It's Still The Economy, Stupid

Wednesday, January 21, 2004  

Japan loses $73 billion attempting to strengthen dollar

As this is the business times, the loss is measured in pounds.

However, in trading in Tokyo yesterday it was clear that Japanese exporters were also preventing the massive currency intervention programme from succeeding. As the yen fell to Y107.50, a number of carmakers were understood to be dumping large amounts of their foreign-earned dollars on the market.

Please note that if U.S. interest rates were to suddenly shoot up to 8% and speculators started dumping treasuries and agencies on the market, the Fed would be reduced to doing the same thing, which would only embolden the speculators, knowing that the Fed is buying to protect bond prices. The problem (aka moral hazard) with totally transparent policies to deis that people come to expect you to hold your side of the bargain. In this case, the JCB is trying to protect private sector sales and profits, which fall as the Yen got stronger versus the dollar, as well as protecting the asset prices of any existing dollar denominated instruments owned by Japanese.

The question is how much willingness does the JCB have to protect the dollar? We know they'll probably try until the last Japanese private investor has cashed out their dollars. After that, they are the sole institution that can simply print money to make up what they lose on dollars. If they choose to exchange the new Yen for Euros instead of dollars, watch out. The current environment seems to be that the JCB will buy everything.

The JCB also unexpectedly eased monetary policy today by increasing the maximum amount of reserves they can hold as dollars by a little less than 10%. The initial reaction was a strengthening of the yen to 106.5 to the dollar, but by the end of the day the dollar strengthened to 106.94, virtually unchanged.

I wonder how much money is made each day by speculators leveraging each one of these moves? If you know the JCB is going to intervene, you pile on to any significant strengthening of the Yen to amplify it, then try to sell your Yen before all the other speculators do. I can't imagine how much speculation the JCB is fostering right now, but to be able to los $73 billion in a year, it's easily in the $trillions.

Until the U.S. stops running a trade deficit, raises interest rates, or sees corporate earnings rise to levels where a stock market rally will be justified, the dollar is a one way bet - down. The only way to prevent this is to intervene and the JCB has showed all its cards.

The U.S. stock market is a hostage. Rather than hold U.S. bonds, a Japanese national could buy U.S. stocks or junk bonds and done okay last year. A 20% capital gain would offset the 10% depreciation of the Yen/dollar exchange rate. However, it means that speculators must remained convinced that corporate earnings will improve or the stock market will continue to be heavily inflated against earnings (the current S&P 50 price to earnings ratio is around 28). If there were signs that the economy were to start sliding back towards low or negative growth rates, the market could head south very quickly.

The speculators are now in charge. There's no way to know when the stock and junk bond rally will end, or if it will, but there will be plenty of volatility as all that money slugs it out. The risk is definitely rising exponentially relative to the reward at this point. This kind of environment, speculation, overconfidence and leverage, is fertile ground for financial accidents.

posted by Teddy | 12:04 PM |

Prediction: Edwards will win the Democratic nomination

Putting A and B together to form C.

From Buzzflash's interview with linguist George Lakoff:

Q: You're critical of the Democratic Party, saying they don't have a clue about framing, haven't laid the groundwork, don't understand it even now. And you say right now the Democratic Party is into marketing. They pick a number of issues, like prescription drugs and Social Security, and ask which ones sell best across the spectrum, and they run on those issues. What do you mean by that? Isn't the Republican Party into marketing? They're into brand identity, selling Bush as a brand. They use all sorts of marketing tools in addition to framing. So what's wrong with the Democrats being into marketing?

A: They don't use it right. They don't have a central vision. The Republicans do. The Republicans understand what they're about, and everything they do evokes what they're about. So they know how to talk and think as conservatives. They know how to build a conservative brand. The Democrats don't have a brand. They don't have a vision that they can articulate clearly and say what that vision is. What they have is a long list of programs. You say: Okay, what is your vision? And they'll give you 50 programs. That's not a vision, because the programs change from year to year. They are always going to be adjusted and fixed, and compromised, and so on.

What you want to know is what progressives are about morally – what they stand for. That's the crucial thing. Then you can go to particular Congressional districts and see if there are issues where taking a stand on one of these issues will evoke that vision. But you have to have that progressive vision in the first place. They have a conservative vision, and it's very clear what that is. Their language evokes a conservative vision, and they can talk about that vision. They can talk about the kind of country they want and so on. It's very important that the Democrats learn to talk about the kind of country they want in general, what their moral vision is and how it differs from the conservative moral vision, why they think the conservatives have betrayed American values. Then you can do your marketing on top of that. But you don't just do marketing.
The issues are not the ideas. Democrats and liberals in general don't support their intellectuals, for example. They assume that the issues are about self-interest, and that there can be group self-interest. There are interest groups – ethnic groups and so on. But that's not how people vote. People vote on their morality and their identity. Occasionally they vote on their self-interest when it's important, but mostly they vote for what they believe in and who they are.

From Editor and Publisher, we learn Edwards did just this in Iowa - riding an endorsement by the Des Moines Register.

Richard Doak, the Register's editorial page editor and one of seven editorial board members, agreed that most newspaper endorsements do not have the impact that Edwards got from this one. "I think this endorsement made a lot of Democrats take a second look and they liked what they saw," Doak said.

Edwards benefited from receiving the endorsement at a time when many voters remained undecided and the field of candidates was larger than usual. Those factors forced voters to give the endorsement more attention, especially when it involved a surprise candidate like Edwards, who was not a local product, not a front-runner, and was a newcomer.

"I think the biggest help was letting people look at him in a different way," said Paul Anger, Register Editor. "He grew on us."

"It was a surprise that we picked an underdog -- most would have expected us to pick Dean or another frontrunner," Doak explained, saying the choice was unanimous among the board and included little discussion. "We had written him off as not experienced, but over time, watching him comport himself, we changed our minds."

Doak said Edwards did well in the last debate and ran positive, thoughtful ads. "He seemed to articulate the fundamental Democratic argument best," Doak said. "The need to redirect the resources of government into the service of working Americans."

So based on Lakoff's framing model and Edwards' vision, he should win the nomination. It doesn't hurt that he has a Bill Clinton-esque atmosphere (both are lawyers, Southern, and relatively young). He might not do well in New Hampshire, but all the Super Tuesday states are from his neck of the woods.

posted by Teddy | 8:54 AM |

Tuesday, January 20, 2004  

Martin Luther King

Some inspirational words:

Strangely enough, I would turn to the Almighty, and say, "If you allow me to live just a few years in the second half of the twentieth century, I will be happy." Now that's a strange statement to make, because the world is all messed up. The nation is sick. Trouble is in the land. Confusion all around. That's a strange statement. But I know, somehow, that only when it is dark enough, can you see the stars. And I see God working in this period of the twentieth century in a away that men, in some strange way, are responding — something is happening in our world. The masses of people are rising up. And wherever they are assembled today, whether they are in Johannesburg, South Africa; Nairobi, Kenya; Accra, Ghana; New York City; Atlanta, Georgia; Jackson, Mississippi; or Memphis, Tennessee — the cry is always the same — "We want to be free."

And another reason that I'm happy to live in this period is that we have been forced to a point where we're going to have to grapple with the problems that men have been trying to grapple with through history, but the demand didn't force them to do it. Survival demands that we grapple with them. Men, for years now, have been talking about war and peace. But now, no longer can they just talk about it. It is no longer a choice between violence and nonviolence in this world; it's nonviolence or nonexistence.

On justice and perserverance:

The issue is injustice. The issue is the refusal of Memphis to be fair and honest in its dealings with its public servants, who happen to be sanitation workers. Now, we've got to keep attention on that. That's always the problem with a little violence. You know what happened the other day, and the press dealt only with the window-breaking. I read the articles. They very seldom got around to mentioning the fact that one thousand, three hundred sanitation workers were on strike, and that Memphis is not being fair to them, and that Mayor Loeb is in dire need of a doctor. They didn't get around to that.

Now we're going to march again, and we've got to march again, in order to put the issue where it is supposed to be. And force everybody to see that there are thirteen hundred of God's children here suffering, sometimes going hungry, going through dark and dreary nights wondering how this thing is going to come out. That's the issue. And we've got to say to the nation: we know it's coming out. For when people get caught up with that which is right and they are willing to sacrifice for it, there is no stopping point short of victory.

We aren't going to let any mace stop us. We are masters in our nonviolent movement in disarming police forces; they don't know what to do, I've seen them so often. I remember in Birmingham, Alabama, when we were in that majestic struggle there we would move out of the 16th Street Baptist Church day after day; by the hundreds we would move out. And Bull Connor would tell them to send the dogs forth and they did come; but we just went before the dogs singing, "Ain't gonna let nobody turn me round." Bull Connor next would say, "Turn the fire hoses on." And as I said to you the other night, Bull Connor didn't know history. He knew a kind of physics that somehow didn't relate to the transphysics that we knew about. And that was the fact that there was a certain kind of fire that no water could put out. And we went before the fire hoses; we had known water. If we were Baptist or some other denomination, we had been immersed. If we were Methodist, and some others, we had been sprinkled, but we knew water.

That couldn't stop us. And we just went on before the dogs and we would look at them; and we'd go on before the water hoses and we would look at it, and we'd just go on singing "Over my head I see freedom in the air." And then we would be thrown in the paddy wagons, and sometimes we were stacked in there like sardines in a can. And they would throw us in, and old Bull would say, "Take them off," and they did; and we would just go in the paddy wagon singing, "We Shall Overcome." And every now and then we'd get in the jail, and we'd see the jailers looking through the windows being moved by our prayers, and being moved by our words and our songs. And there was a power there which Bull Connor couldn't adjust to; and so we ended up transforming Bull into a steer, and we won our struggle in Birmingham.

Something close to my own heart:

Now the other thing we'll have to do is this: Always anchor our external direct action with the power of economic withdrawal. Now, we are poor people, individually, we are poor when you compare us with white society in America. We are poor. Never stop and forget that collectively, that means all of us together, collectively we are richer than all the nations in the world, with the exception of nine. Did you ever think about that? After you leave the United States, Soviet Russia, Great Britain, West Germany, France, and I could name the others, the Negro collectively is richer than most nations of the world. We have an annual income of more than thirty billion dollars a year, which is more than all of the exports of the United States, and more than the national budget of Canada. Did you know that? That's power right there, if we know how to pool it.

We don't have to argue with anybody. We don't have to curse and go around acting bad with our words. We don't need any bricks and bottles, we don't need any Molotov cocktails, we just need to go around to these stores, and to these massive industries in our country, and say, "God sent us by here, to say to you that you're not treating his children right. And we've come by here to ask you to make the first item on your agenda fair treatment, where God's children are concerned. Now, if you are not prepared to do that, we do have an agenda that we must follow. And our agenda calls for withdrawing economic support from you."

And so, as a result of this, we are asking you tonight, to go out and tell your neighbors not to buy Coca-Cola in Memphis. Go by and tell them not to buy Sealtest milk. Tell them not to buy—what is the other bread?—Wonder Bread. And what is the other bread company, Jesse? Tell them not to buy Hart's bread. As Jesse Jackson has said, up to now, only the garbage men have been feeling pain; now we must kind of redistribute the pain. We are choosing these companies because they haven't been fair in their hiring policies; and we are choosing them because they can begin the process of saying, they are going to support the needs and the rights of these men who are on strike. And then they can move on downtown and tell Mayor Loeb to do what is right.

But not only that, we've got to strengthen black institutions. I call upon you to take your money out of the banks downtown and deposit your money in Tri-State Bank—we want a "bank-in" movement in Memphis. So go by the savings and loan association. I'm not asking you something we don't do ourselves at SCLC. Judge Hooks and others will tell you that we have an account here in the savings and loan association from the Southern Christian Leadership Conference. We're just telling you to follow what we're doing. Put your money there. You have six or seven black insurance companies in Memphis. Take out your insurance there. We want to have an "insurance-in."

Now these are some practical things we can do. We begin the process of building a greater economic base. And at the same time, we are putting pressure where it really hurts. I ask you to follow through here

Stirring words, though most people only remember this speech for the last bit.

Well, I don't know what will happen now. We've got some difficult days ahead. But it doesn't matter with me now. Because I've been to the mountaintop. And I don't mind. Like anybody, I would like to live a long life. Longevity has its place. But I'm not concerned about that now. I just want to do God's will. And He's allowed me to go up to the mountain. And I've looked over. And I've seen the promised land. I may not get there with you. But I want you to know tonight, that we, as a people, will get to the promised land. And I'm happy, tonight. I'm not worried about anything. I'm not fearing any man. Mine eyes have seen the glory of the coming of the Lord.

posted by Teddy | 10:30 AM |