Larry Fry's Blog Entries

American teen jobless rate hits 26 percent in worst summer season since 1940s -

In taking a trip through the Boston and Cape Cod areas this summer, I was amazed to see that just about all of the restaurants and bars (and hotels as well) were being manned by eastern European youths.  With our unemployment rate being so high these days (and getting worse), why are we allowing young people from eastern European countries to come in and take away jobs (and training) that traditionally have gone to our American high-school and college aged youths (i.e., who remain unemployed and untrained)?  Either we resolve to train and employee our American youth for these types of jobs, or we should quit all of the complaining about their high unemployment rate and let the folks from overseas continue to come in and run everything in the hotel/restaurant industries, etc.

Click on URL below for link to referenced msnbc.com’s business story:

http://www.msnbc.msn.com/id/38666248/ns/business-eye_on_the_economy/

“I, the undersigned, an American citizen, taxpayer, and voter -

Whereas the U.S. is facing one of the worst recessions since the Great Depression;

Whereas consumer spending and economic activity has contracted causing the downturn and high unemployment;

Whereas the Bush tax cuts, enacted in 2001 and 2003, will fully and automatically expire as of Dec. 31, 2010;

Whereas the expiration of these cuts will cause a massive tax rate increase for almost all working Americans, including those in the:

35% bracket which will increase to 39.6%,

33% bracket which will increase to 36%,

28% bracket which will increase to 31%,

25% bracket which will increase to 28%,

10% and 15% will condense to 15%;

Whereas the capital gains tax will increase from 15% to 20%;

Whereas the tax on dividends will increase from 15% to 39.6%;

We demand that our representatives in Congress fully and completely renew the Bush tax cuts; and do so without delay to ensure public confidence in the markets and economy.”

Make sense?  Then please click on the link below and sign the online petition.  Thanks!

http://leagueofamericanvoters.com/petition.aspx?s=al&promo_code=A746-1&key=7007EX

If the Cuban government (i.e., Castro) is really serious about taking a stab at state capitalism, then let’s offer to close out the Guantanamo Bay Naval Base and convert it into a mega-resort and cruise ship terminal complex for Caribbean destined tourists.  The idle Cuban work force could be employed as laborers for the project and then trained as hospitality workers to be employed at the complex once it has been completed.  Cuba has a lot of potential as a Caribbean tourist destination and the Cuban government needs to recognize this fact and start trying to “capitalize” on it in order to pull the nation out of its current state of economic malaise.  The conversion of the Guantanamo Bay Naval Base (which is no longer needed these days) into a pristine resort complex by a top-flight entrepreneurial group would be a “win-win” proposition for all parties involved. And communist countries such as China (and now Viet Nam) are proving that state capitalism is far better than no capitalism at all, so the Cuban government needs to take heed and take action before it is too late.

The notion that Wall Street keeps its gravy train rolling by lining the pockets of our top-tier politicians with money and other influence-peddling gifts in order to condone the financiers’ actions is quite disturbing. In fact, the financiers’ claims per the paramount importance of their work as an excuse to enable them to get away with whatever they deem appropriate for themselves (e.g., awarding of excessive tax-payer financed bonuses, etc.) is very disturbing as it smacks of greed and self-centered conceit.  But the biggest rub is that these absurd bonuses were largely financed via the billions of dollars in taxpayer-financed funds from the Troubled Asset Relief Program (TARP) and trillions in loans from both the Federal Reserve and the FDIC.  These sources of aid money were designed to help the Wall Street financial institutions deemed too big to fail to survive their own terrible misdeeds, not to excessively reward their executives for jobs NOT well-done.  This has got to be perhaps the biggest misappropriation of our hard-earned tax money that has ever transpired in the history of this country. 

Finally, as long as big money talks and remains the primary influence driver in the current socio-political (or cultural) climates across the globe, then people in power will apparently continue to walk in the direction deemed appropriate  by the big money purveyors (e.g., Goldman Sachs, George Soros, et al.).  The condoning by governments of  their large scale market manulation shenanigans for their personal gain at the expense of the taxpayers of the world speaks for itself.  And their latest ploy of shorting the Euro while playing credit default swaps (CDOs) shows that there’s no shame on their part.  Finally, even President Obama is softening up his tone towards the big banking entities and their actions. And speaking of being “too big to fail’, perhaps the US socio-economic system and federal government is falling under this same exact definition.  This splitting up (i.e., per the splitting up of  giant oil corporation Standard Oil over 100 years ago) is becoming a more realistic option over time in terms of gaining more value and growth opportunities from the resulting smaller entities that would result.

Quote of the Day  -
“The case for free markets never was that markets are perfect … [but] that government control of markets, especially asset markets, has always been much worse.”

University of Chicago professor John Cochrane, per criticism from Paul Krugman, New York Times columnist and proponent of massive government intervention policies (click on URL below for his full rebuttal).

http://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.htm

At a sporting event, having no officiating at all would result in a very chaotic situation, whereas having  too much officiating would result in a game that might as well not be played.  Extending this analogy to the regulation of the American economy and securities industry, we  will always need a certain amount of “officiating” in order to maintain a level (and efficient) playing field for all players and to keep things from getting chaotic.  But a “massive” amount of officiating on a permanent basis (per Paul Krugman’s latest mantra) can result in the total fettering of the financial systems and the capital markets that they propagate, possibly resulting in societal chaos. The governmental approaches of the late1920s through the entire 1930′s should serve as a good case study (in general) of what works and what does not work in terms of particular actions taken and not taken (Ben Bernanke’s expertise), while keeping in mind that the playing field is now a lot bigger, faster, and more complicated (which again reinforces the need for some officiating, but not “massive” officiating). The premise here is that we want to continue to propitiate the competitive creativiity within the American financial industry, but we also need to define and enforce certain reasonable boundaries at the same time in order to keep the markets as efficient and seemless as possible.  Overall, my basic premise is that “enough” regulation needs to be in place in order to keep the speculation side of the coin from overwhelming (i.e., destroying) the risk management side of the coin, but not to the point where the markets become grossly inefficient due to a paucity of speculation.  So Paul Krugman’s “throwing out the baby with the bath water” mantra is not a good policy mandate in my book.

Quote: ”The case for free markets never was that markets are perfect … [but] that government control of markets, especially asset markets, has always been much worse”. 

University of Chicago professor John Cochrane, in response to criticisms from Paul Krugman, New York Times columnist and proponent of massive government intervention policies (click on link to peruse “How did Paul Krugman get it so Wrong?”). 

http://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.doc

Per President Obama’s trip to the People’s Republic of China, Karl Marx did say that we free-capitalists would sell his ideologues the rope they would use to hang us with.  Perhaps he was right in that we are doing that exact thing with China right now.  By being our primary financial benefactor these days, China pretty much owns us and is also beating us at our own game via its controlled (or state) version of capitalism (i.e., definitely a competitive edge for the Chinese government-owned businesses).  So in the end, it might take the ”nationalizing” of China’s huge investments in US Treasury securities and Dollars in order to get the rope removed from the vicinity of our proverbial neck.  And if things do take a turn for the worse, then why not;  other debtor nations tend to invoke the “nationalizing” card on our investments in them quite frequently once the timing is right.

Speaking of a continuing American success story, Ford Motors is still doing things the right way and deserves all of the kudos that it has been getting as of late.  From a company standpoint, the Ford name still invokes American pride, workmanship, and quality, and shows that free-enterprise can still get the job done both efficiently and effectively. On the flip side, the fiasco with GM is an embarrassment and, quite frankly, it is probably best that it has been pawned off to the government types to determine its final fate.

Per Washington Post columnist George Will’s recent editorial on the punishment of highly excessive corporate behavior by deregulated markets (i.e., his expounding upon economist David Harrington’s argument per the same), Gazprom’s natural gas supply/transportation strategy (business model) for Europe serves as an excellent example of this fairly non-intuitive concept.  Harrington argues that sellers of goods who initially price their products on the extreme high end are often forced to relinquish these same goods at deep discounts later on due to the efficiencies of deregulated markets.  As a result, global regulation (or re-regulation) on the part of governments becomes unnecessary over the long run.  This is because the efficiencies of the deregulated markets that set in over time cause these markets to become more transparent in nature, thus resulting in better informed buyers, as well as more options being made available to these buyers.  In addition, there is the time decay of the value of the goods that occurs as time passes on as well, which is somewhat similar to what happens to the value of call options as they approach their expiration dates (i.e., the “theta” concept).  As a result, price gougers such as Gazprom become the victims of their own marketing (or  pricing) ploys in the end as they are unable to overcome the inevitable deregulated market adjustments that occur over time. 

Gazprom’s recent attempt to secure a monopoly over the supplying of natural gas to European countries has been marginalized by deregulated market forces, which have adjusted to Gazprom’s excessively high prices by reducing the demand for the product, thus resulting in lower natural gas prices (on a global level).  This coupled with the current economic downturn across the world has contributed to the demise in the global demand for natural gas since less of it is being consumed now.  And while attempting to establish a European based gas supplier monopoly, Gazprom became committed to long-term contracts for gas from Central Asian suppliers at a cost which is now far in excess of the current (or resulting) global natural gas prices.  As a result, Gazprom is now sitting on huge contractual amounts of over-valued natural gas supplies that it must continue to purchase from Central Asian suppliers and then sell at large losses.  This could conceivably result in years of major losses for Gazprom if the world’s natural gas prices continue to moderate, thus resulting in the decimation of both its current business model and its influence (i.e., Russia’s influence) as a major player in the global economy.  And based on Vice President Biden’s recent “blistering criticisms” of Russia per its failing economy, loss of face, and a lack of effective leadership, the Kremlin’s declining influence within the global economy (and power) structure is becoming apparent among the world’s leaders.  But all of this is still not stopping the Kremlin from attempting to forge a gas supplier monopoly in Europe in order to use it as a foreign policy “tool” with its neighbors during times of political conflicts, etc.

Note:  The invoking of some type of  eleventh-hour “force majeure” clause could be a last resort action taken by Gazprom in an effort to extract itself from having to contractually purchase high priced gas from Central Asian suppliers and then sell at large losses to European buyers.