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Here are some articles of interest we found this weekend. Subscribers, make sure you’re logged in and check out our weekend portfolio update. Also, warning: information and ruminations dealing with ethics, justice, and good governance ahead, so stop reading if you are allergic to any of those things.
Andrew Horowitz follows up with some comments of his own, noting that the Enron Loophole (the purported enabler of this price manipulation) was opened in 2000 by then Senator Phil Gramm. Gramm has also been linked to the late 1990s round of banking deregulation that made the subprime crisis possible, and then as a vice-chairman at UBS used his political contacts to roll back restrictions on predatory lending. Gramm now serves as the general co-chairman of one of the current presidential campaigns. Still. Even after all of these revelations have come out.
Seymour Hersh, one of the greatest investigative journalists alive today, has an extremely important piece about ongoing American intelligence and destabilization efforts in Iran. One of the most disturbing revelations here is that the CIA is funding and supporting radical groups with links to al Qaeda:
The Administration may have been willing to rely on dissident organizations in Iran even when there was reason to believe that the groups had operated against American interests in the past. The use of Baluchi elements, for example, is problematic, Robert Baer, a former C.I.A. clandestine officer who worked for nearly two decades in South Asia and the Middle East, told me. “The Baluchis are Sunni fundamentalists who hate the regime in Tehran, but you can also describe them as Al Qaeda,” Baer told me. “These are guys who cut off the heads of nonbelievers—in this case, it’s Shiite Iranians. The irony is that we’re once again working with Sunni fundamentalists, just as we did in Afghanistan in the nineteen-eighties.” Ramzi Yousef, who was convicted for his role in the 1993 bombing of the World Trade Center, and Khalid Sheikh Mohammed, who is considered one of the leading planners of the September 11th attacks, are Baluchi Sunni fundamentalists. [our emphasis]
Let’s pause for a quick syllogism. Call it a reductio ad absurdum of contemporary US national security policy, on two counts.
(1) If a government actively supports al Qaeda, the United States should depose that government by force. (premise, per the “Bush doctrine”)
(2) In 2003, Iraq was actively supporting al Qaeda. (premise, per smoke and mirrors)
(3) Therefore, the United States should have deposed the government of Iraq. (1, 2, modus ponens)
As problematic as it may be, let’s grant (1) for the moment. Now, we know that this argument is unsound, since (2) was always false. But we can replace (2) and run the argument again:
(1) If a government actively supports al Qaeda, the United States should depose that government by force. (premise, per Bush doctrine)
(4) In 2008, the government of the United States is actively supporting al Qaeda. (premise, per Hersh)
(5) Therefore, the United States should depose the government of the United States. (1, 4, modus ponens)
The two counts, in case it isn’t clear, are a) that “al Qaeda” is and always was an ambiguous term, such that basing military invasions on connections with the same is/was a weird idea; b) the US should quit supporting fundamentalists in its bid to quash fundamentalists. You’d think we would’ve learned our lesson in Afghanistan.
James Gustave Speth in Barron’s offers some ideas for evolving a less environmentally destructive version of capitalism. He concedes that this would entail slower or no growth, but rejects the implicit premise that GDP = human well being (as we have discussed previously), which means that an economy focused on improving human society, rather than just infinite meaningless expansion, might not be a bad thing at all.
Forgive us a short rant this evening. This country is sick. When the three main engines of growth - consumer spending, real estate, and financial services - are broken, it’s just not possible to make any economic progress. And for just a moment, let’s think about how pathetic those key sectors really are.
Cogent analysis of our per capita consumption requires some historical knowledge, since no contemporary people compares with our particular level of decadence. At least the Romans had some style: we borrow profligately to buy more junk than we can keep track of, and then elect corrupt politicians to ensure those products will be as unsafe as possible. We satisfy ourselves with plastic toys and plastic food and live at a standard so high that, when the rest of the world follows suit, the environment will collapse. So part of the problem is that our economic health depends so much on discretionary consumption in the first place. The other part of the problem is that “consume” is too delicate a word for what we do: we gorge.
Our total lack of restraint is evident in our homes as well, which are too large, too expensive, and too ugly. The voluntary plywood prisons filling every suburb are justified only for believers in the mantra that in a capitalist society, no consumer choice can ever be a bad one. We’ve taken on more mortgage debt than we could possibly ever service, which can only be the result of some combination of financial illiteracy and raw greed.
Finally, the fact that financial services ever became such a core element of our economy is itself a testament to our aimlessness. Finance is a tool for greasing the wheels of an economy, and when it serves its proper role, finance can be a very good thing. But it can (and should) never be the economy itself; it is fundamentally derivative on the labor of real people doing real work. By extension, an economy that gives pride of place to what should be a tertiary concern is an economy that is winding down and running out of ideas. Just as the ascendancy of the lawyers is the death knell of an industry (cf. the dying spams of the major record labels and the RIAA), so the dominance of financial services signals an economy that has become tired and spent. Perhaps the common man’s lament that the United States “doesn’t make anything anymore” deserves more respect than it often gets.
Debates about the timing of this recession are beside the point. While the United States still boasts the strongest and most diversified economy in the world, the sources of our prosperity have also become the causes of our decline. These are social and political problems as much as they are economic ones. We must find new engines of growth.
Reversal Readings
Short-term oversold readings abound, as you might guess, but this is definitely one of those cases where you shouldn’t try to be a hero. Market internals were pretty awful into the close today.
Filed Under (More to Life) by CondorTrader on 09-06-2008
You won’t be able to avoid this story tonight: the 3G iPhone is here, and it’s everything everyone was hoping for. It’s faster, supports Exchange, has GPS, and is half the price of the first version. The other big announcement at today’s WWDC keynote was the rebranding of Apple’s .Mac service, now called Mobile Me. Billed as “Exchange for the rest of us,” the new service will enable you to sync your mail, calendar, contacts, photos, and files across multiple machines, including your Mac and iPod/iPhone, but also PCs.
Signal vs. Noise reports that Mobile Me will not support Internet Explorer 6, which is a bold but entirely welcome move. (IE6 is absolute torture. If you’re still using it, please check out Firefox 2.) This is entirely consistent with Apple’s modus operandi since Jobs returned - refusing to play to the lowest common denominator, insisting on control over every aspect of the user experience. As noted in a recent episode of John Gruber’s podcast, there’s absolutely no reason for Apple to sacrifice on design or security or stability just to expand their market share, since they can compete on quality rather than on price. Let Microsoft/Dell/HP reign over the commodity end of the market; Apple generates cash quite well by selling high margin products to a dedicated user base.
From a financial standpoint, that insistence on quality over quantity is an attribute that sometimes gets overlooked. Good design doesn’t get a line on the balance sheet, but if you’ve spent as much of your life as we have in front of soulless gray WIndows boxes, you can recognize that Apple’s success has less to do with just pushing units out the door, and more to do with doing things right.
What about the stock?
Down $4 today on very heavy volume (was down $7 intraday). Buy the rumor, sell the news, or something. No matter. Long AAPL.
The Dow shed one hundred points in the last hour and a half of trading. The Dow and S&P held onto some gains, but the Russell 2000 and the Nasdaq 100 actually closed the morning gap and ended the day in the red. The late day selling seemed to be led down by large cap tech, as GOOG AAPL RIMM BIDU all moved lower.
Volume was a bit higher - back toward average levels at least, though most of that came from the first 30 and last 60 minutes of trading. Volatility continued its march to nowhere.
Fortunately, Wall Street people are funny, whether intentionally or not, so at least we had something to laugh at today. At right, the big names at Blackstone (surely unintentionally) mimic that famous Reservoir Dogs vibe [h/t WSJ]. The Epicurean Dealmaker has a pretty hilarous sendup of Blackstone’s rather indulgent annual report. He’s completely right about the absurd bagginess of Steve Schwarzman’s pants.
Next: Adam explores possible new celebrity talent that the geniuses at Real Money might want to tap. Kid Rock strikes us as somebody who would probably be a big fan of these FRO options everybody’s talking about.
Not funny, but plenty engrossing: last week, This American Life discussed the subprime crisis, humanized both the retail victims and the institutional victimizers, and managed to explain CDOs in a non-patronizing way. Of course, TAL is always fantastic anyway, and we hope Ira Glass’s voice feels better soon.
Finally, speaking of another ill-fitting suit, check out the bluegrass Darth Vader after the reversal readings.
Reversal Readings
Lots of overbought readings today, and with so many 200DMAs overhead, odds are good here for a turn lower.
Strong bullish action today, especially on the Nasdaq and in the financials. Energy, gold, and volatility all getting plowed. Over the next few weeks, the big question seems to be whether the market will roll over right here, will push against overhead resistance awhile longer before turning back down, or will just defy economic gravity.
Otherwise, no other commentary or trades today. Working people are people, too. This is labor day everywhere around the world except in the U.S., Canada, Australia, and New Zealand.
