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October 04, 2010

Financial Briefing II: Economic Boogaloo

[In which Monty, long away from the neighborhood, returns to save the local mom-n-pop bank from a hostile takeover through a stylish melange of breakdancing, infectious urban beats, and the rap music that all the youngsters seem to be so fond of. Thrill to the parachute pants, Jheri curls, and mirrored wraparound sunglasses! (The soundtrack, "Monty Raps! Funky Accordion and Theremin Music For These Troubled Modern Times", now available in fine discout outlets nationwide!)]

NOTE: This won't be an every-day thing (too much work), but I'll try to get a financial post up a few times a week. No stock-market quotes will be given since they don't matter fuck-all in the real world anyway. Throw some dice and write the numbers down; they'll have about as much relevance to the economy as the stock market for the forseeable future.

Let's start off my triumphant return to financial reporting by giving Europe a vicious kick in the nuts. That'll teach you to put mayonnaise on french-fries, you nasty bastards!

I just wouldn't be me if I didn't point out that gold is now $1314/oz as I write this. I bought some gold five years back at about $500/oz; that's a pretty damned good rate of return for something that's just supposed to be an inflation hedge. The naysayers can continue mumbling that I can't eat gold, that I will be crucified on a cross of gold, the gold is just metal and has no innate value -- I will simply point to the fact that it has outperformed every other investment in my portfolio, and by quite a large margin. And as a long-term store of value, I trust it a hell of a lot more than Treasuries. (Silver has done even better in absolute terms.)

Ah, but what about those safe-haven darlings of investors, municipal bonds? The romance may be on the rocks. I've thought for a long time that municipal debt is the next big shoe to drop in this recession/depression/worker's paradise that we're living in. Harrisburg, PA made the news recently when they barely escaped having to declare bankruptcy, but Harrisburg is only one of tens or even hundreds of muncipalities in the nation in dire financial straits. There seems to be a belief that the feds will bail them out before things get too grim, but this ignores two facts: a) the appetite for another trillion-dollar bailout is at subzero levels, and b) it's not clear that taxpayers of one state will be willing to bail out the profligate citizenry of another. Prudent residents of Lincoln, NE or Minot, ND may not wish to fund the rather more lavish lifestyles of a San Diego or Miami. However much we "feel" the federal and state debt, we'd feel a municipal crash a lot harder because it hits us right where we live (literally): trash collection, sewer, water, road repair, snow removal, all the rest. You pay more and more and get less and less from it. (Oh, and guess what the major financial burden on municipal governments is these days? If you said "public-employee pension and health benefits", give yourself a gold star and then a smack upside the head for being an insufferable know-it-all.)

"We don't want to vastly increase our already mind-boggling national debt! It's just that the law forces us to!" (Yeah, that's it! That's the ticket!)

Smoot-Hawley, an unquiet and malign spirit, stalks the congressional chambers. There is a renewed protectionist vibe in the air, and I'm not confident that the GOP is any more kindly-disposed to the Chinese than the Donks are. A trade-war is the last thing we need right now, but that sure seems the way we're headed. Better buy up a good stockpile of all those cheap electronic doodads, because they're about to get a lot more expensive.

If you're a fan of inhaling the particulate-filled gases produced by the burning of the tobacco leaf, pity your Japanese cohorts: the Japanese government just jacked up the tax by 40% on a deck of smokes. Remember that "smoking is bad for you" line the Japanese government has been pushing for many years? Yeah, well, never mind. Smoke up, Sato-san!

If you're a Verizon customer, you might have some money coming to you. Back in the nabe in Ye Olden Tyme, we called this kind of thing "fraud". It's too bad that Vinnie, Scoots, and Tangle-Eye never took business courses; they could simply have claimed a "billing error" was the culprit, the money was cheerfully refunded, and that the chump's customer's legs were broken in some completely unrelated incident which barely even merits mention, much less an investigation.

What do you do if you're out of money? If you're an AoSHQ Moron, you mug a hobo and steal from his change-cup. If you're a normal American, you tighten your belt a bit, you eat more mac-n-cheese with a leavening of Ramen noodle casserole, and you look forward to better days. If you're a European, particularly a union-affiliated European, you sit on your prat and cry like a baby wailing for its bottle. Maybe you throw things and make a dookie in your pants to demonstrate your displeasure in no uncertain terms.

If you've read my previous Briefings, you know I'm not much of a fan of financial derivatives. They have a huge capacity for misuse, they tend to be complex and hard for even experts to understand, and they have many unanticipated side-effects. However, it's important to note that derivatives are neither new nor a priori "bad" instruments. This piece at Cato explains some of the myths behind derivatives. (I should note that I disagree with Cato's Myth #6. It is my feeling that derivatives do indeed take prodcutive money out of the economy without returning it in any reasonable proportion. Cato's point here is what derivatives ought to be versus what they are in actual use, and I think that's kind of dishonest.)

California, thou art boned; royally boned. San Jose's public-employee pension shortfall? How about a nice round $2 Billion? And I guarantee you that nearly every California city is in the same boat. Right now, most plans to solve this problem involve the phrase "and then a miracle occurs". Steven Greenhut drops a funk-bomb on the "venal and incompetent" California pols. (Illinois, the runner-up in the pageant of the boned, feels California's pain.)

In the spirit of rapaciousness, devil-may-care adventure, and daylight robbery, here's Errol Flynn in Captain Blood:

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posted by Monty at 11:28 AM

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