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“Utter insanity and stupidity.”

deathMy Comments: I probably live in a bubble. I say this as much of what I allow to cross my desk daily already conforms to what I believe and therefore serves to confirm my present thinking. It happens to most of us; I had an exchange with someone the other day who tried to persuade me that I was a communist. Why? Because I am a registered Democrat and to his mind, a stupid person. Why? Because he heard Bill O’Reilly say that Democrats are stupid. The person had already determined that stupid and Communist were synonymous. Webster and his dictionary would be appalled.

Below are the answers given in an interview by Bruce Batlett. I remember his name from years ago when he was an advisor to Presidents Reagan and Bush I. Last week I saw similar comments about Barry Goldwater, the Republican Party candidate for President in 1964. Although a very viable candidate, he lost as he was considered too far right to be elected. The landscape has changed, and not for the better.

Elias Isquith / Thursday, May 14, 2015

In American politics, for whatever reason, the most forceful and articulate critics of political parties or movements are often apostates. The list of names of redeemers — or traitors, depending on where you stand — is too long to recount here; but one of the more recent addition would have to be Bruce Bartlett, the historian and former member of the Reagan and George H.W. Bush administrations who has since become one of movement conservatism’s most scathing critics. (To get a sense of what we mean, just go to his Twitter page and search “wankers.”)

Recently, Salon saw the onetime aide to GOP Rep. Jack Kemp (the party’s 1996 vice presidential nominee) criticizing a piece about a campaign finance reform-oriented GOP presidential candidate from Harvard Law’s Lawrence Lessig. We decided to reach out, and ended up speaking with Bartlett over the phone for about 30 minutes. Our conversation touched on Lessig’s piece, Bartlett’s contrarian view of campaign finance, and why he thinks lobbying is one of the most insidious threats to American government. A condensed and edited transcript of our conversation can be found below.

What element of Professor Lawrence Lessig’s Daily Beast piece on a reform Republican challenging Clinton — which, I should just note, he admitted was fanciful — did you find most unrealistic?
Well, the impression I had [was] that he, like many other people, such as David Brooks, seems to be longing for a moderate Republican savior who they believe is out there somewhere and [will] rescue the Republicans from utter insanity and stupidity. Lessig has this belief … that the only reason this white knight savior hasn’t emerged is because of problems in campaign finance. So he has this scheme for mobilizing the millions of small donors that he, for some reason, believes are out there longing for this White Knight moderate, who can channel an adequate amount of funding to this White Knight. I think that’s just ludicrous; it’s just nonsense.

The reason there isn’t a moderate Republican is because there’s absolutely no demand for such a person in the Republican Party. There is no such person. Even if I were Sheldon Adelson and was willing to throw a billion dollars at such a person, who the heck would it be? The [GOP] bench has no such person on it that you could make into a contender simply by throwing money at them. And one [reason why] is that Lessig, among others, grossly overestimates or misunderstands the problem of money and politics. I don’t believe, personally, that it’s about campaign spending. My much greater concern about money and politics has to do with lobbying, which I think is a much more insidious problem that nobody is focusing on at all.

Does your skepticism apply beyond presidential campaigns? The idea that the impact of money is overstated when it’s a high-profile race is pretty mainstream; but do you take it further?
Well, in general, I think that people overestimate the value of money in politics. I think that there is a threshold effect; that is to say, you need a minimum amount to be competitive. And I think up to a certain point, in any given race, there’s enormous value to each additional dollar that is raised, because it will be spent efficiently in increased votes. But I do think that there is a point at which it levels off and at which point each additional dollar doesn’t really help very much, if at all. I think that there’s also a downward point at which you have too much money, and you actually start alienating potential voters by running too many ads, doing too much stuff that just alienates, irritates them, so you actually end up being worse off.





Dog Days of the U.S. Expansion

moneyMy Comments: How is your money growing? Is it growing? Do you care? Are you prepared for pain when it stops growing and shrinks, perhaps dramatically?

As a professional in this world, I’ve long since given up worrying about this. All anyone can do is pay attention, or pay someone to pay attention for you. But it’s NOT different this time, and some of us will get hammered and some of us not so much. Here’s a clue to follow.

The Kentucky Derby marks the beginning of summer, but ultimately investors must prepare for the coming winter.

May 08, 2015 Commentary by Scott Minerd, Chairman of Investments and Global CIO

Ever since I was a child, the Kentucky Derby has always been for me a symbol of the changing of seasons—winter is over, spring is in air, and, most importantly, summer is right around the corner. Back in 2009, at the time of the annual “Run for the Roses,” I wrote a memo to our clients using this analogy to explain where we are in the business cycle. The ravages of winter were over, I wrote, and we were headed for the warmth of summer with bright prospects for investors. Six years later, the summer sun continues to shine on credit and equities, but the question I am consistently asked—especially during times of heightened volatility, like this past week—is how much longer can it last?

I answered this question recently at the Milken Institute Global Conference. If the economic “summer solstice” was mid-2009, then today we are somewhere in “late-August.” The expansion is now over 70 months old and is entering its mature phase, having already exceeded the average length of prior cycles of 57 months. However, “late-August” means there still is time left in summer and room left in this expansion. The past three cycles have also been longer than normal, averaging 94 months. Additionally, growth has been abnormally sluggish in this recovery (which, as I’ve written, is a byproduct of macroprudential policy). Slower growth means the current expansion may have more headroom than is typically the case at this point in the cycle.

What can investors expect as summer draws to a close? Our view of the future is that the Federal Reserve will likely begin interest rate “liftoff” in September of this year, and will continue to tighten at a steady pace until it nears the terminal rate (or peak Fed funds rate) in the cycle. This will likely occur toward the end of 2017 or early 2018 in the range of 2.5 to 3 percent. Recent experience suggests that a recession typically occurs about a year after we reach the terminal rate. If this tightening cycle plays out as we suspect, the U.S, economy will face its next recession in late 2018 or early 2019.

While the best of the post-crisis returns are now behind us, the good news is that historically, until central banks remove the proverbial punch bowl of accommodative monetary policy, the party can continue for investors. As a matter of fact, our research shows that both the lead up to, and the first year after, the Federal Reserve begins a tightening cycle have been positive for both credit and equities. Historically, U.S. equities have returned close to 4.5 percent in the 12 months after a Fed tightening cycle begins, based on an average of the last 13 cycles, while bank loans returned an average 5.8 percent, high-yield bonds returned 3.9 percent, and investment-grade bonds returned 3.3 percent in the three cycles since 1994 (when the data for fixed-income asset classes became available). The 12 months prior to a Fed hike have proven even better for investors, with equities returning an average 16.4 percent, high-yield bonds returning 8 percent, and investment-grade bonds returning 9.9 percent.

I don’t want to sound overly bullish, however. My view is that it is prudent to start to recognize what stage of summer we are in, and to understand that long-term investors need to start planning for winter, even if winter is a couple of years away. This doesn’t mean there aren’t opportunities between here and there—the punch bowl is out, the party is still going on, and we should drink long and deep for as long as we can. The European Central Bank has told us that it won’t halt its quantitative easing program until September 2016 at the earliest, which is another positive for credit and equities, even as the Fed raises rates in the United States.

So let’s enjoy the end of this long summer party. There are still some golden, halcyon summer days ahead and it would be premature to put on our winter clothes just yet. Indeed, on the extreme end, the expansionary cycle of the early 1990s lasted over 118 months. However, when all is said and done, the easy money in this expansion has already been made and investors should be thinking about the winter to come.

Scarce Skills, Not Scarce Jobs

My Comments: To some extent, this is an extension of the post I had last week about the riots in Baltimore. I’m convinced they happened more for economic reasons than for racial reasons. I accept both are present, but instead of focusing on race relations to effect a solution going forward, the emphasis should be economic.

This is not rocket science; Henry Ford set this in motion about a century ago, yet our politicians, both on left and right, are just now discovering it. To me the rallying cry of some on the right to “Take Back America” suggests that perhaps slavery was good. I’d much rather see Washington spend my tax dollars on education and rebuilding our roads and bridges than worrying what ISIS might or might not do. Time for that once we have our society back on track.

I doubt that few, if any, of the many who rioted in Baltimore would be hired to work in Saudi Arabia, especially without the job skills this ad requires. We complain about lack of jobs in this country and at the same time minimize the money spent on education. Someone is an idiot. Maybe several idiots.

What follows came from Atlantic Magazine and was written by James Bessen Apr 27, 2015

At a large distribution center located north of Boston, a robot lifts a shelf holding merchandise and navigates it through the warehouse to the workstation of an employee who then picks the item needed for an order and places it in a shipping box. Incoming orders are processed by a computer that sends picking requests to sixty-nine robots. Then, the robots deliver storage units to roughly a hundred workers, saving the workers the task of walking through the warehouse to find the items. In other distribution centers, this is work that warehouse workers do.

The distribution center, run by Quiet Logistics—a company that fills orders for sellers of premium-branded apparel, is featured in the 60 Minutes episode “Are Robots Hurting Job Growth?” In the segment, Steve Kroft poses the following question to Bruce Welty, the CEO of Quiet Logistics: “If you had to replace the robots with people, how many people would you have to hire?” Welty estimates that he would have to hire one and a half people for every robot, and that the robots are saving him a lot of money.

Robots have long been a staple of science fiction. “Now they’re finally here,” Kroft tells us, “but instead of serving us, we found that they are competing for our jobs. . . . If you’ve lost your white-collar job to downsizing, or to a worker in India or China, you’re most likely a victim of what economists have called technological unemployment. There is a lot of it going around, with more to come.”

The robots perform tasks that humans previously performed. The fear is that they are replacing human jobs, eliminating work in distribution centers and elsewhere in the economy. It is not hard to imagine that technology might be a major factor causing persistent unemployment today and threatening “more to come.”

Surprisingly, the managers of distribution centers and supply chains see things rather differently: in surveys they report that they can’t hire enough workers, at least not enough workers who have the necessary skills to deal with new technology. “Supply chain” is the term for the systems used to move products from suppliers to customers. Warehouse robots are not the first technology taking over some of the tasks of supply chain workers, nor are they even seen as the most important technology affecting the industry today.

Information technology has been transforming supply chains for decades, often taking over tasks previously performed by shipping clerks and other workers. Systems track items from source to customer, keeping inventories at optimal levels and minimizing shipping time and cost. RFID (radio frequency identification) tags allow items to be tracked automatically, eliminating much clerical work. These technologies allow today’s retail stores to offer a far more varied selection than in the past, often at lower prices, and to respond quickly to changes in demand. They have changed the retail landscape, for example, powering the growth of Walmart, a pioneer in adopting some of these technologies.

Yet although these technologies eliminated some jobs for clerks and warehouse laborers, they also created new jobs by creating new capabilities. However, these new jobs require specialized skills among both the managers and technicians, who typically have college degrees, as well as among the less educated operational occupations. Workers who have these skills, often learned on the job, are actually in short supply.
Moreover, industry experts see the need for skilled workers increasing in the short run and persisting for at least another decade. Working with industry trade associations, academic experts issued a “U.S. Roadmap for Material Handling and Logistics,” arguing that:
Despite the potential of dramatically improved processes and technology for material handling and logistics systems in the coming years, much of the work in the industry will continue to be done by a human workforce in the year 2025. Moreover, other aspects of this [technology], such as mass personalization, will require levels of operational flexibility that can only be handled by a skilled and creative workforce. In other words, people will continue to be vital to the industry in 2025.

As with weaving and other nineteenth-century technologies, automation of some tasks increases the value of the remaining tasks, even as new or deeper skills are needed. But workers with those skills are not readily available, nor do robust labor markets initially provide the right incentives for workers to acquire those skills. The supply chain industry experts contributing to the U.S. Roadmap report say that a key challenge is to “overcome a perception that joining [the industry] might not result in a career with suitable rewards.”

Hubble and the Cosmos

My Thoughts: I’ve long been fascinated by visions of the cosmos, how it came to be, what’s out there, and reasons that might explain why we’re here. It’s mind boggling and understandable how as society evolved, faith in an unseen hand at work made it possible to grasp the unthinkable.

Whatever the case, technology today has given us the ability to glimpse the reality of what that hand has created. Today is Friday, so you have the entire weekend to enjoy this. Most of us have at some point seen the star pattern known as Orion. Click on the image to the left and it will take you to images beyond belief, courtesy of the Hubble Space Telescope. ( Sorry for the commercials; they too can be beyond belief! )



An Invocation to Remember

My Comments: I’m rarely asked to offer an invocation at any function I attend. There are always others better suited to the task than I. But if I were to be asked, I’d like to think that I could do as well as Mary Maxwell. She was asked to offer the invocation at an event in support of the Home Instead Senior Care Center in Omaha, Nebraska. Click on the image to watch.MaryMaxwell


Death Is Not a Treatment Failure

deathMy Comments: Many years ago a physician friend and fellow golfer told me that when you go to a doctor for a routine physical, it’s his or her job to find something wrong with you. If you don’t want to find that something IS wrong with you, then don’t go.

But as the years pass and mortality among your friends and peers raises its ugly head, the mood changes. Couple that with our society’s tendency to think “someone is to blame” whenever something bad happens, understanding what this author is saying may be helpful. It is to me, and it confirms the truth behind my friends’ comment.

April 21, 2015 By Allen Frances, MD

I recently discussed the importance of dying well and with dignity—at home, at peace, sent off by a loving family; not in an impersonal and hectic hospital environment, among strangers, your failing body tortured by painful procedures and probed by ubiquitous tubes in a futile effort to cheat death.

Here, the issue is living well and without unnecessary fear of disease. Mark Cuban provides the perfect example of how excessive health concerns are unhealthy. He is a brilliant Internet, entertainment, and sports entrepreneur worth almost $3 billion (the guy you see in a tee-shirt sitting behind the bench, screaming almost continuously during Dallas Maverick games—he owns the team).

Recently Cuban offered this medical advice to his several million twitter followers.
1. If you can afford to have your blood tested for everything available, do it quarterly so you have a baseline of your own personal health
2. Create your own personal health profile and history. It will help you and create a base of knowledge for your children, their children, etc
3. A big failing of medicine = we wait till we are sick to have our blood tested and compare the results with “comparable demographics”

Cuban is an undeniable business genius. But in my opinion, he could not possibly give worse advice for a healthy and happy life.

Gisle Roksund, MD, a Norwegian general practitioner and former president of The Norwegian College of General Practice, explains why. Dr Roksund writes: “Western medical science has changed life into a premortality condition and death into a failure of treatment. We are all more or less afraid of illness and death. Mankind always has been. Shakespeare describes it beautifully in Hamlet: ‘The undiscover’d country, from whose bourn, no travellers return.’

“Even though our western world is the safest place ever to live and we are living longer than ever before, people have paradoxically never been more afraid of death and disease. It has become a truism that the earlier the medical intervention, the better. We see the same message everywhere: in newspapers, on the Web, from patients’ organizations, from specialists, and health authorities: ‘Do not hesitate, see the doctor for this and that, for every pain, every little swelling, every little rash. Go see your doctor. Whatever you have, however slight and fleeting, might be dangerous and even cancer. Get every possible test. Better safe than sorry.’

“The inevitable changes wrought by aging are as commonplace inside our body as on our skin. Most are just incidental and have no clinical meaning. Best not to notice. But the wondrous technical developments in medicine allow us to find tiny tumors that are impossible to distinguish from quite normal variations in the aging human body. With our aggressive screening programs using radiology and laboratory testing, we are increasingly overdiagnosing normal variations, turning normal aging into disease and treating it with interventions that reduce health, happiness, and longevity. Psychiatrists have extended the range of psychiatric diagnoses to an extent never seen before. Everyday worries and ups and downs have become psychiatric diseases and are interpreted and treated within a medical context, not as existential phenomena that necessarily will occur in everyone’s lives.

“Within somatic medicine, recommended threshold values for risk intervention have declined dramatically in recent decades in a naive attempt to prevent disease. The lowered thresholds of disease definition do not express medical facts, but rather subjective value choices of the experts in each area influenced by intellectual and financial conflicts of interest. The pharmaceutical industry, the device makers, the hospitals, and the medical and surgical specialists all exaggerate the potential benefits of testing and treatment and minimize the harms.

“We have seen a substantial decline in recommended threshold values for hypertension, hypercholesterolemia, blood sugar, osteoporosis, and kidney function. The diagnostic criteria have been deflated for diseases such as myocardial infarction, heart failure, bronchial asthma, and renal failure. The specialists have introduced new ‘diseases,’ such as prehypertension, prediabetes, preheartfailure, osteopenia, and predementia. These conditions affect so many healthy men and women that soon no adult person can avoid being labeled ‘at risk’ and be targeted for medical attention and intervention. As a general practitioner, I constantly meet people who are more concerned about preventing sickness and disease, than really living. Selling false safety is easy. Life is a lot more than a premortality condition. But life is uncertain. And the art of living is learning to live with this uncertainty. It is about living, not just surviving.”

Thanks so much, Dr Roksund. Modern medical care has its role to play in preventing and treating disease, but has been greatly oversold and overbought. The dramatic reduction in smoking has done much more to reduce cancer deaths than all cancer research and treatment combined. And too much medicine is bad for your health. Medical errors have become one of our leading causes of death.

The best doctors often do nothing except explain to the patient that pervasive screening, constant testing, and aggressive treatment are a prescription for disaster. “First Do No Harm.” When you look hard and long enough for an abnormal lab test value, eventually you will find it—too often a meaningless false-positive outlier that left alone would have no impact on your life. The unnecessary testing and treatments triggered by incidental findings carry substantial harms and risks.

In your effort to achieve a perfectly healthy body, you wind up hurting your health. Living well and dying well are connected. Life is less than full when lived under the fearful shadow of disease. And dying well is impossible for people who fear death so much they fail to prepare for it.

Sine of the Times

200+year interest ratesMy Comments: Many of you have read my comments about interest rates lately. (Yesterday!) For many, many months, the Fed has used its powers to keep them low to encourage economic growth. Now that growth is again endemic, sooner rather than later, pressures will exist to cause interest rates to increase.

The chart at the top of this post shows interest rates in this country going back to the late 1700’s. You can expect the curve to start changing its direction soon. When that happens, you should not own many long term bonds, unless you’re happy watching your net worth decline.

Commentary by Scott Minerd, Guggenheim Partners, April 24, 2015

For the past 30 years, 10-year U.S. Treasury yields have shown a clear downward linear trend, falling from over 10 percent in 1985 to less than 2 percent today. Around this linear trend, yields have also exhibited a fairly consistent cyclical fluctuation, with the size of the fluctuation about 200 basis points from peak to trough, and with the cycle repeating every six years. This fluctuation can be thought of as a sine function, allowing us to model 10-year yields by combining the sine function with the linear trend:Chart-of-the-Week-04232015_600px

If we assume the secular, linear downward trend in yields will continue in the near term, we can predict the short-term outlook based on the model of cyclical fluctuations. This model currently shows that rates are just beginning to undershoot the linear trend, with the model predicting that rates will bottom at 0.82 percent in March 2016. What’s even more interesting is that the average actual bottom in rates has been 73 basis points lower than the model predicts, which would put rates at just 0.09 percent.

Now, I am not necessarily predicting that U.S. 10-year Treasury yields will test zero like its counterpart the German 10-year bund, which currently stands at around 16 basis points and I believe could provide negative yields at some point. What I am saying is that there are many powerful secular and fundamental forces at work that signal the risk to U.S. interest rates remains to the downside.

With Federal Reserve tightening drawing closer, the continuation of this downward trend could be called into question. However, a number of factors, including lower first quarter gross domestic product (GDP) growth, high demand from overseas investors (with yields approaching negative territory in much of Europe), and expectations of a slow liftoff by the Fed, are working to exert downward pressure on U.S. yields, thus limiting any upside in rates in the near term.

The prospect of a stronger dollar as a result of upcoming U.S. rate hikes only serves to heighten foreign demand for U.S. Treasuries. International investors are likely to seek to preempt Fed action and invest while their currency has greater relative strength. Betting against the downward trend in U.S. rates has proved to be a widow-maker trade for many years—and with fundamental and technical factors pointing to downside risks in rates in the near term, there appear to be few reasons to bet against the trend now.