Thanks for all the Waffles

Related Links
Discussion Boards

By Goofyhoofy
February 20, 2009

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

OK, that $200 is a guess, but at $8.95 a trade with Schwab, I cleaned out much of our portfolio. I'm selling low, I know, but I have such a sinking feeling that I felt I had no choice. I've been thinking about it since last week, and had I been smart I would have done it then, but I wasn't, so here I am.

I was lucky and dodged a big bullet when I did this back in early September, just before the market tanked. Then I completely changed my thesis and came back in in November and went after heavy dividend payers, stalwarts in consumer necessities (PG, KMB, KFT, and so on) along with a fair piece of utilities (ED, GSP, KMP, RDS/A, etc.) and a few others in the drug sector and elsewhere.

Anyway, I have become despondent over the possibility of us climbing out of this hole anytime soon, and rather than suffer the angst of continuing losses - or even volatility - I've decided to stand aside.

Some of this is political. For instance, I have an argument with someone over on AF who insists that Herbert Hoover "dramatically increased expenditures" and it didn't work, which is arrant nonsense. Which I demonstrate with actual figures of what the government spent, and when, year by year:
http://boards.fool.com/Message.asp?mid=27454603

It has become fashionable for the Right Wing, aided by Libertarian think tanks and like minded economists to dismiss the New Deal as a failure, while at the same time telling us that "World War II got us out of the depression." It's beyond me how they can say that with a straight face, when World War II was nothing but the most massive government stimulus program in world history; the US government placing direct orders for trillions of dollars of ships, planes, jeeps, tanks, food rations, parachutes, bullets, artillery shells, Coca-Cola plants, oil, gas, and every other war material -- all on a scale which simply dwarfs anything Roosevelt (or Hoover) dreamed up for the New Deal.

I look at the political posturing of the Republicans, now down to a hardcore fringe, proud as ever that not a single member of the House voted for the stimulus bill. I would be less aghast if these very same people had ever once done the same thing when a Republican President was proposing drunken-sailor spending coupled with irresponsible tax cuts, and ballooning the deficit by double in under a decade.

I see five Republican governors now saying they're "thinking" of not taking any stimulus monies, by amazing coincidence it's the five who are often mentioned as potential Republican Presidential candidates in 2012. This is not about doing what's right for the country, otherwise all the Republican governors would be doing this. It's about political posturing while Rome burns, and they are so maniacally focused on the right-wing base that they would rather score political points than do what's right.

Now let's be clear. If the Republicans had a serious, principled opposition to this I would understand that. I believe they would be wrong, but I would understand. This is not that, this is gamesmanship, pure and simple, trying to score points because the other party has the big office.

But wait! There's more! Yesterday Rick Santelli goes on a populist diatribe on the floor of the New York Stock Exchange, railing against the Mortgage Stabilization Plan.
http://www.wnd.com/index.php?fa=PAGE.view&pageId=89384
Well maybe it's a good plan or maybe it's a bad plan, but his complaint is that "You don't want to be paying for your neighbor's bigger bathroom", which is more nonsense. And then the chattering heads on CNBC congratulate him "Because America is upset about this." Indeed, they're sitting there patting themselves on the back because Santelli's rant is "the shot heard round the world." America is upset? He's talking to traders on the NYSE floor. That's America? Whoops, now Rick Santelli is on the NBC tour: the Today Show, again this morning on CNBC, interviews on MSNBC, with the most irresponsible, surface, and absurd evaluation of a plan which most people haven't even heard of, much less looked at.

No, I despair because between CNBC, Fox News, and the Wall Street Journal, the crackpot theories of the lunatic fringe are pushed daily into the mainstream, with simplistic sound bites to an exceptionally complex problem, and those media outlets alone have the capacity to do great damage to the informed dialog which might help us understand the depths of the problem and potential solutions, if there are any, to it.

In 1929, Herbert Hoover presided over three years of disastrous decline. That wasn't totally his fault; he was hamstrung by members of his own Republican political party, who, like today, were absolutists in the "free-marketeer" spectra, and who stood by watching the economy sink ever lower, just sure that it was going to rebound soon. They stood aside and watched 5,000 banks fail, muttering "moral hazard. If we help this one, the next guy will want help, too." 5,000 times they must have said this. (By way of scale, it's a big deal when a dozen banks fail in a single year today. Imagine more than 1,500 a year for three years! Imagine when your bank fails you lose everything!)

Of course it didn't stop, and finally at long last, those politicians and economic naifs were swept from power, FDR came in and (among other things) closed the banks, instituted FDIC insurance, began New Deal programs, and the economy began - shakily - to recover. The numbers are undeniable, no matter what the Cato Institute tells you.

And, of course, the numbers for what happened during World War II (see the above link) are equally undeniable, as are the results.

The tragedy here is that this collapse happened only in the final months of the Bush administration. The fringe Right hasn't learned its lesson. They haven't been swept from power. Obama thinks he has to play nice with them. And until they are gone we are in for more - a lot more - populist baloney, "do-nothing" editorials, and, in my view, time on the down escalator until one of two things happens: either we get smart and decide on meaningful stimulus, or we actually reach the bottom. The very very very bottom. We're not there yet, it may be another 20%, 30%, even 50% down, particularly if the interconnections between banking, mortgages, recession, job losses, tax losses, and the worldwide contagion continue to spin out of control.

We're not there yet. And we haven't learned a thing. So I'm out. Not totally, completely, absolutely; I left about four positions in, things which are already so far down - or so far up - that I was loathe to tinker with them. But otherwise, I've cleaned out, going to cash.

One of the local banks has a promotional CD: 3.21% for 12-17 months, you choose the term. Better than I can find most anywhere else. I hate to tie up the money, but I don't see that the Republicans are going to get smart, or the Democrats (including Obama) get strong enough to muscle anything through, which leaves us in waffle land. I can't believe that's a winning formula.