Friday, December 31, 2010

"In All, a Pretty Good Year"

Sydney M. Williams

Thought of the Day
“In All, a Pretty Good Year”
December 31, 2010

January and December, the alpha and omega of the year, were apart not only in distance, but in performance and volatility. January, while starting strong – up 156 points on the first day – finished the month down 3.5%. On seven of the nineteen trading days in January the market traded up or down more than 100 points. December also started strong – up 249 points the first day and 106 the second day – but then just drifted higher, providing the longest period of the year – nineteen days – in which the DJIA’s performance did not go up or down more than 50 basis points. Barring some unforeseen event today, the month should finish up about 5.3% and the year, as measured by the S&P 500, up about 13%. Incidentally, with the Russell 2000 up 26.4%, the gap between the performance of small cap stocks versus large cap ones is the largest since 2001, according to today’s Wall Street Journal.

Volatility continues to ebb. When one looks at a three year chart of the VIX, the graph looks like an EKG of a man who had a sudden scare, which was a true reflection of the panic we all had when in late September-early October 2008, it appeared the financial system might collapse. We had another fright on May 6 when the “flash crash” caused the VIX to spike from 19.61 to 40.95. The VIX should end the year about 18% below where it began. Other than May and early June, daily volatility, as measured by the DJIA trading up or down more than 1.5%, continues to modestly moderate.

Other than small cap stocks, commodities, as measured by the CRB Index, with a 15% gain outperformed stocks, led by silver up 81%, copper up 32%, corn up 49% and wheat up 44%. Those price increases are bound to impact consumer prices in 2011. Bond prices generally rallied in the first half and fell off in the second. While it is my sense we have seen the peak in Treasury prices, I worry about stagflation; I fear the retardant and inflationary pressures of too much state debt in developed nations and continued demand for commodities from developing countries.

The expectations of a “new normal”, with its low investment returns, may still prove true, but for the nonce we should be thankful that the crisis of two years ago grows more distant by the day; however, we should never forget the lessons that led us, individually, corporately and government-wise, to that precarious situation. Thrift should replace profligacy; commonsense should substitute for foolishness and independence is a better alternative than dependency.

As in every year, there were times of joy and moments of sadness. Regardless of what the markets bring us in 2011, I wish you health and happiness in the New Year. As you stand tonight singing “Auld Lang Syne,” tossing out the old and welcoming in the new, keep in mind that while the words speak of long ago times that should not be forgotten, the last stanza speaks of giving a hand, “my trusty fiere” (friend), and asking for one in return. The words return us to the present and remind us of the value of family and friends today – of giving and receiving. I thank you all for your friendship and wish you a healthy, happy and prosperous New Year!

Thursday, December 30, 2010

"The Blizzard - Assigning Blame or Sharing Responsibility"

Sydney M. Williams

Thought of the Day
“The Blizzard – Assigning Blame or Sharing Responsibility”
December 30, 2010

In his 1960 travelogue Travels With Charlie: In Search of America, John Steinbeck speaks to the age-old tendency to pass blame. He writes of an encounter in Minnesota: “’Why, I remember when people took everything out on Mr. Roosevelt. Andy Larsen got red in the face about Roosevelt when his hens got the croup. Yes sir,’ he said with growing enthusiasm, ‘those Russians got quite a load to carry. Man has a fight with his wife, he belts the Russians.’” To which Steinbeck replies: “Maybe everybody needs Russians. I’ll bet even in Russia they need Russians. Maybe they call it Americans.”

The aftermath of Sunday’s storm has politicians, predictably, ducking for cover. The search for a scapegoat is as old as the human race. There have been exceptions. President Truman notably put a sign on his desk: “The Buck Stops Here.” On Monday, New York Mayor Michael Bloomberg, in retrospect sounding too nonchalant, said: “This city is going on. It’s a day like every other day.” The city did go on, but it was not a day like every other day. Yesterday, he appeared to accept responsibility, but then added he was “extremely dissatisfied” with the performance of the city’s emergency management system.

Members of the city council have already called for what is another favorite American pastime – a commission to investigate and determine responsibility for the failure to remove all the snow immediately. Mr. Bloomberg appropriately responded with the disdain such a call deserved: Those members, he said, “must not have enough things to do if that’s what they are focusing on.” Assigning personal blame for the cause will be difficult, as Mother Nature does not report to the mayor, the city council or even the president. My prediction: a commission will meet several times; it will issue a lengthy, but meaningless report; it will cost the residents of the city hundreds of thousands of dollars, and it will finally be consigned to the rear of some dusty closet.

Those who work for the city – the people who work for us, the tax payers – should do all that is possible in emergency situations. One of their responsibilities is to listen and heed weather reports. But so should residents and those who drive into the city. I do not know how many cars were abandoned on the streets, but it is in the thousands. Walking to work on Monday, most every side street between 64th and 48th seemed to have at least one abandoned car. The outer “burbs” were in even worse shape. According to an article in today’s Wall Street Journal, the city has 9419 sanitation workers, who also do snow removal. On Sunday night, 2400 of them were deployed along with 1700 plows, a job made more difficult because of abandoned cars blocking the 6000 miles of streets that encompass the city. On Monday, Mayor Bloomberg said that 1000 cars had been removed, but that could only have been a fraction of those still in place.

The papers and news stations are filled with stories of tragic happenings, of ambulances called that never arrived, of thousands of people stranded in busses, on subways and on airport tarmacs. By 4:00AM on Christmas morning, almost twenty-four hours before the snow began falling, the National Weather Service issued a winter storm watch. By 3:55PM they declared a blizzard warning, but city officials, according to the New York Times, “opted not to declare a snow emergency.” Beginning early Sunday morning, and over a twenty-four period, twenty inches of snow fell on this city of 8,000,000 people. Wind gusts of 50 MPH created drifts and impeded visibility. The storm was more intense than anyone that I know predicted.

However, as we all know, life does go on. New York City, every day, averages 145 deaths and 347 births. There are uncountable accidents and other incidents, requiring emergency services. On a typical day, more than 15,000 calls are made to 911. Tragedies are a daily event. A natural crisis, such as we recently experienced with their accompanying photos and newsreels, makes those tragedies more personal. Perhaps the people of New York would have liked to have seen the mayor adopt the lachrymose characteristics of John Boehner? But I don’t think so.

In the search for blame, we should all look inward – especially those that drove into the city that fateful day, as well as city officials. We should also keep in mind that forecasts are rarely precisely accurate. While it is no excuse, the National Weather Service has, in the past, forecast storms that never arrived, or certainly never arrived with the severity predicted. When that happens, we mock them for frightening people unnecessarily. Remember the story of the boy that cried wolf. Dire predictions that never come true tend to diminish the oracle’s next renderings. I don’t believe that the blizzard requires a commission to know what went wrong – it was mainly a storm bigger than expected.

Wednesday, December 29, 2010

"A Transformational President"

Sydney M. Williams

Thought of the Day
“A Transformational President?”
December 29, 2010

President Obama has described himself as desiring to be a “transformational” President. As early as 2006, he said: “My attitude about something like the presidency is that you don’t want to just be president. You want to change the country. You want to make a unique contribution. You want to be a great president.” I imagine those sentiments, while not always expressed, must be felt by anyone assuming the presidency. The questions, as Mr. Obama enters the second half of his first term, are will he fulfill his wish and, if so, what direction will that transformation lead?

The two most transformational presidents, in recent times – at least recent to me – were Franklin Roosevelt and Ronald Reagan, one leaning left and the other right. Roosevelt gave the country hope, when fear was overwhelming. While his economic policies achieved dubious and debatable results, democracy was maintained at a time when much of the world trended toward Fascism, and he prepared the country for a war that seemingly was inevitable. Reagan brought optimism to a country suffering the malaise of the Carter years, with its high inflation and low expectations; he cut taxes and promoted economic growth that carried the country for two decades amidst unprecedented prosperity. But all presidents are transformational, at least in some respects. With Bush 2, the country was transformed in terms of how it viewed Islamic terrorism, and President Clinton certainly changed the way we define sex.

Roosevelt and Reagan both came to office at a time of economic crisis and so has President Obama. Thus the opportunity is there. The question is: will he seize it? Professor William Gruver of Bucknell University, in an essay published two weeks ago in Patriot News, quotes historian James MacGregor Burns as saying that a prerequisite to becoming a transformational leader is that he must gain the trust of his followers, that he is acting in their best interest and is satisfying their vision and their needs. He “must first guarantee people the basics: life, sustenance and security.” Professor Gruver suggests that Mr. Obama stumbled when his pursuit of health care reform and climate legislation preempted the greater concern of the American people – economic security. Those decisions, placing ideology above common sense, suggest, in my opinion, a telling lapse in judgment.

Writing in USA Today, in April 2009, Chuck Raasch quoted Rice University professor and presidential historian Douglas Brinkley that Obama’s election marked the conclusion of the Reagan era: “The age of Reagan went from 1980 to 2008. We are in the age of Obama today.” The accuracy of that description will rest on the accomplishments and direction of the next two years. Again, the president has the opportunity. The economy remains paramount in people’s minds. But they are also deeply worried about expanding deficits and the curse that too much debt can impose on society. Not unnaturally, fiscally prudent people, those who never overreached, are being asked to subsidize those who acted irresponsible. That is always the case in the aftermath of any storm, fiscal or otherwise. But, at the same time, that knowledge frustrates and angers.

Typically, presidents campaign from the extremes and govern from the center. Mr. Obama did the reverse. He campaigned as a centrist and then tilted hard left. But he has an opportunity to move to the center. Problems confronting the nation persist. Despite a record stimulus bill, unemployment remains just under ten percent. The fiscal state of most states remains dire. Commodity inflation will make itself felt in consumer’s pocketbooks. Federal spending, as a percent of GDP, is at the highest level since World War II. Medicare, Medicaid and Social Security are on life support and Congress keeps kicking the proverbial can down the road.

As the 2011 federal budget will be submitted to Congress on February 1, five days after the State of the Union speech on January 27, the president will likely spend time previewing and promoting its contents. Assuming the president avoids the partisanship of last year when he dissed the Supreme Court, he has the opportunity to pull both sides of the aisle toward the center. He did so with the lame duck session in Congress in terms of extending the Bush tax cuts and START. The deficit committee has provided the president cover in terms of moving toward a broader, flatter less cumbersome tax code – a suggestion he made earlier this month in an interview on NPR.

However, the problem as Andrew Biggs, Kevin Hassett and Matt Jensen of the American Enterprise Institute make clear in an op-ed in today’s Wall Street Journal, the key to bringing down the deficit is to cut spending. Just as it took the ardent anti Communist President Nixon, to open the door to restoring relations with Communist China, it may take a product and promoter of big government, President Obama, to restore fiscal sanity by tackling the entitlement issues that are sinking our country. I hope so, but I do not have high expectations.

Tuesday, December 28, 2010

"Potential Problems for 2011 - Fiscal Woes at States & Rising Commodity Prices"

Sydney M. Williams

Thought of the Day
“Potential Problems for 2011 – Fiscal Woes at States and Rising Commodity Prices”
December 28, 2010

Bruce Hackett, one of my (several) bosses when I worked on Salomon’s equity trading desk in the 1980s, was fond of saying, when confronted with a problem, “my mother never said it would be easy.” Neither did mine, but neither did she warn of the sudden turns and persistent twists investors must undergo as they consider myriad options, pitfalls and opportunities.

There are always reasons to be concerned about markets and, typically, the greater the degree of confidence, the greater the reason to worry. Among those worries are two that keep me awake. The first is the agonizing position in which the states find themselves and the second is the fear of stagflation.

Simply put, the states’ problem, like that facing Washington, is one of largesse – of generously promising more than can be reasonably delivered. Above average returns to financial markets for the two decades ending in 2000 caused actuaries making return assumptions to be far too bullish – to assume that the good times would continue to roll. The four-year rally in the mid 2000s, ending in the fall of 2007, presented a temporary reprieve. The subsequent crash of 2008-2009 only highlighted the problem. There has become, for state pension administrators and politicians, no place to hide.

Steven Malanga, senior fellow at the Manhattan Institute, addressed this problem in the Christmas Eve edition of the Wall Street Journal. He wrote of trickery and quick-fixes that have just fed the spending habit, serving to kick the proverbial can down the road. Arizona has sold its state government buildings, to itself, as no real buyer stepped forward, but allowing them to skirt a provision in their constitution that limits state borrowing. New York State’s comptroller has described their budget as a “fiscal shell game.” Michigan has decreased the amount of money sitting in unclaimed bank accounts from fifteen years to three – thereby providing a one-time boost to its general fund of $200 million. In 2004, Governor Schwarzenegger promised the citizens they could get out of the hole through borrowed money; $10.9 billion in deficit bonds were issued and the state increased spending by a third over the next four years, putting them near bankruptcy today.

All state regulators and politicians should be required to take a remedial course in the morals expressed in Aesop’s Fables. Rereading stories like “The Ant and the Grasshopper” and “The Hare and the Tortoise” would teach them the commonsensical lessons children used to learn by the age of ten. While Governors such as Mitch Daniels of Indiana and Chris Christie of New Jersey appear to have done their homework, one can only conclude that most of the rest, in growing the workforces of their states and promising the world in terms of pensions, were doing nothing more than practicing the ancient art of buying votes.

The possibility of stagflation is my other worry. Washington and the Federal Reserve seem determined to press the message that it is deflation, not inflation, we have to fear. It underlines the determination of the Fed to keep rates low and for Congress and the President to pump money into the economy by increasing federal spending. What it doesn’t explain is that a combination of low interest rates (driving speculation) and increased demand from developing nations have driven commodity prices dramatically higher. The CBOE Index is up 16.3% since September 30. During the same period, oil is up 14.1%, copper up 17.3% and silver up 34.0%. Soft commodities have also been on the rise. Wheat, in the fourth quarter is up 15.4% while corn and soybeans are both up 24.2%. The core rate of inflation as measured in CPI may not rise much, but people cannot live without the essentials. To believe that these commodity price increases will not be reflected in retail food and energy prices next year is to believe the New Hampshire apple farmer who insisted that he was only making one percent on a bushel of apples, which he sold for $2.00 and cost him $1.00.

Stagflation assumes anemic economic growth combined with rising prices. Despite record retail sales this season, with unemployment continuing to hover just under 10% it is hard to imagine that our economy will witness the sort of robust growth typically associated with an economy rebounding from deep recession. Unfortunately, persistent unemployment, which may only become worse because of needed rationalization at the states, will keep labor prices low. Rising commodity prices, and an inability to pass along costs, may also have the residual effect of acting as a “decelerant” on corporate earnings in 2011. The result could be a scenario similar to our experience during the 1970s – a stagnant economy with rising prices.

Monday, December 27, 2010

The First Storm of the Winter in New York

Sydney M. Williams
December 27, 2010
The First Storm of the Winter in New York
“When I no longer thrill to the first snow of the season, I’ll know I’m growing old.”
                                                                                                                        “Lady Bird” Johnson

New York is always beautiful during the first snow storm of the year. As the winter drags on, a yearning for spring replaces the exhilaration of those first December flakes. But today, cars are absent, or at least cars in motion are absent. Those left on the street are barely visible beneath a combination of new fallen snow and snow-plowed banks. And there are always a few cars left stuck in the roads by foolhardy souls who felt their Chevy sedan was impervious to snow. People are friendly. Everybody is in a good mood and says good morning, even those charged with shoveling the side walks. These are special moments in New York, unfortunately impossible to bottle and re-sell in late February when we tire of the thought of another storm, or during the hot dog days of August when anger percolates, for no visible reason.

Of course the next day, the white banks have become grey, slush has turned to ice and tempers have reverted to their New York norms. However, this morning I walked over to Lexington Avenue, found one news store open and proceeded to walk down the center of the Lexington, then over to Third Avenue on 54th Street, past Citigroup Center, knowing the side walk would be shoveled. Third was busier and the sidewalks were generally clear; however, the spirit of freshness and renewal, so timely as we close out the Old Year, was palpable.

Restaurants were the same – nearly empty, but staffed with friendly waiters. A big storm infuses people with a sense of a shared experience, bringing them closer together, providing a fleeting glance as to what a world without war and deprivation might really be like.

The sky this afternoon is blue; the sun is shining. The storm has disappeared, having moved off toward the north and east. Though it is cold outside, the clear sky reminds me of the innocent look Dennis the Menace would provide his neighbor following one of his diabolical escapades: who, me? Likewise the Gulf of Mexico, just a few days after “Katrina”, was as calm as a toad in the sun.

New York will always be exciting. It doesn’t take a storm to enliven the place. It is a big city whose very diversity makes it unique. That will never, I hope, change. On the other hand, this morning for a few moments – a few hours, perhaps a day – the city and its people were as one. We survived the big snow. We had experienced it together. Central Park recorded twenty inches, but with wind gusts up to 60 miles per hour, drifts were even higher.

A big storm is a way for nature to alert us as to who is in charge. Growing up in New Hampshire there was a time when I thought that New Yorkers made too much of snow storms. They didn’t take it in stride. But having lived in the city for fifteen years I like the way New Yorkers handle the experience. So what that a taxi driver who grew up in Jamaica and has only been in the country for a few months has trouble driving in snow? It is to be expected. Who cares? This is where I now live and work, and there are few experiences more rewarding than seeing the city in the midst, and in the immediate aftermath, of an early snow storm.

"Populism Emerges From the Right - Reasons: The Tax Code and Spending"

Sydney M. Williams

Thought of the Day
“Populism Emerges From the Right – Reasons: The Tax Code and Spending”
December 28, 2010

Francis Fukuama (author of The End of History and The Last Man and currently a professor at John Hopkins), in the January-February 2011, issue of “The American Interest” magazine, addresses the apparent conundrum of why, after three decades of an ever-widening income and wealth gap, the populist movement has emerged from the Right – not the Left. In my opinion, the answer lies in taxes, spending, but also within the composition of the Democratic Party.

Robert Reich, Secretary of Labor in the Clinton administration, fulminates on his blog that the very essence of our democracy is at risk because of a growing plutocracy – a marriage of convenience between a concentration of wealth and obedient members of Congress. He writes: “We’re back to the late 19th Century when lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. The public never knew who was bribing whom.” He saves his most pejorative comments for Republicans – the Koch brothers, Fred Malek, Karl Rove and the U.S. Chamber of Commerce. Mr. Reich points out that the current tax bracket of 36% for the highest earners is the lowest in eighty years.

Professor William Domhoff, author of Who Rules America?, writes of the increase in the average CEO’s pay compared to the average worker. In 1980, the average CEO made 42 times the average worker. By 2000, according to the website of the AFL-CIO, that ratio increased to 525 times. The ratio then declined to 319 times by the end of President Bush’s second term. At the end of 2009 it stood at 263 times. (As an aside, the principal explanation for the surge in compensation was the decision in the Clinton administration – of which Mr. Reich was a part – to limit the tax deductibility of corporate pay to $1,000,000. The consequence of that decision was the ubiquitous and generous granting of options as compensation. The result was a multiple increase in executive pay. That trend has declined in the past ten years, though still remains high.

In terms of wealth, Professor Domhoff, in a piece entitled “Wealth, Income and Power”, writes of the concentration of wealth in relatively few hands – the top 1%, as of 2007, owned 34.6% of all privately held wealth. (He describes wealth as real estate, stocks, bonds and cash.) It is true that wealth concentration has meaningfully increased since 1976 when the ratio stood at 19.9%, but it has also declined from 38.1% in 1998. And, the ratio is lower today than it was in 1922.

Like Mr. Reich, Professor Fukuama suggests the existence of a plutocracy – by which he means “not just rule by the rich, but rule by and for the rich.” He may be right, but I question that he may be barking at the wrong tree. He writes: “Scandalous as it may sound to the ears of Republicans schooled in Reaganomics, one critical measure of the health of a modern democracy is its ability to legitimately extract taxes from its own elites.” All governments depend upon some form of tax system and fairness should be a critical and determining factor. However, the tax system should not impede economic growth, which remains the best way to increase tax revenues.

In 1980, according to Mark Robyn and Gerald Prante writing for the Tax Foundation, the top 1% of tax filers earned 8.46% of total Adjusted Gross Income and paid 19.05% of total income taxes, with the marginal tax rate at 70%. In 2008, the top 1% of tax filers earned 20.0% of total Adjusted Gross Income and paid 38.02% of total income taxes, with the marginal rate at 36%. The ratio of taxes paid versus income earned has declined, but not meaningfully, and certainly cannot be explained by the halving of the marginal rate.

Frustration and animosity toward taxes must lie elsewhere and I would suggest that one only has to look at the 16,845 pages that comprise the U.S. Tax Code. Should you be interested, all twenty volumes can be purchased from the U.S. Code of Federal Regulations for $974, including shipping. The Code is filled with deductions, exemptions and credits that only sophisticated accountants can decipher. Its very complexity benefits the wealthy. They’re the ones with high priced accountants. When Warren Buffett complains that he pays a lower tax rate than his secretary, perhaps he should lend her his accountant? The fact of the matter is that many of the very rich don’t care what the marginal rate is, as long as the complexity of the code works to their advantage. It is one explanation for the preponderance of Democrats on Wall Street and also, I would suggest, explains why the Dodd-Frank Bill continues and enhances the concept of banks too big to fail.

Not surprisingly, given Democratic strongholds on the two coasts, City-Data.com reports that of the 15 richest counties in the U.S. only Loving County in Texas is Republican. In fact, Greenwich, CT, a bastion of wealth and privilege, voted Democratic in the 2008 Presidential election. The myth that the rich are huddled within the Republican Party is just that, a myth. The Democratic Party today largely constitutes two totally different, but somewhat symbiotic segments –wealthy, coastal elites along with the poor and disenfranchised. The poor rely on the wealthy for means and the wealthy need the votes of the poor to maintain their status.

According to the Tax Foundation, of 139.6 million tax returns filed in 2008, 52 million got back every dollar the Federal Government had withheld and, in some cases, actually received refundable tax credits like the earned income tax credit. This suggests there are growing numbers of people who, apart from payroll taxes (Social Security and Medicare/Medicaid), pay no taxes – they have no skin in the game.

It is the vast middle classes who feel disenfranchised. The system, in their eyes, has been rigged in favor of the very wealthy and the very poor. It explains, at least in part, the conundrum to which Professor Fukuama alludes: why, in this time of growing income disparities, has populism emerged from the Right – not the Left? It is principally a revolt against excessive government spending – people look at Greece; California; Prichard, Alabama and see the future; they experience a tax system that favors the very wealthy and the very poor. The revolt also reflects a sense that moral standards have lapsed, in this world where communication and globalization require the necessity to adapt quickly. And it manifests the desires of the aspirational. There are millions, including thousands of immigrants, who do not want barriers making it more difficult to become one of the top one percent. That is their wish, and their frustration.

Bailouts for banks, saving the jobs of government workers and the creation of a national healthcare system were not what the middle class wanted in 2009. It is the opportunity to succeed. Following an election rout in November, the most hopeful sign from the administration was when on December 10th, the President told an NPR audience that one of his goals for 2011 will be too “simplify the tax code, lower the rates and broaden the base.” Amen! Let’s hope he means it.

Wednesday, December 22, 2010

"Happiness, Aging and the Holiday Season"

Sydney M. Williams

Thought of the Day (2)
“Happiness, Aging and the Holiday Season”
December 22, 2010

On Monday a friend thoughtfully sent a piece entitled “Age & Happiness: Beyond Middle Age, People Get Happier as They Get Older.” The article appeared in the December 16 issue of the Economist. Age is one of four factors, according to the author, that make people happy. The others are gender, personality and external circumstances; however, as one who is nearing the end of his seventh decade, it is the conjoinment of age and happiness that most interest me. The New York Times last May published a similar article entitled, “Happiness May Come With Age, Study Says.” Despite a survey covering 340,000 people nationwide showing that people do get happier as they age, the researchers could not provide an explanation as to why.

But it is my opinion and my experience that the conclusions, no matter the lack of explanation, are accurate. Of course, extenuating circumstances make a great deal of difference. One’s health and means are obviously important. I have been fortunate in many ways, especially in my personal life. My wife and children are well, as are my ten grandchildren, all of whom plan to be with us in Old Lyme on Saturday (and all of whom are pictured in the attachment.) Whether I will feel the same way Sunday morning remains to be seen.

Curiously and contrary to expectation, while we often think back to earlier times, the focus of the elderly is often on the future. Perhaps it is because we have heirs, so the future is constantly on our minds. Perhaps we intuitively understand what Alice of Alice in Wonderland meant when she said: “But it’s no use going back to yesterday, because I was a different person then.” Mark Stibich, writing on the blog About.com, suggests the possibility that happiness may be a function of wisdom based on years, or it may be the fact that older people adjust their expectations as they age.

The sense that we become happier as we age is a relatively new phenomenon. The ancient concept of the seven ages of man had man invariably declining as he approached the grave. Shakespeare, you will recall, expressed that earlier view. Jacques, in As You Like It, has a soliloquy:

“All the world’s a stage,
And all the men and women merely players,
They have their exits and entrances,
And one man in his time plays many parts,
His acts being seven ages.
……………………………..
...Last scene of all,
That ends this strange eventful history,
Is second childishness and mere oblivion,
Sans teeth, sans eyes, sans taste, sans everything.”

The best explanations as to why the elderly are happier lie in behavior patterns. Older people tend to get angry less often. They are better able to control their emotions. Because the specter of death hovers more menacingly, older people choose to live more fully in the present. Long term goals are less pressing, as is the competitive spirit. William James once observed: “How pleasant is the day when we give up striving to be young – or slender.” The author of the piece in the Economist quotes Laura Carstensen, a professor of psychology at Stanford, “…young people will go to cocktail parties because they might meet somebody who will be useful to them…” I would add that older people go to parties simply because they want to.

Whatever the explanation, I can vouch for its condition. At my fiftieth high school reunion two years ago I found the environment decidedly more comfortable than the last one I had attended forty-five years earlier. Nobody was out to prove anything. We were who we were. We had accomplished what we had. While some might have had regrets, most seemed content with their lives.

I will be out on Thursday, preparing for the very-much-looked-forward-to arrival of my three children, their spouses and ten grandchildren in Old Lyme. And speaking of happiness, I want to wish you all, no matter your age, the merriest of Holidays and I want to thank you for permitting me to interrupt your busy days with my opinions and thoughts. Happy Holidays!

"The Census - No Real Surprise, Except to Liberals"

Sydney M. Williams
Thought of the Day
“The Census – No Real Surprise, Except to Liberals”
December 22, 2010

The decennial census out yesterday included no real surprise except to liberals. Overall growth, at 9.7%, was less than the two previous periods – 1980 and 2000 – which both averaged about 13%. The shift in the population away from the Northeast and the Midwest (blue states) toward the South and West (red states) continues. Eight states gained twelve seats, while ten states lost twelve seats.

The main political impact of the census is the change in Congressional seats and the apportionment determination that will result when state legislatures meet next year. In that regard, Texas and Florida were the principal winners in the stakes for Congressional seats, picking up four and two seats respectively. Ohio and New York, dropping two seats apiece were the big losers. For the first time since 1930, California did not gain a seat and Michigan was the only state to actually lose population during the decade. Nevada, the fastest growing state, increased its population 35%.

The numbers suggest population expanded by about 28 million during the decade. This morning’s Wall Street Journal indicated immigration accounted for about 13 million, but the Migration Policy Institute, a non-partisan and non profit think tank, suggests that immigrants – legal and illegal – accounted for closer to 18 million. Either way population growth, critical to the long term well-being of a nation, continues to expand, though at a more modest rate than earlier. According to studies at the University of Virginia, Asian and Hispanics were the fastest growing segments, indicating that diversity continues.

The numbers suggest a boon to Republicans. House seats are apportioned every ten years based upon the census and they are determined by state legislators. Beginning next year, Republicans will hold governorships in 29 states, Democrats in 20. (Rhode Island will have an Independent.) The National Conference of State Legislators reports that following November’s election Republicans will hold 53% of total legislature seats, the most since 1928. Indications are that Republicans will have unilateral control in about 190 districts, Democrats in 50. When President Obama admitted that Democrats got “shellacked” on November 2, this is what he was talking about.

However, it would be a mistake for Republicans to become smug. Nothing ever remains the same in politics. Republican’s anti-immigration policies do not play well among rapidly growing Hispanics, who inhabit states, like Texas and Florida, which are gaining Congressional seats.

The country continues to tilt south and west. It continues to become more diversified. While cultural clashes will present some problems, the fact is change and diversity are sources of our country’s strength. Congress however, in part because of the Apportionment Act of 1929 which fixes the House at 435 members, persists in gloriously above the fray. The lack of competition in more and more districts and the enormous expense of mounting a campaign, serves to insulate Congressional members from the people. In 1800, each member represented 50,000 people. Today that member represents 711,000 people. Too many Congress men and women make the House their career, thereby isolating them from the real needs and wants of those they purport to represent – further arguments for term limits.

(As an aside, the Williams family did their bit for population growth. At the start of the decade in January 2000, with three married children, we were eight. Ten years later, with the births of ten grandchildren, we had expanded to eighteen.)

However, there is a serious message embedded in the census numbers. People move to places where they see or perceive opportunity. Tax heavy states were generally the losers and tax-lite states the winners. While commonsense suggests no surprise that Texas, Florida, Arizona and South Carolina proved more desirable – and it’s more than the weather – than New York, Ohio, Pennsylvania and Massachusetts, it nevertheless must confound liberals who insist on policies that drive people away.

Tuesday, December 21, 2010

"Repeal of 'Don't Ask, Don't Tell' - A good Thing byt Trivial, Relatively"

Sydney M. Williams
Thought of the Day
“Repeal of ‘Don’t Ask, Don’t Tell’ – A Good Thing but Trivial, Relatively”
December 21, 2010

The repeal of “Don’t Ask, Don’t Tell” was inevitable. The polls have decidedly moved in favor of repeal since the law was enacted in 1995. I respect Senator McCain, but, in my opinion, his fears that this legislation will harm the battle effectiveness of our soldiers are unlikely to be realized. More important, it does not seem fair to discriminate against anyone because of their sexual orientation. William McGurn points out in his op-ed in the Wall Street Journal, that the vote may provide an opening to return ROTC to the nation’s elite colleges. Additionally, the nation is better off for this having been determined by Congress, rather than by the courts. However, and risking the wrath of adamant Gay-Rights advocates, it seems to me that “Don’t Ask, Don’t Tell” is a comparatively trivial issue – certainly at a time when we face the necessity of approving a final budget for fiscal 2011, dealing with entitlements that we cannot afford and assuring the American people that the START Treaty adequately allows for missile defense.

By that, I do not mean that Gay-Rights are unimportant; they are. But the issue is not comparable to the Civil Rights legislation of the 1960s and does not, in my mind, rank with the critical issues facing our country – an economy that has kept unemployment too high for too long and a debt crisis that threatens to bankrupt the country – issues that demand the attention of those who serve us in Washington.

However, there are some for whom this victory was a major celebration. The New York Times, for example, expressed hyperbolic exuberance in their lead editorial yesterday: “At Long Last, Military Honor!” The irony of the editorial will not be lost on anyone who has read the Times over the past nine years, since the attack on 9/11, and have noted their decidedly lack of enthusiasm and support for the wars in Iraq and Afghanistan. The Iraq Liberation Act of 1998, signed by President Clinton, called for regime change. Three years later the United States was attacked and three thousand civilians were killed. Five years later, in 2003, the dictator of Iraq Saddam Hussein was deposed and a country of 25 million was freed. The Taliban, harborers of Al Qaeda who initiated the attack on 9/11, were chased from their power base in Kabul, Afghanistan. The cost has been high to a military that has responded with overwhelmingly selflessness and honor. Over the past nine years 1.8 million Americans have served in the two countries, of whom 5838 have been killed and 41,583 wounded. Nine Medal of Honors have been awarded, all but one of them posthumously. And yet it takes the passage of a repeal of “Don’t Ask, Don’t Tell” to cause the New York Times to speak of military honor? What kind of a message does that send to our youth, our allies and our enemies?

As a friend in London suggested last weekend, the world, or at least The United States, appears to be undergoing one of its generational seismic shifts. The early 1960s represented one such change; the presidential election of 1980 another; now we are facing a third shift. Overwhelming debt is causing many to re-think the benefits of financial leverage, potentially impacting innovation and creativity. Deregulation is waning; re-regulation is rising. American unilateralism is being challenged with a multilateralism that includes countries about which most Americans have little knowledge. At home, we face persistent debt and an economy which, while in recovery, continues to experience almost ten percent unemployment. The pressures of the present mean less focus on the future. Washington seems to be living in a vacuum of subliminal ignorance, incapable of addressing issues like Social Security and Medicare that, if not resolved, will bankrupt the nation. Like Nero’s Rome, they fiddle while the nation burns.

Of course, issues of all stripes, including the Dream Act (which should be approved), multilingualism in schools (which should be discouraged in favor of English) and Gay-Rights are deserving of Congress’ attention, but are they as critical and as timely as avoiding bankrupting the nation or fixing the economy? For an administration and a Congress which have been bent on change – and have accomplished a lot – their sense of priority seems confused.

Monday, December 20, 2010

"Privacy Online - Protecting the Consumer, or Enabling Government"

Sydney M. Williams
Thought of the Day
“Privacy Online – Protecting the Consumer, or Enabling Government?”

December 20, 2010

“We shall meet in a place where there is no darkness.” So says O’Brien to Winston Smith early on in George Orwell’s 1949 novel, Nineteen Eighty-Four. In the decades immediately following World War II, the concern among many was an omniscient and ubiquitous state – the Soviet Union largely reflected those fears. Today it is the internet and specifically sites like Facebook. In making Mark Zuckerberg Time’s man of the year, its editor was quoted: “Facebook is now the third largest country on earth and surely has more information about its citizens than any government does.”

“In the world of mobile, there is no anonymity. A cell phone is always with us. It’s always on,” said Michael Becker of the Mobile Marketing Association to Scott Thurm and Yukari Iwatani Kane of the Wall Street Journal, in an article published Saturday. On Thursday, the Obama administration’s Commerce Department issued a major report, following a similar report from the Federal Trade Commission, calling for new rules regulating the protection of consumers online. Tomorrow the F.C.C. will issue a ruling regarding its power to regulate broadband access. Internet regulation, as Robert McDowell writes in today’s Wall Street Journal, “became embedded into a 2008 campaign presidential campaign promise by then Senator Barack Obama.” Saturday’s New York Times ran an editorial urging that the broadband be termed a telecommunications service rather than its “current definition as an information service,” thereby giving the Commission clearer powers to regulate – a difficult argument, in my opinion. While certainly the internet is a communication device, it is also a repository for billions (if not trillions) of bytes of information, both useful and personal, but harmful in the wrong hands.

The excitement surrounding the tech bubble of the late 1990s provided a taste of what was to come – an explosion in the usage of the internet for everything from business commerce to retail sales to social networking to research. Online retail sales, according to Forrester Research, in the U.S. today approximate $175 billion, represent about 7% of total retail sales and are growing annually at about 10%, four times faster than overall retail sales. Facebook has 550 million members. Twitter now has around 17 million users in the U.S. and usage is growing at triple digit rates. According to one report, 25% of tweets on Twitter are about emotions. Groupon, which launched two years ago, has $50 million in advertising revenues, growing at 50% per month, has been valued at $6 billion. Six years ago Google introduced Google Book Service and they have now digitized 15 million books, almost half the number of the books in the Library of Congress.

The issues facing consumers are unlike anything we have ever known. Conflicts of interest loom. Privacy, as a right, has been swept away with the broom of the internet. On the other hand, the internet has brought value to consumers and jobs for workers. CNN Money, in a report on December 16, wrote: “The Commerce Department was quick to point out in its report that global online transactions (business to business, business to consumer and consumer to consumer) globally generate roughly $10 trillion of sales every year, and technology jobs are growing at a pace that’s four times faster than all other domestic jobs.” Facebook and G-Mail, for example, are free to the consumer; free because their businesses are based on advertising revenues – relevant personal data gets sold, which means a loss of personal privacy. But, as Doug Aamoth writing in “techland.time.com” put it, “you can have free or you can have not free, but both cost something.”

The issue for regulators is far from simple and needs to be debated. Electronic theft is real; Craigslist has been cited as the means of introducing women to men who then raped them; introducing “worms” into computer programs risk havoc with everything from banking transactions to terrorism. Despite a study from the University of Southern California reported in Saturday’s New York Post, controlling access to the internet is difficult for parents. Young teenagers have little comprehension as to how tweets written or videos produced can come back to haunt them in future years. Forty years from now, finding a Presidential candidate who has not been exposed in a compromising position on a YouTube video will be virtually impossible.

Of course the consumer does have a choice. She/he can risk being ostracized by friends and refuse to join a social network. Personal information provided can be limited. But those judgments are far easier for an adult than a young person.

There is no escaping the juggernaut of a pervasive internet. It sees us. It tracks us. It knows, as the Christmas song goes, “when we’ve been bad or good.” There are thousands of companies gathering as much personal information as they can; hundreds of new such businesses start up each day. And while there are giant companies out there that have access to reams of data on all of us, their interest is commercial – they use that data for purposes of generating revenue, selling ads. Joseph Menn, writing in the weekend edition of the Financial Times, questions the lack of regulation. He writes, “The explosion of information collected by internet businesses has called that laissez-faire approach into question.” However, should the government gain access to that same data under the guise of regulation or consumer protection will their purposes be benign? We all assume so and that assumption is probably correct, but the skeptic in all of us should make us wary. As for me, I fear less the pesky advertiser and more an intrusive government.

As a contrast, it was a pleasure to read an altogether different piece in the same weekend edition of the Journal, “Can Tolstoy Save Your Marriage?” by Alain de Botton. Mr. de Botton comes from a Sephardic Jewish family who was raised in Switzerland, moved to England with his banker father and is the founder of the School of Life in London. The school reads the same classics as do students in traditional schools, but as he says, “we teach this material with a view to illuminating students’ lives rather than merely prodding them toward academic goals.” Young people face a difficult problem: deciding what is critical and what is not, at a time when digital information is doubling every eighteen months (according to IDC – the International Data Corporation). At that rate, in just over ten years there will be 128 times more digital information than there is today. In this fast paced world, where by necessity people will have to become specialists in some narrow field, learning and understanding the classics serves the purpose of aiding the process of thinking and adds wisdom to the decision process.

But that is not where most people are. Big Brother, the nebulous character for whom O’Brien worked in Oceania, represents an omniscient government that took the information gathered on people and perverted it for evil purposes. It is this that I fear far more than aggressive advertisers. Allowing government, via over regulation, to maintain a data base of personal information risks – as far fetched as it might now seem – of being used for nefarious purposes. Caveat emptor.

Friday, December 17, 2010

"Congress - Isolated with Contempt for the Electorate - Another Call for Term Limits"

Sydney M. Williams

Thought of the Day
“Congress – Isolated with Contempt for the Electorate – Another Call for Term Limits”

December 17, 2010

In a vivid manifestation as to what is wrong with Washington, two news items were released on Wednesday. First, Senator Harry Reid announced a 1924 page, $1.2 trillion dollar omnibus spending bill – a bill laden with earmarks from both Parties – which he wants passed before the current lame duck session ends at year end. Second, Gallup released a poll indicating that only 13% of Americans approve how Congress is doing its job. Gallup estimates that the surveys’ overall sampling error is plus or minus four percentage points. Regardless, this Congress has the lowest approval since Gallup began doing surveys. As the Wall Street Journal, in Thursday’s lead editorial put it: “The 111th Congress has shown contempt for taxpayers from its first day…”

In September, I wrote a TOTD entitled “Washington, Are You Listening?” November 2nd proved they were not, when Republicans picked up 63 House seats giving them the largest margin of control since 1948. And their action since the election suggests they have chosen not only to ignore the message, but to scorn the electorate. And, unless this new Congress proves very different from its predecessors, voters may discover that they simply swapped one group of thieves for another. In terms of pork and earmarks in the omnibus spending bill, Republicans are as guilty as Democrats; voters are fed up with the entire bunch. If this is not the time to consider term limits for our elected representatives, I am not sure when would be. I am reminded of that New Hampshire man, Jabez Stone (The Devil and Daniel Webster), when, in a peak of affectionate concern, he cries out to Daniel Webster: “‘Mr. Webster, Mr. Webster,” he said, and his voice shaking with fear and a desperate courage. ‘For God’s sake, Mr. Webster, harness your horses and get away from this place while you can.’” While I have no affection for Harry Reid or Nancy Pelosi – and, as Lloyd Bentsen might have said, neither comes close to Daniel Webster – I sure wish they would harness their horses and flee to their respective homes. The Republic would be better served.

However, it is my belief that no matter what damage Congress attempts, the country, because of the character of the people, will survive and thrive. It is encouraging seeing people involved in the political process and expressing their disapproval at the voting booth. The country and the financial markets have been through a great deal since the first hint of credit problems in August 2007. While many disapproved of the role government played during the autumn of 2008, I find myself thankful that, intentionally or serendipitously, capable people were there to guide us through what could have been financial Armageddon. While the system survived and financial markets have largely stabilized, a severe recession ensued and the way forward will continue to be painful for many, as slower than normal growth will keep unemployment elevated for some time. The risk of debt contagion in Europe remains, but at least we are on a more familiar and constructive path. The lessons of the past three years, it seems, have been learned best by business, secondly by individuals and seemingly not at all by a majority in Washington. It is the cynicism of opportunism embedded in Rahm Emanuel’s comment, “A crisis is a terrible thing to waste,” that still stings.

When one looks at markets and the opportunities they offer, it is stocks with strong cash flows and managements who are intent on returning cash to shareholders in the form of dividends or buy-backs that seem most attractive. Treasuries and commodities are selling close to all time highs. Yields on many high grade corporate bonds are at or near record lows, suggesting attractive terms for borrowers, but little opportunity for lenders; an example being IBM that was able to borrow three-year paper for about one percent. High Yield Bonds have seen current yields decline from 25% at the worst of the financial crisis in late November 2008 to 8.4% today. Stocks have done well also, but so have earnings, thus earnings multiples have lagged the upward movement in stock prices. Companies have hoarded cash – cash that the President is intent on their using, not for dividends, but for investment and hiring. If the President is able to provide confidence that the environment for investment is (and will be) sound and that class warfare is not on the agenda, then we will all be better off.

One thing that age has taught me is that nothing is static. The world and markets and politics are in constant motion. While the ability to forecast what will happen is virtually impossible, the one constant we can be assured of is change. Despite markets that have done well since the dark days of early 2009, pessimism persists. (Alan Abelson of Barron’s does not believe it, but that is my sense from talking to investors and reading the papers.) We worry about Europe, the size of our deficits, politics in Washington, the state of the Dollar, about competition with China, of Iran and North Korea and our schools and illegal immigrants. None of these problems can be dismissed and they should not be, but they also are discussed almost daily and so have been woven into the fabric of our markets.

We now need Congress to get on board, to demonstrate that they have the people’s interest at heart, not merely their own. Given the experience of the 111th Congress, that may be asking too much, but the country will survive even if they do not. Term limits would serve the cause of bringing their interests in line with the electorate.

Wednesday, December 15, 2010

"Judge Hudson's Decision"

Sydney M. Williams
Thought of the Day
“Judge Hudson’s Decision”

December 15, 2010

Despite my intimate knowledge of the law and of courts being limited to once, at the age of 16, being arrested for driving while intoxicated in Peterborough, NH and once being empanelled on a jury in New York City, I nevertheless still feel fully qualified to comment on Judge Henry Hudson’s decision Monday that a key provision of the Obama healthcare bill is unconstitutional. Judge Hudson sits on the bench for the U.S. District Court for Eastern Virginia. He was appointed to the position by President George W. Bush in 2002. On Monday he ruled that a key provision in the bill was unconstitutional. That provision is the requirement that everyone buys health insurance, or be subject to a fine. That requirement – the individual mandate – is, of course, the essential element to the Patient Protection and Affordable Care Act of 2010. Without that mandate, the lynchpin for the bill is gone. Since it is my opinion that the bill only makes a bad system worse, I applaud the decision.

However, for liberals all is not lost. Two weeks earlier Judge Norman Moon of the U.S. District Court for Western Virginia, listening to the same arguments, ruled, that the individual mandate is an essential component and that the law is a “rational” way to regulate how people pay for healthcare. Judge Moon was nominated to the Court in 1997 by President William J. Clinton.

Both judges, interestingly, according to a report in the Wall Street Journal, showed skepticism “toward the government’s argument that the mandate could also be justified under Congress’s taxing power.” In a separate article in the Journal, Janet Adamy wrote: “Judge Hudson also shot back at the administration’s argument that federal taxation powers give it the right to levy the penalty on those who forgo insurance, noting that the administration had avoided using the unpopular word ‘tax’ during the law’s debate – only to employ it later for legal reasons.”

The judicial disagreements stem from differing interpretations of the “Commerce Clause” in the U. S. Constitution. That clause embedded in Article 1, Section 8 reads, obscurely, “Congress shall have the power…To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes.” (I sometimes wonder if the ambiguity in the wording of the Constitution was purposely designed by the Founders to ensure that lawyers would always be employed.)

The New York Times, in an editorial yesterday, wrote: “Yet it seems clear that decisions not to buy insurance will, in the aggregate, affect costs in the broader health care markets.” Exactly, but that begs the question as to the constitutionality of a requirement to purchase insurance.

Betsy McCaughey, the former Lieutenant Governor of New York and a Ph.D. in constitutional history, suggested in an interview in Newsmax that there will be a lengthy appeal process with a final decision by the Supreme Court “sometime before the 2012 presidential election.” In reference to Judge Hudson’s ruling, she said: “This is not about health insurance, this is about freedom.” Ms. McCaughey’s take was the same as the Judge’s. “At its core,” Judge Hudson wrote, according to the New York Times, “this dispute is not simply about regulating the business of insurance – or crafting a scheme of universal health insurance coverage – it’s about an individual’s right to choose to participate.” It is that Right of the individual that is at the core of his disagreement with this specific provision of the bill.

The possibility of repeal, for a variety of reasons, is remote, but challenges such as that of Judge Hudson will ultimately lead to the Supreme Court, probably sometime in 2012, before the presidential election. Despite providing the best healthcare in the world – for example, where else would King Abdullah come for back surgery? – the current U.S. healthcare system does not work well. It has become too expensive. There are too many uninsured. Those with pre-existing conditions are too often denied coverage. The current system – employer based – has the disadvantage that the consumer is too far removed from making decisions as to the care he/she wants and the costs they are willing to pay. Federalizing healthcare will only serve to further distance the consumer.

It has always seemed to me that not only was ObamaCare a usurpation of government authority, but more importantly it would be filled with waste and inefficiencies. Why not let insurance companies compete across state lines? Why not let individuals purchase healthcare on the same pre-tax terms as employers? Why not let consumers design and purchase a plan that fits their individual needs? If the healthcare act is such a good deal, why did Congress and the Executive branch exempt themselves from participation?

The Patient Protection and Affordable Care Act is dependent on mandating that all people buy insurance, or pay a fine. Otherwise those with pre-existing conditions, under the proposed act, would be charged discriminatory rates. It is the underlying foundation on which the act was erected. But, in doing so, it violates the concept of the right of the individual to exercise Choice. To envision the future of a federally mandated healthcare plan, one has only to look at the UK and its NHS. In contrast, a system which allows the individual to make personal choices about the quality and quantity of healthcare received, and which permits insurance companies to compete across state lines – free market methodologies – should offer better and less expensive healthcare. Of course that diminishes the role of government, a condition many liberals find untenable.

Tuesday, December 14, 2010

"A Focus on Growth - The Best Way to Rid the Deficits"

Sydney M. Williams

Thought of the Day
“A Focus on Growth - The Best Way to Rid the Deficits”
December 14, 2010

It is remarkable, in the quest by both political parties for reducing budget imbalances and lowering the deficit, how little emphasis has been spent on increasing economic growth. Even the current tax deal – should it pass – is only temporary. Businesses cannot invest based on a tax policy that expires in two years. The deficit commission and most Republicans emphasize spending reductions and tax cuts. Democrats want to raise taxes and increase entitlements. A focus on sustainable, long term growth – the real generator of both income and tax receipts – has been largely missing. In addition, the rapid expansion in entitlement spending, which comprises almost 60% of the federal budget, must be addressed before we are smothered.

Inhibitors to growth over the past few years include the explosion in both public and private debt and the recent (financial crisis induced) extraordinary increase in government spending, with a corresponding decline in federal receipts, due the recession. The latter should be a temporary phenomenon; it is the former that risks becoming part of the fabric, especially that part of it related to entitlements.

Total debt – household, corporate and public – approximates $45 trillion, or more than three times GDP. Corporate debt, ex financial companies, is not the problem. As the Wall Street Journal reported on Friday, December 10, non financial U.S. corporations were sitting on $1.93 trillion in cash, or 7.4% of corporate assets, a 51 year high. The consumer is improving his/her balance sheet. Household net worth, at the end of the third quarter, was $54.9 trillion, up almost $10 trillion from the first quarter of 2009, but still below the $65.7 trillion reached in the second quarter of 2007. Consumer debt peaked in the third quarter of 2008 and has modestly declined, principally led by reductions in credit card debt. The problems are two-fold: First, financial institutions need to continue the process of deleveraging – a natural inhibitor to growth; second, government spending has reached its highest level relative to GDP since World War II and must be curtailed. There is little question that the severity of the recession, brought on by the financial crisis, necessitated a pick up in temporary government spending. However, Congress, contrary to their natural instincts, will have to undergo a fiscal detoxification program.

There is no disputing that the country is on an unsustainable course. Most in Washington fail to acknowledge the tough choices that will have to be made. The role of middle-of-the-road politicians is, too often, to perpetuate the status quo, or to move in incremental steps. These people are invested in the “system.” They live off of it. These times call for radical change. What will be required are politicians from both parties who are willing to sacrifice their careers for the sake of the country – not a high probability given the narcissism that runs rampant in the halls of Congress and behind the gates of the White House.

The globalization of the economy requires recognition that emerging economies represent both potential customers and competition. Nevertheless, the U.S. has several unique advantages, which managed correctly should serve it well: it comprises a land mass third behind only Russia and Canada; it is rich in a multitude of natural resources; it has a the most diverse population of any country on earth and, singular to developed countries, its population continues to expand; it sits between the world’s two great oceans; it is the world’s oldest democracy, and it has never been occupied by a foreign country.

Mayor Bloomberg’s “withering critique” (as described by the New York Times in last Thursday’s issue) on how Congress and the White House have managed the economic recovery was on target, in my opinion. Economic recovery means encouraging entrepreneurship; it means incenting investing by lowering taxes on capital; it means encouraging corporate spending on R&D; it means encouraging trade and immigration; it means accelerating depreciation, or expensing certain capital expenditures. As Minnesota Governor Tim Pawlenty expressed in yesterday’s Wall Street Journal, it means confronting public unions who stand to serve themselves at the expense of the public. Perhaps most importantly, it means confronting the growing problems of our addiction to ever-expanding entitlement spending. Social Security, Welfare, Medicare and Medicaid consume nearly 60% of the federal budget. The healthcare plan just passed will only serve to aggravate that spending. It is inconceivable, given the size of our debt and its foreign ownership that interest rates will not be rising over the next few years, placing additional pressure on the budget.

What both parties should be looking to do is light a fire under the economy. Instead of pursuing a political agenda, fiscal policy should be directed toward impelling economic progress. Making the argument that “wealthy” Americans can afford to pay more in taxes is simply a statement of the obvious, but that does not make it right. The “equality” embedded in American Democracy is not about outcomes; it is about opportunities. There will always be those that are richer. They may work harder, or be smarter. They may be better educated, or simply have been in the right place at the right time. Importantly, they are the progenitors of jobs. Government’s role should be to ensure that all people have the opportunity to move up and down the economic and social ladder, according to their inherent abilities and work ethic. Taxes should not be about punishing one group, or a means of redistribution. Such actions encourage class warfare, a path fraught with risk. If “rich” people feel they should pay more in taxes, there is nothing to prevent them from doing so, any more than there is anything to prevent them from giving their money to charity, buying a sports franchise or building a mansion.

When considering the effect of tax cuts or increases, federal budget projections rely on static accounting; so that President Obama can stand before the people and claim with certainty that extending the Bush tax cuts for the “rich” means a cost of X billions of dollars over Y years. It’s poppycock. Static accounting does not exist in the real world. People and businesses respond to incentives. Carrots and sticks impact behavior. One of the more encouraging recent signs is the President’s apparent willingness to overhaul and simplify the tax code, a code that currently encompasses 10,000 pages and nine million words. The Code’s very cumbersomeness and complexity aids the wealthy who can afford high priced accountants to search out loopholes, but hurts the middle classes who must try to understand its ramifications on their own.

Investment is the engine of economic growth; it must be encouraged. Punitive taxes on capital returns are a disincentive to investment. Faster growth means higher tax revenues for the government. Increased tax revenues – aided by a simpler tax code with lower rates and fewer exemptions – coupled with reining in entitlement spending will put this “ship of state” on a course toward prosperity and will allow the U.S. to respond more fully to the welfare of its people and to the needs of the international community.

Wednesday, December 8, 2010

"Democracy vs. Totalitarianism - The Nobel Peace Prize & Education"

Sydney M. Williams

Thought of the Day
“Democracy vs. Totalitarianism – The Nobel Peace Prize & Education”
December 8, 2010

While there has been much discussion about a bifurcated electorate in the United States, receiving less attention is the increasing, and more dangerous, chasm between liberal democracies and totalitarian regimes.

What draws attention to this fact (apart from the antics emanating from North Korea) was the report yesterday in the on-line New York Times and the BBC that eighteen countries (besides China) have chosen to boycott (“for various reasons”) the ceremony on Friday, at which the Nobel Peace Prize will be awarded to Liu Xiaobo, the jailed Chinese dissident. Mr. Liu is serving an eleven-year sentence for subversion. Additionally, according to BBC News, the United Nation’s High Commissioner for Human Rights, South African Navi Pillay, has indicated she will not attend. As the report in the Times reads, “China has been incensed by Mr. Liu’s award.” Neither he nor any member of his family will be in Oslo to accept the prize on December 10. As the Times notes, the last time there was no one present to accept the prize was in 1936 when Nazi Germany prevented recipient German journalist and pacifist, Carl von Ossietzky from leaving the country. Herr von Ossietzky died in 1938, allegedly of tuberculosis, while still in police custody at the age of 48.

The importance of this growing schism between democracies and totalitarian regimes should not be underestimated. While the United States is the leader among democracies, China is the largest and most notable representative of totalitarian states. China’s economic successes have surely not gone unnoticed by countries in the developing part of the world, including those like Venezuela, Iran, Ukraine, the Philippines, Saudi Arabia, Vietnam and Cuba who have chosen to boycott the ceremony. Emulating China’s economic success is sure to be on their agenda.

And we also know that education and prosperity are inextricably linked. In another news item yesterday, the results from global tests in science, reading and math were released by the Program for International Student Assessment (PISA.) Unlike most countries which merged their results into a single country score, China released results from three cities – Shanghai, Hong Kong and Macao. The tests were given to fifteen-year olds by the Organization for Economic Cooperation and Development (OECD) in sixty-five countries. Students from Shanghai scored first in all three categories; Hong Kong was third in science and math and fourth in reading. Macao scored less well, but above the United States in all categories except reading. Those in Shanghai were overseen by the Australian Council for Educational research, a nonprofit testing group. The New York Times, in a front page article yesterday, reported that Andreas Schleicher, who directs the OECD’s international educational testing program said, “…international testing experts have investigated them [the test results] to vouchsafe for their accuracy, expecting they would produce astonishment in many Western countries.” Nevertheless, those in the West are aware that Shanghai is a magnet for the best and the brightest from China and certainly the scores are not representative of the country as a whole.

However, if the scores from Shanghai, Hong Kong, Singapore and South Korea didn’t astonish, they should have. The United States was 30th in math, 17th in reading and 23rd in science – a dramatic condemnation of our educational system. It was not just the Asian nations that beat us. Finland, Estonia and Poland, for example, scored better than the U.S. in all three categories.

If the United States, the leader of the free world, the most prosperous nation on earth, home to the world’s greatest universities is failing its youth in subjects so basic as reading, math and science, that failure, especially in comparison to China, portends poorly on our future economic results, and reflects badly when democracy is compared to totalitarianism by emerging nations. As globalization has become ubiquitous, the world has become far more competitive. As a nation, the single most important investment that we can make is in education. The President is obviously concerned. The Times quoting Mr. Obama speaking of the billions of people in India and China “suddenly plugged into the world economy…that nations with the most educated workers will prevail. As it stands right now, America is in danger of falling behind” – a call which we must heed.

An article in yesterday’s Wall Street Journal attempted to put a positive spin on the report. They quoted Stuart Kerachsky, deputy commissioner at the National Center for Education Statistics, an arm of the Department of Education that administers the PISA test in the U.S. “There were some bright spots. In mathematics, no country moved ahead of the U.S. American students were inching ahead.” That observation is like putting “lipstick on a pig”, as someone once remarked. The U.S. was 30th on the list with a score of 487, ten points below the average, and lower than countries such as Canada, Iceland, Slovenia, Slovakia, the Czech Republic and Hungary. Those scores are not only embarrassing, they are, as the President suggested, dangerous.

The majority of nations boycotting Friday’s award ceremony in sympathy with China did not participate in the PISA tests this year: Kazakhstan, Saudi Arabia, Pakistan, Iraq, Iran, Vietnam, Afghanistan, Venezuela, the Philippines, Egypt, Sudan, Ukraine, Cuba and Morocco. Four countries that support China did take the test: Russia, Colombia, Tunisia and Serbia. None of them scored above the U.S., which means that they were all below average. So while 15-year olds in three large cities in China did very well on the tests, students in totalitarianism regimes generally did not perform well. But that may change. China has re-set the bar. Perhaps these countries have small cadres of students that perform spectacularly, but democracy, on balance, did better. Nevertheless, American students scored abysmally and that should be the take-away. Education is the key to long term economic growth, and historically economic success has been partnered with democracy. The scores should serve as a wake-up call to American parents, educators and politicians; for if the world is to be split among democracies and totalitarianism it is imperative that, if we are to win the war, we must first win the battle for education.

Tuesday, December 7, 2010

"Pearl Harbor and 9/11 - A Tale of Two Attacks"

Sydney M. Williams

Thought of the Day
“Pearl Harbor and 9/11 – A Tale of Two Attacks”
December 7, 2010

Sixty-nine years ago this date 360 Japanese planes, coming in two waves, attacked Naval installations on the island of Oahu in Hawaii. A little over two hours later there were 2403 dead; eight battleships, including the Arizona on which 1300 sailors and marines died, were sunk or destroyed; three destroyers and three light cruisers were also sunk or destroyed. Of an aircraft fleet of 390 Army and Navy planes, 263 were destroyed or seriously damaged. The Japanese lost less than 100 military personnel, 29 planes, one large submarine and all five midget (two-man) submarines that had been deployed.

Unscathed were America’s three U.S. Pacific Fleet aircraft carriers – USS Lexington, USS Enterprise and USS Saratoga, all of which were on maneuvers. Also, miraculously, the base fuel tanks were spared. Unlike today, the enemy in 1942 was easily identifiable and political correctness was not the inhibiting factor it is today. About 405,000 Americans lost their lives during the war – a rate of approximately 300 per day! But government, the media, industry and the people were united on destroying an enemy described by all as evil. Government had no compunction in denying civil rights to Japanese-Americans, nor of executing those found guilty of spying. At briefings, if the government asked that certain information remain confidential, the Press complied. It was a different place and a different time. WikiLeaks would have been unimaginable.

On December 8th, President Roosevelt addressed Congress asking for a declaration of war. It was in that speech that he referred to December 7, as a day “which will live in infamy.”

A little more than nine years ago, the United States suffered another devastating attack – the first on continental United States since the British burned Washington, D.C. during the war of 1812. This time the assault came, not from an easily identifiable country with borders against whom we could issue a declaration of war, but from a terrorist group with links and support from many countries – an Islamic terrorist group known as al-Qaeda, headed by a shadowy fugitive, Osama bin Laden. Four planes were hijacked. Two smashed into the twin towers of the World Trade Center, one into the Pentagon and the fourth, taken over by passengers who had learned the fate of the other three planes, crashed into a field outside Shanksville, Pennsylvania killing all on board. Excluding the nineteen terrorists, 2977 people died that day – more than died on December 7, 1941. In contrast to Pearl Harbor, during which 68 civilians died and 2335 members of the armed forces, 9/11 witnessed the death of 2922 civilians and 55 military personnel – all in the Pentagon. This attack was, as former British Tony Blair notes in My Journey, an attack, not just on the U.S., but on “civilization.”

Al-Qaeda had attacked before. On February 23, 1993 a group of Islamic terrorists with ties to al-Qaeda attempted to take down the North Tower of the World Trade Center. During that same year, al-Qaeda took responsibility for an attack on American troops in Mogadishu. They bombed our embassies in Tanzania and Kenya on August 7, 1998. They were responsible for the bombing of the USS Cole a year before 9/11 on October 12, 2000.

In the thirty months subsequent to 9/11, according to Congressional Research Service and excluding any attacks in Iraq, there were at least ten attacks that killed 510 and injured at least 1867, in countries including Tunisia, Indonesia, Saud Arabia, Turkey and Spain – all attributable to al-Qaeda. In London, on July 7, 2005, al-Qaeda terrorists killed 52. A website called “Infoplease.com” cites 48 instances between September 12, 2001 and December 25, 2009 in which at least 1402 people were killed, victims of al-Qaeda. This enemy is unlike anything we have previously faced. They willfully attack civilians and have no compunction in committing suicide in the process. Their aim is to destroy a way of life alien to their beliefs.

We have now been engaged in this war on Islamic terror for over nine years – only Vietnam lasted longer. There still is no end in sight. The enemy is small in numbers, but mobile and can easily hide in the mountainous regions that lie between Afghanistan and Pakistan, terrorizing the villagers who protect them. They have infinite patience, capable of out-waiting an easily distracted and impatient West. The Investigative Project on Terrorism, which is led by Steve Emerson, cogently argues that there are many Islamic terrorists groups besides al-Qaeda and that the threat for destruction continues to remain high. Without a visible uniformed enemy and with the fortunate absence of attacks here at home, maintaining the electorates’ interest in this War has been difficult. Positing the war has been difficult for politicians, wary of offending the Muslim community and fearful of committing money and troops to a cause for which there seems no end and involving an enemy difficult to identify.

The concept of nation-building, the method preferred by the Bush administration (and endorsed by former Prime Minister Tony Blair) drew unflattering parallels to the imperialism of the late 19th and early 20th century America. A major problem has been the inability for leaders to articulate a cohesive strategy to combat terrorism. A second problem is the knowledge that this war will last a long time and will not end on the deck of the USS Missouri with Osama bin Laden handing over his symbolic sword to his captors. Instead, the enemy resembles the mythical creature, the Lernaean Hydra, the sea creature who would grow two heads when one was cut off. Wrestling this enemy is like trying to hold on to jello – it keeps spilling out of one’s hands.

Following the attacks on Pearl Harbor, thousand of young men and women volunteered to fight. The industrial might of the country, which was already provisioning the Allies in Europe, geared up further to combat the evils that were Nazi Germany and Imperial Japan. In the immediate aftermath of 9/11, our country solidified behind the President and the words he spontaneously shouted out from the devastation of what had been the towers when a rescue worker called out: “I can’t hear you.” President Bush responded: “I can hear you! I can hear you! The rest of the world hears you! – and the people who knocked these buildings down will hear all of us soon.” But today it seems as if those words have never been spoken.

Fortunately, through a combination of luck and skill, we, in the U.S., have been free from attack for over nine years. Unfortunately, it has created an attitude of apathy, making prosecuting the war against Islamic Terrorism more difficult. And, it costs money. With healthcare we are erecting a European style entitlement system. Yet, unlike Europe, we remain responsible for the defense of the West; thus limiting our options. Nevertheless, December 7, a day that has lived on in “infamy” should be a reminder that our fortune to be Americans is fragile, that there really are those intent on destroying our civilization and that the lack of attacks over the past nine years does not necessarily portend the same for the next decade.

Monday, December 6, 2010

"Predicting the Market - An Impossible Dream"

Sydney M. Williams

Thought of the Day
“Predicting the Market – An Impossible Dream?”
December 6, 2010

Extispicy is the practice of using anomalies in animal entrails to predict the future. It was used by wandering tribes in ancient Mesopotamia. Like many methods used today by those who toil in Wall Street, it was based on a vague legitimacy. In its essence, it was a form of autopsy, which might reveal internal diseases which could be tied to environmental factors, information that would have been useful to a nomadic people. Similarly, an analysis of the periodic slaughter of both bulls and bears may prove instructional to those charged with predicting markets, or at least so the witches and warlocks of Wall Street would have us believe.

Speaking of witches, Shakespeare used the three witches in Macbeth to tell the future. You might recall that Macbeth felt himself quite safe when the witches forecast: “Macbeth shall never vanquished be until/Great Birnham Wood to High Dunsinane hill/shall come against him.” Little did he suspect that Macduff’s soldiers would use branches from Birnham Wood to camouflage their approach. In another instance, Dr. Kananga (aka Mr. Big), you will recall, relied on Solitaire’s reading of the Tarot cards, in the James Bond film Live and Let Die to know what lay ahead. My wife insists that when one awakes on the first of a new month the first word one utters should be “rabbit,” as that will bring good luck for the next thirty days. Others use numerology, palm reading and interpretations of dreams as means of divination. Sherlock Holmes resorted to his violin, allowing his mind to relax and wander, permitting him to envision the past that he may bring justice in the future.

The tools we use today are somewhat more advanced, but I am skeptical that the conclusions are any more accurate. The question becomes: what good is a weatherman who tells us what was and what is, but cannot tell us what will be? On Wall Street we use the past to forecast the future; nevertheless, the same question can legitimately be asked of strategists and economists.

On Wall Street we get paid to do what no one has ever been able to do with absolute consistency – predict the future. The process is reminiscent of the eternal search for truth – the quest of E. B. White’s mouse, Stuart Little, or the search by Percival (who sat at King Arthur’s Round Table) for the Holy Grail – the chalice from which Jesus allegedly drank at the Last Supper. As you surely remember, the book, Stuart Little, ends with Stuart still in pursuit: “…the way seemed long. But the sky was bright, and he somehow felt he was headed in the right direction.” We all face forward; ergo, we make predictions.

Analysts’ opinions of the future are often driven, not just by rational analysis, but by the psychology of their makeup, the composition of their personalities – are they cynical or credulous, negative or positive? – effects their conclusions. As coldly analytical as they may perceive themselves – they assume that rational analysis, not emotions or preconceptions, lead to their conclusions – it is the humanism of the forecaster that must be considered. In our business, skepticism is generally considered imperative for an analyst. But the ability to be comfortable in one’s forecast requires a high level of self-confidence, a positive view of one’s self.

Despite arguing the case that forecasting the future is a “fool’s game’, we must acknowledge that every decision we make involves a forecast, whether it is to get married, to have children or to buy a stock. We cannot avoid the practice. At times, we may rely on analytical skills; at other times, the decision may be based on instinct. Charles Ellis, the founder of Greenwich Research Associates, in a 1974 article in the “Financial Analysts Journal” entitled The Loser’s Game used tennis as an analogy. The way to win is to limit your losers. Even so, every successful business person must have some of what President George H.W. Bush once referred to disparagingly as that “vision thing” – not just the conception of an idea, but a sense of perception based on intuitive cognition formed from experience. Successful entrepreneurs (builders) are typically optimists. Successful critics (wreckers) are more often pessimists.

Based on what we read and to whom we speak and given our unique personalities, we reach conclusions. “Know thyself,” said Socrates. Those guiding words are critical to anyone making forecasts and, as important, to the recipient of forecasts.

Having lowered the bar for expectations substantially, my predictions include: 1) continuing deleveraging in the West will keep economic growth below recent historical levels, but, despite Friday’s job report, economic conditions will gradually improve; 2) rising commodity prices will ultimately work their way through to increased food and fuel costs, impacting inflation and interest rates; 3) populations in the East – China, India and South East Asia – will gradually become richer, offering opportunities for American technology, services and manufacturers (read the piece on GE in Sunday’s New York Times); 4) after years of in-fighting, a middle way is likely to be found in Washington, following the example of the Deficit Commission and the “shadow commission” led by Alice Rivlin and Pete Domenici; 5) containment of rogue nations – Iran, Syria and North Korea – may be found utilizing cyber technologies rather than air strikes; 6) the best values today seem to lie with equities, especially larger-cap U.S. stocks selling at relatively high earnings yields, rather than with bonds or commodities, and 7) as an unapologetic optimist at heart, I am a believer that over time (ten years) an improved economy will allow deficits to decline and stock prices to move to new highs.

But, I admit that my abilities as soothsayer are no better than that ancient Mennonite who slew a calf, so he could study the contents of its stomach; thus the answer to the question in the title is a resounding “probably.”

Thursday, December 2, 2010

"Sometimes Government Works"

Sydney M. Williams

Thought of the Day (2)
“Sometimes Government Works”
December 2, 2010

The release yesterday by the Federal Reserve of 21,000 “individual credit and other transactions conducted to stabilize markets” in the wake of the credit crisis two years ago is virtually a text book example of the way government works best.

As credit markets froze at the time of the Lehman bankruptcy, banks and businesses were unable to access short term monetary needs. On September 22, Treasury Secretary Henry Paulson announced a $700 billion proposal to create TARP (Troubled Asset Relief Program). The terms and purposes changed as conditions did. Not all the money has been paid back, but enough has to indicate it was a success. On October 3 Congress approved the plan. (Those twelve days between the proposal and the passage of TARP were nerve racking! During those ten trading days the DJIA traded down on seven days for a combined loss of 1866 points and up on three days for a combined gain of 803 points.) During the same time, the Federal Reserve greatly expanded its balance sheet, as the lender of last resort. The VIX reached 89.53 in early October and the TED Spread (today at 15 basis points) peaked at 465 basis points. Fear ruled the day. However, by the end of 2008, the TED spread, while still high, had narrowed considerably to 131 basis points, suggesting credit markets were recovering.

Henry Paulson, working with Fed Chairman Ben Bernanke and New York Fed President Timothy Geithner deserve a great deal of credit – along with President Bush – for maintaining their cool at a time when a meltdown appeared likely.

Documents from the Federal Reserve indicate that Goldman Sachs (despite claims from CEO Lloyd Blankfein that they were doing “God’s work” and that the firm could have survived without help from the Fed) tapped the Fed’s Primary Dealer Credit Facility (PDCF) 84 times and Morgan Stanley 212 times between March 2008 and March 2009. Citigroup used the facility almost daily, tapering off in April 2009. Bank of America, between September 18, 2008 and May 12, 2009 used the facility more than 1000 times. Other lending facilities made available include the Term Asset-Backed Securities Loan Facility (TALF); Commercial Paper Funding Facility (CPFF) – used by industrial companies in need of over-night financing, with GE borrowing $15 billion a dozen times; Term Securities Lending Facility (TSLF) – providing loans up to 28 days, and the Term Auction Facility (TAF) which allowed banks to bid for loans without the stigma associated with the Fed’s discount window.

The total amount lent out by the Fed, in early 2009, reached $3.3 trillion. A number of people have expressed outrage that American tax dollars were used to bail out foreign banks, but what was critical, at the time, was to avoid systemic risk. That they did. Because speed of response was critical, it meant the Fed (and the Treasury) had to operate without full knowledge of all the facts, so loans were made to some that later proved unnecessary. Wall Street firms, in retrospect, took advantage of the system, using some of the money for “riskless” trades and to pay outrageous bonuses. However, the fact is, though we came close to the edge of the abyss, we did not fall. Had Treasury and the Federal Reserve not have been there who knows what might have happened.

The real lesson which we should have learned, but I fear we have not, is that we should never again allow ourselves to be held hostage by banks that have grown so big and so complex that they can endanger the system. Instead, big banks have become even bigger; the history of the last two years tells them that, in distress, government (taxpayers – you and me) will be there. Unfortunately the Dodd-Frank bill appears to further insulate these institutions against capitalism’s most effective governor – the risk of bankruptcy.

Nevertheless, anyone who sat on a desk in any financial firm, anywhere in the world during the fall of 2008 knew how close to total collapse we came. The fact we did not was due to the quick and effective action taken by the Federal Reserve and the Treasury. Yesterday’s press release from the Board of Governors of the Federal Reserve System tells a remarkable story.

It was government at their best.

"A Lame Duck Session That Lives up to its Name"

Sydney M. Williams

Thought of the Day
“A Lame Duck Session That Lives up to its Name”
December 2, 2010

Lame duck sessions are notoriously political, especially when the Party in power loses seats and, in this case, loses control of the House. Blame hangs over Congress like a winter fog in San Francisco. Typically, bills that have been tabled for months assume “critical importance”...as leaders reach the end of their tenure.

The President and Congress who spent a year and a half passing two of the most complex (and longest) bills ever enacted – healthcare and financial reform – now list at least six bills they deem critical for the remaining four weeks of their term – a term that includes the Christmas holiday! Two bills are truly critical – funding the 2011 budget and a bill to prevent taxes going up on January 1, a bill whose delay has exacerbated the sense of uncertainty among individuals and small businesses and has inhibited economic recovery. Besides, it is never a good idea to raise taxes – which doing nothing would do – on anyone when economic growth is anemic as is the current recovery. The other bills can wait for the new Congress, but the President, Harry Reid and Nancy Pelosi beg to differ. They want their last ounce of blood.

The bills include:

1) Funding of the 2011 Federal Budget.
The Federal government operates on a September fiscal year. At this point there has been no formal appropriation for fiscal 2011, which means that for the last two months the government has been funded with interim financing via continuing resolutions. Yesterday, Congress voted to grant appropriations to keep the government in business for two more weeks. How lame can you get?

2) A new tax bill.
Tax increases are coming on January 1st for all tax payers, unless the Bush tax cuts are extended or made permanent. In an action that is purely partisan politics and a waste of valuable time, Congress will vote to extend the Bush cuts for the low and middle income. Republicans and some Democrats will thwart the move and we will be back to square one.

3) The START Treaty.
The START Treaty was signed by the President almost eight months ago, on April 8. All treaties, to become effective, must be ratified by the Senate. However, Senators need to be made comfortable with the Russians interpretation of the Treaty that missile defense would not be impaired. Yet the President went on the air yesterday to push to push this bill again. Why, when taxes and the budget should be the top priority? Why Harry Reid waited so long to bring this bill to the floor is anyone’s guess.

4) Don’t Ask, Don’t Tell.
The “don’t ask, don’t tell” policy dealing with gays in the military emerged as a compromise in 1999. The House in May of this year passed a bill repealing aspects of the law considered offensive to gays. The bill stalled in the Senate. Senator Reid wants to try again. On the other hand, according to yesterday’s Wall Street Journal, 62% of the 115,052 troops surveyed said that repeal would either hurt cohesion or have a mixed effect.

5) Unemployment Extension.
About 800,000 Americans will lose their benefits next week without an extension. On Tuesday the Senate failed to pass a bill that would have extended the benefits for another year. The reason: the cost of $56.4 billion was not offset by any budget cuts. Senator Reid wants to try again.

6) The DREAM Act.
The Development, Relief and Education for Alien Minors Act was first introduced in 2001 and reintroduced on March 26, 2009. The Act would permit those children of illegal immigrants who attend school and college a path to citizenship. Why the Senate leadership waited until the last weeks of this term to bring this humane bill to the floor remains an unanswered question.

In part, the frenzy that characterizes the vanishing Congress is prompted by the thrashing Democrats took on November 2 and their apparent denial of reality. Nancy Pelosi and Harry Reid have a limited window to demonstrate the efficacy of their last-ditch efforts.

While Republican gained 63 seats in the House (and it was the largest increase for any single Party during a midterm election since 1938,) the full force of the Republican wave can be seen in the states’ legislatures. The National Conference of State Legislatures website reads: “The winds of change blew with hurricane force.” The GOP gained 675 seats and now have the most seats they have held since 1928. As my son Sydney, President of Lyceum Associates, wrote in his monthly, Perspectives, the GOP pick-up was “the most in the modern era. The previous record was in the post-Watergate election when Democrats picked up 628 seats.” The election, which had the largest midterm election turnout ever, was, as the NCSL notes, a “stunning repudiation of Democrats…” There are now more Republican state legislators than at any time since the Great Depression. More important for them, they will be in control during the critical remapping of 190 U.S. House districts when the Census data is released in February.

How much better for the President, Harry Reid, the Democrats and the people of America if Congress were to clarify the tax situation, pass a budget appropriation bill and then, if there is time, address the needs of the unemployed who are losing their benefits. The other issues, as important as they are, can wait another month or two. One can make an argument that the stimulus bill was critical and that financial reform was needed, but ramming through a healthcare bill was an example of Congress and the President putting personal policy preferences ahead of the needs and wants of the people, and meant that a number of important issues were shunted aside. They are still stonewalling during this important time. Delaying necessary issues like budgets and taxes to the last minute speaks volumes about the isolation of those who have spent too many years in Congress, and the inability of those members to identify with the wants of the electorate and the needs of the private sector. During the last lame duck session, two years ago, the newly elected President, in a response to Representative Paul Ryan of Republican from Wisconsin, famously said, “We won.” Well, two years later, Republicans won.

Maybe the two Parties will come together in the last four weeks, but November is gone; so far this lame duck session has just been lame.